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PREVALENT RURAL
DISTRIBUTION MODELS.
PREVALENT RURAL DISTRIBUTION
MODELS
Rural distribution can be categorized in to two models
 Smaller companies adopt wholesale activation route.
 Bigger and sizeable companies adopt the retail route.
Retail Wholesale
Van/
Sub-stockist
Feeder towns/
Wholesale &retail
Rural
Market
RURAL DISTRIBUTION MODEL
Van operation
 Stockists from nearby urban markets cover four to five
rural markets per day.
 And they cover around 60-70 km per day to reach rural
villages.
 They operate mostly on a cash basis .
 They provide better control over distribution.
Sub-stockist operation
 Gets stock from super stockists appointed in the district.
 Super stockists cover 10-15 sub-stockists in the district.
 The sub-stockist covers all the outlets in his rural market
like the regular stockists,by extending credit and
services.
DISTRIBUTION MODELS OF
FMCG COMPANIES
The rural distribution models of all FMCG
co’s can be divided in to two models.
 Distribution model 1(DM1)
 Distribution model 2 (DM 2)
C & FA
Distributor
(RURAL)
Sub-distributor
Retailer rural
Retailer
(local)
Wholesaler
Retailer
urbanRetailer
Retailer
(Urban)
Distributor
( Urban)
COMPANY
Wholesaler
CHANNEL STRUCTURE
Distribution model 1
 In Distribution Model 1 company appoints a sub-
distributor to penetrate deeper into rural areas up to
the 5000 population villages.
 The rural distribution services the wholesale market
in the rural areas.
 The wholesaler becomes important because of the
assortment that he keeps and the volume that he
generates and the customers to whom he caters.
 DM1 has a larger number of points appointed in the
rural areas.
DISTRIBUTION MODEL 2
 In DM 2 ,mostly co’s with a limited no of SKU’s and
high sales volume adopt this model.
 This is the simplest model compared to DM1.
 This model minimizes distribution costs, allowing the
co’s to offer better margins to the distributors and
other channel members to push the sales.
 Wholesale locations work as feeder markets from
where the co’s caters to the requirements of nearby
villagers.
 Distributors sell large volumes and earn good money
in addition to regular margins.
Company
Distributor
wholesaler
Retailer( local) Retailer( rural)
parame
ters
cavin
kare
Evere
ady
HLL Britta
nia
Nirma Ghari priyag
old
No of
channel
partners
6 7 7 6 3 3 3
Different
channels
for Rural
&urban
yes yes yes yes no no no
No of
distributo
rs per
district
2-3 2-3 2-3 2-3 1 1-2 1
Mode of
pmt
ADV/CH
Q
ADV/CH
Q
ADV/CH
Q
ADV/CH
Q
ADV/DR
AFT
CASH/D
RF
ADV/CH
Q
DISTRIBUTION MODEL OF
DURABLE GOODS COMPANIES
 Durables are purchased largely from small &
large towns.
 Number of locations for distribution is a few
thousand only.
 These are managed by a few channel partners.
 Examples of Good durable goods company are:
PHILIPS & LG
LG DISTRIBUTION MODEL
LG
Depot
C & F Agents
New Rural District Office
Warehouse
Exclusive Dealers Multiple Dealers
Consumer
LG’S DISTRIBUTION STRATEGY
 Introduced Company’s Rural Office at the
District Level.
 Separate stocking point (Warehouse) to
manage logistics of achieving deeper market.
 Appointed Dealers & Exclusive dealers.
 C & F agent act as large distributor. They do
not own goods but provide logistical support.
PHILIPS(LIGHTING) DISTRIBUTION
MODEL
PHILIPS
Depot
Urban Distributor Rural Stockist
Retailer Retailer
Consumer
PHILIPS DISTRIBUTION STRATEGY
 Each depot cater at least 1 state.
 Divided the pops(electrical wholesale outlets)
into strata.
 Distribution network covers 15000-20000
Locations.
