The fast-moving consumer goods (FMCG) sector is the principal contributor to India’s GDP growth, with a majestic size of around Rs 500 billion. The amelioration in rural demand coupled with new product launches by FMCG companies, revenue growth from the rural segment, which contributes 40-45 percent of total income of the FMCG firms, is expected to model a positive growth trend in the coming years.
Consumer appetite had taken a hit after the government’s demonetization move in November 2016, which resulted in a slow rural demand amid intense competition. Also, the implementation of the goods & services tax (GST) put pressure across consumer sectors.
However, the ill effect of demonetization and GST has waned now. GST has given a major high to the sector by way of an increase in input tax credit on capital goods and input services. Also, there is a reduction in logistics costs due to the abolition of check posts, which has helped smoothen the supply chain as transportation time has reduced significantly and lowered spoilage cost.
In order to support this big reform and control inflation, the government has made several changes in other laws, namely customs, legal methodology. Among all the growing economies in the world, India has been the center of attraction due to changes in government policies and developments in the infrastructure space. After India allowed 100 per cent FDI in retail, many global retailers have started investing in the Indian market, as they see a huge opportunity here.
Another factor is digital media, which is changing the landscape for marketers everywhere, especially in the FMCG space. The Indian economy is currently witnessing huge growth in the retail market driven by the FMCG sector and consumers’ rapid adoption of e-commerce. The rapid growth of the internet and digital media has significantly altered purchase decisions of the Indian consumer. Selling products online gives FMCG companies the advantage of being able to reach consumers beyond a limited geography
Besides favorable monsoon, government initiatives, healthy economic growth, changing demographic profiles, increasing disposable incomes, changing consumer tastes and preferences will continue to support growth in the sector. The growing share of organized retail in India has been one of the major drivers of India’s FMCG market. Due to intense competition between organized and unorganized players, established FMCG brands focus on R&D and innovation for product differentiation innovative packaging, rebranding of products are some of the innovation strategies that FMCG companies are adopting to make their products more appealing to consumers.
For years, many FMCG companies have been trying to focus on the huge opportunity that the Indian rural market has to offer. Companies such as ITCNSE 1.25 % and HULNSE 1.18 % have been taking initiatives such as e-chaupal and Project Shakti to increase awareness among rural people regarding the quality of products and at the same time improve their family incomes.
The growth in income levels and increased demand for branded products, the rural market is still an unexploited reality. Undoubtedly, growing awareness, easier access, and changing lifestyles are key growth drivers for this consumer market. The bottom line is that with increased industrialization and government initiatives to improve the rural belt, this sector will keep on growing, which will further improve valuation, and stock prices of FMCG firms. One may look at stocks such as DaburNSE -0.38 % ITC, Emami and Godrej Consumer ProductsNSE 0.08 % to bet on the rural consumption theme.
For more such latest trends in the e-commerce, era keep reading on inventiva.co.in.
Featured Image Credits:ujjainwala.com