Scope of FMCG Sector in Rural India.docx

SCOPE OF FMCG SECTOR IN INDIAN RURAL MARKET DISSERTATION -FINAL REPORT

GUNJAN GUPTA ROLL NO. 68 PGDM 2012-14 JRE SCHOOL OF MANAGEMENT MARCH 2014

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ACKNOWLEDGEMENT I take this opportunity to express my profound gratitude and deep regards to my Dissertation Supervisor, Professor Professor Sushil Pasricha for his exemplary guidance, monitoring and constant encouragement throughout the course of this report. The blessing, help and guidance guid ance given by him time to time shall sh all carry me a long way in the journey of life on which I am about to embark. I also take this opportunity to express a deep sense of gratitude to JRE School of Management for giving me this opportunity to work on my dream project. I am obliged to staff members of JRE School of Management, for the valuable information provided by them in their respective respectiv e fields. I am grateful for their thei r cooperation during the th e period of my project. Lastly, I would like to appreciate the guidance given by other supervisors as well as the panels especially in my m y project presentation that th at has improved my presentation presenta tion skills by by their comment and tips.

Gunjan Gupta















DECLARATION

I, Gunjan Gupta, of JRE School of Management, Greater Noida, of PGDM 2012-14 [IInd Year] hereby declare that I have completed my dissertation, titled “Scope “Scope of FMCG sector in the Indian Rural Market”. Market”. The information submitted herein is true and original to the best of my knowledge.

Date: March 14th, 2014 Place: Greater Noida

Gunjan Gupta















TABLE OF CONTENTS

1 Executive Summary

4

2 Introduction

5

2.1 Introduction to Rural India

5

2.2 Introduction to FMCG

5

3 Literature Review

9

3.1 Evolution of Rural Marketing

9

3.2 Rural Marketing Mix

10

3.3 Urge to go Rural

11

3.4 Market size of FMCG

15

3.5 Rural and FMCG

17

3.6 Rural Initiatives

17

4 Objectives

23

Methodology 5 Research Methodology

23

6 Findings and Conclusions

24

6.1 Emerging Trends

24

6.2 Key Findings

27

7 Issues and Challenges

28

8 Way Ahead

33

9 References

35















1. EXECUTIVE SUMMARY

The fast-moving consumer goods (FMCG) sector is an important contributor to India‟s GDP GDP and it is the fourth largest sector of the Indian economy. Globally, the FMCG sector has been successful in selling products to the lower and middle income groups, and the same is true in India. Over 70% of sales are made to middle class households today and over 50% is in rural India. The sector is excited about a burgeoning rural population whose incomes are rising and which is willing to spend on goods designed to improve lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of FMCGs are driven to chalk out bold new strategies for targeting the rural consumer in a big way. FMCG Industry in India is witnessing a change – change – a a change in the pattern in which it is growing – growing – needless needless to say, with the changing demographics, the pattern of marketing would also change. As rural penetration increases, the rural markets would command more and more share of the overall FMCG space. Though the urban markets are growing too, the incremental addition in consumers / households is much more in rural space as compared to urban markets. Rural marketing has become the latest marketing mantra of most FMCG majors. The rural India is vast with unlimited opportunities, waiting to be tapped by FMCG‟s. Hence Hence the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Therefor a comparative study is made on growth, opportunity and challenges of FMCG‟s in rural market. This paper will provide detailed information about the growth of FMCG industry in rural market of India and examining the challenges, opportunities for the FMCG‟s in rural market with growing awareness and brand consciousness among people across different socio-economic classes in rural area of India and how the rural markets are witnessing significant growth.















2. INTRODUCTION

2.1 Introduction to Rural India

Definition of Rural: The Census of India defines any habitation with a population density densit y of less than 400 per sq. km, where at least 75 per cent of the male working population is engaged in agriculture and where no municipality or board, as a rural habitation exists.

Thus, the rural population consists of 800 million inhabitants, accounting for 70 percent of India‟s population. While defining a market as rural, the following facts and figures should be considered:



As per the 2001 Census India has more than 20,000 villages whose population ranges from fro m 5,000-10,000. So any population popu lation cut-off criteria should definitely include villages as rural areas. The majority of rural institutions, agricultural markets and rural banks are located in larger villages and towns, which have a population of up to 10,000. As the population crosses crosse s this figure, characteristics characterist ics such as occupation, consumption and buying behaviours show a marked change, indicative of the transition from rural to an urban/ semi-urban set-up.



