The consumer durables market in rural India is expected to witness STEADY growth in FY12, provided the three major bottlenecks – lack of infrastructure, low distribution and poor availability of finance – are taken care of.
The consumer durables and information technology (CDIT) market, which covers home and kitchen appliances, white goods, electronics, PCs, laptops, cameras and related accessories, is on a growth curve in India. With the increase in income levels, easy availability of finance, increase in consumer awareness and introduction of new models, the demand for products such as washing machines, airconditioners, microwave ovens and colour televisions (CTVs) is growing significantly.
The growing number of CDIT brands – Kelvinator, Godrej, Allwyn, Voltas, LG, Sony, Samsung, Whirlpool, Daewoo and Aiwa – is testimony to the huge potential this market holds.
According to India Retail Report (IRR) 2011, the CDIT market in India holds around 3.2 per cent share of the country’s total retail market and 9.2 per cent of the organised/ modern retail market. Around 18.6 per cent of CDIT retail is organised and is estimated to grow to 20.7 per cent in FY12. The market is currently dominated by the monobrand dealership model, though the emerging organised MBOs are also growing at an appreciable rate.
The Rural Scenario
Even as the rural market is a major contributor to the total sales of consumer durables, the penetration level of consumer durables in rural India – with as much as 70 per cent of the total Indian population – is still low, making it a lucrative market for CDIT players.
According to a recent study, “Rise of Consumer Durables in Rural India”, by Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Indian rural consumer durables market, with the current growth rate of 30 per cent, is expected to witness an annual growth of 40 per cent in the ongoing fiscal (FY12).
This growth, the study says, is fuelled by the change in lifestyle and higher disposable incomes of rural India. “Around 35 per cent of the total sales of consumer durable items come from rural and semi-urban markets, which will grow by 40 to 45 per cent in the near future. The consumer durables industry is growing at a fast pace and sees a strong demand in the coming period with the growing affordability of products as well as the general buoyancy in the economy,” ASSOCHAM president Dilip Modi said while releasing the report in December 2010.
On the growing significance of the rural market for CDIT players, Sunil Mehta, CEO of Next Retail, the CDIT retail format of Videocon Industries, says, “A major [share of] growth has to come from rural markets as metros and bigger towns have nearly touched peak.”
He adds further, “The existing share of the rural market is 35 per cent with a CAGR of more than 30 per cent.”
So, what is stopping the growth of CDIT in the rural market? A poor distribution network in semi-urban and rural areas and low awareness of consumer electronics products in rural India are major factors hindering the overall growth in this lucrative market.
While a 25 per cent share in the TV category, as mentioned above, may appear good, the fact is that the penetration level of consumer durables is quite low in rural India. Consider this: two-thirds of Indian consumers live in rural areas and almost half of the national income is generated here!
The biggest challenges, Mehta of Next Retail, feels are issues pertaining to distribution and infrastructure.
“There is lack of a well developed distribution network in the rural markets and this makes it difficult to achieve growth in the sector,” says Mehta, adding, “there are also issues of power cuts and poor road linkages in these areas.”
The low penetration of CDIT is unlike that of FMCG products, which have managed to make strong inroads in rural India. On this, Vinay Bysani, vice-president, projects & marketing, Viveks, a Chennai-based regional CDIT retailer, opines that FMCG covers essentials for a home and these products touch the lives of people. CDIT products, on the other hand, are at the next level of aspiration and power availability determines the ability to use these products.
Talking about the reasons for low CDIT penetration, he says, “From the point of view of distribution, infrastructure is important. Also, national chains will look for critical mass of business to sustain their formats, regardless of the size of the format. This can be a deterrent.”finance companies restricts dramatic growth in consumption.
Mehta, however, feels the rural consumer today is well aware of the trends in metros and aspire to get the latest products packed with various features. He further says price sensitivity is still high and the reach of finance companies restricts dramatic growth in consumption.
Ways to Increase Rural Reach
ASSOCHAM suggests that for deeper penetration in the rural markets, the industry needs to create proper channels and inform the community about the products through local language advertising as well as other tools such as local exhibitions and mobile vans to tap the rural consumer. On the other hand, the the government needs to focus on the rural economy with greater fiscal incentives and generate more rural employment schemes, adds the industry body.
