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RURAL RETAILING Opportunities and Challenges

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2/3 of countries consumers lives in RURAL INDIA

Almost half of the national income is generated here

According to a recent survey, there are more

crorepatis in rural Punjab than in a few big urban

cities.

70 % of India's population lives in 627000 villages there are

Middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million.

Thus, the absolute size of rural India is expected to be double that of urban India.

Few Facts

The importance of the rural market can be understood with the fact that

Brand contributes 50% of total bike sale in India out of which 40% sales belongs to rural India

Rural Sales contributes ½ of the sale of total INDIA sale

Multinationals in Rural India

Started weak and did not pursued further

ColgatePhillips Nestle Old ITCUnileverGillette

LG

P&GKellogg's

Companies doing good work and their presence is strong

Godrej , Mahindra and Mahindra , ITC, HLL, Reliance, LG ,

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We need to understand for rural Market

•Basic of Funda of Marketing Management.•Cheapness VS Value •We need to observe customer behavior – need requirement •Rural mindset•Barrier to entry.

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Complete utilization of space in traditional outlets

TRADITIONAL KIRANA STORES

Features of Indian Rural Markets 

1. Large and Scattered market:- consists of over 63 crore consumers from 5,70,000 villages spread throughout the country.

2. Major income from agriculture:- Nearly 60 % of the rural income is from agriculture.

3. Low standard of living:- because of low literacy, low per capita income, social backwardness, low savings, etc.

4. Traditional Outlook:- They do not prefer changes.

5. Diverse socio-economic backwardness:- This is different in different parts of the country.

6. Infrastructure Facilities: - Roads, warehouses, communication system, financial facilities

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Key Challenges

Fortune is at the bottom of PyramidBUT

Organizations has to spend Fortune FOR the bottom of the Pyramid

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The rural market may be alluring but it is not without its problems:

1.Low per capita disposable incomes that is half the urban disposable income;2.large number of daily wage earners, 3.acute dependence on the monsoon; 4.seasonal consumption linked to harvests and festivals and special occasions; 5.poor roads; 6.power problems; and 7.inaccessibility to conventional advertising media.

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The more daring MNCs are meeting the challenges of availability, affordability, acceptability and awareness

(the so-called 4 As).

Availability

The first challenge is to ensure availability of the product or service.India's 627,000 villages are spread over 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy.

Any serious marketer must strive to reach at least 13,113 villages with a population of more than 5,000.

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Soft drinks giant Coca-Cola is growing at 37% in rural markets, compared with 24% in urban areas.

According to Hansa Research, a market research firm the penetration of consumer durables has risen sharply in 2000 and 2005. In color TVs, sales are up 200%; in motorcycles, 77%.

The penetration is still low. Coke, for instance, reaches barely 25% of the rural market. Huge Potential . Distribution cost with incremental market penetration.

Over the years, India's largest MNC, Hindustan Lever, a subsidiary of Unilever, has built a strong distribution system, which helps its brands reach the interiors of the rural market.

Affordability

The second challenge is to ensure affordability of the product or service. With low disposable incomes, products need to be affordable to the rural consumer, most of whom are on daily wages.

Some companies have addressed the affordability problem by introducing small unit packs. Godrej recently introduced three brands of Cinthol, Fair Glow and Godrej in 50-gm packs, priced at Rs 4-5 meant specifically for Madhya Pradesh, Bihar and Uttar Pradesh

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Hindustan Lever, Lifebuoy at Rs 2 for 50 gm.

Coca-Cola returnable 200-ml glass bottle priced at Rs 5.

Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate.

The instant and ready-to-mix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and multiserve sachet of 200 gm priced at Rs 15.

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Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. One company, which has reaped rich dividends by doing so, is LG Electronics. In 1998, it developed a customised TV for the rural market and christened it Sampoorna. It was a runway hit selling 100,000 sets in the very first year. Because of the lack of electricity and refrigerators in the rural areas, Coca-Cola provides low-cost ice-boxes - a tin box for new outlets and thermocol box for seasonal outlets.

Mobile Van at Kasargod

1000 In Store Demonstrators at Dealer counters in

Rural Cities

Promotion of Sampoorna TV’s

Cookery Classes atdifferent locations forRural Housewives

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Awareness

Mass media is able to reach only to 57% of the rural population., unconventional media including ambient media .

