Winds of change are blowing across the fast-moving consumer goods market.
Evidence suggests that for the first time, the rural market has grown faster than the urban market in key product categories in April-May 2008, the latest months for which such information is available, according to market research firm AC Nielsen.
In the past, sales in the sector have been driven largely by towns and cities and FMCG companies carried out their product development and tailored their promotional campaigns accordingly. Most companies Business Standard spoke to said all this is set to change.
"Rural demand is intrinsic to our growth story. We believe that over the next few quarters at least there could be a sharp rise in rural demand," said Dabur India CEO Sunil Duggal.
The company has seen 35 per cent growth in the sale of its rural toothpaste brand Babool in the last year.
FMCG companies attribute this to the new-found prosperity in the country's village caused by the surge in farm prices. No let-up in the rise in food prices is expected in the near future.
According to the Federation of Indian Chambers of Commerce and Industry, the number of rural households using FMCG products has grown from 136 million in 2004 to 143 million in 2007, a clear indication that rural consumers are shifting from commodities to branded products.
This, the companies said, will only get better once the implementation of the Centre's Rs 71,000-crore (Rs 710 billion) farm loan waiver is complete. The waiver is expected to benefit over 4 million farmers. Farm income is exempt from income tax.
Urban consumers, on the other hand, could go slow on FMCG expenses thanks to the inflation spiral, rise in fuel costs and costlier credit.
Of course, the urban market is bigger in a number of categories. "We do not normally see rural India dominating so many categories," said an analyst, adding, "There is more opportunity in these areas also because the penetration levels are still lower than the highly saturated urban markets."
But alignments are also changing. For example, the urban market for chyavanprash has shrunk, while the rural market continues to grow.
"Though rural markets are growing from a smaller base, the numbers can be stark in some categories. Mass products like soaps, detergents, hair oil and biscuits have good sales in the rural market and almost all companies are now re-looking their strategy for this market," said Anand Shah, a sector analyst with Angel Broking.
Coca-Cola, for instance, is aggressively pushing its new bottled water brand, Bonaqua, in these areas.
So is Godrej. "We see better sales in the rural market in the coming days, especially for our soap brands," said H K Press, executive director & president of Godrej Consumer Products.
Nestle India executives, too, said rural sales of hitherto urban products like dairy whitener have picked up in the rural markets.