On road to 'rurban' vows, FMCG players find big bucks in small packs

Nestlé India, on the other hand, is re-launching its flagship Maggi noodles at the Rs 10 price point, targeting smaller towns and villages to regain market share and fend off competitors in the packaged consumer goods segment.

This repositioned Rs 10 pack, at 40gm, targets "Rurban" regions across 15 states, while continuing at the same price in parts of Punjab and Uttarakhand. Prices like Rs 5 and Rs 10 have a bigger recall and are convenient for transactions, making them appealing for affordable consumer goods like food and shampoos. Maggi Masala noodles also come in Rs 7 (32gm) and Rs 14 (70gm) variants.

Nestle and other FMCG companies continue to tweak their rural strategy to capture a bigger share of this growing market.

Dabur India has also initiated Project Yoddha, which focuses on penetrating small villages nationwide and identifying local entrepreneurs. Through this initiative, the company aims to establish brand ambassadors in each village but also offer consistent income opportunities to the rural community.

The rural promise

A Euromonitor insight published on September 11 noted that despite rising urbanisation and expansion of metro and non-metro cities, by 2040, rural areas will house half of all Indian families, in contrast to the global trend where only a third of households will be in rural settings.

Rural consumers often prioritise spending on necessities and tend to choose value packs to make the most of their budgets. The physical landscape and ease of access to products also significantly influence their buying decisions, the report added. Hence, for businesses aiming to prosper and widen their reach in India, a strategy centred on affordability, value, and robust distribution networks catering to the rural market is crucial.

LPUs driving growth

According to NIQ August data for India, driven by unit growth in urban, rural, modern, and traditional sectors, consumption has experienced double-digit growth, predominantly fuelled by smaller pack sizes. Although there's been a rise in the average pack size, it's still negative in most markets, excluding urban ones. It's crucial for brands now to offer the appropriate product assortment and pack sizes, the report added.

Analysts say that many companies are focusing on low price points (LPUs) to boost sales of these affordable units. “Rural markets are largely driven by LPUs and low price point stock keeping units (SKUs),” said Ajay Thakur, an analyst at Anand Rathi Institutional Equities.

Digital penetration in rural markets

Analysts noted that digital penetration in rural markets has seen a significant surge, driven by affordable smartphones and expanding internet infrastructure. This growth is transforming how rural consumers access information, products, and services, opening new avenues for businesses and empowering communities with digital tools and resources.

Rural consumers are shifting towards seeking value rather than just focusing on price. Digital access in rural areas is now on par with or even exceeds TV accessibility, a Proctor & Gamble (P&G) spokesperson said. “This change presents fresh opportunities for advertisers and simultaneously educates consumers about their available choices, further driving their aspirations.”

For P&G, the primary emphasis has been on enhancing direct distribution in rural areas, the spokesperson said, adding, “By integrating artificial intelligence and machine learning with the insights into local consumer patterns, we ensure our products reach the appropriate stores with the ideal mix.”

Outlook for rural demand

According to data for August by NIQ, a consumer intelligence firm, both rural and urban markets in India are witnessing growth. While the rural market's growth is somewhat uneven, it saw a 4 percent increase from the previous year. The urban market maintained its upward trend, with growth jumping from 5.3 percent in Q1 2023 to 10.2 percent in Q2, the report added.

Demand trends in both urban and rural India are showing signs of improvement, said Malhotra. “While rural India has been a key driver of growth a few years back, we have seen rural demand lagging urban demand for some quarters now. While rural is still behind urban, the gap is narrowing significantly,” he added.

The expectation is that, following the festival season, rural markets will draw level with urban ones, although they aren't projected to surpass them at the moment, said Thakur.