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Rural Market

Last Updated: August 2009

The Indian growth story is now spreading itself to India's hinterlands. Rural India, home to about
two-thirds of the country’s 1 billion population, is not just witnessing an increase in its income
but also in consumption and production.
The union budget for 2009-10 hiked the allocation for the National Rural Employment
Guarantee Act (NREGA) to US$ 8.03 billion, giving a further boost to the rural economy.
This is in addition to the farmer loan waiver of US$ 13.86 billion and the ambitious Bharat
Nirman Programme with an outlay of US$ 34.84 billion for improving rural infrastructure.
Additionally, the rural economy has not been impacted by the global economic slowdown,
according to a recent study by the Rural Marketing Association of India (RMAI).
The study found that the rural and small town economy which accounts for 60 per cent of India’s
income has remained insulated from the economic slowdown. Moreover, rural incomes are on
the rise driven largely due to continuous growth in agriculture for four consecutive years.
According to a McKinsey survey conducted in 2007, the rural India market would grow almost
four times from its existing size in 2007, which was estimated at US$ 577 billion.
FMCG
Rural consumers spend around 13 per cent of their income, the second highest after food (35 per
cent), on fast moving consumer goods (FMCG), as per a RMAI study.
The FMCG industry in India was worth around US$ 16.03 billion in August 2008 and the rural
market accounted for a robust 57 per cent share of the total FMCG market in India.
The FMCG sector saw rural markets post 20 per cent growth, ahead of the 17-18 per cent growth
from urban India, aided by three years of good monsoon, higher prices of farm produce and
farm-loan waiver.
Most FMCG companies are now working on increasing their distribution in smaller towns and
focussing on marketing and operations programme for semi-urban and rural markets.
For instance, Godrej Consumer Products intends to increase revenue from rural areas from 38
per cent to 55 per cent in the next three years by increasing its distribution network substantially.
The products will reach out to 50,000 villages in the next couple of years from the present
18,000 villages while the number of towns covered will double from 3,300 to almost 6,500 in a
year.
Retail
The rural retail market is currently estimated at US$ 112 billion, or around 40 per cent of the
US$ 280 billion retail market. Major domestic retailers like AV Birla, ITC, Godrej, Reliance and
many others have already set up farm linkages. Hariyali Kisan Bazaars (DCM) and Aadhars
(Pantaloon-Godrej JV), Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance Fresh, Project
Shakti (Hindustan Unilever) and Naya Yug Bazaar are established rural retail hubs.
Pharmaceuticals
According to a report by McKinsey, the rural and tier-II pharma market will account for almost
half of the growth till 2015. The tier-II market will grow to 44 per cent by 2015, amounting to
US$ 8.8 billion.
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This growth will be further augmented with the government increasing the allocation under
National Rural Health Mission (NRHM) by US$ 424.3 million over interim budget estimate
2009-10 of US$ 2.49 billion.
Elder Pharmaceuticals is increasing its focus on the rural market. The company that largely
makes active pharmaceutical ingredients, plans to increase its sales by 8-9 per cent mainly from
rural areas and has allocated US$ 8.26 million to strengthen the sales force for this segment.
Telecommunication
A Gartner forecast revealed that Indian cellular services revenue will grow at a compound annual
growth rate (CAGR) of 18.4 per cent to touch US$ 25.6 billion by 2011, with most of the growth
coming from rural markets. Also, a joint Confederation of Indian Industries (CII) and Ernst &
Young report reveals that of the next 250 million Indian wireless users, approximately 100
million (40 per cent) are likely to be from rural areas, and by 2012, rural users will account for
over 60 per cent of the total telecom subscriber base in India.
In a bid to acquire rural subscribers, most Indian telecom operators have started investing in
infrastructure to roll out their services in these areas. Realising this as a huge potential, small
Indian handset manufacturing companies, including Micromax, Intex Technologies and
Karbonn, have lined up a marketing spent of around US$ 21.02 million for the financial year
2009-10.
Automobiles
For the auto industry, semi-urban and rural markets contribute close to 40 per cent of sales, led
by demand for two-wheelers, entry-level cars and tractors.
Significantly, car sales grew 8.3 per cent in June 2009, aided by rising demand in semi-urban and
rural markets.
Mahindra & Mahindra is bullish on the rural and semi-urban markets, with its utility vehicle,
Scorpio clocking 60-65 per cent sales from the rural markets as against 20 per cent earlier. TVS
Motor also registered around 50 per cent of its sales from the rural and semi-urban markets.
Consumer durables
A survey carried out by RMAI has revealed that 59 per cent of durables sales come from rural
markets.
Presently, around 50 per cent of sales in the US$ 5.14 billion consumer electronics industry
come from the urban markets, 30 per cent from tier-II and -III towns and balance 20 per cent
from rural India.
Many leading consumer durable companies are now increasing their presence in rural India.
Recently, LG has set up 45 area offices and 59 rural and remote-area offices. Moreover, it has
outlined plans to invest around US$ 40 million towards development of entry-level products
targeted at rural markets.
Samsung has also rolled out its 'Dream Home' road show which was to visit 48 small towns in
100 days in an effort to increase brand awareness of its products. Samsung expects that its rural
revenues would increase to US$ 287.7 million in 2009 from US$ 164.4 million last year. The
company also plans to expand its sales channel by 25-30 per cent in rural India.
Whirlpool, is eyeing rural markets in India for its next phase of growth. The company is set to
tap markets with a population between 100,000 and 500,000 in the first phase, and in the next
phase, will look at expanding the base in villages with a population of 50,000.
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Road ahead
The development of rural infrastructure is an important priority for the government and out of
the total projected investment of US$ 283.83 billion to be incurred by the centre and the states in
the Eleventh Plan, US$ 80.82 billion would be spent entirely towards improvement of rural
infrastructure.
According to international consultancy firm Celent, rural markets in India will grow to a
potential of US$ 1.9 billion by 2015 from the current US$ 487 million. Rural markets are
growing at double the pace of urban markets and for many product categories, rural markets
account for well over 60 per cent of the national demand.
Exchange rate used:
1 USD = 48.04 INR (as on June 2009)
1 USD = 48.66 INR (as on July 2009)

