Indian Rural Market[1]

8/8/2019 Indian Rural Market[1]

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Indian Rural Market

An Overview

The Indian rural market with its vast size and demand base offers great opportunities to marketers. Two-thirds of countries consumers live in rural areas and almost half of the national income is generated here.

It is only natural that rural markets form an important part of the total market of India. Our nation isclassified in around 450 districts, and approximately 630000 villages, which can be sorted in differentparameters such as literacy levels, accessibility, income levels, penetration, distances from nearesttowns, etc.

Few Facts

70 % of India's population lives in 627000 villages in rural areas. According to the NCAER study, thereare almost twice as many 'lower middle income' households in rural areas as in the urban areas.

y At the highest income level there are 2.3 million urban households as against 1.6 millionhouseholds in rural areas.

y Middle and high-income households in rural India is expected to grow from 80 million to 111million by 2007.

y In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute sizeof rural India is expected to be double that of urban India.

Opportunity

The above figures are a clear indication that the rural markets offer the great potential to help the IndiaInc which has reached the plateau of their business curve in urban India to bank upon the volume-drivengrowth.

The Indian rural market with its vast size and demand base offers a huge opportunity that MNCs cannotafford to ignore. With 128 million households, the rural population is nearly three times the urban.

As a result of the growing affluence, fuelled by good monsoons and the increase in agricultural output to200 million tonnes from 176 million tonnes in 1991, rural India has a large consuming class with 41 percent of India's middle-class and 58 per cent of the total disposable income.

The importance of the rural market for some FMCG and durable marketers is underlined by the fact thatthe rural market accounts for close to 70 per cent of toilet-soap users and 38 per cent of all two-wheelerpurchased.

The rural market accounts for half the total market for TV sets, fans, pressure cookers, bicycles, washingsoap, blades, tea, salt and toothpowder, What is more, the rural market for FMCG products is growingmuch faster than the urban counterpart.

Features of Indian Rural Markets

y Large and Scattered market:The rural market of India is large and scattered in the sense that it consists of over 63 croreconsumers from 5,70,000 villages spread throughout the country.

y Major income from agriculture:Nearly 60 % of the rural income is from agriculture. Hence rural prosperity is tied with agriculturalprosperity.


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y Low standard of living:The consumer in the village area do have a low standard of living because of low literacy, low percapita income, social backwardness, low savings, etc.

y Traditional Outlook:The rural consumer values old customs and tradition. They do not prefer changes.

y Diverse socio-economic backwardness:

Rural consumers have diverse socio-economic backwardness. This is different in different partsof the country.y Infrastructure Facilities:

The Infrastructure Facilities like roads, warehouses, communication system, financial facilities areinadequate in rural areas. Hence physical distribution becomes costly due to inadequateInfrastructure facilities.

The rural bazaar is booming beyond everyone's expectation. This has been primarily attributed to a spurtin the purchasing capacity of farmers now enjoying an increasing marketable surplus of farm produce. Inaddition, an estimated induction of Rs 140 billion in the rural sector through the government's ruraldevelopment schemes in the Seventh Plan and about Rs 300 billion in the Eighth Plan is also believed tohave significantly contributed to the rapid growth in demand. The high incomes combined with low cost ofliving in the villages have meant more money to spend. And with the market providing them options,

tastes are also changing.

Problems in the Booming Rural Marketing

Although the rural market does offer a vast untapped potential, it should also be recognized that it is notthat easy to operate in rural market because of several problems. Rural marketing is thus a timeconsuming affair and requires considerable investments in terms of evolving appropriate strategies with aview to tackle the problems.