Events like fairs and festivals, Haats, etc., are used as occasions for brand communication.

Cinema vans, shop-fronts, walls and wells are other media vehicles that have been utilized to increase brand and pack visibility.

Ideas like putting stickers on the hand pumps, walls of the wells putting on tin plates on al the tree surrounding the pond are some of the innovative media used by personal wash like Lux and Lifebuoy and fabric wash items like Rin and Wheel. Idea was to advertise not only at the point of purchase but also at the time of consumption.

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Case No. 1

Hindustan Lever, whose 2006 revenues were $2.8 billion, has been learning these lessons for nearly a decade.

"The objectives of Project Shakti are to create income-generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural living standards with greater awareness of health and hygiene," says Dalip Sehgal, executive director of the Shakti initiative.

Empowering Women Consumers – Shakti Case Study

Indian economy opened up in early 1990sP&G competition.Self Help Groups (SHG)Women from SHGs become Shakti entrepreneurs -- direct-to-home distributors [of Hindustan Lever products] in rural markets,"

A typical Shakti distributor sells products worth Rs 10,000-15,000 (around $250) a month, which provides an income of Rs 700-1,000(around $25) a month on a sustainable basis.

According to media reports, Shakti distributors now account for 15% of the company's sales in rural India .

The Shakti model was piloted in 50 villages of the Nalgonda district in Andhra Pradesh.

It has now spread to more than a dozen states, creating 26,000 women distributors covering 80,000 villages. By 2010, the goal is to recruit 100,000 Shakti distributors covering 500,000 of India's more than 600,000 villages.

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Case No. 2

ITC's eChoupal Initiative - Case Study

"In 2000, ITC embarked on an initiative to deploy technology to reengineer the procurement of soybeans from rural India," says S. Sivakumar, CEO of ITC's agri-business division. "Kiosks -- called eChoupals -- consisting of a personal

computer with Internet access were set up at the villages." He explains that soybean farmers could access this kiosk for information on prices, but had the choice to sell their produce either at the local market or directly to ITC at their hub locations. A hub location services a cluster of eChoupals. By purchasing

directly from the farmer, ITC significantly improved the efficiency of the channel and created value for both the farmer and itself.

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In 2005-06, ITC generated $23 million selling chemicals and fertilisers. That may not sound like much, but it's early yet. In a recent move, ITC has set up its first urban outlet, the other end of the eChoupal chain, to retail fresh fruit and vegetables.

What about other companies? example of PI Industries, whichhas increased its market share in Madhya Pradesh from 12.3% in 2003 to 33% in 2005 after partnering with ITC to sell through the eChoupal.

"Over the next decade, the eChoupal network will cover more than 100,000 villages, representing one-sixth of rural India, and create more than 10 million e-farmers."

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OBJECTIVE

• An establishment to create a high-quality, low-cost channel for rural India.

• Any organization driven by the profit motive which are served through this initiative:

• Reap benefits from the market they have created

• Creating an entry barrier for other prospective players

Major Players in Indian Rural Retail

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DEVELOPMENTS IN RURAL RETAILING

Rural Malls: Chaupal Sagar• Chaupal Sagar first organised retail forays.

It was launched on 15 August. • A warehouse for storing the farm produce

that ITC buys through its e-chaupals. • Initiated as rural shopping-cum-information

centres in Madhya Pradesh. • The first rural mall has come up 40

kilometres journey from Bhopal towards Sehore.

• ITC Spent 3 years and Rs.80 crores on research and development of this concept including investments in E-choupal.

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FORMAT

• It has opted for self-service, stocking its merchandise on shelves lining the neat aisles, it stocks a breadth of products no supermarket can. It offers almost everything - from toothpastes to televisions, hair oils to motorcycles, mixer-grinders to water pumps, shirts to fertilizers.

• Most of the brands it sells are national such as Marico, LG, Philips, torches from Eveready, shirts from ITC's apparel business, bikes from TVS, and tractors from Eicher.

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ITC’s Choupalsagar store in Sehore district of Madhya Pradesh

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DCM Sriram Consolidated Ltd. (DSCL)Hariyali Bazaars – Focuses mainly on agri

products. • These bazaars offer – • Quality Agri-Inputs• Financial Services• Farm Output Services• Other Products and Services

• So far, 70 "Hariyali" Stores have been set up in different states across India.