Key FMCG sectors witness higher rural growth

during April-September: AC Nielsen The Economic Times: November 19, 2009

New Delhi: Poor monsoon rains this year may have taken a toll on summer crop and driven up
food prices to scary highs, but it hasn’t impacted rural India’s bubbling craze for shampoos,
toothpastes and hair-oils.
Demand for these personal care products grew faster in rural areas than urban areas during April-
September, a period that includes the peak monsoon months, as per the latest numbers released
by market researcher AC Nielsen.
The numbers have cheered up consumer product companies busy expanding their reach in the
countryside. Companies closely watch rural demand trends in monsoon months so they could
tweak their strategies accordingly. Now, they can go ahead full steam.
“We are confident about the buoyancy and resilience of the rural economy, more so with
expectations of a bumper rabi crop,” said Sunil Duggal, CEO of Dabur.
The Rs 2,800-crore Delhi-based company, which draws about 50 per cent of its sales from rural
and semi-urban markets, posted its highest growth in 18 quarters in the July-September quarter.
Initiatives like low unit packs of Chyawanprash and Dabur Amla, and new products like Amla
FlowerMagic hair oil have accelerated this growth, said Mr Duggal.
CK Ranganathan, chairman and MD of CavinKare, which makes Nyle and Chik shampoos and
Fairver fairness cream, thanked government initiatives such as rural job guarantee scheme and
farm loan waiver for the jump in rural demand in spite of poor rains.
“Recent trends show that whenever there is weak monsoon, rural consumers tend to postpone
purchase of televisions and fridges. Consumption of daily use items remains intact,” he said.
Nyle and Chik shampoos in Re 1 packs are among the Chennai-based company’s strongest
volume drivers.
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Buoyed by a surge in demand in urban markets, particularly for premium products, most
companies have adopted a dual strategy of sharpening focus on the bottom-of-the-pyramid
market and tapping fresh opportunities in urban cities.
Dabur, for example, has developed Rs 10 packs for Babool and Odonil, and Re 1 sachets of
Amla hair-oil and Hajmola for rural consumers. At the same time, it has rolled out premium
skin-care range Uveda and Real Burrst juices in anticipation of revival of demand from urban
markets.
Hindustan Unilever is highlighting Rs 10-price points of Lux soap and Pepsodent toothpaste in
its advertising, and at the same time pushing high-margin products like Dove soaps and
shampoo.
Godrej Consumer Products is selling its No 1 soap, Expert hair colour and Nupur henna at the Rs
5 and Rs 10 price points. It is also strengthening its distribution by tapping channels like barbers
and salons.
According to a report by National Council for Applied Economic Research (NCAER), the
contribution to the country’s economic growth by non-farm income will be two-thirds in the next
two-three years compared to 48 per cent currently. With rural consumers having disposable
income through the year, the demand for products will only rise in the hinterland, in the rains and
in sunshine.

