As the celebrated urban markets continue to throw up dwindling returns, a slew of corporate biggies head to the hinterlands to shore up bottom lines.
* The biggest challenge facing rural marketers is distribution.
* The rural pie constitutes 70 percent of the total market; rural India is home to 715 million or 12 percent of the world's total population.
* Hindustan Levers' Project Shakti fetches 10 percent of its total sales from rural markets.
* ITC's Choupal Sagar records average footfalls of 1,200 a day and nets Rs 2 lakh; the company will be launching 50 such rural malls
by the end of the next fiscal; it stacks almost all the leading durables and non-durables brands.
* There are over one lakh villages with 2,000 populations, while there are only 2,300 towns with 20,000 or more population.
At his maiden interaction with the press soon after taking over as the non-executive chairman of Hindustan Lever, Harish Manwani was queried whether his company's compulsory rural posting for its managers has outlived its utility. Manwani did not need to pause for an answer. "Rural India is in the DNA of Hindustan Lever and such postings will continue, come what may. There is no way but to listen to the real markets," Manwani declared to everyone's surprise.
This question is not relevant just to the largest FMCG player, but also to the rest of the flocks in corporate India, be they in the FMCG or in the durables arena, which face a downward churn in the celebrated urban space. No wonder then, an increasing number of corporates like tobacco-to-hotels-to-foods major ITC, FMCG giant HLL, industrial conglomerates such as the Tatas, the Mahindras, the Godrejs, DCM Shriram group, EID Parry, oil majors IndianOil and Bharat Petroleum, and bankers like ICICI and SBI are making a beeline towards the hinterlands. What makes them rush to rural markets is the fact that almost all of them have been facing saturation in the celebrated urban markets since the opening up of the economy in 1991, and especially during the past five years due to stiff competition and brand proliferation.
Marketers swear rural India is a veritable marketplace. Why? Because reaching out to the customer at the place and the time of their choice—be it the weekly cattle markets or the weekly haats or melas or even the village well where women wash clothes—is the quick, simple answer, for sans a proper distribution system, the best of the brands and products cannot survive.
Hence, the million-dollar question is what holds the key to success in this vast, untapped marketplace. Companies know it far too well that unless they come up with some innovative distribution channels that grasp the rural nuances well, all their rural efforts will come a cropper. ITC's Choupal Sagar; HLL's Project Shakti; DCM Shriram's Hariyali Kisaan Bazaar; Godrej's Aadhaar Stores; Mahindra's ShubhLabh Stores, oil major IOC's Kisan Seva Kendras are some of the examples of how India Inc has moved on a path-breaking manner to tap this market.
What Makes it Tick?
Their pioneering efforts are not without logic. Look at some of the macro factors that make them rush to these goddamned hinterlands: rural India is home to 745 million people—a hefty 12 percent of the world population; they've more disposable surplus income than their urban counterparts'; the consuming class households with an annual income between Rs 45,100 and Rs 2, 15,000 in rural areas equal those in urban areas; CGAR of rural income was 10.95 percent while it was only 10.74 percent in urban areas between 1970-71 and 1993-94.
The rural pie is around 70 percent of the total market; the share of FMCG segment is pegged at Rs 65,000 crore; durables at Rs 5,000 crore; agri-inputs market at Rs 45,000 crore; and automobile market is worth around Rs 8,000 crore. When it comes to banking, there are 42 million rural households availing banking services from 32,000 branches against the 27 million urban hhs.
All these just re-affirm one fact: the rural has much more potential than the urban marketplace, not only for agri-extension services but also for oraganised retailing in the form of rural malls and supermarkets.
If you are not convinced as yet, just read on to know how these companies have innovated rural distribution and have been reaping rich benefits. The problem with the rural flock is not lack of money but choice, which is precisely what these channels are offering. These organised retail channels are nothing but replicas of urban malls, selling almost all branded goods, not just agri-inputs.