The major problems faced are:

y Underdeveloped People andUnderdeveloped Markets:The number of people below poverty line has not decreased in any appreciable manner. Thus

underdeveloped people and consequently underdeveloped market by and large characterize therural markets. Vast majorities of the rural people are tradition bound, fatalistic and believe in oldcustoms, traditions, habits, taboos and practices.

y Lack of Proper Physical Communication Facilities:Nearly fifty percent of the villages in the country do not have all weather roads. Physicalcommunication of these villages is highly expensive. Even today most villages in the easternparts of the country are inaccessible during the monsoon.

y Media for Rural Communication:Among the mass media at some point of time in the late 50's and 60's radio was considered to bea potential medium for communication to the rural people. Another mass media is television andcinemas. Statistics indicate that the rural areas account for hardly 2000 to 3500 mobile theatres,which is far less when compared to the number of villages.

y Many Languages andDialects:

The number of languages and dialects vary widely from state to state, region to region andprobably from district to district. The messages have to be delivered in the local languages anddialects. Even though the number of recognized languages are only 16, the dialects areestimated to be around 850.

y Dispersed Market:Rural areas are scattered and it is next to impossible to ensure the availability of a brand all overthe country. Seven Indian states account for 76% of the country's rural retail outlets, the totalnumber of which is placed at around 3.7 million. Advertising in such a highly heterogeneousmarket, which is widely spread, is very expensive.


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y Low Per Capita Income:Even though about 33-35% of gross domestic product is generated in the rural areas it is sharedby 74% of the population. Hence the per capita incomes are low compared to the urban areas.

y Low Levels ofLiteracy:The literacy rate is low in rural areas as compared to urban areas. This again leads to problem ofcommunication for promotion purposes. Print medium becomes ineffective and to an extent

irrelevant in rural areas since its reach is poor and so is the level of literacy.y Prevalence of spurious brands and seasonal demand:

For any branded product there are a multitude of 'local variants', which are cheaper, and,therefore, more desirable to villagers.

y Different way of thinking:There is a vast difference in the lifestyles of the people. The kind of choices of brands that anurban customer enjoys is different from the choices available to the rural customer. The ruralcustomer usually has 2 or 3 brands to choose from whereas the urban one has multiple choices.The difference is also in the way of thinking. The rural customer has a fairly simple thinking ascompared to the urban counterpart.

The 4A Approach

The rural market may be alluring but it is not without its problems: Low per capita disposable incomes thatis half the urban disposable income; large number of daily wage earners, acute dependence on thevagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions;poor roads; power problems; and inaccessibility to conventional advertising media.

However, the rural consumer is not unlike his urban counterpart in many ways.

The more daring MNCs are meeting the consequent challenges ofavailability, 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 spreadover 3.2 million sq km; 700 million Indians may live in rural areas, finding them is not easy. However,given the poor state of roads, it is an even greater challenge to regularly reach products to the far-flungvillages. Any serious marketer must strive to reach at least 13,113 villages with a population of more than5,000. Marketers must trade off the 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. To service remote village, stockists useauto-rickshaws, bullock-carts and even boats in the backwaters of Kerela. Coca-Cola, which considersrural India as a future growth driver, has evolved a hub and spoke distribution model to reach the villages.To ensure full loads, the company depot supplies, twice a week, large distributors which who act as hubs.These distributors appoint and supply, once a week, smaller distributors in adjoining areas. LGElectronics defines all cities and towns other than the seven metros cities as rural and semi-urban market.To tap these unexplored country markets, LG has set up 45 area offices and 59 rural/remote area offices.

Study on buying behaviour of rural consumer indicates that the rural retailers influences 35% of purchaseoccasions. Therefore sheer product availability can affect decision of brand choice, volumes and marketshare. Some of the FMCG giants like HLL took out project streamline to significantly enhance the controlon the rural supply chain through a network of rural sub-stockists, who are based in the villages only.

Apart from this to acquire further edge in distribution HLL started Project Shakti in partnership with SelfHelp groups of rural women.

Affordability


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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. Somecompanies have addressed the affordability problem by introducing small unit packs. Godrej recentlyintroduced three brands of Cinthol, Fair Glow and Godrej in 50-gm packs, priced at Rs 4-5 meantspecifically for Madhya Pradesh, Bihar and Uttar Pradesh - the so-called `Bimaru' States.

