Rural Retail (Research Paper)


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Rural Retail (Research Paper)

  1. 1. Rural Retailing in India-The Road Ahead Shikhar Das Srivastava*ABSTRACTThe decision to liberalize the Indian Economy in 1991 had far reaching consequences,which is still continued into the new millennium also. On the marketing front, there wasthe arrival of many well-known Multi National Companies especially FMCG productdealers. In the initial years the focus was on the easily accessible well developed urbanmarkets but soon it got saturated because of proliferation of brands and intensecompetition, resulting in the near saturation of the urban market. This forced companiesto look for greener pastures, i.e. new markets.All eyes turned to the world’s most promising potential markets of 742 million ruralconsumers who had yet to taste the fruits of modernity, a promise that seemed ready to befulfilled because of explosion in buying capacity in rural sector.Rural markets are proving to be vital for growth of most companies. Priority to developthe rural markets and sincere efforts to overcome the difficulties would open thefloodgates, offering tremendous potential for growth. This paper will reveal such majoropportunities existing in rural sector for many major retail players and how they arecashing the present and future gains out of that.*Assistant Professor, Babu Banarsi Das University, Lucknow 1
  2. 2. Rural Retailing in India-The Road Ahead Shikhar Das Srivastava*1. Introduction: Even after independence, Indian economy is still being dominated byagriculture sector and the major reasons behind this- (i) its contribution in food grainproduction which is consumed by both rural and urban market and (ii) self-employment.Considering this fact, Central Govt. and other State Govt. have been emphasizingdevelopments of rural areas through investments in different sections like infrastructure,agricultural technology and farm productivity. In addition to this private investors alsoconsidering rural as Creamy sector and dominantly supposing as processing andconsumption centers. The demand for production and consumption of goods in ruralareas has increased substantially (two-third of country’s consumers live in rural areas)both for household and industrial goods i.e. farm equipment and machinery, high yieldvarieties of seeds, fertilizers, pesticides, detergent, personal care product, television etc.Another picture of rural economy is the percentage increased in output namely foodgrains, fruits and vegetables, milk, poultry products, handloom and handicraft productsthat almost generate half of the India’s National Income. All these elements are raisingthe opportunity of retailing in rural.2. Description of rural market2.2-What is Rural Area or Market?There could be numerous approaches and methods in defining Rural Area/Market. Allvillages with a population of less than say 4000 or 5000 (or a population of 5000 plus* Assistant Professor, Babu Banarsi Das University, Lucknow 2
  3. 3. a population density over 400 per sq. meter with at least 75% of the male workforceengaged in non-farming activities) will be considered as rural area. Later on a new andpure definition of rural area came up as- an area/s having population of less than 5000,75% of the population engaged in agriculture, 50% of the national income is generatedby the rural population and 2/3rd of the country’s consumer lives in rural territory canbe considered a rural area.2.3- Retail prospects in Rural India:Rural India accounts for roughly 70% of the population where 6, 38,000 villages and 593districts consist of 742 million people. 15% of rural population lives in 20,000 large “nonurban” areas with population more than 5,000 people. 63% of rural population lives invillages of 1000 to 5000 people. Remaining 3, 90,000 villages have fewer than 1000people accounting for 22% of the population. Growth in agriculture has resulted in therapid rise of rural incomes which results in the rise of consumption pattern especially forfactory produced goods in rural areas. The Indian rural market with its vast size anddemand base offers great potential to marketers. So for the retailers it is required to see inwhich segment they are catering in the above division of villages. For example HUL’sproject “Shakti’ caters to villages with a population of 500 or above where in Evereadyconsiders even the remotest of village as its target customer. It operates through morethan thousand company-owned vans and has over 4,000 distributors to directly providingservice to 6, 00,000 retail outlets. According to the IMD report 1998 of NCAER(National Council of Applied Economic Research), the consuming class households(annual income between Rs.45, 001-2, 15,000) in rural India equal the number in urbanIndia. It is well known that for the same level of income, the purchasing power in ruralareas is much higher as the expenditure on basic necessities is relatively much lesser/subsidized or free in comparison to the urban India. Thus rural markets are immenselyattractive for most companies. The best example is Hindustan Unilever Ltd. a largestFMCG company, more than half of its sale of Rs.11, 700 cr. deriving from rural market.Moreover the following figures shows the lucrative picture of rural sector- Estimatedannual size of rural market in FMCG is of Rs.65000 cr., FMCD is Rs. 5000 cr., Agro-inputs is Rs.45,000 cr., Two and four wheeler is of Rs.8000 cr. The rural market forFMCG product enhanced by 30 % between 1992-93 and 1998-99 and accounted for 3