Choupal Sagar
Following the runaway success of its e-Choupals, the tobacco-to-hotels-to-foods major ITC's rural foray, which kick-started a silent revolution amongst the harried soya farmers of MP in June 2000, the company has now moved on to the second phase. And the result is Choupal Sagar, the first of which was unveiled at Sehore near Bhopal in August 2004. A rural hypermarket or a rural mall, Choupal Sagar provides multiple services under one roof, like selling produces and buying quality products for farm and household consumption. "This rural mall also provides farmers the invaluable additional services like soil testing, banking, insurance from ICICI Prudential and LIC and medical facilities and restaurant, besides selling fertilisers, pesticides and motor pumps," says ITC agri-input head Sanjiv Sharma.
With the dazzling array of clothes and consumer goods alongside, the Choupal Sagar is a shoppers' stop for farmers—7000sqft stacked with brand names like Sonata watches and Usha, Prestige and Hawkins home appliances jostle for space with Italio, Cosmo, Springwood and John Players shirts, jeans, and Philips and LG products, and motorcycles. It also has a BPCL outlet selling diesel and petrol, and an average farmer buys fuel for Rs 3,000 or above.
How is it doing? "We plan to open 50 such hypermarkets over the next two years, for every day it has about 1,200 footfalls and a daily sales in excess if Rs two lakh soon after it was launched," says Sharma, adding the first Choupal Sagar has cost ITC Rs four crore and by the end of 2005, 25 such malls will come up in MP, with Rajasthan, UP and Maharashtra getting another 25 malls.
While e-Choupal saw the bullock cart pushing farmers making way for the e-farmers, who now log on to the e-mandi called e-Choupal to order high quality agri-inputs, get information on farming, domestic and global prices for their crops and the weather forecast in his own tongue.
Began in June 2000 with six virtual mandis in MP villages called e-Choupal or a virtual mandi, today its spread across seven states and numbers around 5,400, covering 31,000 villages and empowering 3.5 million farmers. It plans to extend its reach to 15 states and one lakh villages with 20,000 Choupals empowering 10 million farmers in the next seven years, says Sharma, adding ITC is adding four e-Choupals everyday.
Project Shakti
Faced with fast eroding market share and revenues, the FMCG giant Hind Lever couldn't but borrow a leaf or two from the Bangladeshi Gramin Bank, a pioneering and successful rural initiative that has reshaped the lives of many rural Bangladeshis, to keep itself afloat and give value to its shareholders. The way out was to tread the virgin rural market; and the vehicle was deprived village women. Thus born Project Shakti, HLL's rural marketing foray.
Launched in 50 villages of Nalgonda district in Andhra in 2001, today it covers 61,400 villages in 345 districts spanning AP, Karnataka, TN, Gujarat, Maharashtra, Chattisgarh, UP, MP, Punjab, Rajasthan, Orissa and Bengal. With over 15,000 women entrepreneurs or Shakti Ammas under its fold, it reaches out to 61,400 villages. These Ammas hawk soaps and shampoos to tea and biscuits and fetch around Rs 100 crore annually to the company besides making a living. "By the end of this decade, HLL aims to have one lakh Shakti Ammas covering five lakh villages, reaching over 600 million,'' says an official.
In fact, the Shakti is not just a venture between HLL and these women, rather an affair between state administrations, NGOs and self-help groups formed by these women and HLL. Shakti offers critically needed sustainable income, improving living standards and generating prosperity, he explains. To HLL, it offers access into the hitherto unexplored hinterlands. Under this win-win partnership, also called Operation Bharat, it sells low-priced toothpaste, fairness cream, shampoo, and fairness creams to 20 million households.
"A typical Shakti Amma takes home an average of Rs 700 every month and the company nets ten percent of its rural sales from this," says a company official. Though HLL refused to divulge more data, industry watchers estimate that it nets around Rs 100 crore in sales annually.
Another offering is iShakti, a community portal that empowers rural society by creating access to relevant information. All that a farmer has to do is log in again the next day—the answer to his query will be in a mail addressed to him. They can also post queries on any of these subjects and have they answered by experts. The initiative has been rolled out in AP in partnership with the government. Currently, there are 400 iShakti kiosks in AP, with plans in place for 1,000 more by the year-end.
Yet another initiative is the Shakti Vani programme, a social communication drive that spreads awareness of best practices in health and hygiene. Under this, a local woman, after training, is appointed as Vani for a cluster of villages. It is currently operational in over 20,000 villages in MP, Karnataka, Chattisgarh, and AP.
