FOREWORD
I am very happy to present this White Paper from Confederation of Indian Industry (CII) and Nielsen India, titled Emerging Consumer Demand: Rise of the Small Town Indian. This White Paper takes a closer look at how the smaller Indian towns are leading the demand surge & shopping like metros. I believe, one of the inherent strength of the Indian economy private consumption expenditure, will continue to remain the strongest pillar of the Indian growth story. Sustaining this consumption story is the rise of the small town consumer. The Indian consumption landscape in the small towns is dramatically changing higher disposable income, demographic dividend of a younger generation, heightened aspirations, increasing urbanization resulting in a growing number of nuclear families all important and key factors leading this development.
In line with this consumption growth story, Indian marketers have a great responsibility to nurture this consumption with sensible and responsible demand generation. It has always been our endeavor at CII to bring the best perspective and balanced thought to help businesses create sustainable value for Indian consumers. I would like to take this opportunity to thank the members of the CII National Committee on Marketing for the year 2012-13 for their active participation and engagement towards contributing to the growth of progressive marketing in Indian industry.
Thomas Varghese Chairman, CII National Committee on Marketing 2012-13 & CEO Textile Business, Aditya Birla Group
The Indian consumer is changing - more connected than ever, more savvy and better equipped to benefit from an everchanging marketplace. In such a dynamic scenario, what must businesses do to succeed while simultaneously ensuring that the consumer wins?
Prologue
In a year where consumer confidence generally took a beating with the European crises, high interest rates, inflation, and political uncertainty, the Indian FMCG market managed to clock a respectable growth rate of 15 percent in 2011 over the previous year in value terms. While some argue this signifies a worrisome slowdown relative to the growth rates of almost 19 percent witnessed in the previous year, 2011 was still a significant year for the Indian small town consumer. As we dissect the reasons behind the 15 percent value growth and identify where consumer demand resides in India, for the first time we find that the charge is led by the tier II and tier III towns. The metros have carried India for the last decade; nowsmaller towns have taken on the demand baton.
Source: Nielsen
Source: Nielsen
Source: Nielsen
Source: Nielsen
While marketers remain fixated on opportunities at the bottom-of-the-pyramid and in metro regions, not many are aware that only the metros and Middle India (1-10 Lac population towns) have outpaced the all-India growth story in the last 8 years. Even today, Middle India leads the pack across urban and rural segments for FMCG value growth rates. Middle India has been outpacing the all-India FMCG story for many years now
FMCG Value Sales (Rupees Billion)
Growing middle India; approximately 400 towns Fast growing but very spread out (Approximately 7,500 towns) 70% of the population but inefficient reach a challenge for marketers Steady growth; in the spotlight for the last 5+ years Bread & butter for most marketers for many years now; competitive
Strong Value Growth: recently Middle India is growing at 20% (up 3+ points from 2010)
Value Growth %
MAT May All India Metro 1-10 Lac towns Rest of Urban Rural
Source: Nielsen
2011
Delta
The 100-Million-strong population is only one of the reasons why marketers should take note of Middle India. In addition to the large size of the Middle India population, the increase in household incomes and rise in spending power makes it an attractive market for consumer product companies. Many studies in recent years have focused on the rise of the Indian middle class, pegging this group of striversannual household income of at least INR 500,000 (10,000 USD)and seekers annual household income of at least INR 200,000 (4,000 USD)to rise to over 500-Million-strong in 15 years. We believe this rising middle class story will disproportionately advance the expansion of Middle India over the next decade. Middle India: home to 100 million Indians
354 towns
42 towns
68 million
31 million
The expansion of Middle India shows that the demand revolution is percolating to the next tier of cities. Why do these cities matter? These cities are ready to behave like the metros of tomorrow. Of the total INR 1.4 Trillion (28 Billion USD) in FMCG sales in 2010, goods worth about INR 287 Billion (5.74 Billion USD) were consumed by the Middle India population. This number makes up more than 20 percent of the overall FMCG sales, and 30 percent of the urban FMCG sales. Middle India is also home to 30 percent of all urban stores, comprising over 900,000 stores today. In addition to this, the annual per capita FMCG consumption of Middle India towns touched INR 2,800 (56 USD), which exceeded the national average by INR 1,600 (32 USD). This is a significant achievement for these smaller towns, considering the fact that the metros breached the INR 2,800 (56 USD) mark as recently as 2009.