Hindustan Lever, among the first MNCs to realise the potential of India's rural market, has launched avariant of its largest selling soap brand, Lifebuoy at Rs 2 for 50 gm. The move is mainly targeted at therural market. Coca-Cola has addressed the affordability issue by introducing the returnable 200-ml glassbottle priced at Rs 5. The initiative has paid off: Eighty per cent of new drinkers now come from the ruralmarkets. Coca-Cola has also introduced Sunfill, a powdered soft-drink concentrate. The instant andready-to-mix Sunfill is available in a single-serve sachet of 25 gm priced at Rs 2 and multiserve sachet of200 gm priced at Rs 15.

Acceptability

The third challenge is to gain acceptability for the product or service. Therefore, there is a need to offerproducts that suit the rural market. One company, which has reaped rich dividends by doing so, is LGElectronics. 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 andrefrigerators in the rural areas, Coca-Cola provides low-cost ice-boxes - a tin box for new outlets andthermocol box for seasonal outlets.

The insurance companies that have tailor-made products for the rural market have performed well. HDFCStandard LIFE topped private insurers by selling policies worth Rs 3.5 crore in total premia. The companytied up with non-governmental organisations and offered reasonably priced policies in the nature of groupinsurance covers.

Awareness

Mass media is able to reach only to 57% of the rural population. Creating awareness then, means utilizingtargeted, unconventional media including ambient media .For generating awareness, events like fairs and

festivals, Haats, etc., are used as occasions for brand communication. Cinema vans, shop-fronts, wallsand wells are other media vehicles that have been utilized to increase brand and pack visibility. Ideas likeputting stickers on the hand pumps, walls of the wells putting on tin plates on al the tree surrounding thepond are some of the innovative media used by personal wash like Lux and Lifebuoy and fabric washitems like Rin and Wheel. Idea was to advertise not only at the point of purchase but also at the time ofconsumption.

With large parts of rural India inaccessible to conventional advertising media - only 41 per cent ruralhouseholds have access to TV - building awareness is another challenge. Fortunately, however, the ruralconsumer has the same likes as the urban consumer - movies and music - and for both the urban andrural consumer, the family is the key unit of identity. However, the rural consumer expressions differ fromhis urban counterpart. Outing for the former is confined to local fairs and festivals and TV viewing isconfined to the state-owned Doordarshan. Consumption of branded products is treated as a special treat

or indulgence.

Hindustan Lever relies heavily on its own company-organised media. These are promotional eventsorganised by stockists. Godrej Consumer Products, which is trying to push its soap brands into theinterior areas, uses radio to reach the local people in their language.

Coca-Cola uses a combination of TV, cinema and radio to reach 53.6 per cent of rural households. Itdoubled its spend on advertising on Doordarshan, which alone reached 41 per cent of rural households. Ithas also used banners, posters and tapped all the local forms of entertainment. Since price is a key issue


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in the rural areas, Coca-Cola advertising stressed its `magical' price point of Rs 5 per bottle in allmedia.LG Electronics uses vans and road shows to reach rural customers. The company uses locallanguage advertising. Philips India uses wall writing and radio advertising to drive its growth in ruralareas.

The key dilemma for MNCs eager to tap the large and fast-growing rural market is whether they can do so

without hurting the company's profit margins. In case of nestle, company's product portfolio is essentiallydesigned for urban consumers which cautions companies from plunging headlong into the rural market ascapturing rural consumers can be expensive.

Role of Rural Retailing

Retailing is the final phase of the distribution channel and it is clear by now that it is availability anddistribution that drives growth in rural Indian markets. Hence retailing will be significant and will undergogreater organisation and maturity as is being witnessed in the urban markets, even in the rural markets.Innovative retail models which take into account the nuances of rural markets is the way forward.

Study on buying behaviour of rural consumer indicates that the rural retailers influences 35% of purchasedecisions. Therefore sheer product availability can affect decision of brand choice, volumes and market

share. India offers a huge, sustainable and growing rural market which can be tapped effectively throughinnovative distribution channels with retailing being the most critical element of this strategy as it is thefinal touch point and the actual touch point with the customer which can be the most critical influence inthe buying process.

