Coke, Pepsi well placed in India

07 January 2011

NEW DELHI: Coca-Cola and Pepsi are among the companies well placed to exploit the growth in demand delivered by rural Indian consumers, a study has argued.

The Associated Chambers of Commerce and Industry of India estimated FMCG sales in less developed regions of the country would register a compound annual expansion hitting 10% over the period to 2012.

According to the trade body, this acceleration should see the category swell from 87,900 crore rupees ($19bn; €15bn; £13bn) to 106,300 crore rupees.

With an audience of 150m households, three times the total residences in cities, ASSOCHAM stated brand owners have considerable opportunities in the countryside and semi-urban areas.

Currently, FMCG penetration typically stands at only 2%, suggesting there is still significant potential as the domestic retail and transport infrastructure improves.

Segments in line to enjoy substantial surges include biscuits, cold drinks, detergents and toothpastes.

A key driver of this trend is rising affluence, meaning many people have higher levels of disposable income.

Advertising, through both digital and traditional media, is also anticipated to play a major role in "awakening" shoppers to the available options.

However, competition may put pressure on manufacturers' profit margins, as intense rivalry leads to price cuts, promotions and similar strategies.

"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 [and] Pepsi," ASSOCHAM said.

Research firm Nielsen is equally bullish on the possibilities afforded by the demographic, which it believes are growing at around twice the speed of metropolitan hubs.

"The rural market is currently worth approximately $9bn in consumer spending in the FMCG space annually," said Prasun Basu, vice president, The Nielsen Company.

"Today's rural consumer is not just indulgent but smart and choose the products that provide convenience and individualism in one go."

Overall, Nielsen predicted sales generated by this group could climb to $100bn in the next 15 years.

Coca-Cola, the US multinational, is seeking to strengthen its retail reach by 20%, to 1.5m outlets, in 2011, with a particular emphasis on untapped regions.

In 2010, it unveiled a range of new offerings it hopes will appeal to customers in the Indian countryside, such as an apple variant of Minute Maid and iced tea Nestea.

"We would like to tap the opportunity for still beverages in the smaller markets and rural India, which are fast getting urbanised," Atul Singh, president/ceo of Coca-Cola India, said last month.

Data sourced from Images Food, Economic Times, Nielsen; additional content by Warc staff