# of towns 5-10L
Population
1-5L
Source: Nielsen
1-10 Lac Towns contributed INR 287 billion in FMCG sales in 2010
This is 20% + contribution to all India FMCG and 30% + contribution to all urban sales
1-10 Lac Towns are home to more than 910K FMCG stores
This makes up for 11% of all FMCG stores in the country & more than 30% of all Urban stores
Versus a national average of under INR 1200; of note, metros have only breached INR 2800 in 2009
The growth figures for different FMCG categories also reveal a strong and vast market potential for Middle India. Out of the total 81 FMCG categories, 49 product categories across personal care, over-the-counter drugs, household care, and food outgrew the all-India rate. Over 30 categories saw growth rates faster than 1.15 times the all-India rate. The top five fastest growing categories like diapers, scourers, liquid toilet soaps, acne preparations and air fresheners, which fared strongly in the past year, performed even better in 2011, indicating continued possibility of robust growth in the near future. Interestingly, the focus on hygiene, health, personal grooming and convenience seems to be driving the rapid growth in these towns. Middle India is also accepting evolved categories like breakfast cereals, air fresheners, acne preparations, and liquid toilet soaps. The metros took on to many of these categories in a big way just a few years ago and Middle India does not want to be left out. In these 1-10 Lac towns, 49 of the 81 categories outgrew the all-India rate in 2011 vs. 2010
1-10 Lac Towns Value Growth indexed to All-India (MAT May 2011 over 2010)
Source: Nielsen
Marketers have been taking notice of Middle India: in the news in recent times
Van Heusen, Louis Philippe eye smaller towns, cities (June 2011) Quality tea now finding takers in smaller cities (April 2011)
FitnessOne to invest Rs. 30 cr to expand in tier II, III cities (April, 2011)
BPOs offer jobs to school pass outs in smaller cities (April, 2011)
Household Care
Food
Indias Fortis to open 25 lowcost hospitals over 3 years in smaller towns, especially in tier II and Tier III cities / June 2011 Bacardi seeks to spread cheer to smaller cities (July 2011)
1.5X or more
Omaxe to focus on small towns (as inventory is pilling up in tier-1 cities) (June, 2011)
After shave lotions, Nail enamel, Coconut oil, Shaving preparations Antiseptic creams, Antiseptic liquids, Acne preparations, Baby oils/ massage
Chayavanprash
1.25X or more
1.15X or more
Breakfast cereals, Chewing gum, Squash cordials & drinks, Biscuits, Milk foods, Baby foods, Chocolates
Source: Nielsen
Source: Nielsen
These developments augur well for FMCG companies, especially in light of the fact that this market is still in a nascent stage, and is expected to grow substantially in the next five years. The rise in demand for consumer products and relatively lower penetration of FMCG companies in these towns means that competition is not as fierce in these towns as would be in larger metros. A few major players with adequate capital and wide distribution networks are already cashing in on the opportunity. The annual turnover of the top ten FMCG players from the Middle India segment rose more than 42 percent by INR 35.8 Billion (716 Million USD) in just two years between 2009 and 2011. Strong Value Growth: Just the top 10 FMCG players have added 35.8 Billion (716 Million USD) from Middle India in 2 years The top 10 FMCG players in these towns clocked INR 86 Billion in value sales in 2009 The same players had a turnover of INR 121 Billion from these towns in 2011
MAT May Source: Nielsen
on a variety of products that enhance their standard of living. They are accepting categories that never were part of their consumption basket. This has opened up a window of opportunity for FMCG companies to introduce products that were initially brought to market primarily for the metros. The size of the opportunity will multiply in the next few years as these new categories will see deeper penetration levels across a larger household base.
