Commodity Online
MUMBAI: Rural demand in FMCG, automobile and retail is growing at a faster pace than anticipated due to rise in its consumption patterns which is creating demand and margins for Indian Inc. even as meltdown is getting deeper, says a Study Paper of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) `The Rise of Rural India’.

In an 80 Page Study of ASSOCHAM a detailed analysis on FMCG, Automobile and Retail sector was provided. According to the report, the FMCG market in India is currently estimated at Rs.200,000 crore, out of which, Rs.17,189 crore is of domestic consumption.

Most of FMCG companies are upbeat about their prospects in rural India as it is contributing a substantial portion to their revenues. 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.

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The stock movement of these companies reflected the investors’ preference for this sector. Leading FMCG companies have recorded a steady recovery over past one month. The stock price of ITC Ltd had surged by over 15% during last one month. The stock was trading at Rs.158.20, the monthly low, has surged to Rs.187.75 recently. Similarly, Godrej Consumer Products Ltd (GCPL) was trading at Rs.112.70 during March, which surged by close to 15% to Rs.131.95 recently.

According to industry experts, the FMCG sector in rural areas was expected to grow by 40% as against 25% in urban areas. The factors such as rising rural incomes, healthy agriculture growth, boost in demand, rising consumerism across India, better penetration of FMCG products in the rural market contributes to high growth and rapid expansion of FMCG industry in rural India.

Secondly, the automobile market in rural areas had been largely restricted to tractors and two-wheelers till now. According to reports, the two wheeler penetration in villages has been only 10% as compared to 25% in urban areas. High investment involved, poor conditions of rural roads, lack of finance facility and lack of service network have limited the scope of passenger cars in countryside.

However, recent times are witnessing shift in trend as the auto companies are gearing to explore the huge market potential lying in the rural areas. For example, Maruti Suzuki India generates 10 per cent of its domestic sales from rural sales, amounting to 32000 cars. Maruti has launched its marketing campaign for rural India “Ghar Ghar Mein Maruti” (Maruti in every Household”)

Hero Honda, the two wheeler market leader, is planning to cover 1 lakh out of the six lakh villages by end of this financial year under a campaign called Har Gaon, Har Aangan (Every Village, every Household). Mahindra and Mahindra has also announced its plan to foray into two wheeler market in hinterland with an initial investment of Rs.110 crore.

According to Hyundai, “Almost 50 per cent of the 220 million households in rural India are potential car buyers due to the agricultural subsidies extended by the government and also due to increase in productivity of agri-based products, thus presenting an attractive market for hi-technology products”

Hyundai had launched promotional scheme for rural areas titled “Ghar Ghar ki Pehchan”, under which special schemes for government employees in rural areas and members of gram panchayats on the purchase of Hyundai Santro.

The company’s performance seems to be improving on the stock exchanges as the automobile stocks are doing well on the bourses over past couple of months. The car sales figures released in February gave a positive feeling to the industry and to some extent revived them from the current slowdown.

India’s largest car maker, Maruti Suzuki India Ltd witnessed a surge of 24% during past one month. The stock was trading at Rs. 617 during March, which rose to Rs.813 currently. Similarly, Mahindra & Mahindra Ltd was trading at Rs.281, its monthly low and surged by 36% to Rs.442 recently.

Tata Motors Ltd, which had recently launched its Rs. One lakh car, Nano too witnessed a steady rise in the stock price over past one month. The company stocks were trading at Rs. 132.10 during March, surged to Rs.229.80 recently, a rise of 42% during a month.

The study on Rural Retail says that rural retail market constitutes around 40 per cent of the total size of the retail market of India. According to ASSOCHAM, the size of retail market in India is USD 280 billion. So the size of rural retail market works out to be USD 112 billion which is Rs. 5,00,000 crore and is growing around 10 per cent of the size of Indian GDP. This is expected to double in next 4-5 years because of potential factor.

Rural India provides a highly unexplored market for the expansion of retail activity. The penetration of the organized retail specifically is very low. Approximately ten thousand out of six lakh villages in India have access to organized retail services.

Conventionally the retailing in rural India was characterized by multiple tiers leading to high costs, low density of shops per village and uneven concentration of shops. The investment capacity of retailers in villages is low resulting in restricted range and variety of products. Poor connectivity of villages through roads result in delayed replenishment of stocks.

Periodic haats, the mobile markets with around 200-300 stalls, spread around 2-3 acres of land selling miscellaneous products is another feature of conventional rural retailing.
In view of the large investments made by the government in rural infrastructure pushing income and demand level, the prospects for organized retail are seen bright for rural India. With empowerment of rural people with education, employment, higher purchasing power, better media exposure, better connectivity with outside world, they provide a massive unexplored pool of consumers.

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