  4. 4. about 53% of this product category’s total consumption in India. Similarly in 2001-02LIC gathered 55 % of its business from rural sector only and for BSNL, half of itscustomer base belongs to rural India. Thus market indicators such as size and growth formany products are very much fascinating for any company to ignore.2.3a-Characteristics of Rural Market: A rural area exhibits several distinctivecharacteristics that are different from urban areas. Demographic features like incomelevel, literacy levels, family size, occupational patterns, social custom norms and manyother are unique to rural India.Demographic changes incurring in India:(i) INCOME Level -The increment in household incomes made a drastic change in ruralretail image. With the increased working population, the purchasing power of the ruralpopulation has gone up from 40% in 1991to 42 % in 2001. The following diagramdepicts the population of Rural India divided on the basis of household incomes. Striversand seekers constitute the middle class. The diagram depicts how the increase inhousehold income will lead to increased consumption by various levels of consumers inthe stated diagram. The diagram shows the growth trend in household income since 1985to upcoming 2025. 4
  5. 5. By the graph, in 2005 the number of Aspires were 253 million (approx) which will innext 10 year turned into 411.2 million i.e. roughly 158 million people more will be addedto the aspirers class. At the same time, in 2005 the population falling in deprived classwas around 513.5 million, which is expected to decline at the number of 402.5 million(i.e. 111 million will shift from below poverty line to aspire class).Similarly in connection to the context the next graph clearly shows the consumption levelchange with the growth in disposable income of rural household. It is presumed that therural per-household consumption will rise and match the today’s urban level by 2017.The fact is that the urban consumers have to incur a high cost of living while the ruralpopulation has a higher level of disposable income for the same levels of income. Formarketers, this is an encouraging fact. In 1983 the per-capita consumption expenditure ofthe rural areas was Rs.112 /month whereas it was Rs.166 in the urban areas. In 2001, theper-capita monthly income expenditure increases to Rs.486 in rural areas and to Rs.855in urban areas. Moreover there is a shift in the expenditure pattern of rural consumers. In1983, about 66% of the per capita consumption expenditure was on food and, by 2001, 5
  6. 6. this proportion declined to 59%. These trends indicate that while income as well asexpenditure in rural areas has increased, their spending on non-food items has alsoincreased.(ii) LITERACY Level- Still major population in rural is reluctant towards education.Primary level education in the rural sector is below 60%. Thus the demand for productslikes books, magazines, notebooks, pens/pencils, drawing instruments, calculators,computers etc. is low. But changes are taking place due to efforts of Govt. and corporatepeople both .The govt. and corporate sector (in form of CSR) is coming together forpromotion of literacy in the rural sector and effect has been shown in form of risenpercentage up to 23%. This is result contributed significantly to an improvement in thesocio-economic status of the rural people. With this growth the demand for educationalproducts has increased positively.(iii) FAMILY Size- Families in rural market are joint-ones. In which a group of peoplelived under one roof, ate food from common chullah, held income and property incommon and were related to each other by bonds of kinship. Till now they live in jointfamilies. They check with the family and discuss everything before buying any product.It is important to consider the size of the family, depending upon this they can go for theproduct. The family member’s discussion influences the purchasing decision. Heremoney plays the secondary role their composite decision matters a lot. But with rise inpopulation and resulting pressure on land and several other socio-economic factors, jointfamilies are breaking apart. A new concept of ‘individualized joint families’ is emerging,in which families stay in the same house but spend separately. Thus with the increasingnumbers of ‘individualized joint’ and nuclear families, the range and number of brandedproducts coming into the family can increase.(iv) OCCUPATIONAL Pattern- The shift can easily be seen from cultivator to wageearner from last few decades in rural areas. Rural people are also moving towards jobsand retailing professions. But there is a difference in wage and salary earnerconsumption/investment pattern. A daily wage earner has to account for variation s inincome, whereas a salary earner brings home an assured fixed amount and therefore canplan in a better way. 3/4th of rural household heads are either cultivators or wage earners,whereas 3/4th of urban household heads are salary earners, petty shopkeepers and wage 6
