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It’s an oft-repeated belief that rural markets have more potential than urban markets in India. For the most part, companies like Coca-Cola, Cadbury, Kellogg’s, and Nestle believe this is true. But do they have enough reason to invest in FMCG goods in rural India? This article explores what attracts these companies to India’s rural population and why they believe the rural market provides a higher return on investment.
What are FMCG Companies?
FMCG stands for fast-moving consumer goods. These companies focus on products with a shorter shelf life than everyday goods—for example, packaged snacks and beverages.
These companies believe that the average household has more people. And there is potential to spend more money on FMCG goods in rural India than in a metropolitan city because of the lower cost of living. Therefore, FMCG companies like Nestle, Dabur and other beverage companies can sell one product in a village at a higher success rate.
Why are Rural Markets Demonstrating Such Potential?
FMCG companies’ belief in the rural markets is because of their higher potential for growth. It means that these markets are likely to have more people than cities and, therefore, can have a higher purchasing power. Moreover, there is a greater need for new products in rural areas than in urban areas, which helps companies to remain relevant.
A rise in factories and manufacturing bases in rural areas
FMCG companies like Dabur and Nestle have built factories and manufacturing bases in rural areas to increase their growth potential. These are known as Udyog Vidyalas (Factories of Education). After spending a lot of time and money on government agencies to get approvals for their factories, Dabur invested in several Udyog Vidyalas.
The company has built an army of local agents and distributors responsible for promoting FMCG goods in rural India. They invest in educating consumers about the importance of oral health, Dabur’s toothpaste brand, and regular brushing. By advertising through these agents, Dabur has increased its market share in rural areas by 3-4 per cent.
Increase in salaries
Udyog Vidyalas mainly target unskilled and semi-skilled labourers, including rural artisans, farmers, and workers. It is a huge financial boost as they earn higher salaries than what they would be making in urban areas.
Additionally, the boost in the agricultural sector is contributing to the rise in income levels of rural areas. In the last fifteen years, good monsoons have led to an incredible agrarian output. This has helped farmers and other agricultural workers earn well.
Increase in customers
The primary purpose of these factories is to help people improve their quality of life by manufacturing high-quality products to make them healthier. This will lead to greater consumption of such products and encourage more people to buy them. FMCG companies like Nestle are investing heavily in creating new products that can benefit the rural population for health and hygiene purposes.
Technological development in rural areas
Nowadays, rural areas are seeing technological developments. Access to technology helps companies develop more suitable products for the rural population. Companies like Nestle and Dabur are using the internet to their advantage by creating e-commerce sites that allow them to reach out to a more extensive consumer base.
The factories also have a lot of potential for innovation as they create new opportunities for R&D, leading to increased production and sales. They can now use advanced technologies such as robotics and 3D printers in their factories, which will help them improve their productivity in the long term.
Government’s effort to develop rural areas
It is in the government’s interest to develop rural areas. Through their efforts, FMCG companies can take advantage of this growth potential. By building new factories, launching new policies, stabilising GST implementation, opening new markets, and creating new products, the government is helping FMCG companies maximise their growth potential.
Conclusion
Rural areas have become increasingly popular with FMCG companies like Parle, Dabur, Coca-Cola and Nestle. These companies are focusing on tapping into the potential market by using new innovative products, investing in Udyog Vidyalas and increasing the number of distributors. This strategy seems to be paying off for these companies as their sales and profits continue to grow steadily.
On the other hand, the FMCG are also seeing an improvement in the urban demand for their products. This is because urban consumers are becoming more health-conscious.
Due to the Covid-19 outbreak, urban consumers are spending more on good hygiene products. This has proven advantageous for FMCG companies. All in all, the improvement in urban demand can turn the tables for the Indian FMCG companies.
