Manufacturers of Fast Moving Consumer Goods (FMCG, as it is known in business circles) have zeroed in on the rural markets in South Asia to raise profit margins. Having plateaued a bit with urban saturation, they are going back to the village.
Cut-throat competition in several FMCG categories has led to a search for alternatives. That is why companies like Hindustan Lever were smart enough to recognise the potential of an otherwise neglected rural market. The answer for our own beleaguered economy could lie in the vast majority of Nepali consumers spread through the nearly 4,000 villages in this country.
The rural market has lain fallow for several reasons. Most Nepali marketers see rural areas as poverty-stricken and disease infested with low or no disposable income. A lack of credible studies and statistics of the rural retailing environment and consumer behaviour have undoubtedly contributed to this opinion. But studies have shown that it is the volume that makes this market lucrative.
Except for some organised retail outlets in urban areas, small outlets in rural areas dominate the retailing landscape in Nepal. A recent AC Nielsen ORG-MARG study estimated there are 130,000 outlets in rural Nepal. Most of these shops are small with daily turnovers of less than Rs 1,000. They sell anything from daily necessities to cosmetics and medicine.
Urban areas like Kathmandu undoubtedly comprise the bulk of FMCG consumption for the Big Boys. A multipurpose household budget survey conducted by the Nepal Rastra Bank says per capita household expenditures in some personal care items have increased approximately five fold between 1985 and 1995. So, it comes as no surprise that FMCG manufacturers concentrate their promotions in urban areas.
On the other hand, the per capita consumption of these products is already stagnating and shelf space is at a premium. Consumers are growing immune to discounts and bumper schemes, which results in lower profit margins. The logic behind the freebies doesn't always add up. A family of four which uses a tube of toothpaste a month will not increase their consumption twofold despite a fall in prices and a bumper offer.
Although figures for household expenditures in rural areas in Nepal are unavailable, one can accept consumption of hair oil, toothpaste and other products have increased over the years, even if the frequency of consumption may be lower than that of their urban counterparts. The good news for FMCG manufacturers with an eye on the rural market is a large population who were not traditionally identified as potential consumers.
A barometer for market competition is product penetration in retail outlets. This also provides for an interesting comparison of FMCG penetration between urban and rural areas. Soaps and detergents are available in more than two-thirds of urban outlets, while the little that makes it to the rural market is mostly counterfeit with little or no representation of major brands. The expansion of these products into rural areas is a hugely untapped reservoir.
The task before FMCG marketers is not easy. They have to develop the market and then redesign products for rural consumers. Companies who invest early in rural areas have an advantage and the bonus of brand loyalty. To accomplish all this requires missionary zeal and a change in consumer mindsets. FMCG manufactures will have expanded away from urban saturation, and rural Nepalis will have better choices and genuine merchandise. The bottom line is: it's a win-win situation.