  7. 7. earners. The cultivator’s disposable income is highly seasonal with more disposableincome available immediately after the harvesting season. This is therefore the time whenhe is more inclined to make purchases, especially of consumables and durables.(v) SOCIAL CUSTOM Norms- Social norms and customs play a significant role indetermining individual and collective behavior in rural India. Village elders andindividuals such as the titular head of the village, caste leaders, priests and such sociallyimportant people have a major influence on the rural people. They frequently influencethe purchase decisions of others in the village, acting as credible sources of informationor playing the role of opinion leader. Similarly there are some social norms and festivalson which certain kind of products demands shoots-up instantly. Thus Companies musthave to see the rural market as potential market and must develop significant marketstrategies for its growth and development.2.4-Highlights of Rural RetailIndian urban consumers have experienced the taste of organized retailing which in factenlarged the picture of Retail and Consumer stature mainly in rural area. But at the sametime, Marketers are also aware of the fact that urban market would face the stage ofsaturation later or sooner and that’s the reason they are armoring themselves by owningthe strategies of diversification and exploring new markets for growth. The major portionof rural market at the moment is still untouched and especially in retail sector, thecompanies like HUL and ITC are leading in rural area and catering the rural demand butyet there is much more opportunity exists for the other players also.When organized retail first made its presence felt in rural India, it wasn’t a pure retailingoperation targeting the rural masses. Companies like DCM Sriram Consolidated Ltd.(DSCL) and Godrej who had significant agri-business interests, set them up to meet theneeds of farmers in a store’s catchments area. These stores are one-stop shops meant tomeet the occupational needs of farmers by providing agri-inputs and fertilizers. Thesestores tend to target farmers with all sizes of holdings. While organized retail centered onthese stores, unorganized retail revolves around the local village shop and the haat. 7
  8. 8. There are some major players in rural retailing to cater the need of Rural Population. Theyare; (i) DSCL - Hariyali Kisan Bazar (ii) Godrej- Aadhaar (iii) HUL Project - Shakti (iv) ITC - e-choupal and Chaupal Sagar (v) Kisan Seva Kendra1. DSCL-Hariyali Kisaan BazaarDSCL backed by years of experience in the agri-business, has implemented aone of a kind rural retailing initiative, the Hariyali Kisaan Bazaar rural departmentalstores, to provide single-point solution to the diverse needs of the contemporary Indianfarmer. Each store covers an area of 3-4 acres and is managed by a team of 7-8 peoplewhom the Company trains continuously. The total number of Hariyali outlets stood at302 outlets till 2011. Hariyali Kisaan Bazaar offers the rural household all farming andconsumer products and related services along with financial services under one roof.These include wide choice and multi-brands of agri-inputs, FMCG, consumer durables,apparels, footwear, toys, general merchandise, insurance etc. The outlets alsoprovide the farmer, the expert advice of agronomists and the technologicalsupport in shifting from subsistence farming to technology led commercialfarming. The company also launched credit services during its second quarter 2007-08, inassociation with HDFC bank, providing loans for various purposes.The company also stepped up its bulk procurement activity and trading activityunder review to include various grains (maize, wheat), pulses (chana), oilseeds(mustard), menthe oil, coriander etc.2. Godrej- AadhaarGodrej Aadhaar is the agri services cum retail initiative of Godrej Agrovet Ltd. It is acomplete solution provider for the Indian farmers and provides professional guidancewith an objective to improve productivity, higher returns and improved cost benefit ratio.The services offered are crop advisory services, soil & water testing services; buy back of 8
  9. 9. output, crop finance, supply of agri inputs and animal feeds, transfer of information(weather, price, and demand supply), door delivery of products etc. While, the venturebegun by offering agri solutions to the farmers, based on their feedback, it has over thelast few months diversified into offering a number of other product categories like –durables, FMCG, apparels, footwear etc, thus catering to the complete requirement of therural household. A one-stop shop for Rural India. A number of corporates are already inthe process of partnering Aadhaar for various projects for furthering the initiative.Presently there are 70s Aadhaar Centers across the country in the States ofMaharashtra (Mancher, Alephata, Ranjini, Umbraj, Ozar Sangli, Dindori, Niphad,Shikrapur, Ottur, Akluj). GAVL also opened its second petro format Aadhaar Express inKashti, Maharashtra. GAVL