Rural Retail


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Rural Retail

  1. 1. Topic : Rural Retailing In India – Aroad Ahead Ashok Sengupta Asst.Professor, Braj Institute Of management & Technology, AligarhAbstract :The Indian rural market with its vast size and demand based offers great opportunities tomarketers. Twothird of countries’s consumers line in rural areas and almost half of the nationalincome is generated here. Rural market form an important part of the total market of India. Ourratio is classified in around 450 districts, and approximate 630000 villages, which can be sortedin different parameters such as literacy levels, accessibly, income levels, penetration, distancesfrom nearest towns etc.Demand for top- drawer FMGC products is no longer restricted to urban India. The ruralconsumer has emerged as an important cog in the sales growth of premium offerings. Cleverpricing, rising aspirations and new marketing mantras are driving this trend.In this paper the author’s want to explore the driving forces responsible behind the growth ofrural retail sector. They also try to see the sights, and future outlook for improvement of ruralretail sector in India. And also some of the important remedial measures have been given bythem to over come the hurdles towards the growth of retails sectors in Rural India.Introduction :The emergence of 24/7 culture has had a very strong impact on the changes occurring in manyindustries. Each passing year has had new effects on the retail industry. Thus, retailing by itsnature is dynamic industry in which there is always changes and the next 10 years willundoubtedly whole even more changes than the last decades. 1
  2. 2. Retailing is the transaction between the seller and consumer for personal consumption. A retailerstocks the good from the manufacturer and than sells the same to the end user for a marginalprofit. In the supply chain that also consists of manufacturing and distribution, retailing is the lastlink before the product reaches the consumer. It does not include transaction between themanufacturer, corporate purchase, government purchase and other whole sale purchase.Retail can be see under two categories :1. Organized Sector :- The growth of in the organized retailing has resulted in the establishmentof departmental stores, supermarkets, rural retailing, e- retailing and luxury retailing. Each one ofthese formats has a unique advantage and the scale of operation depend upon factor like foot fall,sales per sq feet etc. organized retailing as per the norms an be run after acquiring license but it isstill a bottleneck for the development of Indian retailing.2. Unorganized Sector :- The unorganized sector is still dominated in India, since it has theadvantages of low investment need. Traditionally Indian retail outlet is a families livelihood,with their shop in front and house at the back, having negligible investment in land and assets,paying little or no tax are known as “Kirana Dukan” formally know as “ Pop & Mom Store” inUSA.Global Retaining Scenario :The Global Retail Sector is strongly affected by the slowdown of the global economic recessionswhich is become reality in many economies of the world. Retailers all over the world, will needto adopt their strategies in response to such situations. Eventually, the maturing of many marketsand consumer awareness in many economies has triggered retailers to rethink the strategies.Secondly, the emerging markets of China and India had begun a rebalancing of the globaleconomy that will have a huge impact on global retail market.The world of retail is fast changing by its nature. These changes not only based on the change indemands of consumers but also need to keep the track of the competition, the changes intechnology and socio-economic climate of the nation. As we know American economy is fuelled 2
  3. 3. economy growth in many parts of the worlds but this economy, slow down has forces manyretailers to start looking at other economies. Secondly, raising fuel prices have also had anegative effect on the rapid expansion of the trade in various part of the world. But globalizationis gradually emerging as an integral part of the retail strategy for many retailers.A.T Karnney’s global retail development index rank 30 emerging countries on a 100 point scale.The size of organized retailing industry is estimated at US$8 billion and projected to grow at acompound annual growth rate of 40% to US$22 billion by 2010. Overall, the Indian retailingindustry is expected to grow from the current US$350 billion to US$427 billion by 2010 andUS$635 billion by 2015.Retailing In Indian Prospective :With the rises of high level of income of consumers, changes in their buying habits ushering arevolutions in shopping in India. Secondly, a large young working population with medium age,nuclear families in urban areas along with increasing working women population and increasingopportunities in service sector are going to be the key factors in the growth of the organizedretail sector in India.Modern retailing has enter into the retail market in India as it observe in the opening of shoppingcentres, multi store malls and the huge complexes that offers shopping , entertainment, food,medical and various other services under one roof.The Indian retail market which is the fifth largest retail destinations globally, and was rankedsecond after Vietnam as the most attractive emerging market destination for investment in theretail sectors. The share of retail sectors in the countries GDP is around 10-12% and 8 percent ofthe employment.According to study by ASSOCHAM, Indian retail bill touch US$365 billion in 2008 againstUS$300 billion in 2007. By 2015 the retail sector is projected to over take the US$ 650 billionmark, and organized retail will cross the US$130 billion mark. 3
