G09051 anshuman jaiswal itc e_choupal

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G09051 anshuman jaiswal itc e_choupal

  1. 1. 2010 End Term Submission Anshuman Jaiswal G09051 ITC eChoupal- A FMCG SuperHighway for rural customers
  2. 2. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Table of Contents Visit to Choupal Sagar, Mandsaur - A personal story............................................................................ 3 Introduction ................................................................................................................................................. 4 How Mandi Operations work? .................................................................................................................. 5 How E-Choupal works? .............................................................................................................................. 5 Future Plans ................................................................................................................................................. 6 How it helps? ............................................................................................................................................... 7 Superhighway for FMCG Evaluation ........................................................................................................ 7 Choupal Sagar ......................................................................................................................................... 8 Marketing ................................................................................................................................................ 9 Why should customers buy? ................................................................................................................. 9 Price: ................................................................................................................................................... 10 Promotion: ......................................................................................................................................... 11 Products: ............................................................................................................................................ 11 Place: .................................................................................................................................................. 11 Process ............................................................................................................................................... 11 People ................................................................................................................................................ 12 Competition........................................................................................................................................... 12 Stakeholders .......................................................................................................................................... 12 Customers .............................................................................................................................................. 13 Criticism ................................................................................................................................................. 13 Risk in the business .............................................................................................................................. 13 Profits ..................................................................................................................................................... 14 Is it replicable? ...................................................................................................................................... 15 Is it sustainable? .................................................................................................................................... 15 Fortune at bottom of Pyramid? .......................................................................................................... 15 References ................................................................................................................................................. 16 2
  3. 3. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Visit to Choupal Sagar, Mandsaur - A personal story It was month of April 2009, just a year back. I had just come from US for a visit to home and one evening, I happened to visit newly opened Choupal Sagar. I was happy to visit the place as I had heard quite a lot about the concept earlier. Here are some observations that I made that evening 1. The mall was huge in size considering it as a rural target segment. It had a food court, ware house adjacent to it. It was located on National Highway just 5 kms from the city. 2. There were few costumers in mall but food court seemed to be more popular than mall. The quality of food and hygiene were excellent and also at affordable prices. 3. Food court had very few customers from rural areas but majority seemed to have come from the city. 4. There was ample space for parking. 5. The mall was not crowded but customers were coming on a regular basis. 6. Mall was of good standard considering it was targeting rural populace. It was spacious and all kind of stuff from groceries to apparel was available. 7. Billing was cash only. 8. The variety and assortment of products were limited. 9. It was carrying multiple brands and Most of ITC brand such as John players were displayed prominently 10. Quality was on lower side but prices commensurate with quality seemed to be on higher side. I was not able to fathom how mall can run as it would not attract variety seeking customers and customers who look for premium brands. At the same time, it will not attract value seeking, very price conscious customers. 3
