Rising purchasing power and changing tastes in the rural areas are increasingly encouraging direct -selling companies to take the road to the hinterland. While the insurance industry has been a big player in Tier-I and Tier-II cities, it is now the turn of other FMCG and healthcare products companies like Oriflame, Amway, Forever, and Tupperware to hit the country roads.
The industry is currently estimated at around Rs 3,330 crore in revenues (excluding the insurance business) and projected to grow at 12.5%to touch Rs 5,328 crore by 2012-13. The direct-selling firms are also expanding their product portfolio and network to suit rural markets.
Even though the Tier-I and Tier-II towns currently account for almost 43% of their revenues, the smaller cities and towns have become attractive, given their higher growth rates.
According to a study by consulting firm Ernst & Young and the Indian Direct Selling Association (IDSA), over half the latter’s members recorded growth rates of over 30% last fiscal in smaller towns and metros accounted for only 10-20% growth.
Pinakiranjan Mishra, partner and national leader (retail and consumer products), E&Y, said, “Metros still contribute 57% to the revenues for most direct selling companies. But the faster growth rates in Tier-I and Tier-II towns were an attraction.”
Fredrik Widell, chairman, IDSA, and regional director, South Asia, & MD of Oriflame India, said, “We will strengthen our network in Tier-I and Tier-II towns. We are looking at tripling our business from India in the next 3-4 years.
He added that India was one of the most important markets for his company in Asia. “We see a huge growth potential here,” he said.
The Swedish cosmetics company will add 150 products to its product portfolio, taking the total count up to 275 SKUs and many of these products will be localised for the Indian markets.
Similarly, a rival direct selling cosmetics player, Forever Living Products (India), has been also seeing better traction in rural areas. “So we have increased our distributor network in Tier-I and Tier-II cities, which account for 65% of the 1.8 lakh distributors,” said the company’s country manager for India Amarjit Ubhi.
Amway India, which is the largest direct selling FMCG company in the country, also plans to strengthen its presence in rural areas by setting up product pick-up and ordering centres in more than 400 locations. “We plan to ramp up our presence in smaller towns by the end of this year,” said William Pinckney, MD and CEO, Amway India.
The firm, which clocked revenues of Rs 1,128 crore in calendar 2008, is hoping to grow 27% this year by expanding its product portfolio. It intends to add 6-8 products every year to its existing portfolio of 110 products across segments.