  4. 4. Practically, a major Indian business group is looking for opportunities in the growing retainingIndustry. Among them some of the big name in the Indian corporate sector the A V Birla Group,Bharti, Godrej, ITC Group, Mahindra, Reliance, TATA’s and the Wadia Group. The modernretail formats have also gain acceptance in India for e.g Carrefour, Tesco and Walmart are theinternational players already operating in India. Several others like Euroset, Supervalue andStarbucks having plan to enter soon.Rural Retailing :The census of India define rural as any habitation where the population density is less than400persqkm and where atleast 75% of the male working population is engaged in agriculture.The number of villages thus adds upto 638691 according to NCAER study there are almost twiceas many “lower middle income” household in rural areas as in unban areas.Burtter is considered as one of the oldest form of retailing in India since independence ruralretail in India as evolved to support the unique needs of our country given its size andcomplexities. Haats, Mandies and Melas have always been a part of the Indian landscape. Theystill continue to be present in most parts of the country e.g The Suraj Kund Craft is an annualevent that highlights some of the finest handloom and handicraft tradition of the country.Retailing is the final phase of distribution channel and its clear by now that its availability anddistribution that drive growth in rural India market. Hence, retailing will be significant and willundergo greater organizations and maturity in the rural markets as in the urban markets.Some Indian forms had made the beginning, ITC launched India’s first rural mall” ChaupalSagar”, E-Chaupal. offering a diverse range of products from FMCG, Electronic to Automobilesgoods, attempting to provides farmers for one stop destination for all their needs. Hariyali KisanBaazar Chain launched by DCM. Shriram Consolidated Ltd which are helping transforms ruralIndia by providing all manner of services to farmers. DSCL plans to expend its outlets to have anall India presence in about 2 years. This company has already tied up with ICICI Bank forproviding bank services at the Hariyali outlets. Not only that a medical centre is being setup atone of the Hariyali outlet in Punjab to facilitate tele -medical services but 40 hospitals is also 4
  5. 5. collaborating in this venture. It also in touch with NIIT to offer computer training facilities atHaiyali Bazaar. Godrej group has effective us of the same to the farmers. Pepsi on the otherhands is experimenting with the farmers of Punjab for growing the right quality of tomato for itstomatoes puries and pastes.Contribution In India EconomyThe rural Indian economy, growing at 8-10 per cent every year, will be adding $90-100 billion ofnew consumption in the next five years, over the current base of $240-250 billion. There are anumber of factors supporting this growth: increasing incomes due to good monsoons andgovernment initiatives and schemes; employment opportunities in infrastructure and industryprojects across the country and; emphasis on local employability.This new consumption will be basic plus, with a high share of packaged foods, personal care,consumer durables and IT products, two- and four-wheelers, and fashion accessories, amongothers. Over the last five years, some consumer product companies have recognised the potentialof rural markets and invested time and resources to tap into this opportunity - understanding andsegmenting the consumer, based on their spends and lifestyles.Some have re-engineered products, pricing and packaging to customise features and valuerelevant for these markets. For instance, LG has Sampoorna, a customised TV; Godrej soaps hasintroduced 50-gm packs and Samsung has launched Guru - a mobile that can be charged withsolar energy. Some players have developed new communication and distribution channels withinthe hinterland (HULs Project Shakti; Tata Teas Gaon Chalo) and some have createdcompletely new products.The Union Budget for 2009-10 hiked the allocation for the National Rural EmploymentGuarantee Act (NREGA) to US$ 8.03 billion, giving a boost to the rural economy. This is inaddition to the ambitious Bharat Nirman Programmed with an outlay of US$ 34.84 billion forimproving rural infrastructure. According to a study on the impact of the slowdown on ruralmarkets commissioned by RMAI and conducted by MART, the rural economy has not beenimpacted by the global economic slowdown. The rural and small town economy which accounts 5
  6. 6. for 60 per cent of Indias income has remained insulated from the economic slowdown.Moreover, rural incomes are on the rise driven largely due to continuous growth in agriculturefor four consecutive years. Further, the rural consumer market, which grew 25 per cent in 2008when demand in urban areas slowed due to the global recession, is expected to reach US$ 425billion in 2010-11 with 720-790 million customers, according to a white paper prepared by CII-Technopark. That will be double the 2004-05 market size of US$ 220 billion.According to the study of AC Nielsen, the durables market shrunk in urban India while the ruralmarket is seeing a 15 per cent growth rate for "Fast moving consumer goods(FMCG)" for whichthe sales are up by 23 per cent and telecom is growing at 13 per cent accordingly . Moreover, thedemand for personal care products which grew faster in rural areas than urban areas during theperiod April-September 2009.The FMCG companies such as Gore Consumer Products, Dabber,Marco and Hindustan Unilever (HUL) have increased their hiring in rural India and small townsin order to establish a local connect and increase visibility. GlaxoSmithkline ConsumerHealthcare (GSK) and Nestle are now launching products specifically for rural markets. AnandRamanathan, an analyst from KPMG, said, "Till recently, most FMCG companies used to treatrural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous masswithout segmenting them into