  4. 4. XLRI GMP 2009-10 Anshuman Jaiswal G09051 11. The mall was easily accessible from the city but in a district with population of more than ten lakhs, it seemed to be very inaccessible for targeted rural customers. Question remained; can it ever attract grocery shoppers from villages and towns nearby? 12. The SKUs need to be reworked as products need to be made available in smaller pack sizes , smaller amounts to cater to affordability of customers 13. Also, customers would not buy inferior quality. Rural and small town customers are getting aspirational and dumping of inferior quality will not fetch buyers. 14. There was no promotion in the city. Since the mall was very close to city, some amount of promotion would have helped increase footfalls. 15. I was not sure whether local needs have been actively studied and researched or it was just a mechanism to sell what the retailer has without concern for local needs and aspirations. 16. But overall, I was happy to see a step in right direction to penetrate hinterlands and reach out to vast majority of untapped markets. Introduction ITC’s e-Choupal network has reached out to over four million farmers growing a range of crops such as soyabean, coffee, wheat, rice and pulses in over 40,000 villages through 6,500 kiosks across 10 states including Madhya Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu. The reverse flow carries FMCG, durables, automotives and banking services back to villages. By 2010, the e-Choupal network plans to cover over 100,000 villages, representing one sixth of rural India, and create more than 10 million e-farmers. ITC’s strategic intent is to develop e-Choupal as a significant two-way multidimensional delivery channel, efficiently carrying goods and services out of and into rural India. By progressively linking the digital infrastructure to a physical network of rural business hubs and agro-extension services, ITC is transforming the way farmers do business, and the way rural markets work. 4
  5. 5. XLRI GMP 2009-10 Anshuman Jaiswal G09051 How Mandi Operations work? Inbound Display and Bagging and Outbound Auction Payment logistics Inspection Weighing Logistics Low risk Low margin taking ability Low value Low addition investment Weak Low market productivity orientation How E-Choupal works? Weighing Inbound Inspection Hub Pricing and Logistics and Grading Logistics Payment 5
  6. 6. XLRI GMP 2009-10 Anshuman Jaiswal G09051 ITC’s e-Choupal in alliance with Monster India recently launched web portal Rozgarduniya .com to enable job seekers in rural areas to apply for jobs through e-Choupals. In the first month, over 1,200 job openings from 52 companies were made available through this channel. e-Choupal Now States covered 10 Villages covered 40,000 No. of e-Choupals 6,500 Farmers e-empowered 4 million Future Plans The company is now in the process of rolling out e-Choupal’s Version 3.0 by 2012. The new version will help ITC discover new anchor businesses to insulate its existing e-Choupal model from risks of reversal in government’s agri reforms. Under the new version, ITC plans to offer 6
  7. 7. XLRI GMP 2009-10 Anshuman Jaiswal G09051 personalized crop management advisory services to individual farmers, integrating mobile phones into the digital and physical network of e-Choupal. Integration of mobile phones with sophisticated analytics will not only enable personalized solutions but also reduce costs. But all this will require a fair amount of experimenting. The necessary hardware-cum-software prototypes are being developed by Nokia and ITC Infotech. ITC plans to leverage the inputs it will get from millions of our farmers. The data generated will be of immense value to companies selling farm inputs as well as to financial services firms and consumer goods companies. ITC is gearing e-Choupals as rural employment exchanges, which will connect the rural youth with jobs. This will be a new anchor business with a clear revenue model. By personalizing its relationship under e-Choupal’s Version 3.0, ITC plans to reach 20 million within the existing network area itself. How it helps?  Delivery of real-time information independent of the transaction.  Empowered choice of where and when to sell the crop.  An international study has shown that the farmers income have increased by 20%.  The productivity has increased from 14% to 29%.  In three years, some 87% of the farmers in the e-Choupal areas have learned about the e-Choupal services, and 78% have used it.  A win-win situation for the farmers and the shareholders of ITC by linking the farm operations directly to ITC’s agri-export business through e-Choupal.  