Per Dealer Offtake Growth % MAT May All India Metro 1-10 Lac towns RoU Rural
Source: Nielsen
+42%
Its not just a story of sheer volumes, Middle India is also capturing marketers attention due to a shift in demand, a direct consequence of peoples rising aspirations for a better lifestyle in these regions. Consequently, there is an increase in the Middle India consumers willingness to spend more
10
A strong indicator of this trend is the rise in per dealer offtakes which represents the average sales per dealer over time. The per dealer offtake in Middle India saw a rise of 2.7 points in 2011, compared to an increase of 1.5 points in metropolitan cities in the same period. This is a growth of more than 14 percent over the previous year (MAT May 2010). For some FMCG categories like cheese, packaged rice, diapers, etc., the increase in per dealer offtake was quite substantial, at more than 30 percent. Per dealer offtakes for almost a dozen and a half categories in Middle India towns grew at over 20 percent in the last one year alone. The top ten FMCG companies in these Middle India towns saw a spurt in per dealer offtakes, which grew 17% in one year.
Consumption baskets in these towns are evolving categories as varied as breakfast cereals, air fresheners, and glass cleaners which earlier saw little acceptance in these towns are growing much faster in these towns than at the all-India level.
Source: Nielsen
May 2011 926K 80K 1501 Increase of 250+ per town Increase of 31% Increase of 37%
11
Source: Nielsen
The total number of stores in these towns rose from 823,000 in June 2008 to 926,000 in May 2011, an average addition of over 250 stores per town. The top ten FMCG players in the 1-10 Lac population towns have aggressively expanded in these areas, adding 29,892 stores on average in the last year alone and 55,767 stores on average in the last two years. More number of stores translates into an increased supply infrastructure, which is helping marketers push products to consumers faster. Not surprisingly, the distribution reach of as many as 15 categories in the FMCG sector has grown by over 5 All Commodity Value (ACV) distribution points in the 3-year period from May 2008 to May 2011. Marketers who had recognized the potential and invested in these regions a few years ago are, today, laughing their way to the bank.
12
Source: Nielsen
Source: Nielsen
Marketers will need to cultivate their brands with Middle India and build loyalty now while habits are changing, so that they can flourish when spending increases manifold in the coming decade.
13
Source: Nielsen
Source: Nielsen
3. Personal Grooming
Personal grooming has become increasingly important to Middle India personal care categories dominate the list of Middle India categories outpacing all-India value growth. Affordability, access, and awareness have contributed to the rapid rise of the personal care segment.
14
Affordability, access, and awareness have contributed to the rapid rise of the personal care segment.
2010 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Categories After Shave Lotions Batteries Other Scourers Cleaners - Glass Chyavanprash Soap Cakes/Bars Nail Enamel Coconut Oil Pktyp Shaving Preparations Antiseptic Creams Confectionery - Cough Lozenge All Air Fresheners Antiseptic Liquids Acne Preparations Packaged Tea Cleaners - Utensil Baby Oils / Massage Glucose Powders Liquid Toilet Soaps Breakfast Cereals Confectionery - Total Gum Sqsh Crdls & Sft Drn Biscuits Milk Foods Shoe Polishes
Middle India Value Growth Rate 10% 5% 71% 22% 28% 9% 23% 15% 14% 27% 29% 48% 37% 49% 16% 10% 26% 17% 57% 40% 27% 22% 28% 21% 13%
Growth Index Over All-India Rate 971% 291% 194% 188% 184% 180% 168% 163% 150% 146% 142% 136% 136% 135% 133% 131% 130% 128% 125% 123% 122% 121% 120% 119% 119%
have allowed for new categories to enter the household. Housewives are open to purchasing specialty cleaning products to help them with household chores. This incremental expenditure on improving the home is an investment many Middle India families are consciously making.