EMERGING DISTRIBUTION MODELS
 SHG distribution model
 Satellite distribution
 Syndicated distribution
 NYKS model
 Petrol pumps
 Agriculture input dealers
 Other channels
SHG DISTRIBUTION MODEL
SHG is a group of 10-15 women organized by
government bodies or NGOs, who come together to
form a mutual thrift group, to inculcate savings
discipline and boost feelings of self worth among
women.
Members of SHGs get matching loans from rural banks
to set up income generating enterprises.
There are over 10 lakh SHGs across India.
HINDUSTAN LEVER’S PROJECT
SHAKTI
Interested women from SHGs were appointed as
shakti entrepreneurs; they borrow money from
their group corpus and provide services to 6-10
villages, covering a population of 6,000-10,000.
They receive stock from HLL rural distributors and
make sales to both retailers and direct
consumers in villages.
This increased penetration into the rural market
for HLL and the ability to reach out to small
villages that are often left out of the distribution
circuit.
HINDUSTAN LEVER’S PROJECT
SHAKTI
HLL earlier had only 70,000 villages in its ambit,
but after the launch of project shakti this number
has more than double.
Small villages below 2000 population size are most
common in rural areas. Project shakti was able to
succeed in penetrating into small villages.
The biggest beneficiaries of this project are the
shakti entrepreneurs, who in some cases have
been able to augment their incomes up to Rs.
1000.
SATELLITE DISTRIBUTION
Manufacturer
Stockists
Retailers
1. Financing
2. Warehousing
3. Sub-distribution
THE HUB-AND-SPOKE SYSTEM
Whole
saler
town
S4S3
S2S1
S4
S2
A1
A3
S4
A2
S1
S1
S3
A4
S4
S3 S1
S2
S2
S4
PEPSI AND COKE: PIONEERS OF
THE HUB-AND-SPOKE MODEL
Since soft drinks are sold in returnable glass
bottles, one cannot sell through the conventional
FMCG wholesale channel, to drive availability in
rural markets.
Therefore, Pepsi, has chosen a hub-and-spoke
distribution format. The spoke is typically closest
to the retail outlets and is serviced by a hub
distributers, who is supplied directly from the
manufacturing plant or the companies
warehouse.
This format allows for large loads travelling longer
distance and short loads doing short distances,
an arrangement that is cost effective.
SYNDICATED DISTRIBUTION
Two or more companies come together to form a
syndicated trading organization, to jointly
distribute a collective group of household
products in rural markets by sharing distribution
costs.
Cavinkare used the distribution network of
Amrutanjan pain balm, for its Chik shampoo.
PROBLEMS WITH THE SYNDICATED
MODEL OF DISTRIBUTION
• Markets for coverage of two companies is
different.
• Terms of payments are different.
• As the salesman of only one company
accompanies the van, he pushes his own products
and is lax about booking orders for the other
company.
• The salesman does not make serious efforts to
collect payments for the other company.
NYKS HAAT DISTRIBUTION MODEL
Nehru Yuva Kendra Sangathan, a central
government organization, was well established to
promote and develop cultural and sports activities
in rural India. It has regional office in all states
and local offices in most districts.
NYKS hires young people as National Service
Volunteers (NSV) on a fixed term, 2 years contract
and pays a monthly stipend of Rs. 2,000. NSVs are
graduates, in the 18-35 age group and belong to a
nearby area.
NSVs retire at the end of 2 years to make way for a
fresh batch.
PROJECT DISHA: A NEW LOW-COST
LAST MILE DISTRIBUTION MODEL
 Colgate used ex-volunteers/youth club members
to promote and sell company brands in rural
areas.
 Each ex-volunteers was equipped with branded
bicycles, umbrellas, storage boxes, T-shirts and
caps.
 As against a typical van operation cost Rs.
3000/day, the volunteer model costs the company
less than that per month.
PETROL PUMPS
In India there are over 12,000 petrol pumps spread
across the country, 60% of which are located on
highways close to villages.
These pumps, in addition to selling petroleum
products, have also started selling consumables
like food products and toiletres.