Many villages, although now notified as towns due to their economic growth over the last three or four decades, continue to retain their rural character.



Leaving aside HUL and ITC, most companies in the FMCG sector define a rural set-up as any place with a population of up to 20,000. Similarly, durables and agri- input companies set this limit at 50,000.

2.2 Introduction to FMCG:

















and the unorganized sector. FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home-made product. According to IBEF (Indian Brand Equity Foundation) Report, the fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy. The market size of FMCG in India is expected to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018. It has a strong MNC presence and is characterised characte rised by a well-established well-establish ed distribution network, intense competition between the organised and unorganised segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. Penetration level as well as per capita consumption in most product categories like lik e jams, toothpaste, skin care, hair h air wash etc. in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class cl ass and the rural segments, segment s, presents an opportunity opportunit y to makers of branded products to convert consumers to branded products. IBEF March 2013 report suggests that

Market Break-up by Revenues 2% 5% 4% 4%

















Report also suggests that

Urban-Rural Revenue Break-up

Rural 34%

Urban 66%

Urban

Rural

Source: IBEF March 2013 Report

The urban segment is the largest contributor to the sector, accounting for twothirds revenue. The sector is excited about a mushrooming rural population whose income is rising and who are willing to spend on goods designed to improve their lifestyle. Also with a near saturation and cut throat competition in urban India, many producers of FMCGs are driven to chalk out bold new strategies for targeting the rural consumers in a big way. But the rural

















country. Marketers use this network to access nearly 5,100 cities and towns and over half a million villages.

















3. LITERATURE REVIEW:

Over the past few years, the rural markets have emerged as one of the most lucrative markets for Indian companies. In the recent past, many organizations have forayed into rural areas and this has proved fruitful and beneficial for them. The Indian rural markets provide abundant opportunities for organizations to enter and operate profitably. The large population base of rural India enables the companies to earn a reasonable amount of revenue. According to a white paper prepared by CII-Technopak, CII-Technop ak, the rural market grew at an impressive impr essive 25% in the year 2008 and by the year 2010-11 has grown to approximately 720-790 million customers with a size of US$425 bn. Rural India has emerged as a large market for numerous goods and services such as financial services, FMCG, healthcare and telecommunications. In today's competitive scenario, the rural markets are as vital as the urban markets for marketers.

3.1 Evolution of Rural Marketing: Marketing:

Post Indepence large pop 0to feed 7 9Priority to increase food

Food Sustenance through 0GREEN REVOLUTION 8 9State architect of food

Small but steady growth in 5economy 9 9Surplus continues,

Economic Growth gains 5fmomentum 0 0Further surplus ,

















3.2 Rural Marketing Mix:

a) Affordability:

It is a fact that per capita rural incomes are still only half of urban incomes, and all products and services designed for rural markets must keep affordability in mind. However, it is important to realize that creating an affordable product or service is not the same as creating a low-cost-quality version of an urban product or service. It is vital to design a product or service that caters to the needs of the rural consumes in their unique environment and provides vale as perceived by them. Rural consumers‟ consumers‟ are driven by the value proposition, and not just by cost. Affordability here simply means that it should be within their purchasing capacity. capacit y.

b) Availability:

Availability remains the single largest challenge for marketers. India‟s 638,000 villages are spread over 3.2 million sq. km. If the product or service is not available in a market, it cannot be purchased. A simple enough concept, but the vastness of the country makes reaching the last mile a Herculean task.

c) Awareness:

Low levels of literacy remain a stumbling block for any communications



















d) Acceptability:

Acceptability of a product or service vis-à-vis rural consumers is critical. As mentioned earlier, a product or service developed and designed for urban consumers may not necessarily be successful in rural markets. The rural environments must be borne in mind, in terms of their living conditions and how they would perceive and use the product or service. A productive asset, one that adds to earning rather than a mere consumption product, would have greater acceptability in a typical rural household. Products that show greater versatility and adaptability to rural conditions have an advantage over others.