Developments in Rural Retailing

Rural Malls: Chaupal Sagar

Chaupal Sagar is one of the first organised retail forays into the hinterland. It was soft-launched on 15August. It is actually a warehouse for storing the farm produce that ITC buys through its e-chaupals. Themall has come up in one part of this warehouse.It has been set up by the international business divisionof tobacco major ITC. It has been initiated as rural shopping-cum-information centres in Madhya Pradesh.The first rural mall has come up 40-odd kilometres journey from Bhopal towards Sehore.

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

Objective

ITC describes the establishment as a set to create a high-quality, low-cost fulfilment channel for ruralIndia. However, any organisation is driven by the profit motive which are served through this initiative:

y Reap benefits from the market they have createdy Creating an entry barrier for other prospective players

ITC has very effectively integrated its profit and social motives.

Concept

KSA Technopak - "It is definitely a pioneering venture because no other Indian company has yet enteredrural retailing with the all-under-one-roof concept."

Malls stocking wide variety of products with floor space of 7000 sq.ft plus a trading zone and informationcentre. It is a Hub cum Supermarket, which has been set up in a section of the ITC rural warehouses.


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Format

Chaupal Sagar cannot be shoehorned into any of the existing retailing categories. At 7,000 square feet, itis too small to be a mall.

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 tomotorcycles, mixer-grinders to water pumps, shirts to fertilisers... It defies pigeonholing. It is just a verysharply thought-out rural store.

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

Facilities

Spread over 5 acres of land at Sehore in Madhya Pradesh: -

y Rural shopping malls will be open from 6 am to 9 pm.y

Features and facilities at these ITC malls can overshadow those in the metros. The ITC storesells everything that a rural consumer may ask for - sarees to kurta-pyjamas to shirts (in therange of Rs 99-500), footwear, groceries, electronic durable from TVs to microwaves, cosmeticsand other accessories, farm consumption products like seeds, fertilisers, pumps, generators andeven tractors, motorcycles and scooters.

y Banking and automated teller machines will be standard at the malls.y Insurance products for farmers.y Entertainment facilities, restaurants, public facilities and parking space will also be available.y There is even a fuel pump in tie-up with BPCL and a cafeteria.y Parking lot for 160 tractors.y There will be a primary healthcare facility to be serviced by a private healthcare service provider.y Information centres: The company will create the facility for providing online information on

commodity rates and weather.

y Shopping malls will have a training facility on modern farm techniques.y Farmers can come and log on to the Internet and check the pricing and sell their commodities.y There will also be godowns for storing the wheat and soybean and also for stocking products

retailed at the mall.y Business Model

y y The business model of Chaupal Sagar is linked closely with the E-chaupal initiative of ITC.y y Role of ITC is to create infrastructure such as space, computers, and building.

y y ITC will charge a fee for the services and items sold at the mall.y E-CHAUPAL: E-Chaupal is the backbone of these rural malls. While the first layer (E-Chaupal)

provides the farmers necessary information about weather and prices, this hypermarket initiativewill provide them another platform to sell their produce and purchase necessary farm and

household goods under the same roof.


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yy The e-Choupal model required that ITC to make significant investments to create and maintain its

own IT network in rural India and to identify and train a local farmer to manage each e-Choupal.y E-Choupal combines a Web portal in the local language and PCs with Internet access placed in

the villages to create a two-way channel between ITC and the villagers. The project started with apilot in June 2000 in Madhya Pradesh with Soybean farmers. Currently, it covers six states, and

multiple commodities like prawns, cotton and coffee with 4000 Choupalsy Plans are to reach 15 states by 2010, covering 100,000 villages with 20,000 Choupals.y Each e-Choupal (equipped with a PC with Internet connectivity, printer and UPS) typically housed