RCom goes rural for Net penetration The Hindu Business Line: August 25, 2009

Mumbai: Reliance Communications has announced a host of measures to increase mobile

telecom and Internet penetration in rural India.
The Anil Ambani-controlled company has launched new initiatives in its Internet service plan:
BharatNet, Grameen (a new value-added service on mobiles) and M2M (machine to machine)
solutions for rural customers.
BharatNet plan is RCom’s high-speed wireless Internet service that will cover 20,000 rural
locations. It will be designed for rural and sub-urban markets offering speeds of approximately
153 kbps. This tariff will be available across rural India, excluding the metros and top 100 cities,
according to a company press release.
RCom is offering BharatNet Internet access for Rs 98 a week with downloads up to 350 MB.
Grameen VAS will cover several specialised services on the mobile phone such as Mandi Bhav
(market price), agriculture and animal husbandry updates, weather forecast, local information,
and news in multiple Indian languages. Grameen VAS is priced at Rs 15 a month.
The M2M solutions include mobile applications that aid automation, surveillance, remote
monitoring and data gathering. “The investments we plan to make are extensions of our network
capabilities and will not be very high,” Mr Mahesh Prasad, President - MDCS, RCom, said at a
press meet here. He did not, however, elaborate on the investments planned for these initiatives.
Kolkata/Berhampur: To provide wireless broad-band connections in rural areas, Bharat
Sanchar Nigam Limited (BSNL) has decided to set up six Wi-Max (wireless broadband)
stations in its Berhampur telecom district (BTD). The Berhampur telecom district covers the
Ganjam and Gajapati districts in south Orissa. The Wi-Max stations would be set up at Mohana
and Kasinagar in Gajapati district as well as Digapahandi,Buguda, Jagannath Prasad and
Polasara in Ganjam district.
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“The equipment has already been provided for installation of the Wi-Max stations and the
stations are expected to be operational during the current year”, said BK Nayak, general manager
of BSNL’s Berhampur telecom district.
While as many as 3176 broadband connections have been provided in the Berhampur telecom
district so far 7,500 more connections are to be provided during 2009-10.
The telecom district has also planned to introduce EVDO (evolution data only) System or
wireless data cards in Berhampur, Chhatrapur and Paralakhemundi, the district headquarter town
of Gajapati district during the current year.
The EVDO service has already been commenced at Golanthara in Ganjam district in March this
year. This service was introduced in Golanthara on the outskirts of Berhampur as a number of
technical institutes are located there and the service was needed for the benefit of the students,
said Nayak.
He said that BSNL would provide 80,000 new mobile connections in the Berhampur telecom
circle in 2009-10.

Confidence Continues To Built In Rural Market View Article 15 Dec 2009

Confidence continues to return to the rural property market, says REINZ
President Peter McDonald commenting on the rural sales figures released
today by the Real Estate Institute of New Zealand (REINZ).

“WAIT AND SEE” FOR RURAL MARKET

The Fonterra payout announcement was great news for farmers, but whether or not it will have a flow on
effect in rural real estate sales and land values depends on banks’ lending policies, says REINZ President
Peter McDonald commenting on rural figures released today by the Real Estate Institute of New Zealand
(REINZ).
“The new payout is extremely welcome news,” Mr McDonald says, “and it will change a lot of people’s
budgets, encouraging greater confidence, but to date banks have been reluctant to show their hand and
as a result, a lot fewer farms have been sold this year than you would usually expect at this time of the
year.”
The latest REINZ Rural Market Report shows the total number of farms sold in the three months to
October 2009 was 205 compared with 390 in the three months to October 2008 and 582 in the three
months to October 2007. There was, however, an increase over the 178 reported sales in the three month
period to September 2009.

Rural market attractive for manufacturers: Assocham

Our Bureau
New Delhi, April 11 The rural market is becoming increasingly attractive for manufacturers of
consumer products and automobiles, as well as organised retail businesses, according to a report
by the Associated Chambers of Commerce and Industry of India.
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In the report titled ‘The Rise of Rural India’, Assocham said companies in the fast moving
consumer goods (FMCG) sector have recorded higher growth in rural market, which has
contributed substantially to their bottomlines.
“Majority of FMCG firms such as DCM, ITC have been recording higher growth rate and sales
of their product in rural areas as compared to urban markets,” the report said.
Growth witnessed
India’s FMCG industry is currently estimated at Rs 2 lakh crore. Of this, domestic consumption
accounts for Rs 17,189 crore.
“FMCG sector in rural areas is expected to grow by 40 per cent as against 25 per cent in urban
areas. Rising rural incomes, healthy agriculture growth, boost in demand, rising consumerism
across India, better penetration of FMCG products in the rural market are contributing to high
growth and rapid expansion of the FMCG industry in rural India,” said Mr Sajjan Jindal,
President, Assocham.
Traditionally, for the auto industry, the rural market has been largely restricted to tractors and
two-wheelers, though the penetration of scooters and motorcycles in villages is only 10 per cent,
as compared to 25 per cent in urban areas.
The reasons for low penetration in the countryside: the high investment involved, poor
conditions of rural roads, lack of finance facility and the shortage of service network.
Tapping the countryside
However, the report said, auto firms have begun tapping the countryside. For instance, Maruti
Suzuki generates 10 per cent of its sales from rural sales, amounting to 32,000 cars.
The report said the growing liquidity in rural areas was on account of subsidies to farmers and
increase in output of agri-products.
Another potential area, Assocham said, was the rural retail market — currently estimated at $112
billion, or around 40 per cent of the $280-billion retail market.