While cities consume, countryside beckons

Consumer habits are witnessing a drastic change; new niches are springing up across segments

Make hay while the sun shines. This seems to be the mantra for FMCG companies which are currently riding on a consumption boom.

The story last year was the launch of a large number of new brands as also a wide variety of new categories. This was especially true with high-end goods that saw a plethora of brands — mostly foreign, along with a few local ones — trying to tap into the India growth story.

In urban areas, FMCG majors are gaining from the increasing disposable incomes as well as the growing penetration of organised retail.

With consumer habits also witnessing a drastic change, new niches are springing up especially in lifestyle and beauty segments. At the same time, the urban landscape is nearing saturation in volume-led categories like soaps and toothpastes.

FMCG is a sector where the ripples from a faster rate of growth for rural India reaches first.

Coupled with increased income in rural households and the changes in lifestyle brought out by mobile phones and mass media, consumers in villages are waking up to a new way of living. Increasing amount of sourcing of produce by corporates directly from farmers has also meant more rural inclusiveness in the India growth story.

ITC e-choupal has demonstrated that rural markets can be tapped in a viable way. FMCG majors are trying hard, and the possibilities remain immense.

Looking forward, the question mark remains over margins. To an extent, the changes pertaining to the pack sizes made last year by the government have allowed the FMCG industry more leeway to effect price hikes through weight reduction.

Most companies still rely on increasing sampling through lower unit price packs to shore up revenues. The fortunes of organised retail and FMCG are intertwined, though not always in a manner kind to FMCG companies.

In the long-term big, retailers would start squeezing the margins of FMCG players. Ask US mega retailer Wal-Mart. While better volumes might help tide over that, the plethora of in-house brands which these retailers can come up with can also hurt. But those come later. For now it is time to grow without too many worries.