in the farmer's house, is linked to the Internet via phone lines or, increasingly, by a VSATconnection, and serves an average of 600 farmers in 10 surrounding villages within about a fivekilometer radius. Using the system costs farmers nothing, but the host farmer, called a sanchalak,incurs some operating costs (The IT part of each e-Choupal costs about Rs 1.3 lakh, each e-Choupal is estimated to pay back for itself in 4.5 years) and is obligated by a public oath to servethe entire community; the sanchalak benefits from increased prestige and a commission paid himfor all e-Choupal transactions. The farmers can use the computer to access daily closing priceson local mandis, as well as to track global price trends or find information about new farmingtechniques-either directly or, because many farmers are illiterate, via the sanchalak. They alsouse the e-Choupal to order seed, fertilizer, and other products such as consumer goods from ITCor its partners, at prices lower than those available from village traders; the sanchalak typicallyaggregates the village demand for these products and transmits the order to an ITCrepresentative. At harvest time, ITC offers to buy the crop directly from any farmer at the previousday's closing price; the farmer then transports his crop to an ITC processing center, where thecrop is weighed electronically and assessed for quality. The farmer is then paid for the crop and atransport fee. "Bonus points," which are exchangeable for products that ITC sells, are given forcrops with quality above the norm. In this way, the e-Choupal system bypasses the government-

mandated trading mandis.y Farmers benefit from more accurate weighing, faster processing time, and prompt payment, and

from access to a wide range of information, including accurate market price knowledge, andmarket trends, which help them decide when, where, and at what price to sell. Farmers sellingdirectly to ITC through an e-Choupal typically receive a higher price for their crops than theywould receive through the mandi system, on average about 2.5% higher (about US$6 per ton).The total benefit to farmers includes lower prices for inputs and other goods, higher yields, and asense of empowerment. At the same time, ITC benefits from net procurement costs that areabout 2.5% lower (it saves the commission fee and part of the transport costs it would otherwise


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pay to traders who serve as its buying agents at the mandi) and it has more direct control overthe quality of what it buys.

y By building a network of warehouses near the production centres and by providing inputs to thefarmers and test output at the individual farm level, ITC is able to preserve the source and qualityinformation of produce purchased. By helping the farmer identify and control his inputs andfarming practices and by paying better for better quality, ITC is able to improve the quality ofproduce that it purchases. In the commodities market, these two combine to help ITC create thedifferentiator that it set out to establish in the beginning.

ITC gains additional benefits from using this network as a distribution channel for its products (and thoseof its partners) and a source of innovation for new products. It is also being used to provide services likerural market research to those interested.

Strategy for Success

y Use of ITC warehousesThis will help in cost control as well as better utilisation of space in these warehouses. It will alsoprovide convenience and familiarity with the target customer.

y Targeted at Farmers selling to ITC warehouse through E-chaupal

With its network of e-chaupals, ITC communicates its latest commodity prices to the farmers viathe Internet or VSAT lines. If they find these attractive, they sell their produce to ITC. Thesanchalak (the person who operates an e-chaupal; most of them are farmers) of villages nearthese malls reckons that half the farmers in his village deal only with ITC. Now, by setting up themall next to the warehouse, ITC is trying to monetise the footfalls from farmers; that is every timesanchalaks- and farmers visit ITC's soybean factories in MP to sell their produce, they also havethe opportunity to spend their freshly earned cash.ITC realised that the farmers had just got money, that they would spend it anyway, and that theyhad an empty vehicle with which they could lug the stuff back.

y ITC intends to capture the rural folks' out-of-village shoppingThe warehouse is one bulwark of its strategy, obviously. But the farmers will come here only afterevery harvest. To ensure that they keep coming to Chaupal Sagar even at other times, thecompany is offering a slew of other goodies. Another building is coming up next to the main

warehouse. When completed, it will house a bank, a cafeteria, apart from an insurance office anda learning centre. ITC has tied up with agri-institutes to offer farmer training programmes. Then,plots of land have been earmarked to display large agricultural machinery like threshers. Otherparcels of land have been earmarked for pesticide and fertiliser companies for demonstratingtheir products. A petrol pump is coming up as well.To attract footfalls during the lean season, ITC plans to organise various activities and eventsincluding melas,training programs, demonstrations.The hubs are strategically located to attract suburban crowds as well.

y Retail channel for its own brands as well as for other brandsWorking through the sanchalaks, ITC first pushed its own products, like salt, into the hinterland,and then invited others like Parachute and Philips to ride on this distribution chain. Today, it plansto similarly create revenue streams around its warehouses.

