Rural market: fast track for FMCG

According to the latest report by AC Nielsen FMCG sales grew by 16.2 per cent YoY over April-May 2009, registering a lower growth in comparison to 19 per cent YoY growth in the FY 2009. However, the interesting data comes from the FICCI report that projects a voluminous growth of 20-30 per cent in 2009-2010, higher than the last fiscal year by 10-20 per cent, and the reasons are launching of new products in the markets that aims to capture more customers and the rising rural consumption.

With passing time rural market is emerging as the current focus for FMCG manufacturers and retailers for it’s being the promising turf to develop business. Rural India constitutes more than 40 per cent consumption of FMCG items and FMCG companies are experiencing 40 per cent growth in rural sales eclipsing 25 per cent sales in urban areas. The future holds the immense potential on account of low penetration so far the FMCG companies have made.

Government initiatives

Some boost-up factors are slashed prices resulting from lower inflation and cutting down of excise duty to 8 per cent from 14 per cent, and tax incentives that have been announced to cold chain warehousing facilities.

This year budget has taken some measures to enhance rural consumption. This includes emphasis on agriculture growth, direct subsidy to farmers and extension of debt waiver for 6 months; processing of Goods and Services Tax (GST) which will come in effect from 1st April, 2010; increasing rural Employment Guarantee Scheme (NREGS) by 144 per cent; and maintaining 4 per cent duty on biscuits, sharbats, cakes and pastries.

Initiatives from FMCG retailers and manufacturers

DCM Shriram Consolidated Ltd. promoted Hariyali Kisaan Bazaar is a rural business centre that retail FMCGs besides agri-inputs, fertilizers, seeds and farming tools. ITC echoupal has successfully set up its retail network in the rural markets selling the brand like Superia soaps and shampoo sachets especially designed to capture these areas. Godrej Aadhaar is one such initiative from Godrej Agrovet Ltd, a joint venture with Future Ventures that holds 70 per cent stake in the company. Like retailers FMCG manufacturers are too introducing innovative ideas that rural people can easily connect to. The character Sangeeta Bhabhi conceived by Procter & Gamble India has the purpose of giving thrust to its two leading brands Tide and Head & Shoulders in the rural market with the tag line “kamyab jodi”. Much thought has been given prior to the launching of this project which has proved to be successful. The initiative entails Sangeeta Bhabhi, an educated housewife, advocating the benefits of these two brands. The aim is to increase the sales of SKU pack size as well as sachets of these two brands. The initiative is somewhat in the line of “Project Shakti” launched by Hindustan Unilever Ltd (HUL) exclusively for the rural market. This two-pronged project includes “Shakti Entrepreneur programme” and “Shakti Vani programme”. Shakti entrepreneurs encourage rural women to become direct-to-home distributors in rural markets providing them with micro-credits. HUL also takes the initiatives to train them, nurturing them to grow as a competent and confident entrepreneur. Shakti Vani programme works as a complement to this programme instilling into rural populace the concept of staying healthy and leading a hygienic life, thereby creating a demand for FMCG items. The Shakti entrepreneur programme creates livelihood opportunities for underprivileged rural women. It has already improved the lives of over 45,000 families of Shakti entrepreneurs, Vanis and iShakti kiosk entrepreneurs.

 The official from Godrej Aadhaar reveals that to tap the rural market the company is directly coming in touch with farmers through their Field Service Associates, and at the store level Customer Service Associates are extending their support to the rural consumers. The official admits that 18-20 per cent of sales at Godrej Aadhaar outlet accounts for FMCG categories. Mr V Suresh, Vice President (Marketing), Godrej Consumer Products Limited (GCPL), confirms that GCPL is taking initiatives along three dimensions: firstly, the company conducts brand awareness programme through local media including cable TV, Doordarshan and activation such as van selling; secondly, making products affordable - this is by launching brands in price points that are wallet friendly for the rural consumers, eg, soaps at Rs 5, hair colours at Rs 10 and mehandi at Rs 5; and lastly increasing accessibility - this is enabling the rural consumers to get  products closer to their homes - to this GCPL is increasing its distribution intensity (coverage) in rural areas.

Promotion with difference

There are no such hard and fast rules for promoting brands in the rural market but the emphasis is always on the local marketing through the tools like auto-miking and distributing leaflets. These activities differ from store to store and catchment to catchment. “In a locality which is riddled with 10 to 12 hours power cut, words-of -mouth is the primary means to promote your store. Relationship is the key”, comments an official of Godrej Aadhaar who prefers to remain anonymous. In addition to these puppet shows and wall painting are the popular means to lure the customers in rural areas, reveals Mr Suresh. Any promotional activity primarily rests upon buying capabilities and preferences of the customers.

Merchandise assortment

The ticket size of any product should match with the value it carries since rural consumers do not show the tendency to splurge on, yet a wealthy rural person will never mind to buy 5 kg pack of Surf Excel given the brand is trustworthy. Merchandising is done accordingly where regional brands get more shelf space than national brands. A typical Godrej Aadhaar outlet with retail space ranging from 2500 to 10,000 sq ft houses some regional popular brands such as “Chokhra” detergent in Punjab, and “Raj” and “Paanch Bhai” soaps in Haryana.

Packaging to match

The strategy is being pocket-friendly. As Mr Suresh explains, “We focus on certain SKUs (packs) that are wallet friendly for the rural consumer - such as the small soap which are not more than 50 gm registers 22 per cent sales in rural markets, while it is only about 10 per cent in urban markets - indicating the rural consumer preference for this pack.” GCPL is promoting Godrej No 1, Godrej Expert and Cinthol brands as well as expanding their portfolio of popular priced SKUs (stock keeping units) and small-pack offerings in order to target a larger consumer base in the rural markets.

Distribution Network

Most of the retail outlets in the rural areas have centralized distribution network. In the distribution chain local people has considerable participation like one promoted by HUL direct-to-home distribution by the rural women. Generally a company sells stocks to a network of big distributors called “super stockists”. These distributors have a further network of distributors called “sub stockists” who are located in the villages/small towns - who distribute the product to the retail stores in their village/small town. These stockists get adequate supports from the FMCG companies for distribution or sales in the form of promotions and activations, as required.

With more and more attention from the FMCG segment, rural markets in India are ready to permanently position themselves in the companies’ business strategy.