Avoided the middlemen  The efficiencies and the capacities built by e-Choupal for agri-communities is attracting the rural youth to re-consider agriculture & agri-services as a viable occupation and encouraging them to take to it with confidence.  Farmers’ profits increased by 33%, and the cultivation of soyabeans increased by an average of 19% in districts with kiosks. And by buying some produce direct, ITC reduced its costs, which paid for the kiosks.  Strategic cost and quality advantages were realized by multi-sourcing across geographies based on price optimization. Superhighway for FMCG Evaluation Many rural retailers are aiming to woo the rural consumers, especially after the traditional sales and distribution strategies pioneered by FMCG firms have encountered several roadblocks. From the so-called push factors, where goods were thrust down the rural consumers' throats, the accent is now on pulling them to aspire for and consume them. 7
  8. 8. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Choupal Sagar A Choupal Sagar is like any urban hypermarket except that besides the usual products it also stocks fertilizer and seeds. Saagars offer multiple services under one roof - a marketing platform, store front for agri-equipment and personal consumption products, insurance counters, pharmacy & health center, agri-extension clinic, fuel station and a food court. 8
  9. 9. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Last year, three more Choupal Sagar malls were started, taking the coverage to 24 rural malls across three states. With retail sales growing by 34% over the previous year, these unique infrastructure points continue to be one-stop shops for the farming community with a host of services like sourcing, training etc. Marketing Distribution of FMCG products in the rural markets through the e-Choupal network gained traction with the addition of personal care products to the portfolio. These products have been well received by the rural community. Marketing of Kisan Credit Cards on behalf of the State Bank of India received a very positive response from the farmers. The quantum of farmer loans grew by 31%. This was achieved despite slower loan sanctions during the crucial kharif season in the wake of the farm loan waiver scheme announced by the Government of India. Why should customers buy? Customers should buy a product or service if he/she needs it and it satisfies his/her need. Is ITC satisfying the needs of rural customers? Who are the target customers? Are rich farmers or people from towns and districts buyers of FMCG and other products? It needs to be found out how many who sell produce shop at Choupal Sagars. Also, Is ITC not sucking their earnings in spreading materialism? 9
  10. 10. XLRI GMP 2009-10 Anshuman Jaiswal G09051 There has to be value for money for the customer and for the targeted customer. If value is being delivered to wrong target segment then the target segment needs to be approached or enticed to shop at e-Choupals. Also, value-add for customer can be in form of lower prices, good quality and convenience for shopper. For small buys visiting Sagar Choupal is not possible because of large distance from villages and small towns. Also, large buying happens only seasonally and hence, demands for goods and service needs to be generated throughout the year. Price: The consumers are value conscious, unless quality and quantity are adjusted to suit price sensitivity of customers, selling to customers is not possible. Also, Choupal Sagar should look at option of providing credit in offseason for easing the price sensitivity. Unless, it brings variety and volume into business and efficiency in supply chain, it cannot demand price cuts from manufacturers other than ITC. Price –Quality matrix is very important. Many products in e- Choupal are not available in smaller SKUs which lead to poor off take. Also, ITC should work on the practice of EDLP(Everyday low pricing) and guarantees the lower prices than the existing 10
  11. 11. XLRI GMP 2009-10 Anshuman Jaiswal G09051 markets. Unless consumers see the benefit Vis a Vis existing markets, real consumer pull will not be possible. Promotion: Currently, there is no clearly orchestrated promotional plan visible on ground. The products and services need to be adequately promoted and communicated in rural masses to ensure the consumer pull for all their needs. Products: Choupal Sagar is seen as place for farmers but 50% of income generation happens in non farming sector and hence, products and services need to designed and promoted for farm as well as nonfarm population. Hence, apart from designing services such as soil testing, crop advisory, other services to tap non farmers need to be built in. Also, there is daily production of milk and vegetables which could be bought from farmers and sold to nearby cities. This would lead to enhanced incomes for farmers and stronger, non seasonal and year round relationship with customers ultimately leading to regular, frequent and high value buying. Place: The retail outlet should be accessible to customer when and where they need it. In current format it is impossible for customers to come from interior areas, tehsils etc. Also, major issue is connectivity. Villagers form rural areas and towns