Financing Scheme

y ITC is investing initially Rs 3 crore (Rs 30 million) in each such shopping mall. However it isworking out a strategy to make it cost-effective for them.

y To keep its own investment to the minimum, ITC is encouraging the samyojak - a local broker ormiddleman co-opted by ITC - to pick up equity and manage these shops as part owners.

y Assisted by four ITC salesmen, the samyojaks will assess demand, ensure just-in-time delivery,manage customer service and keep accounts.


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y Uniqueness Of the Model: lies in the fact that it works equally well for ITC as the buyer of farmproduce and ITC as the seller of desirables.

y Charge fees from the brands being showcased at the mall as well as for the services beingprovided at the Mall.

Results & Expectations

y During the peak season, a hub sees traffic of about 200 tractors per day on an average, asfarmers come to sell their crops at the hubs.

y Initial response: On the first day the store notched up a business of about Rs 70,000-80,000.Footfall of about 700-800 people on weekdays and soaring to 1,000 on weekends withconversion levels of 35%.

The rural mall sells everything from fertilisers and hair oilto mixer-grinders and tractors

Future Plans

y ITC chairman Yogi Deveshwar has promised his shareholders that the company would open1,000 rural malls in India. This is the first one to have come up.

y Encouraged by its image as a fair and reliable buyer of farm produce, ITC decided to invest in 5-

acre malls, costing between Rs 3-5 crore each, across 15 states. The first five - four in MadhyaPradesh and one in UP - will be inaugurated by March 2004.

y The first shopping mall is being set up near Sehore, and the second one will come up in Junenear Itarsi in Oshangabad district.

y ITC is planning to set up 40 rural shopping centres in those. states where it has a presence through its e-chaupals and IT hubs spread across rural Madhya Pradesh and Uttar Pradesh.

Haryali Bazaars Bring Organised Retailing to Farmers

y Having successfully pioneered a new concept of Haryali Kissan Bazaars in 2002 in Hardoi, agri-inputs focused DCM Sriram Consolidated Ltd. (DSCL) opened eight more (Ladwa in Haryana,Ferozepur in Punjab, Kota in Rajasthan and four locations in UP).

y The store complex is spread over 2-3 acres and caters to all the farmers requirements (both DCMSriram products & other sources): farm inputs ((fertilizers, seeds, pesticides, animal feed), farmimplements, spare parts, irrigation equipment, spraying equipment. Further, the uniformedsalesman, an agricultural graduate, gives free agricultural related advice in personal interactionsor through mobile phones (averaging 20 calls a day). Twenty such stores, each catering to 100villages, are planned by 2005.

Innovative Rural Retail Models


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Indian FMCG firms with rural experience have typically used three rural retail methods--direct distributionstructures, van operations and super-stockist structures. Each of these methods need to be evaluatedtaking into consideration the current network, cost impact of the proposed structure and quality controlissue associated with each of these structures.

Direct Retail/Distribution Structures

Project ShaktiProject Shakti - Hindustan Lever Ltd's (HLL) rural self-help group initiative to push the penetration of itsproducts to reach areas of low access and low market potential.

Objective

y HLL's conventional hub-and-spoke distribution model, which it uses to great effect in both urban andsemi-urban markets, wouldn't be cost-effective in penetrating the smaller villages.

y The effort is to create a WIN-WIN SITUTAION.

Through a combination of micro-credit and training in enterprise management, women from self-helpgroups have turned direct-to-home distributors of a range of HLL products and helping the companyplumb hitherto unexplored rural hinterlands.

Concept

The Project is a retail/distribution model that HLL established in late 2000 to sell its products throughwomen self-help groups who operate like a direct-to-home team of sales women in inaccessible areaswhere HLL's conventional sales system does not reach.

