The argument of rural marketing is a compelling one. 45% of the world’s population lives in rural areas. Of that percentage, 830 million people, accounting for 70% of India’s total population, reside in 600,000 villages. They contribute to 50% of India’s GDP. Reducing dependency on agriculture, rising rural incomes, education, the reach of media and telecommunication and better access through focus on rural infrastructure are driving the rural consumer to aspire for branded products and services used by their urban counterparts. And where there’s demand, supply will certainly follow. The potential size and future growth has attracted businesses to this market.
Indian companies have further fuelled this growth through product innovations that are not only focused on giving better value through lower prices but also features that are relevant to this consumer.
Research shows that 70% of every rupee added to the rural consumer’s pocket is spent on food and household items including FMCG. The sector currently has a share of 36% to total India, which is still quite low. However, given the tremendous headroom opportunity in these markets, the rural market has been consistently growing faster than the urban market.
In the FMCG context, it is important for companies to have a long-term play in the rural market. However, reaching the rural consumer in India has its own set of challenges. The rural consumer makes their FMCG purchases from 5.8 million outlets across a large, dispersed landscape. With the rural market growing at a faster rate and consumers preferring the convenience of buying closer to home, brands reaching these consumers have a distinct advantage and they utilize the higher growth opportunities that these markets offer. Distribution though a key driver can be a mammoth task and growing distribution optimally and efficiently is the key to success.
Looking to unravel this problem, Nielsen Analytics, using clustering and prediction techniques, analysed over 150 variables across population, amenities and infrastructure across all villages, and collected primary data on FMCG sales from 6000 villages to model FMCG sales across all 600,000 villages. The resulting data has thrown some interesting insights and opportunities.
Our data shows that 33% of all villages account for 80% of overall FMCG sales in rural India. For simplicity sake we will refer to these villages as high throughput villages (villages with relatively higher sales). We see that, this concentration is starker in Non-Food categories with 30% villages accounting for 80% sales as compared to Food categories, where it is 34%. As expected, there is a high overlap between the high throughput villages, with 80% of villages common across Foods, Non Foods and FMCG.
An interesting aspect is the spread of the concentration of the high throughput villages. The top 6% villages or 33K villages alone contribute to 50% of the FMCG sales, whereas the remaining 27% of the high throughput villages contribute to the remaining 30% of FMCG sales. In Foods, the top 8% villages contribute to 50% of Foods sales and for Non Foods, we see the top 4.5% contributing to 50% of Non-Foods sales. This highlights an opportunity to further optimally prioritise when planning your rural distribution expansion strategy.
Prioritising the states basis the number of high throughput villages, we see that 10% of India’s high throughput villages are present in the top 2 states, Uttar Pradesh and Maharashtra. These villages account for 22% of the 80% FMCG sales from top villages. Similarly, the next cluster of states including West Bengal, Andhra Pradesh, Bihar, Rajasthan and Assam account for 26% of FMCG sales. Just focusing on these 2 clusters totalling 6 states can help one reach close to 60% of the high throughput villages and tap 50% of the 80% sales from high throughput villages.
For more details, download the full report (top right).