don’t have proper road connectivity. Also, it needs to be in accessible to customers when they visit city. If it is too far from bus stand or railway station, then customers will not be aware about it and also will not come into consideration set of customers. The sample case of Choupal Sagar at Mandsaur is not near to railway station or bus stand. Neither the buses carrying passengers to the city of Mandsaur pass through that route. ITC needs to plan the layout and location very strategically to attract right customer and in right numbers. Process Internal background processes are very important for success of any retail and distribution format. The processes behind running for the retail such as Billing, customer service, stock replenishment, product display, customer feedback are integral to reducing costs and customer orientation. Low cost of operation rather low cost in every sphere of retailing – merchandising, managing supplies are essential parameters for achieving breakeven and long term sustainability. 11
  12. 12. XLRI GMP 2009-10 Anshuman Jaiswal G09051 People Employees in Choupal Sagar are locally recruited and trained by ITC. There was visible gap in mastery of running retail outlet and serving customers. Employees are keys to success and achieving customer delight, helping them in buying process and converting potential sale into actual sale. More on understanding customer behavior and service is needed. Also, training is required to manage retailing and also prepare the staff to take on the competition. ITC also needs to prepare its people strategy as new players would want to poach a trained employee than hiring a fresher. Competition Corporate bigwigs like Reliance, Tata, Godrej, DCM and Bharti, want to tap the potential of selling goods worth $500-600 billion to the consumers. DCM Shriram Consolidated Ltd's (DSCL) retail outlet, Hariyali Kisan Bazar (HKB) sells everything from home appliances to motorbikes, from Godrej's Adhaar stores to HLL's 'Shakti' initiatives, scores of rural retail stores and malls are cropping up on a regular basis. Stakeholders Stakeholder analysis is very important. Any sustainable enterprise needs to manage expectations of shareholders, Government, Local bodies, employees, suppliers and end customers. So far profitability of venture is not clear and hence shareholders would want to understand capital deployment and potential for profits. Government needs to play an active role in facilitating expansion of eChoupals and Choupal Sagars and provide basic help in land acquisition etc. ITC should work with local bodies in achieving strategic mission and provide necessary help. Committed and well trained employees would be keys to success of the venture and finally the suppliers - ITC needs to work in close association with suppliers to enhance the supply chain profit and have strong negotiations with them to bring down the prices. As that seems to be a missing link in bringing down the prices. 12
  13. 13. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Customers There’s apparently a new bracket of buyers who are emerging in the semi-urban and rural areas. They have the aspirations to replicate the feverish spending of their urban counterparts. They have, or will soon possess, the purchasing power to consume the best that's available. And they do have the size—over 110 million consumers spread across over 6,00,000 villages. The myths about the rural consumer class being an impoverished mass are slowly being dispelled. Criticism There has been good amount of criticism of such rural initiatives. Suman Sahay of Gene Campaign terms it as a "wholesale holocaust." "In the absence of any legally enforceable regulation, the partnership between two unequal partners—where one is a large corporate and the other may be a local adivasi community—can be highly detrimental to both the overall food security of the country and to local farming communities," . Vandana Shiva of Navdanya joins the refrain, and feels that large retailers drive down prices whenever they enter the fray, and, therefore, will not benefit the farmers. "People like ITC want to do away with the mandi system so that they can influence farmers and get away with giving them lower rates. HLL has turned self-help groups across the country into their marketing arms. Thus, the farmers get trapped in vicious circles of purchasing a condition fostered by unchecked corporate involvement in the rural sector." Risk in the business Currently Choupal Sagars are present in only 24 districts in three states - MP, UP and Maharashtra. CHOUPAL SAAGARS - RURAL SERVICES CENTRES State Amravati Maharashtra Parbhani Maharashtra Wardha Maharashtra Washim Maharashtra Yavatmal Maharashtra Chindwara MP Dewas MP Dhar MP Itarsi MP Mandsaur MP Mhow MP 13
