Will Rural Consumers Roar?
‘Rural FMCG growth overtakes urban after 5 Quarters’ said the headline [Bus Std 8 May 2024]. It is well known that branded FMCG product’s per capita consumption is significantly higher in urban India as compared to rural India. Logically rural demand should grow at a higher pace than urban demand, unless there is wholesale rural distress. There is a cap to how much a consuming household can consume; you cannot possibly have three baths a day or brush your teeth five times a day [Colgate’s latest campaign is still telling us to brush our teeth twice a day, something they used to do three decades ago]. Marketers have been worried that for the last five quarters rural demand was growing at a slower pace than urban demand. Finally, there is light at the end of the tunnel. Rural demand is showing great vibrancy, if one were to assume that the Jan-March 2024 growth is not an aberration.
I was reminded of a conversation I had with Kannan Sitaram, then Director Sales at Hindustan Unilever, many years ago. We were discussing the sluggish sales of Raid Mosquito Mats and Glade Air Purifiers. I was wanting to know if HUL could push these brands into rural India through its famed sales force. Kannan’s explanation was interesting and should have been obvious to me. He explained that all mass marketed brands have some latent rural demand. But it is not easy to tap this demand.
The shops that rural consumers go to in their own village or feeder market are far flung. HUL and all other FMCG marketers have a well-oiled sales machine and they calculate cost per call of a sales representative or TSI [Territory Sales In-charge]. It is often uneconomical to service a small rural market with a handful of stores. The sales you will achieve from placing your brand in those outlets will never be able to compensate for the cost incurred in doing the sales calls.
Companies used to have multiple work-arounds. Some of them used to have rural vans that carried ready stocks and visited key rural markets once every two months. While this was expensive, the idea was that once there is a guaranteed demand, the shopkeeper will pick up his monthly requirements from a nearby town’s wholesaler. These rural vans also served as mobile advertisements playing jingles along the way.
HUL’s Project Shakti, launched in 2001 was an effort to create rural employment for women at the same time create an economical rural distribution channel for HUL brands. It is now reported to employ almost 120,000 women micro entrepreneurs [indbiz.gov.in].
There is also the challenge of lower income levels of rural consumers. Unbranded products and local brands often offer rural consumers greater value for money and their sales does not always get captured in the various retail panel sales estimates. The challenge is to get the rural consumer to upgrade to a big brand. How to do this? FMCG marketers have tried to offer smaller pack sizes to suit the rural wallets. For example, a Rs 10 pack of leading soap brands like Lifebuoy or Santoor is a big hit in rural India. Some brands try to create a lower priced variant specifically tailored for the rural market. Unfortunately unless these cheaper offerings are significant better than unbranded products rural consumers will not be ready to buy them.
There are many changes happening that should help big FMCG brands to reach rural consumers. For one the free DD Dish is very popular in rural India and is taking ad messages to even lower income rural homes. Secondly with better road connectivity, even small villages are today reachable by delivery vans. Thirdly the spread of internet enabled smart phones should further inspire rural consumers to upgrade to better brands.
But there is a challenge still.
Rural consumers are very careful with their money. Marketers who are chasing the ‘Premiumization’ wagon will not find Indian rural market very attractive. And in the last few years FMCG marketers are more and more breathing the ‘Premiumization’ mantra. Yes, the growth of Modern Trade, Ecommerce, Quick Commerce are good for premiumization in urban India. Rural consumers are not going to ‘premiumize’ any time soon. FMCG marketers will have to be ready to offer low margin products to bring on board rural consumers. When commodity prices fall, the big FMCG marketers need to be agile to lower prices quickly [small players are good as this]. FMCG marketers need to explore lower size options and may be different compositions to ensure pricing stays in the affordable range.
Most importantly instead of hoping for better rains or better harvests, FMCG marketers need to invest seriously in growing rural demand. Just as this columnist observed about the sluggish sales of small cars, partly due to inadequate marketing [‘Small (Car) Is Beautiful’ Bus Std 2 May 2024], there is a chance that rural demand that showed a spark in Q1 2024, may not become a fire.