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Corporates turn to rural India for growth

August 21, 2003 10:57 IST

Coca-Cola India doubled the number of outlets in rural areas from 80,000 in 2001 to 160,000 in 2003, which increased market penetration from 13 per cent to 25 per cent.

It brought down the average price of its products from Rs 10 to Rs 5, thereby bridging the gap between soft drinks and other local options like tea, butter milk or lemon water.

It doubled the spend on Doordarshan, increased price compliance from 30 per cent to 50 per cent in rural markets and reduced overall costs by 40 per cent.

It also tapped local forms of entertainment like annual haats and fairs and made huge investments in infrastructure for distribution and marketing.

Result: the rural market accounts for 80 per cent of new Coke drinkers and 30 per cent of its volumes.

The rural market for Coca-Cola grew at 37 per cent over the last year, against a 24 per cent growth in urban areas. Per capita consumption in rural areas has doubled in the last two years.

The launch of the Rs 5 pack has reaped rich dividends in terms of sales and the bottles are expected to account for 50 per cent of the company's sales in 2003.

Coca-Cola is just one example. A lot of fast-moving consumer goods and consumer electronic companies are aggressively targeting rural consumers.

Speakers at the session on 'Going rural: The new marketing mantra' agreed that the rural market was the key to survival in India.

The necessity arose because the growth rates of consumer products were slowing down not because the markets were getting saturated in terms of penetration as in the US, but because most consumer markets were getting cluttered.

While overall volumes continue to grow reasonably well, there are too many players eating into each other's market share.

The companies, therefore, reduce prices in urban areas and invest heavily in sales promotion, intensifying the battle for market share.

Operating margins come under pressure and new growth markets have to be explored. This is where the rural markets play an important role.

The rural market was tempting since it comprised 74 per cent of the country's population, 41 per cent of its middle class, 58 per cent of its disposable income and a large consuming class, Coca-Cola India CEO Sanjiv Gupta said.

Today, real growth is taking place in the rural-urban markets, or in the 13,113 villages with a population of more than 5,000.

Of these, 9,988 villages are in seven states -- Uttar Pradesh, Bihar, West Bengal, Maharashtra, Andhra Pradesh, Kerala and Tamil Nadu.

For manufacturers of consumer goods, these are the markets to look out for. While the 1980s saw a boom in Class I towns with the spread of television, the Class II towns showed strong growth in the 90s propelled by reforms.

According to the National Council for Applied Economic Research, the millennium belongs to the Class III and IV rural-urban towns.

It estimates that an average rural Indian household will have five major consumer appliances by 2006, almost double of what it had five years ago.

In order to efficiently and cost-effectively target the rural markets, the companies will have to cover many independent retailers since in these areas, the retailer influences purchase decisions and stock a single brand in a product category.

In such an environment, being first on the shelf and developing a privileged relationship with the retailer is a source of competitive advantage to consumer good companies.

Most of the companies have started tinkering with pack sizes and creating new price points in order to reach out to rural consumers since a significant portion of the rural population are daily wage workers.

Thus, sachets and miniature packs, as in the case of shampoo sachets priced at Re 1 and Rs 2 or toothpaste at Rs 10, have become the order of the day in hinterland India and help improve market penetration.

Yet, driving consumption of goods in rural areas is not just about lowering prices and increasing volumes but also about product innovation and developing indigenous products to cater to their demands.

For example, soap makers use advanced technology to coat one side of the soap bar with plastic to prevent it from wearing out quickly.

Also, the companies need to turn to innovative methods of advertising like fairs or haats to reach their potential customer base.

Two years ago, many companies congregated at the Ganges river for the Kumbh Mela festival, where about 30 million people, mostly from rural areas, were expected to come over the span of a month.

The companies provided 'touch and feel' demonstrations and distributed free samples. This proved to be extremely effective in advertising to the rural market.

BS Corporate Bureau in New Delhi