Source: Nielsen
Source: Nielsen
15
Media evolution
While there has been some improvement in infrastructure in 1-10 Lac population towns, the penetration of internet is still negligible. Most consumers rely on cable TV for their information and entertainment requirements. This medium caters to a vast group of consumersfrom youngsters, children, working men to housewivesand is expected to maintain its stronghold for the coming few years. Cable TV can hence become an ideal medium for marketers to promote their products among all age groups. A very small percentage of the Middle India population, which mainly consists of youth in select areas, has access to the internet. This gap in the market can be tapped by internet service providers. Those who do have internet access are engaged in social media activities like their counterparts in bigger cities. Companies that offer youth-centric products can hence leverage social media marketing (along with a relevant TV campaign) to popularize their offerings, especially gadgets, personal care products, and cell phones.
Celebrations
The Middle India population celebrates festivals with great enthusiasm, which is reflected in their readiness to spend more time and money on them. Nielsen data highlights that this segment is heavily influenced by Western culture, especially when it comes to celebrating festivals, and is slowly shifting from traditional gifts to celebration packs and ready-made gift options. Besides, there is a rising importance of celebrations like Valentines Day, Mothers Day, Teachers Day, etc. in the 1-10 Lac population towns. Considering that the trend is expected to attract even more consumers in the coming years, companies dealing in festive offerings like flowers, gifts, greeting cards, chocolates, etc. can expect a strong growth in revenues. FMCG companies can leverage this trend by focusing on seasonal, festive, and gift packs.
16
Mobility
More than one half of the Middle India households own a bicycle, about one-third own a 2, 3 or 4 wheeler and much less than one in twenty households own a car. With income levels in 1-10 Lac population towns on the rise and a steady increase in both the vehicle options and financing, consumers will gradually upgrade their vehicles from bicycles to two wheelers and from two wheelers to automobiles. Considering the size of population in the region, such upgrades will open up a huge market for automobile companies. Companies dealing in infrastructure development will see a growth too, as the Government will strive to provide better transportation facilities to match Middle India aspirations.
open to experimenting with handsets, and are excited about newer technologies. If service providers offer better mobile internet services in small towns at affordable rates, it is likely that a wave of consumers will skip the computer-led internet access phase and unlock the power of the web through mobile devices. However, this is possible only if telecom companies make internet usage appealing, affordable, and relevant to the Middle India population.
Mobile telephony
Mobile phones have a stronghold in Middle India. More than 94 percent of the population claims to own a phone for personal or office use. Factors like affordability of handsets and cheap call rates are driving the growth of mobiles phones in these regions. Consumers, especially youth, are more
17
DISCLAIMER
This publication has been prepared by Nielsen India (Author). This paper has been prepared to serve as a background note for investors to assist in evaluating the investment opportunities in India. The paper attempts to provide general information on matters of interest to readers. The application and impact of investing in Small Town India and Middle India varies widely from case to case, based upon the specific or unique facts involved. Accordingly, this publication is not intended to serve as a legal, accounting, investing, insurance, or tax or any other type of advice. Moreover, rules and regulations change; readers are encouraged to consult with professional advisors for advice concerning specific matters before implementing any ventures or strategies. The Author and CII neither recommend nor endorse any specific products or services that may have been mentioned in this publication and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this publication. Neither the Author nor CII shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this publication.
18
About Nielsen
Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, please visit www.nielsen.com.
About CII
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in Indias development process. Founded over 117 years ago, it is Indias premier business association, with a direct membership of over 7100 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 250 national and regional sectoral associations. CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few. The CII Theme for 2012-13, Reviving Economic Growth: Reforms and Governance, accords top priority to restoring the growth trajectory of the nation, while building Global Competitiveness, Inclusivity and Sustainability. Towards this, CII advocacy will focus on structural reforms, both at the Centre and in the States, and effective governance, while taking efforts and initiatives in Affirmative Action, Skill Development, and International Engagement to the next level. With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the international business community.
Nielsen (India) Pvt. Ltd. 6th Floor, Block C, Godrej IT Park, 02 Godrej Business District, Pirojshanagar, LBS Marg, Vikhroli (W), Mumbai - 400079 Tel: +91 22 66632500 www.nielsen.com/in
Confederation of Indian Industry The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi 110 003, (India) T: 91 11 24629994-7 F: 91 11 24626149 E: info@cii.in W: www.cii.in
19
20