revamped its Warden Road “Nature’s Basket” outlet bypositioning it as “Authentic World Food”. This store has introduced new productcategories like wine, cheese, cold cuts, processed foods in addition to its existingportfolio of fresh fruits, vegetables & herbs and specialty foods.3. Project ShaktiHUL launched Project Shakti in the year 2001, in keeping with the purpose ofintegrating business interests with national interests The model was piloted in Nalgondadistrict of Andhra Pradesh in 50 villages in the year 2000. The Government of AndhraPradesh took the pioneering step of supporting the initiative by enabling linkages with thenetwork of DWACRA Groups of rural women set up for their development and self-employment. Most SHG women view Project Shakti as a powerful business propositionand are keen participants in it. It has since been extended to in Andhra Pradesh, Bihar,Chattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra,Orissa, Punjab,Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal with the totalstrength of over 39,880 Shakti Entrepreneurs. Under the project, HUL offers a range ofmass-market products to the SHGs, which are relevant to rural customers. HUL isinvesting significantly in resources that work with the women on the field and providethem with on-the-job training and support. This is a key factor in ensuring thestabilization of their fledgling businesses. HUL imparts the necessary training to thesegroups on the basics of enterprise management, which the women need to manage theirenterprises. For the SHG women, this translates into a much-needed, sustainable income 9
  10. 10. contributing towards better living and prosperity. Armed with micro-credit, women fromSHGs become direct-to-home distributors in rural markets. A typical Shakti entrepreneurconducts a steady business which gives her an income in excess of Rs.1,000 per monthon a sustainable basis. As most of these women live below the poverty line, and hail fromextremely small villages (with populations of less than 2000), this earning is verysignificant, and almost twice the amount of their previous household income. For most ofthese families, Project Shakti is enabling families to live with dignity, with real freedom.In addition to money, there is a marked change in the womans status within thehousehold, with a much greater say in decision-making. This results in better health andhygiene, education of the children, especially the girl child, and an overall betterment inliving standards. The most powerful aspect about this model is that it creates a win-winpartnership between HUL and the consumers, some of whom will depend on theorganization for their livelihood, and builds a self-sustaining cycle of growth for all. HULenvisions the creation of 1,00,000 Shakti Entrepreneurs covering 5,00,000 villages, andtouching the lives of 600 million rural people. ‘i-Shakti’ - an IT-based rural information service has been developed to provideinformation and services to meet rural needs in agriculture, education, vocationaltraining, health and hygiene. ‘i-Shakti’ has been set up in 400 villages in Andhra Pradesh,and have been functional since August 2003. Through i-Shakti kiosks, ICICI Bank andHUL will work together to provide a new delivery channel for rural India, which offers amultitude of products and services to the rural customer. In the first phase, Life andGeneral Insurance will be offered through this channel. Other financial services includingInvestment products (Equity, Mutual Funds, Bonds) ICICI Bank Pure Gold (gold coins),Personal Credit, Rural Savings Accounts and Remittances will be introducedsubsequently.4. ITC- e-Choupal and Choupal SagarITC’s e-Choupal is an example of how a commercial venture can provide achannel for knowledge and opportunity, bringing global resources and practicesto Indian villages as well as higher incomes for farmers, and helping create theconditions for many other enterprises to cater to the rural market. E-Choupal is an 10
  11. 11. entirely new channel for procuring the purchase of the farmers. Today they operatethrough 6,500 choupals in 9 states. In e-Chaupal they started with two channels known asSanchalak and Sanyojak. Sanchalak: Sanchalak is the person in whose house the ITC setsup the e-Choupal. E-Choupal consists of a computer; linked to the Internet via phonelines or, increasingly, by a VSAT connection. Each Sanchalak serves an average of600 farmers in 10 surrounding villages within about a 5 kilometers radius.Samyojak: Samyojak is the cooperating commission agents. They look for the logisticalsupport and are responsible for cash disbursement to the local farms for theirproduce.They basically facilitate the purchase of the products for ITC fromfarmers. Theytake care of 40 Choupals and the average distance a farmer has to travel to reachSamyojak to sell his produce is 25-35 kilometers.Chaupal 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 theharried soya farmers of MP in June 2000, the company has now moved on to the secondphase. And the result is Choupal Sagar, the first of which was unveiled at Sehorenear Bhopal in August 2004. A rural hypermarket or a rural mall, Choupal Sagarprovides multiple