Strategy for Success

1. Social Angle

y Create "income-generating capabilities for underprivileged rural women by providing a sustainablemicro-enterprise opportunity".

y To improve rural living standards through "health and hygiene awareness".

2. Commercial Angle

y For HLL, it is "enlightened self-interest".

y Creating opportunities to increase rural family incomes puts more money in their hands to purchase therange of daily consumption products - from soaps to toothpastes - that HLL makes.

y It also enables HLL access hitherto unexplored rural hinterlands.

How Does It Work?

y To get started the Shakti woman borrows from her SHG and the company itself chooses only oneperson. With training and handholding by the company for the first three months, she begins herdoor-to-door journey selling her wares.


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y A Shakti entrepreneur receives stocks at her doorstep from the HLL rural distributor and sellsdirect to consumers as well as to other retailers in the village.

y Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000 - 2,000 people.y Typically,a Shakti entrepreneur sets off with 4-5 chief brands from the HLL portfolio - Lifebuoy,

Wheel, Pepsodent, Annapurna salt and Clinic Plus. Other brands which find favour with a ruralaudience are: Lux, Ponds, Nihar and 3 Roses tea.

y

The women avail of micro-credit through banks. Some of the established Shakti dealers are nowselling Rs. 10,000 - Rs. 15,000 worth of products a month and making a gross profit of Rs. 700 -Rs. 1,000 a month. Each Shakti dealer covers 6-10 villages, which have a population of less2,000. The company is creating demand for its products by having its Shakti dealers educatingconsumers on aspects like health and hygiene.

HLL-SHG Business Model

Hindustan Lever Ltd (HLL) India's largest consumer goods company has a large distribution networkcomprising 5,000 re-distribution stockists and 40 C&FAs (Clearing and Forwarding Agent). Yet thisnetwork covers only 75,000 villages directly out of the total 6,00,000 villages in India. A tie up with SHGscan take HLL products to many more villages directly.

Trading opportunities with stable companies with established rural brands (Lifebuoy, Lux, Wheel, Clinicand 3 Roses tea etc) could be a boon to women members of SHGs.

How Does It Work?

A pilot project (christened Project Shakti) was launched in Nalgonda in December 2000 in a small clusterof 50 villages with 50 SHGs and 3 MACTS (Mutually Aided Co-operative Thrift Society, a federation ofaround 20 SHGs).

There are 3 partners and their roles are: -MACTS/SHGs: sell/retail HLL productsHLL: supplies products, provides marketing and promotion supportMART: facilitates the process, provides business training inputs

New Distribution Model


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Information Flow

Capacity Building of MACTS and SHGs

Achievement Motivation Training programmes have been conducted to create a desire among women forstarting their own business.Formal training of group leaders and other members have been conducted to help them becomesuccessful entrepreneurs.L

evel 1: Basic orientation to HLL business and brands.Level 2: Enterprise management and marketing.Animators have been appointed (stipend paid by HLL) to promote sale.

'Shakti Day', an artificially created market place in the village with specially devised communication kits isconducted regularly where special discounts and schemes are offered to increase sale.

Results & Expectations

Accounts for 10-15 per cent of HLL's rural sales. The statistic assumes significance as the rural marketconstitutes over 40 per cent of HLL's total sales of about Rs 10,000 crore.

y HLL has seen 15 per cent incremental sales from rural Andhra, which contributes 50 per cent to overall

sales from Andhra of HLL products.

y Lot of consumer understanding and insights comes from an exercise like Project Shakti, which in turncan lead to product innovation.

y I-Shakti', an IT-based rural information service that will provide solutions to key rural needs in the areasof agriculture, education, vocational training, health and hygiene.

Future Plans

Given the success of the model piloted in Nalgonda in Andhra Pradesh in 2001, the company has plansto expand Project Shakti in 400 districts by 2006. By the end of 2004, it plans to cover 100 districts. At the

moment, it reaches about 10,000 villages in Andhra Pradesh, Madhya Pradesh, Gujarat and Karnatakaand works through 800 self-help groups (SHGs).

