In news: Rural-urban matrix in the FMCG sector For the first time in seven years, rural growth has fallen below that of urban for the fast-moving consumer goods. What does the Report on FMCG say?
- The rural market grew at 5% in the quarter ended September 30, lower than the urban market’s growth rate of 8%.
- For the rural market, this is a sharp fall considering it grew at 20% in the corresponding quarter last year.
- Rural India contributes about 36% to the overall FMCG sales
- The has been growing historically around 300 to 500 basis points faster than urban areas.
- However, in recent periods, rural growth is slowing down at a much faster rate compared to urban.
Why FMCG sales in rural is historically higher than urban?
- This has been on account of increasing affordability,
- Increased Availability due to MNCs' supply chain.
- Conversion of a commodity to branding resulting in higher demand.
- FMCG is a classic case of low margin and high volume business.
- It is one of the fastest developing sectors in the Indian economy.
- It is the fourth largest sector in the Indian economy.
- Food products lead the segment with 43 percent of the overall market whereas personal care (22 percent) and fabric care (12 percent) comes next in terms of market share.
- Changing lifestyles, growing awareness and increased incomes for middle-class families have been the key factors for the growth of this industry.
Reasons for the growth of the FMCG sector
- The growth of fast-moving consumer goods (FMCG) can mainly be attributed to the increase in the purchasing power of the Indian population and its sizeable youth population.
- There has been an increase in disposable incomes both in the urban cities as well as in rural India.
- Rural areas are expected to be the major driver for the FMCG industry as rural areas saw a growth of 16 percent against a 12 percent rise in urban areas.
- Companies are working towards creating specific products specially targeted for the rural market.
- Rural demand is set to rise with rising incomes and greater awareness of brands.
- The growth of e-commerce too is greatly contributing to its growth.
Challenges in the FMCG sector
- India’s FMCG market is highly fragmented, which is a contrast to that in the U.S where it is dominated by a few big players.
- Rural growth took a hit primarily due to high rural inflation, lowest annual wage hike since 2009 and floods in as many as 13 states leading to crop loss and thereby farm income.
- Therefore, launching and growing market share around a product poses tremendous challenges.
FMCG industry, whose sales are often looked upon as a barometer of overall economic growth and consumption due to the range and reach of products across price points. Read More Articles: ‘For FMCG, rural growth worst in 7 years’ Challenges in Rural Non-Farm Sector