services under one roof, like selling produces and buyingquality products for farm and household consumption. Chaupal Sagar are built nearSamyojak, so that when farmers come to sell their produce to samyojak and receive cashmoney then they can shop in Chaupal Sagars. Till now there are 19 Choupal Sagars. Allof these stores are located in the rural areas of Madhya Pradesh, Uttar Pradesh andMaharashtra.5.Kisan Seva KendraKisan Seva Kendra is a low cost business model by Indian Oil corporation of aretail outlet offering fuel and other non fuel value added services with penetrationin rural markets generating high returns. KSK a one stop center of service (seva) for thefarmers at his doorstep making available:  Diesel and Petrol with Q&Q  Seeds, pesticides,fertilisers and other agri needs  Nutan stove, Hurricane lamps 11
  12. 12.  Daily needs such as grocery, personal care  Stationery for children  Tools, auto spares  Location specific value additionsLow investment ranging from Rs 6 to 9 lacs with a pay back period of 3 to 4years.Itcurrently has approx. 100 operational stores.2.5- More to Come:Another step to tap the rural market was `Operation Bharat wherein low-priced samplepackets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to20mn households. As a part of their rural strategy, BPCL introduced Rural MarketingVehicles (RMVs) that move from village and village and filling cylinders on the spot forrural consumers keeping in mind the low-income of the rural population. The Companyalso introduced a smaller size cylinder to reduce both the initial deposit cost as well as therecurring refill cost. As clear from the story on Reliance Fresh and Metro, organizedretail sector can bring a revolutionary change in rural India unless it goes for quick short-term gains. With Wal-Mart famous for its Always Low Prices came in India withBharati as equal partner, Indian farmers and rural craftsmen can hope for a better directdeal. Retailing does not benefit just the consumer. It can give huge benefits to otherindustries, to government, and to the entire economy. The rural market is no longer anon-player in the retail game. It is now accounting for over one-third of the market formost durable and non-durable products. Even manufacturers are developing new productswith the rural consumer in mind besides using village-oriented marketing strategies forbrand promotions. Whether it is Rani Mukherjee promoting the chocolate Munch ormaster batsmen Sachin wowing village lads with a soft drink, both ad makers as well astop company honchos know where to put their money and how. The rural market is nolonger of hypothetical empirical value but is well researched and reached by mostcompanies looking to tap Indias vast and abundant bounty. 12
  13. 13. ConclusionThe Indian retail scenario is poised for a quantum leap. Not only are newer names set todot the retail landscape but also new and emerging retail formats (especially in ruralsector retailing) will drive the diversity of the fast-changing retail backdrop. OrganizedRetail means Big Stores a common myth…nothing can be further then the truth. In itsvery essence, organized retailing is about "aggregating value" and what shape, size andconfiguration your customer facing entity takes is largely a function of your offer andproposition. A growing population, a young workforce and zooming consumerconfidence will fuel the expansion of the retail sector. As organized retail in rural Indiaawaits the arrival of Reliance Retail, current majors like ITC, Godrej and DSCL areexpanding their retail operations by setting up more stores, entering new states andoffering newer product categories. A shift from selling agri-inputs will help these storestarget the non-farming segments. It is a little known fact that, while 25% of the ruralpopulation is not engaged in agriculture, it earns 50% of the rural income. The retailmarket is the next growth frontier for corporate India. It offers an opportunity for a largeplayer to build a Rs. 40,000 Cr retail business spanning multiple categories by 2015 (atcurrent prices). However, to capitalize on the opportunity, a player needs to be aggressivein its outlook and build scale quickly. ____________________________ 13
  14. 14. REFERENCES1. MGI India Consumer Demand Model v1.0, sample.2. Kashyap P & Raut S, The Rural Marketing Book, Ed 2010, Biztantra, New Delhi.3. Ajita, Shashidhar, ‘Colas’ countryside crusade, Business line, July 3, 20034. Datt Ruddar & Sundharam K P M, Indian Economy, 20045. Consumption of some important commodities in India, (1999-2000,) NSSO, 20016. Krishna M, “Rural Markets by mail order ” Indian Journal of Marketing, Vol 6, No 1-2, pp 12-137. Social & Research Institute, “Villages of India”, A study of Indian Market Research Bureau, 19908. Velayudhan, Sanal kumar, “Buyer Behaviour in Rural Markets: A study of Soap markets” Productivity, Vol 39, No 2 July- September, 19989. Wanmali Sudhir, ‘Periodic Markets & Rural development in India’, B R Publishing Corporations, New Delhi 198110. Mukund Das & Somnath Sen,’ Commercial Aspects-The Rural Way’, A&M, October, 199111. National Human Development Report (2001), Planning Commission, Govt of India, New Delhi, Mar 2002. 14