A study reveals that stagnating urban markets, coupled with low penetration levels in semi-urban areas leave little scope for FMCG companies.
The Fast Moving Consumer Goods (FMCG) sector is all set to grow by at least 50% in the next 5-7 years because of rising demand of rural and semi-urban folks on account of their rising per capita income.
In fact, FMCG like toothpaste, shampoos, powders, soaps, beverages, ketchups, jams, etc., have a lot of room to increase their sales in these areas as it currently has a penetration of less than 30% in rural and semi-urban areas.
This has been indicated by an industry study, which projects doubling of the capita income of rural and semi-urban people in the next six years with economic activities continue to grow due to governmentâ€™s focus on infrastructural development across the country.
Currently, per capita income of semi-urban folk is estimated to be around Rs. 14,000 â€“ 15,000 per annum while that of rural folk is estimated at less than Rs.7,000 annually. The reflection of rising per capita income will also lead to a hike in their consumption patterns for FMCG products, said the study which was conducted by industry body Assocham.
Largest Potential Market in the world
Pointing out that around 70% of the total households in India (188million) resides in the rural areas the study noted that the total number of rural households are expected to rise from 135 million in 2001-02 to 153 million in 2009-10.
So, FMCG products are likely to make a major dent in rural and semi-urban segments by 2012 with their demand growing at about 60%. This would carry forward its total market size to around Rs 1.23 lakh crore from the present Rs. 70,000 crore with a projected CAGR (compounded annual growth rate) of 12%.
FMCG cannot ignore this vast market
With its vast size and demand base, the Indian rural market offers a huge opportunity that FMCG companies cannot afford to ignore.
While these nascent markets do present challenges like low disposable incomes, lack of advertising media and tough competition from within the sector, there are overwhelming compulsions for going to the countryside.
Urban pockets, which currently are the biggest market size for all FMCG products, will switch over their consumption patterns in the next five years for organic products on health grounds thus eroding present consumption patterns for FMCG products.
Even otherwise, the current urban demand for FMCG products may become stagnant by 2012 and force the FMCG manufacturers to shift their supplies with assured qualities towards rural and semi â€“ urban areas. The development of infrastructure during this period may facilitate FMCG companies shifting faster into rural areas for marketing of their products.