• Ranbaxy’s Fortis Health World is tying up with Hariyali Kisan Bazaar to make entry into the rural market.

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GODREJ AGROVET LTD

• Initiated its rural retail business through ‘Godrej Aadhaar’.

• These outlets offer rural households, the basic food, grocery, apparel, footwear to furniture, kitchenware and home appliances to value-added services including banking, postal services and pharmacy.

• Godrej is planning to setup 1000 stores across the rural India in next five years.

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KISAN SEVA KENDRA - IOC

Kisan Seva Kendra is a low cost business model by Indian Oil corporation of a retail outlet offering fuel and other non fuel value added services with penetration in rural markets generating high returns.

• KSK a one stop center of service(seva) for the farmers at his doorstep making available: Diesel and Petrol with Q&Q Seeds, pesticides, fertilizers and other agri needs Nutan stove, Hurricane lamps Daily needs such as grocery, personal care Stationery for children. Tools, auto spares Location specific value additions Low investment ranging from Rs.6 to 9 lacks with a pay back period of 3 to 4 years.

• It currently has approx. 100 operational stores.

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Swagat

The Swagat retail network are large format sites designed exclusively to cater to travelers on the highways. With spacious parking lots, dhabas, eateries, retail stores and restroom, the Swagat outlets provide customized services to owners of both light motor vehicles as well as heavy motor vehicles.

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Tasting success with its Krishi Vihar network or one-stop-shops for agri-input services, Mahindra Shubhlabh Services Ltd (MSSL), a subsidiary of Mahindra and Mahindra Ltd, is planning to set up 4,500 outlets across 180 districts in different states across the country by the year 2006. As part of this expansion plan, MSSL has initiated the ‘hub and spoke model’ through which each district is expected to have 25 outlets to service the farmer’s needs.

Triveni Khushali Bazaar (TKB), a rural super store chain of Triveni Engineers and Industries Ltd, plans to nearly double the number of its outlets by March 2008 to 80, as organized retail takes off in the country’s rural pockets.

By 2009, it plans to have a total of 200 stores. The chain currently has 45 outlets that sell agricultural implements, diesel, fertilizers, and consumer goods to the farming and rural community.

TKB has the majority of it's stores around 35 of then in Uttar Pradesh. During the visit to one of their outlets in Hathras, western UP a flavour of their model was obtained. The store is present just on the outskirts of the town of Hathras and the main visible category is Grocery. They also sell Agri-inputs, cycles, tyres etc.

Triveni Khushali Bazaar (TKB)

E.I.D. Parry has made to the 100,000 sugarcane farmers associated with it. Parry has introduced complete IT enabled services for farmers such as Remote Sensing, Geographic Information System and Global Positioning System for mapping and monitoring sugarcane growing area. Village-wise soil nutrient analysis, detailed farm boundary mapping, integration with Cane Management System and soil maps ensure efficient cane management.

Free loans to these operators for buying high end farm equipment, This helps mechanise farm services, accelerate sugarcane harvesting and save costs as manual labour is becoming increasingly expensive.

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PALENGKENITO• An innovative retail

format in the Phillipines called the ‘Palengkenito’, which means ‘mini-market’ in English.

• The Palengkenito is a mobile grocery store on wheels, developed to bring retail convenience to less-affluent consumers in the Philippines.

• Specially converted Suzuki minivans are outfitted with a generator, shelving units, food heating elements and a refrigerator.

•The roving store offers quality pre-packed fresh and processed food, snacks, canned goods, toiletries, and other basic household items in small packages and sachets !

CONCLUSION• Led by the rising purchasing power, changing

consumption patterns, increased access to information and communication technology and improving infrastructure, rural retail market is estimated to cross US$ 45.32 billion mark by 2010 and US$ 60.43 billion by 2015, says a study by CII and YES BANK.

• Consequently, Corporate India is already firming up concrete plans to tap the rural retail market, which is growing at double the rate of urban markets, with innovative schemes and human resource policies.

• And with 87 per cent of rural markets not having access to any sort of marketing and distribution, this segment has tremendous potential for growth.

• Its not easy !

Definitely there is lot of money in rural India. The greatest hindrance is that the rural market is still evolving and there is no set format to understand consumer behaviour.

Only FMCGs with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on this rural race and hence should venture into this territory.

Remember - Corporates need You to make difference !