Middle India’s spending potential is growth engine for FMCG: Experts

A significant share of FMCG and e-commerce sales originates from smaller cities, underscoring the considerable spending power of consumers in middle India, said panelists at the Mint India Investment Summit 2024 on Friday.

Speaking at a panel discussion on ‘Focus on Middle India, Nruthya Madappa, partner at 3one4 Capital said, “Currently, 60% of Nykaa's purchases occur outside Tier 1 cities, reflecting 30-40% of any e-commerce brand's sales. We observe a significant portion of sales deriving from beyond tier one or urban cities, with these customers exhibiting higher retention rates in consumption behaviour." 

Around 48% of FMCG major Dabur's sales come from tier-four towns, said Chirag Agrawal, partner & leader – corporate finance advisory, financial advisory, Deloitte India. "About 60% of Meesho (social commerce startup) sales come from tier-four towns. Ethnic apparel brand Manyavar recently opened a 20,000 square foot showroom in Ranchi and Gorakhpur," he said. 

Talking about the purchasing power of Middle India, Lal Chand Bisu, co-founder & CEO of audio content platform Kuku FM said, now they are spending more money than they did in the past. 

“One thing which has sort of changed in the last 18-24 months is investors are focusing on profitability,” said Agarwal.

“I think the capital is completely available, but I think it's not only the consumer part. I think for me, in India, the consumer has a large amount of technology. So, the tech I mentioned, I think that is the key finding. It's helping the farmers on the weather forecasting patterns and everything using satellites. I think it's a very important one,” he said.

“Again, we're using technology, so it's sort of the same. Consumers need to really get a lot of access to the best kind of capabilities which we have within the course. So, I think from that perspective, the capital is completely available,” he added.

Bisu said two important developments that have impacted Middle India are internet penetration and introduction of unified payments interface or UPI.

"So, when we began in 2018, the most significant development in India was the internet wave, with Jio bringing everyone online. The second major advancement is UPI, allowing everyone to access and transact comfortably online. Back then, in 2018, nobody believed that Indians would be willing to pay for content," said Basu.

India's demographic landscape is changing rapidly, said Kanika Agarrwal, Partner at IndiaQuotient. She highlighted the different personas of people coming for jobs from Middle India. 

“Formerly, individuals from regions like Bihar worked as domestic workers or drivers, but their children now aim for careers in companies like Infosys. This shift is reflected in the disparity between wage growth in different sectors,” Agarrwal said.

“There's also a trend among farmers' children moving away from traditional agriculture due to increased automation, turning to online platforms like YouTube for agricultural knowledge. Moreover, urban residents are increasingly joining service-oriented platforms like UrbanClap, Zomato, and Swiggy, earning incomes comparable to entry-level IT positions. This shift towards digital services embraces a model of microtransactions known as the 'sachet' concept.”

Pointing towards the evolution in Middle India, Madappa said, you have to keep your ears plugged to the ground as founders and investors. “In this country, consumption patterns shift like the earth beneath you every six months.”