Press Releases

Rural & Semi-Urban Segments Likely To Capture 60% Of FMCG Demand By 2012 :
ASSOCHAM
Sunday, December 24, 2006

The Fast Moving Consumer Goods (FMCG) are likely to make a major dent in Rural and
Semi-Urban Segments by 2012 with their demand growing @ of about 60% to carry forward
its total market size to around Rs.1,23,363 crore from present level of Rs.70,000 crore with
a projected CAGR of 12%, according to The Associated Chambers of Commerce and
Industry of India (ASSOCHAM).
In view of ASSOCHAM, the urban pockets which currently are the biggest market size for all
FMCG products, in next 4-5 years will switch over their consumption patterns for organic
products to keep better their health, thus making an erosion in their present consumption
patterns for FMCG products. As per Chamber assessment, in urban pockets, the current
demand for FMCG products may stagnant by 2012 and force the FMCG manufacturers to
shift their supplies with assured qualities towards rural and semi-urban folks.
In a Paper on Future of FMCG Products in India, ASSOCHAM projected that by 2010, while
the total market size of FMCG products will rise to over Rs.98,344.96 crore and by 2012, it
will touch a level of about Rs.1,23,363.91 crore with a CAGR of 12%. Approx. 60% of it will
be consumed by folks living in rural and semi-urban areas of the country which works out to
be Rs.74,018.35 crore by 2012 against the projected figure of Rs.59,006.97 crore in 2010.
The FMCG products like toothpaste, skin and hair wash, talcum, powder, branded Atta, dish
wash, instant coffee, R&G coffee, ketchups, deodorants, jams etc. which currently have less
than 30% penetration out of 100 people in rural and semi-urban areas will grow at least by
50% in next 5-7 years because of their demand on account of rising per capita income of
rural and semi-urban folks. The per capita income of rural and semi-urban populace will
increase as the economic activities will grow their due to government focus for their
industrialisation.
As per current estimates, while the per capita income of semi-urban folk is around Rs.14-
15,000 per annum, the per capita income of rural folk is measured at less than Rs.7000 per
annum. As per ASSOCHAM findings, by 2012 while the per capita income of rural folk will
double, the per capita income of semi-urban people will more than double and the
reflections of rising per capita income will also lead to hike in their consumption patterns for
FMCG products.
Around 70% of the total households in India (188 million) resides in the rural areas. The
total number of rural households are expected to rise from 135 million in 2001-02 to 153
million in 2009-10. This presence the largest potential market in the world, says the
findings of Paper.
In the rural and semi-urban areas, FMCG market penetration is currently about 2% in
general as against its total growth rate of about 8%, said ASSOCHAM President, Mr. Anil K.
Agarwal.
Mr. Agarwal said the Indian rural market with its vast size and demand base offered a huge
opportunity that FMCG companies cannot afford to ignore.
Though the rural and semi-urban demand of FMCG products will grow larger and higher, it
will put a severe pressure on the margins of manufacturers of FMCG products because of
cut-throat competition, says the Chamber analysis. The branded companies in the FMCG
sector that will make killings will include a known number like Nirma, HLL, Dabur, ITC,
Godrej, Britannia, Coca-Cola, Pepsi etc.
The rising rural and semi-urban income levels coupled with massive advertisement of FMCG
products in the electronic media will spread so much of awakening in the rural and semi-
urban folks towards fast moving consumer goods products so much that these will enlarge
their affordability for them.
ASSOCHAM is also of the view that the rural market may be alluring but it is not without its
problems: Low per capita disposable incomes that is half the urban disposable income; large
number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal
consumption linked to harvests and festivals and special occasions; poor roads; power
problems; and inaccessibility to conventional advertising media. However, the rural
consumer is not unlike his urban counterpart in many ways.
Affordability of the product or service to rural consumer is also a big problem. With low
disposable incomes, products need to be affordable to the rural consumer. ASSOCHAM has
therefore suggested that to tap the rural and semi-urban market, better infrastructure
facilities like roads, better telecom connectivity to rural persons, proper sanitation and
healthcare facilities should be created.