target markets and positioning brands appropriately."Opportunities : • The basic scope of this novel initiative will be the mutual benefits of the rural entrepreneurs and industries. The entrepreneurs – primary beneficiaries, SHGs – bridge with the community, participating companies/industries and rural consumers have befitted through a robust commercial relationship. These models of marketing linkages demonstrate a large corporation which can play a major role in reorganizing markets and increasing the efficiency of a rural product generation system. • Because of this sustainable market linkages, rural producers can participate in the benefits of globalization and will also develop their capacity to maintain global quality standard. Nonetheless, it creates new stakeholders for the industry sector. And subsequently, they become part of the firms’ core businesses. The involvement of the private /industry sector at the rural product and market development can also provide 6
  7. 7. opportunities for the development of new services and values to the customers, which will find application in the developed markets. It will be worth mentioning that building a sustainable market linkage through industry’s intervention will also empower the rural mass (producers, farmers & entrepreneurs) to cope with socio-economic problems in the rural society and will ensure economic self –reliance.Key Trends And Drivers :Organized retailing is dominated by large conglomerates like TATAs, ITC, RPG group,Piramals and Rahejas apart from the various MNCs. But this trend is having strong base inFMCG. Certain growth statistics shows how different products has been booming in rural retailsectors. Dove shampoo, a premium end product reported a growth of over 100% in the ruralmarket during Jan-Oct 2010 over the same period last years. Sunsilk shampoo which reported agrowth around 14% in rural India during the period. But it is not for mass brands like Lifeboy,Nirma or Wheel which have for a decades meet the needs of rural India.Take a look at the beauty care products like Ponds White Beauty, the brand grew 4200% in Jan–Oct 2010 in rural markets over same period last year.In case of food products. Not only the demand of cream biscuits gone up in rural market the saleof Noodles too is growing nearly twice as fast in rural market compare to urban market. “Avariety of biscuits (creams ,cookies) are growing faster than glucose even in rural market. Theyare taking way significant consumption from glucose biscuits”. Opines Vinita Bali, MD & CEO,Britania IndustriesOne in every six rural buyer of hair dye now uses colours other than black-which would hadbeen dubbed indulgences a decade ago. Similarly, urban brand like Deodrants and fabricsofteners are said to be growing much faster in rural area than urban, say a study by NielsenCompany.The year- on- year rural growth of premium soap brand Cinthole (original) during April –Sepwas higher this year at around 28% as compare to 12.5% in the corresponding period last years.Similarly the rural growth mosquito –repellent brand GoodKnight coils was doubled that itsurban market. 7
  8. 8. At present the rural market is worth approximately $9 billion in consumer spending in theFMCG annually. Food categories are expected to drive the bulk of the additional $91billion intothe market place by 2025.Future Outlook • Textile and Garment companies like Raymond, Madura Garments and Arvind Denims have achieved forward integration by opening their own retail outlets for their branded garments. This gives them a huge advantage by reducing the role of intermediaries, increase profit margin and enables them to be close to the end user. • Inflation and the global meltdown have had an effect on the growth of retailing in India. Experts believe the retail industry should focus on distinction, branding, after sales service, exploring commoditization, share of purchasing power and innovation to tide over the crisis. • The year 2009 is seen as a year of consolidation for Indian retail sector. By ushering in best practices and restructuring business models, the retail industry in India is expected to adjust to the changing market conditions and ensure new opportunities for growth.Challenges To Rural Retail Development In India : • Lack of recognition as an industry. • The high cost of real estate. • Various duties. • Lack of adequate infrastructure. • Multiple and complex taxation system. • Entry of competitors. • Threat of substitute • Bargaining power of buyers. • Bargaining power of suppliers. • Rivalry among the existing players. 8
  9. 9. • Political system. • Pricing strategy. • Problems in supply chain management.Concluding RemarksTo under the market opportunity for ruler products along with the countries developmentpriorities and to chalk out a strategy where rural industries have and important role to play.While the rural products are forced to become part of global supply chain, these products need toadopt themselves not only according to the changing taste of national market but also accordingto changes in taste in international market. Therefore a process is essential to explore the marketlinkages and capacity building for SHGs through a bottom up approach and continuous dialogueswith stakeholders of rural enterprise. This process should ensure the participation of rural peopleas consumers and producers in the globalization mechanism, with better live hood and globalaccess to market.The main challenges of rural retailing can be over come by having fine tune balance betweenentire retail sectors and government policies. 9
  10. 10. References:- 1. Retailing Management (Text and case): Swapna Pradhan, Publication Tata Mcgraws Hills. 2. Strategic Management: Azhar Kazmi, Publication Tata Mcgraws Hills 3. Times of India (Times Business) 7th Dec ,2010 4. Times of India, 22nd Jan 2011 5. (Rural Retail) 6. (Rural market) 7. market) 8. 9. www. 10