The company intends to extend the model across Madhya Pradesh, Gujarat and UP and TamilNadumarkets. The Shakti vision, is to have by 2007 at least 10,000 Shakti dealers, covering a lakh villages andtouching at least 100 million consumers.

Company is in dialogue with non-competing companies like Philips (bulbs) for a partnership to distributetheir products through the network that HLL has established. The company is in talks with insurance


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companies such as ICICI Prudential and Max New York Life to sell policies through its `Shakti dealers'.Sources said that a battery maker is also in talks with the company as it is not a product in the HLLportfolio.

Super-Stockist Channel

Project StreamlineThe company had earlier also launched Operation Streamline to further increase its rural reach with thehelp of rural sub-stockists. It had appointed 6,000 such stockists, the distribution network directly coveringabout 50,000 villages reaching about 250 million consumers. HLL conceptualised Project Streamline toenhance its control on the rural supply chain through a network of rural sub-stockists based in thesevillages. This gave the company the required competitive edge, and extended its direct reach to 37 percent of the country's rural population.

Key Points

y To increase the reach in rural areas.y Rural Distributor will have around 20 stockists attached to him who performs the role of driving

distribution in villages using unconventional means of transport such as tractor, bullock, etc.y This gave the company the required competitive edge, and extended its direct reach to 37 per

cent of the country's rural population.y This strategy has supposed to increase the market share of HLL in rural areas by about 3%.y Control on the rural supply chain through a network of rural sub-stockists, who are based in the

villages only.y Others

Marico launched a major initiative into rural markets by appointing 2,400 sub-stockists in the lasttwo years. Recently, Dabur also finished a pilot project for its super-stockists in Patna and hasnow rolled it out in Bihar, Madhya Pradesh and Rajasthan. Reckitt has also adopted the super-stockist system in Tamil Nadu and plans to set up such a system all over the country in the nextyear, with the target of covering one million outlets in the next three years.

y Van Operationsy Project Bharat

In 1998 HLL's personal products unit initiated Project Bharat, the first and largest rural home-to-home operation to have ever been prepared by any company. The project covered 13 millionrural households by the end of 1999.

y During the course of operation, HLL had vans visiting villages across the country distributingsample packs comprising a low-unit-price pack each of shampoo, talcum powder, toothpaste andskin cream priced at Rs 15. This was to create awareness of the company's product categoriesand of the affordability of the products.

y The personal products unit subsequently rolled out a second phase of the sampling initiative totarget villages with a population of over 2,000.

y Project Bharat, a massive rural sampling initiative in two phases. They have carried out one of thelargest sampling exercises for this purpose to overcome barriers like lack of brand awareness,ignorance of product benefits and complete absence of any first-hand experience of usage.

Recommendations

y The business model for rural retail can be successful only when integration between the profitand social motive is apparent. The social angle needs to be pronounced for it to be acceptable.

y Empowerment in terms of economic power, purchasing power, knowledge and informationdissemination is crucial for rural retail ventures to succeed. The model should empower the ruralconsumer and at the same time take advantage of this empowerment through creation of demandfor its own products and that of its partners.


14/14

y The level of penetration except for certain products, has been negligible so far. However, so faras the rural share in consumer expendables like cooking oil, tea, electric bulbs, hair oil, shampoo,toilet soap, toothpaste, washing cakes and washing powder is concerned, their share on anaverage, is much higher than consumer durables. Though the rural-urban differentials are not sopronounced in the case of durables, the rural market penetration is low with respect to urbanareas. However, in case of health beverages and cosmetics like shampoos, nail polish andlipsticks, large gaps exist. Hence these products provide substantial opportunity to enter the ruralmarkets.

y Definitely there is lot of money in rural India. But there are hindrances at the same time. Thegreatest hindrance is that the rural market is still evolving and there is no set format to understandconsumer behaviour. Lot of study is still to be conducted in order to understand the ruralconsumer. Only FMCGs with deeper pockets, unwavering rural commitment and staying powerwill be able to stay longer on this rural race and hence should venture into this territory.

Documents

Indian Rural Market[1]