  14. 14. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Nagda MP Ratlam MP Sehore MP Ujjain MP Vidisha MP Badaun UP Bahraich UP Chandouli UP Gonda UP Hardoi UP Hathras UP Jagdishpur UP Pilibhit UP Hence, from coverage aspect, Choupal Sagar has just penetrated 5% of districts and primarily in Soyabean and wheat belt of India. From replicability aspect, ITC has huge task at its hand to increase the coverage to remaining districts and bring remaining 75% India under its ambit. Unless, the business shows scale, it is success is limited. Also, restriction to Wheat and Soyabean belt has been because of ITC’s expertise in agri export business and consumption for branded Foods business. Profits Existence of any business depends on profitability. Any commercial enterprise without potential for profits is waste of resources and defies the logic for existence of business. If we look at profitability of FMCG-Others business segment, there was loss of 483.45 crores most of it because of cost incurred on promoting and establishing FMCG brands. Since FMCG Rural Retailing (Choupal Sagar) is also part of FMCG-Others and we don’t know profit/loss contribution of rural retailing; it is difficult to talk about profitability of the FMCG retailing business. 2009 2008 Segment- Inter Inter FMCG External Segment External Segment Others Sales Sales Total Sales Sales Total Revenues 3010 4.04 3014.04 2508.25 2.8 2511.05 Profit Before Tax -483.45 -263.52 It is surprising to note that for such an acclaimed initiative, there is no mention of its profitability numbers in the annual report or the website. Without taking the credit from ITC, revenues itself will not justify the existence . There needs to be value for the company as well as for the 14
  15. 15. XLRI GMP 2009-10 Anshuman Jaiswal G09051 customer. If with planned capex and current cost structure, this venture doesn’t turn out to be profitable then ITC need to relook at the cost optimization, efficiency of operations without sacrificing the value proposition for the customer. Is it replicable? Replicability is function of stronger leadership, acceptability of business model by customer, availability of potential markets and financial strength of the organization. Let’s analyze each of the variables in context of ITC. Leadership: eChoupal was genesis of senior leadership and hence there is no dearth of support and motivation from the top leadership. Acceptability of business model: Unless, customers approve the value proposition of the model, the replication is not possible. Hence, ITC needs to work on getting customer approval and acceptability. It is very important to map customer needs and get their true feedback regarding the value chain of ITC Sagar Choupal. There could be variation while expanding in other parts of the country but those need to be managed locally. Availability of potential markets: At present, Choupal Sagars are present in only 24 districts in 3 states. The current penetration is very low and holds scope for huge expansion. 750 mn people live in rural areas and just 1% has been touched by the whole initiative. Low penetration, rising rural incomes, better infrastructure will help ITC expand into other areas of the country. Financial strength: ITC is a cash rich company with other strong profit generating businesses especially – Tobacco business. ITC has strong financial, human resource and distribution network which enables it to lead in rural retailing space and take first mover advantage. Is it sustainable? Without doubt, there are lots of gaps ranging from financial sustainability to satisfying customer need which need to be ironed out but there are strong positives for rural distribution and organized retailing becoming success. ITC’s strong Tobacco distribution business, its first mover advantage, financial wealth and leadership’s willingness to tap into unchartered territories has been major drivers for its current state and will continue to fuel the growth of the business in near and distant future. It has all the elements for successful execution of its strategy. Fortune at bottom of Pyramid? Is Choupal Sagar trying to target BOP? The answer is empathic no. Its current model is based on bridging the gap of an organized distribution channel in hinterlands of India. There is a gap where it can operate and achieve long term sustainability and hence, to call it as an innovation built for BOP would be misnomer. The target segment needs to be clearly identified and tapped. 15
  16. 16. XLRI GMP 2009-10 Anshuman Jaiswal G09051 Even if it reaches bottom 25 to 50 percentile of a district’s population (rural as well as semi urban), it could be called a success as it would add value to customers by bringing down prices and making quality product available at affordable prices. One should remember that Wal-Mart also started operations from rural America and its success has been built upon its understanding and accessibility of the rural customers. Hence, definitely, the rural retailing is not targeting BOP who live on $2 a day but targeting those who can relate to its existence and appreciate the value for money proposition that its stands for. References http://economictimes.indiatimes.com/opinion/editorial/ITC-e-Choupal-to-quintuple- reach/articleshow/5786129.cms http://www.itcportal.com/rural-development/eChoupal.htm http://www.itcportal.com/newsroom/press06june07-a.htm Year 2009 Annual report http://www.outlookindia.com/article.aspx?232470 http://www.rozgarduniya.com/?lang=hi http://lh3.ggpht.com/_sjsXVlMBPeY/RjYX6ayDaFI/AAAAAAAAC_E/Un12F2ylwTU/DEL_2855.jpg http://farm1.static.flickr.com/27/46477776_1404e98e4f.jpg http://www.pitchonnet.com/images/FeaNov05Rural-pic.jpg 16

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