FMCG into rural markets – logistic problem


Fast moving consumer goods (FMCG) are moving, well, fast. Only thing is that the growth this time is stemming from rural India as each sector of the economy is eyeing big volume business from the 750 million Indians residing in villages.

In fact, the FMCG industry is expecting more than 50 percent of its growth till the year 2012 to come from rural and semi-urban segments.

But an industrial study also warns that delivering fast moving consumer goods to 6,27 lakh villages spread over 3.2 million sq km will be a big challenge.

According to an Assocham study, the FMCG sector is projected to grow at a compound annual growth rate (CAGR) of 10 percent which will carry forward its market size to over $275 billion in the next six years from the present $150 billion.

The industry chamber also noted that he growing and insatiable appetite of rural and semi-urban folks for FMCG products will mainly be responsible for this development, with their manufacturers deepening their concentration for higher sales volumes in such areas.

Urban India to Switch to Organic Products:

The urban population on its part, will develop a larger craze for organic FMCG products from the health point of view and, as there will not be a large number of such products to make money from the FMCG industry will definitely have to look at the rural and semi-urban areas for expanding markets.

Notably, in the rural and semi-urban areas, FMCG market penetration at present is only about 2 percent. With 130 million households, the rural population is nearly three times larger than urban India.

The domestic rural market, with its vast size and demand base, offers a huge opportunity to FMCG companies. It further pointed out that major players like Dabur, ITC, HLL, Godrej, Britannia, Pepsi and Coca-Cola have forayed into the hinterland.

When contacted, a Dabur spokesperson told Mumbai Mirror that the home-grown FMCG firm was already registering 50 percent growth from the rural market and penetrating further. The rising rural and semi-urban income levels, coupled with massive advertisement, will spread awareness of FMCG products.

Logistics, Infrastructure may get in the way:

Assocham warned that the alluring rural market is not without its problems. India’s 6,27,000 villages are spread over 3.2 million square km and about 750 million Indians live in rural areas, the study observed, adding that finding and delivering them FMCG products will be a tough task.

The poor state of infrastructure in villages makes things worse. Affordability of the product or service to rural consumer is also a big problem. With low disposable incomes, products need to be affordable for the rural consumer. Better infrastructure facilities will help the FMCG sector tap the rural and semi-urban market.