Consumption’s next hotspot? ‘Middle India’

The rural-urban divide is way overdone. For consumer companies, the new epicentre of growth is what lies between — where the teeming millions are earning more, demanding more and have an appetite to consume more.

Call it Middle India, a segment made up of approximately 400 towns each with a population of 1-10 lakh, research house Nielsen India said in a report released at the CII Marketing Summit in Mumbai on Monday.

The growth opportunity presented by this segment, vastly under-rated by many marketers, could emerge as a key growth engine for the next 10 years, it said.

To be sure, Middle India is home to 100 million Indians and constitutes up to 20% of the country’s fast moving consumer goods, or FMCG, consumption already.

The FMCG market in Middle India will grow from Rs28,700 crore in value currently to Rs4 lakh crore by 2026, said the report. But of course, it’s an attractive market for consumer product companies at large, beyond FMCG.

As a case in point, Nielsen referred to a study on handsets where Middle India spent one-third more money than a mini-metro such as Pune. “This demonstrates the improving quality of demand going beyond FMCG,” it noted.

Experts say the growth story is still ticking, though the demand baton has been taken over by Tier 2 and Tier 3 cities where the Indian growth momentum is percolating.

“There are two major reasons for that – a rapid population growth and the trickle-down effect of rural areas,” said Abheek Singhi from Boston Consulting Group.

That is to say, part of the benefits of government schemes such as MNREGA are getting passed on — while the consumption happens in villages, the purchasing is done in the Middle India towns, which are nearest to the rural places.

Companies are increasingly waking up to this phenomenon, say experts.

“The big companies have already been focusing on the Tier 2 and Tier 3 towns and soon, we will see even the smaller companies increasing focus on smaller towns. However, the big challenge is distribution and once companies can correct that, the reach would be greater,” said Saloni Nangia, president, Technopak Advisors, a retail consultancy firm.

Singhi said it is time multi-brand retailers moved into these smaller towns with 2,000-5,000 square feet of retail outlets to tap into the burgeoning demand.

The Nielsen survey revealed that in the last eight years, Middle India, along with the metros, has actually outpaced the overall India growth story — while all of India and rural grew 3.2% in FMCG value sales, Middle India clocked a growth of 3.5% and metros posted 3.8% growth between 2002 and 2010.

The numbers are more pronounced when FMCG consumption is considered. The consumption growth rate of FMCG goods in Middle India in 2010 stood at 20.1% as against 19.1% in the metros and 17.5% in rural areas.

“Out of the total Rs1.4 lakh crore FMCG sales in 2010, goods worth about Rs28,700 crore were consumed by the Middle India population,” the report said, and all this, despite inflationary pressures and high interest rates.

Increasingly, the report cited that the rise of the Indian middle class story, which was once emerging in the metros and mini-metros of the country, will disproportionately advance the expansion of Middle India over the next decade.

Driving this growth story and the emergence of this section of the country is awareness and better education, a taste for health and wellness, an interest in personal grooming, a growing desire for home improvement and hygiene and the inclination towards eating out and experimentation in the kitchen, the Nielsen report said.