Why the Rural Market Plays a Key Role towards the Growth of the FMCG Sector

Authored by Manish Aggarwal, Director, Bikano, Bikanervala Foods

The Indian economy has a diverse range of sectors, with FMCG being the fourth largest. The revenue generated by this sector is largely contributed by the urban population, accounting for around 55%. However, recent trends suggest that rural markets are rapidly growing due to increasing internet penetration, awareness, income, and changing lifestyles. In fact, researcher Nielsen estimates that rural markets account for 39% of the total sales in the fast-moving consumer goods industry, indicating immense potential for growth.

In light of this, companies are now focusing their attention on rural marketing to tap into the unlimited opportunities available. The urban market is saturated, and companies need to expand their reach to rural consumers for volume-based growth. With the increasing penetration of rural markets in India, a parallel rural marketing strategy is becoming the latest marketing mantra for most FMCG companies. They are no longer treating the rural market as a clearance ground for their lower-end products but are realising the need to focus on the unique requirements of rural customers. 

What is Propelling the Demand in the Rural Market?

The conviction of FMCG enterprises in the potential of the rural markets is justified by the fact that these markets offer more opportunities for growth. Rural areas have provided FMCG companies with a wider customer base, which could translate to increased purchasing power. Several factors contribute to the demand for FMCG products in the rural market:

Technological development

As of late, rural areas have witnessed remarkable advancements in technology. This access to technology has enabled companies to create more tailored products that cater to the needs of the rural populace. By utilising the internet, companies have launched e-commerce platforms that enable them to reach out to a wider audience.

Furthermore, these factories have immense potential for innovation as they provide opportunities for research and development, which can lead to improved production and sales. The incorporation of cutting-edge technologies such as robotics and 3D printers in these factories can boost productivity in the long run.

Increase in salaries

To enhance their chances of growth, numerous FMCG corporations have established manufacturing bases and factories in remote regions, referred to as Udyog Vidyalas (Centers of Learning). Udyog Vidyalas mainly target unskilled and semi-skilled labourers, including rural artisans, farmers, and workers. It is a huge financial boost as they earn higher salaries than what they would be using their expertise.

Additionally, the boost in the agricultural sector is contributing to the rise in income levels of rural areas. In the last fifteen years, good monsoons have led to an incredible agrarian output. This has helped farmers and other agricultural workers earn well.

Government Efforts

The government's efforts to develop rural areas create an ideal environment for FMCG companies to thrive. With the government's support, these companies can take advantage of the growth potential in these regions by building new factories, launching innovative policies, spending on key initiatives such as MGNREGA, stabilising GST implementation, and creating new markets and products. The government's initiatives enable FMCG companies to tap into new consumer markets and maximise their growth potential.

Challenges for FMCG Companies in Rural Areas

Reaching rural markets and consumers presents unique challenges for marketers. While the potential for growth in these markets is significant, there are several obstacles to be overcome. One of the biggest challenges is the lack of reliable transportation, which makes it difficult for marketers to reach rural markets. Storage is another issue, as there are often no facilities for public or private warehousing in these areas. Additionally, packaging costs can be a concern, and marketers may need to consider using cheaper materials for packaging in rural markets.

Media also presents challenges in rural areas, as does the seasonal nature of demand, which is closely tied to income and consumer behaviour. Per capita income is generally lower in rural areas, and the distribution of income is highly skewed due to the skewed land-holding pattern. Low literacy rates in rural areas also make communication and promotion more difficult for marketers. Distribution costs and the lack of retail outlets are also significant challenges.

To succeed in rural markets, FMCG companies must carefully analyse the unique consumption patterns, tastes, and needs of rural consumers at the product arrangement stage. They must also take into account the social dynamics and variations within each village while maintaining a consistent approach nationally. While there are certainly challenges to be faced in rural marketing, the potential rewards make it a worthy pursuit for FMCG companies looking to expand their reach and increase their sales.

Way Forward

The demand for branded products in rural India is constantly increasing, leading to a surge in rural consumption. This has paved the way for modern retail growth and the rural FMCG market is projected to reach a staggering US$ 220 billion by 2025. The potential market size, combined with the evolving consumption patterns make rural India an attractive and profitable opportunity that no FMCG company can afford to ignore.

It is imperative for companies, especially in the FMCG sector, to acknowledge the importance of rural markets and develop innovative strategies to establish trust and capture the attention of potential customers. As the heart of India lies in its villages, neglecting the rural population is not an option for companies seeking success in the country's business landscape.

 DISCLAIMER: The views expressed are solely of the author and Adgully.com does not necessarily subscribe to it.