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People in smaller towns are increasingly shopping at organised retail stores such as supermarkets and hypermarkets.
According to market research firm Nielsen, smaller towns and villages are fuelling the growth of FMCG sales on the back of growing income, increased use of plastic money, and the rise of regional FMCG players.
Small-town share
Nielsen said that in the last two years, towns with a population of less than a lakh contributed about 58 per cent of FMCG sales through modern stores such as Food Bazaar, Star Bazaar, D-Mart, Reliance Fresh, and EasyDay. Smaller regional supermarket players, large neighbourhood stores and pharma chains such as Apollo Pharmacy and Medplus, are also making their presence felt.
Sameer Shukla, Executive Director, Nielsen India, told a press conference that the major factors leading to the growth of modern retail in small towns are the rural growth impetus given by increased minimum support price for various crops that has led to a jump in the average household income.
He added that demonetisation has given a huge boost to the plastic money in the smaller towns that was largely a cash-driven economy. The reduction of GST rates on certain branded commodities has also boosted sales, with the narrowing in the price gap between branded and unbranded commodities.
Organised growth
Traditional retail stores across the country declined by 4 per cent, which means organised retailers are in an expansion mode and opening more outlets.
Another important aspect that could have led to the growth of modern trade in the smaller towns is the rise of regional players. The value growth of regional players in the third quarter of calendar 2018 was 38 per cent compared with the 15 per cent of national players. The growth of regional players is predominantly in packaged food categories where these players clocked a three-fold growth compared with the national players.
However, despite all the growth factors, modern retail is about 10 per cent of the total FMCG trade in India, while in similar growth markets such as the Philippines, Malaysia and Thailand it is over 70 per cent, Nielsen said.
The research firm said that in the coming quarter, FMCG growth in rural areas will be better than expected on account of the rising GDP, 2019 general elections and low inflation. Nielsen predicts the earnings of FMCG firms in the fourth quarter of calendar 2018 to be at a decent 12-13 per cent. Nielsen goes by the calendar, not the fiscal, year.
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