3.3 Urge to go Rural:

a) Large Population:

















b) Increase in Income and Purchase Power:

Source: McKinsey Global Institute and MART Knowledge Centre

The Pyramid in next 10 years will take the shape of the Diamond. The per capita income will increase and more people will start earning 1-5 USD and

















that if the content has direct relevance and will result in commercial gains, people in rural areas are willing to pay for information services. Consumerism has altered rural buying behaviour in recent years. Spending patterns of those who spend sp end are now adapting to face the th e technology bug. Today's rural children and youth will grow up in an environment where they have 'information access to education opportunities, exam results, career counselling, job opportunities, government schemes and services, health and legal advice and services, worldwide news and information, land records, mandi prices, weather forecasts, bank loans, livelihood options. If television could change the language of brand communication in rural India, affordable Web connectivity through various types of communication hubs will surely impact the currency of information exchange. As the electronic ethos and IT culture moves into rural India, the possibilities of change are becoming visible.

e) Impact of Globalization:

The impact of globalization will be felt in rural India as much as in urban.

















f) Consumer Behaviour Changes:

Increased literacy and greater awareness in rural markets create new demands and discriminating buyers. This is observed more in the younger generation. In villages today, this segment of buyers consumes a large variety of products, both durables and non-durables. There is a visible increase in the consumption and use of a variety of products, which is easily observed

Demographic s

Goverment School Self-employed Joint/ individualized family Small/ scattered population Ordinary/ spacious homes

• • • • •

Agriculture being replaced by non- tradional occupations like shop/trade skilled work salaried jobs physical sports gossip

•

•

Activities

• • •

















3.4 Market Size of FMCG Sector:

According to IBEF Report August 2013, The FMCG sector in India generated revenues worth USD36.8 billion in 2012, a 5.7 per cent rise compared to the previous year.



















self- employment services, construction, etc. The rural population is empowered with rising income, improving education and awareness levels, enhanced contact with outside world, evolving consumption patterns, emerging lifestyles.

The shift in rural income may not necessarily be happening due to rising food production, though it has a role to play, but the biggest challenge in the rural India in the last few years have been the reducing dependence on farm income. The contribution of the non-farm income to the total rural income has increased. Thanks to infrastructure development happening in the villages and guaranteed employment program (Mahatma Gandhi National

















3.5 FMCG and Rural India

Product Penetration (in per cent) Edible Oil 96 Washing powders/liquids

90

Tea 89 Washing cakes/bars 85 Biscuits 76 Hair Oil 70 Toothbrush 56 Toothpaste 51

















income-generating opportunities. This is a case where the social goals are helping achieve business goals. The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of HUL identifying the uncovered village. The representative of the company meets the panchayat and the village head and identify the woman who they believe will be suitable as a SA. After training she is asked to put up Rs 20,000 as investment which is used to buy products for selling. The products are then sold door-to-door or through petty shops at home. On an average a Shakti Amma makes a 10% margin on the products she sells. An initiative which helps support Project Shakti is the Shakti Vani program.

















This model has been the growth driver for HUL and presently about half of HUL's FMCG sales come from rural markets. The Shakti network at the end of 2008 was 45,000 Ammas covering 100,000+ villages across 15 states reaching 3 m homes. The long term aim of the company is to have 100,000 Ammas covering 500,000 villages and reaching 600 m people. We feel that with this initiative, HUL has been successful in maintaining its distribution reach advantage over its competitors. This program will help provide HUL with a growing customer base which will benefit the company for years to come.

















Real-time information and customized knowledge provided by 'e-Choupal' enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the 'mandi' system for price discovery, 'e-Choupal' 'e-Chou pal' eliminates wasteful intermediation i ntermediation and multiple multipl e handling. Thereby it significantly reduces transaction costs. 'e-Choupal' ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC's own expertise.



















c) Dabur:

Dabur follows traditional Distribution Model to reach its consumers. The sales force of Dabur is now equipped with Mobile Phones and Tablets to stay connected. Dabur uses various promotional activities to create the brand presence. The

















accepted by the Rural Consumers as the advertisement was very catchy and along with it Coke launched the 200ml bottles priced at Rs. 5. Coke opted for the hub and spoke model for the distribution. They also hired rickshaw pullers who travelled to villages. Recently, Coca-Cola has introduced fountain machines on trucks and they

















4. OBJECTIVE: To main objective of this report is to understand the scope of FMCG sector in the Rural Market of India. The Sub-Objectives are:

















6. FINDINGS AND CONCLUSION:

6.1 Emerging Trends:

















users to access 15 minutes of content every week. People can access this using their feature phones. ii)

Usage of Smart Phones and Tablets: Companies like HUL, ITC

and Dabur have equipped their sales and distribution team with Smart Phones and Tablets so that the orders can be reported































































































































































Scope of FMCG Sector in Rural India.docx

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