Better than expected rainfall has resulted in consumer goods makers raising their sales targets from rural India. Most corporates hope to net over 60% of their sales turnover from rural India, instead of the current figure of 30-40%.
According to rough industry estimates, the overall feedback is throwing up much higher growth estimates owing to better-than-expected rainfall across India. While urban markets had contributed higher growth numbers in the first half of '05, industry sources say consumer sentiments have picked up sharply in the semi-urban and rural markets. This is obviously good news for companies who are getting increasingly worried about saturation levels in urban markets.
LG, Samsung, Sansui, Philips, Maruti, M&M, Tata Motors, Hero Honda, Nestle, P&G and several others have ramped up their rural focus for the second half. The focus on the rural markets is on account of the sliding growth rates from urban markets.
“There's only so much that can be expected, with consumers eyeing new growth categories like health, services and insurance to spend money on,” said the CEO of a leading FMCG company.
“We are not expecting too many numbers from the urban markets, where saturation levels have become sharper in the past two years. Given the recent rainfall levels, farm incomes are expected to pick up substantially across various markets in the second half of '05. Our marketing strategies have been tweaked towards deriving growth accordingly,” said Anil Khera, director of Sansui.
Corporate chieftains in sectors like two-wheelers, tractors, FMCGs and durables said monsoon worries (except in Maharashtra for obvious reasons) have waned in other markets. “We have fine-tuned our strategy to cater to rural markets,” said Atul Sobti, director (marketing) Hero Honda.
Also, over the past few years, there has been a more even spread of farm activity between the kharif (April-September) and rabi seasons (January-March). According to BVR Subbu, director of Hyundai Motor India, overall indications show positive volume growth. “Overall demand is more urban-led across India. For instance, markets in the south are dependent on IT and therefore are not very monsoon-dependent,” he said.
There are new growth drivers that have emerged for corporate India. Sales numbers over the past five years show that the swings in monsoon performance have not really swayed two-wheelers, commercial vehicles or consumer durable sales too much. The rural middle class has also been growing steadily.
The middle-to-high income households in rural India now constitute 17% of the total rural population and are growing at 7%. “The gap between urban and rural spend is huge. But with rural markets showing a 70-80% growth compared with around 40% growth in urban areas, our focus has also shifted onto these markets,” said a senior LG marketing official.