India Rural Consumption : The Tipping Point

- Information age is impacting rural consumption. "Rising awareness levels driven by increased media penetration and higher distribution reach by national companies is leading to a more demanding and discerning rural consumer. Quality and brand perception is becoming an important parameter for purchase decision; ‘premiumisation’ across segments is underway. Discretionary spends particularly on durables, housing, automobiles and private education are rising."
- Societal changes are spurring new consumption trends and issues. "Nuclearisation of families bodes well for demand for new homes, durables, automobiles etc. Also increasing emphasis on education will create opportunity/inputs for a growing service economy. Saving levels are trending down and bank credit is gaining wider acceptance particularly for increased discretionary purchases. Higher land prices have further amplified the ‘wealth’ effect visible in rural consumption. Rising labor shortage is raising cost of farming, though it is also pushing the pace of farm mechanization."
- Opportunity for growth is large, but fight for share of wallet will become increasingly expensive. "Rising income levels in rural areas will definitely brighten revenue growth prospects for FMCG companies. However increasing fragmentation of consumer-spends, imply that competitive costs (marketing/distribution) for players will rise as fight for share intensifies as consumer pull becomes stronger than retailer push. Distribution advantage of market leaders (like HUL) is receding as other companies are gaining ground. Best rural consumption plays in our coverage universe are ITC (OW), United Spirits (OW), Nestle India (N) and Mahindra & Mahindra (OW)."

JPMorgan India Consumer Insights 20100831

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