Bright spots: Small-town demand story a bestseller in times of Covid

One of 2020’s consumption bright spots is rural and small-town demand – across categories like FMCG, electronics and ecommerce, sales contribution from these centres has jumped a record 300 to 600 basis points (100 basis points is 1 per cent). Analysts say government spend directed at rural India, reverse migration that happened mid-year and the general good performance of agriculture account for this rise.

As per Kantar, rural India’s contribution has shot up by 300 bps in overall grocery sales including the unpackaged segment to 52 per cent as of October from 49 per cent a year back. Nielsen data shows share of rural FMCG sales in the category has improved sequentially to 38 per cent in September quarter compared to 36 per cent in June quarter. Nielsen said packaged staples and hygiene FMCG products are driving faster growth in rural markets, which itself is growing at a higher pace than markets in metros. For instance, packaged staples grew 11 times faster in rural markets than urban, home and personal hygiene by eight and seven times, respectively, while convenience food grew three times faster.

rural

In these studies, rural markets are those with populations of less than one lakh, as given in census data.

Electronics industry market researcher GfK India said for products like TVs, ACs, washing machines and microwave ovens, the contribution and growth rate for smaller towns and rural markets have gone up on-year in the September quarter.

Boost for Ecomm as well
These rural markets are those with less than five lakh population.

For instance, for flat-panel television, the contribution from smaller markets went up by 400 basis points accounting for 56 per cent of total sales volume. While the overall market remained flat, the smaller towns reported 9 per cent growth in television sales in the September quarter. Similarly, microwave oven offline volume sales grew by 23 per cent in smaller towns as compared to 18 per cent in cities.

“For products like TVs, ACs, washing machines and microwave ovens, the contribution and growth rate for smaller towns and rural markets have gone up on-year in the September quarter.”

— GfK India

Even ecommerce has got a shot in the arm from rural and small town markets with their contribution inching up to 8-9 per cent this year as compared to 4-5 per cent last year, senior executives with leading firms said.

“While change in consumption pattern due to the pandemic is driving demand in urban India, the economy itself is driving sales in rural markets, which is a much more sustainable factor,” said Kamal Nandi, business head at Godrej Appliances and president of industry body Consumer Electronics and Appliances Manufacturers Association.

Parle Products senior category head B Krishna Rao said while migrants going back home fueled sales growth, there are also a lot of white collar workers who left cities like Mumbai or Bangalore for their home towns and have been working remotely from there.

“The white collar workforce has significant higher disposable income which they usually spend on leisure activities and rent, but are now using to buy discretionary products and high-ticket items in smaller towns,” said Rao.

GfK India managing director Nikhil Mathur said lower sales penetration in smaller markets also boosted sales. “This is backed by improved infrastructure and rising aspiration of consumers in these markets,” he said.

Companies like LG, Samsung, Xiaomi, Hindustan Unilever, ITC, Parle and Marico have reported premiumisation as a driving factor in smaller towns and rural India sales this year, aided by higher purchasing power.

Marico managing director Saugata Gupta said companies which have direct rural distribution networks will have a source of competitive advantage. “So we are aggressively investing in direct distribution in rural areas,” he said.

An Amazon India spokesperson said even during the last festive season, customer participation from tier II and III markets grew year-on-year, with almost 90 per cent of new customers coming from smaller towns.