Hariyali Kisaan Bazaar
Another company that has seized upon the importance of reaching out to the rural market is the Rs 2000-crore DCM Shriram groups that has launched a chain of rural business centres under the brand name Hariyali Kisaan Bazaar. "Currently operational in 17 centres in UP, it is a unique front-end interface for farmers, and is a first-of-its-kind initiative in the country, " says its head of operations Sanjay Chhabra. "This chain has two-fold objective: rural retailing and extending farm produce linkages to farmers, besides giving agri-advisory and technology services, farm inputs, and financial services to villagers," adds Chhabra.
The Bazaar sells consumer products like farm fuels like petrol and diesel, kerosene and gas, fertilisers, pesticides, seeds, farm implements, vet products, lubes, irrigation equipment, auto parts, consumer durables, drugs, financial services like farm credit, retail banking, insurance and integrated storage facilities. It also acts as a last mile agri-advice and customised agri-solutions on a 24x7 model, explains Chhabra.
Each Bazaar is part of a three-four-acre campus, which can accommodate other facilities like farm output warehouses, fuel pumps, tractor service centres, warehouses, bank branches, ATMs etc. The company is planning to rapidly scale up the operations and create a national footprint with over 500 centres across the country says Chhabra.
Godrej Aadhaar
The Godrej group is another industrial powerhouse that has walked into the hinterlands by opening its rural malls under the brand name Godrej Aadhaar Stores, which are a complete solution provider for the village folks. "The first Aadhaar centre came up at Manchar near Pune in December 2003," says Godrej Agrovet's managing director CK Vaidya, adding the group entered the agri-extension service in June 2002 and the malls are the logical conclusion to this.
A complete solution provider, each Aadhaar facilitates rural credit, water management, agri-inputs supply, advisory services, marketing of rural produce, consumer goods, vet services etc. Aadhaar doesn't sell its wares at lower price unlike in urban malls but retails only at MRP but only branded items.
Mahindra ShubhLabh Stores
The Rs 6,000-crore Mahindras, the largest farm equipment maker in the country is another key player, that is also into agri-extension services, contract farming. Its branded rural retailing foray is a chain of superstores called Mahindra ShubhLabh Stores, while the farm extension arm is called Mahndra Krishi Vihar.
The company has already got into agreements with the governments of Punjab, Haryana, MP, Chattisgrah, Karnataka, AP and TN for contract farming, says an official.
ShubhLabh Stores, began in 2002, are present in 11 states—AP, MP, TN, Maharashtra, Karnataka, Gujarat, Rajasthan, Orissa, Chattisgarh, Bengal and Delhi, says Mahindra & Mahindra executive vice-president Andrey Purushottam. Over the past three years, the company has pumped in Rs 20 crore into these stores. Now, it is planning to get into food retailing, following its reported loses in contract farming.
Kisan Seva Kendras
Faced with steadily declining margins from the urban markets as competition from private marketers began to breathe down its neck, IndianOil was forced to look elsewhere for growth. And it didn't take much long for the IOC mandarins to spot the way forward—head to the goddammned hinterlands.
During the 2004-05 past fiscal alone, it pumped in Rs 91.06 crore into the rural retail business, called Kisan Seva Kendra, the first of which came up in Haryana last fiscal. IOC is so gung-ho about this venture that it plans to put in Rs 764 crore by the end of the next fiscal and already around 100 such Kendras are up and running. What's more, it will add 1,000 more such outlets by this fiscal end.
General manager-marketing, Delhi and Haryana, Kuldeep Bery says the Kissan Seva Kendra at Andhera near Karnal is a virtual supermarket. It sells pesticides, seeds, and fertilisers, groceries and FMCG items, besides fuel and auto parts. That apart it has an ICICI Bank counter to exclusively extend loans and insurance cover to farmers, he says adding these outlets are run on franchise model. IOC meets over 50 percent of rural fuel demand and controls close to 52 percent of total market.
Yes, a definitive beginning is already underway and what's needed is jacking up the numbers and reaching out to more geography and masses, as also inter-corporate collaboration efforts, something like the Choupal Sagar model. In the long-run, the Levers' model may perhaps lose out, as organised distribution is about making more brands available. For, distribution to be meaningful, it has to be inclusive, not exclusive. |
