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. 

About FMCG

  • 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