No doubt, in promoting the industry in rural areas, the role of the government cannot be ignored. As Mehta suggests, “Rural electrification at subsidised rates, education opportunities and EMI-linked finance facilities through rural development banks are the areas that the government must address on priority.” Agreeing with Mehta, Bysani says, “A major emphasis must be on electricity in all villages, followed by motorable roads.”
Bysani also feels product customisation can further help to attract rural consumers. “We offer products such as semi-auto washing machines, direct cool refrigerators, low-end small appliances that typically fit in the pockets of the rural market. Even in mobile phones and cameras, basic models are focused,” he says, adding, “to tap the rural market, manufacturers should concentrate on offering customised products.”
The penetration level of consumer durables would be higher in rural India with the growth in disposable incomes, improving lifestyles, power availability, low running cost, rise in temperatures and liberal incentives offered by banks and financial institutions for the white goods industry segment.
While the consumer durables market is facing a slowdown due to saturation in the urban market, rural consumers should be provided with easy consumer finance schemes, after sales services to suit the infrastructure, and amenities such as electricity and voltage, among others.
Currently, rural consumers purchase consumer durables from the nearest towns, leading to increased expenses due to transportation. Purchase is necessarily done only during the harvest, festival and weeding seasons – April to June and October to November in North India and October to February in the South – believed to be months ‘good for buying’. The purchase activity needs to be converted from the seasonal feature into a regular habit.
The Wave of Change
Despite the low penetration levels at present, the consumer durables industry in rural and semi-urban areas has witnessed a considerable change in the last few years. The sector is characterised by the emergence of MNCs, exchange offers, discounts and stiff competition in the market to attract the growing middle class of the rural market.
Unsurprisingly then, retailers are heading to rural areas. And why not? The ASSOCHAM study says that the urban consumer durables market is growing at an annual rate of 9-12 per cent, while its rural counterpart is witnessing a healthy 30 per cent growth. Clearly, the rural market is growing faster than the urban market and the urban market has now largely become a product replacement market.
“At present, colour TV, VCD, audio, mobile and refrigerators account for 80 per cent of rural demand,” says Mehta.
Bysani, on the other hand, says, “Televisions, mixers, wet grinders, gas stoves, water purifiers, fans and small refrigerators are extremely promising CDIT products in rural India.”
Not all states offer the same kind of growth and penetration; some states offer more expansion opportunities than the others. “All agriculture-rich states such as Punjab, Haryana, Madhya Pradesh, Tamil Nadu and Andhra Pradesh are growing faster than other states due to better liquidity and awareness,” says Mehta.
Bysani, though, is of the view that awareness levels are high in Tamil Nadu and Kerala among rural populace and this is somewhat lower in Andhra Pradesh and Karnataka. “Thus, the potential for expansion of the CDIT business in rural markets would be higher in these two states for the present,” he adds.
As rapid socio-economic changes sweep across India, the country is witnessing the creation of many new markets and a further expansion of the existing ones. With over 300 mn people expected to move up from the category of rural poor to rural lower middle class between 2005 and 2025, rural consumption levels will rise to the current urban levels by 2017. This, coupled with easy availability of finance, emergence of double-income families, fall in prices due to increased competition, government support, growth of media, availability of disposable incomes, improvements in technology, reduction in customs duty and growth in the rural consumer base, is expected to give the consumer durables industry the much-needed push in the large, untapped rural India.
“The writing is on the wall. Rural India can provide huge growth opportunities. The future market is at the bottom of the pyramid. CDIT will soon follow FMCG to capitalise on the opportunity, in the next three to five years,” maintains Bysani.
The ASSOCHAM study has also revealed that in the coming five years, it would be a new era for rural – by 2015 it is expected that every village will be connected by an all-weather road, every village will get internet connectivity and almost every home will have electricity and possess a mobile phone.
“Opportunities are far too many in rural markets and the CAGR trend indicates that the future growth is in smaller towns and rural areas. It is estimated that by 2015, 50 per cent demand for CDIT products will come from these areas,” concludes Mehta.
Considering these factors, it won’t come as a surprise if the rural consumer becomes the new king for most retailers, including CDIT players, and the urban consumer takes a back seat!
This feature was originally published in May 2011 issue of Images Retail