Oil companies are exploring the possibility of
selling agri inputs, LPG cylinders and other
rural-based items from these outlets.
AGRICULTURAL INPUT DEALERS
There are about 2,62,000 fertilizer dealers across
the country. Fertilizer companies have retail
outlets within a range of 5 Km. of any village.
Marketers could explore the possibility of
partnering them and utilizing their
infrastructure for selling products.
OTHER CHANNELS
Hero Honda Motors has 400 dealers all over
the country. The company has reported
the emergency of an unofficial channel of
distribution-village mechanics, local real
estate agents and shopkeepers.
These people take the motorcycles, usually
in twos and threes, from company dealers
after providing adequate security deposits
and display them outside their premises
for closing the sale.

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Rural distribution models for FMCG companies

  • 2. PREVALENT RURAL DISTRIBUTION MODELS Rural distribution can be categorized in to two models  Smaller companies adopt wholesale activation route.  Bigger and sizeable companies adopt the retail route. Retail Wholesale Van/ Sub-stockist Feeder towns/ Wholesale &retail Rural Market
  • 3. RURAL DISTRIBUTION MODEL Van operation  Stockists from nearby urban markets cover four to five rural markets per day.  And they cover around 60-70 km per day to reach rural villages.  They operate mostly on a cash basis .  They provide better control over distribution. Sub-stockist operation  Gets stock from super stockists appointed in the district.  Super stockists cover 10-15 sub-stockists in the district.  The sub-stockist covers all the outlets in his rural market like the regular stockists,by extending credit and services.
  • 4. DISTRIBUTION MODELS OF FMCG COMPANIES The rural distribution models of all FMCG co’s can be divided in to two models.  Distribution model 1(DM1)  Distribution model 2 (DM 2)
  • 5. C & FA Distributor (RURAL) Sub-distributor Retailer rural Retailer (local) Wholesaler Retailer urbanRetailer Retailer (Urban) Distributor ( Urban) COMPANY Wholesaler
  • 6. CHANNEL STRUCTURE Distribution model 1  In Distribution Model 1 company appoints a sub- distributor to penetrate deeper into rural areas up to the 5000 population villages.  The rural distribution services the wholesale market in the rural areas.  The wholesaler becomes important because of the assortment that he keeps and the volume that he generates and the customers to whom he caters.  DM1 has a larger number of points appointed in the rural areas.
  • 7. DISTRIBUTION MODEL 2  In DM 2 ,mostly co’s with a limited no of SKU’s and high sales volume adopt this model.  This is the simplest model compared to DM1.  This model minimizes distribution costs, allowing the co’s to offer better margins to the distributors and other channel members to push the sales.  Wholesale locations work as feeder markets from where the co’s caters to the requirements of nearby villagers.  Distributors sell large volumes and earn good money in addition to regular margins.
  • 9. parame ters cavin kare Evere ady HLL Britta nia Nirma Ghari priyag old No of channel partners 6 7 7 6 3 3 3 Different channels for Rural &urban yes yes yes yes no no no No of distributo rs per district 2-3 2-3 2-3 2-3 1 1-2 1 Mode of pmt ADV/CH Q ADV/CH Q ADV/CH Q ADV/CH Q ADV/DR AFT CASH/D RF ADV/CH Q
  • 10. DISTRIBUTION MODEL OF DURABLE GOODS COMPANIES  Durables are purchased largely from small & large towns.  Number of locations for distribution is a few thousand only.  These are managed by a few channel partners.  Examples of Good durable goods company are: PHILIPS & LG
  • 11. LG DISTRIBUTION MODEL LG Depot C & F Agents New Rural District Office Warehouse Exclusive Dealers Multiple Dealers Consumer
  • 12. LG’S DISTRIBUTION STRATEGY  Introduced Company’s Rural Office at the District Level.  Separate stocking point (Warehouse) to manage logistics of achieving deeper market.  Appointed Dealers & Exclusive dealers.  C & F agent act as large distributor. They do not own goods but provide logistical support.
  • 13. PHILIPS(LIGHTING) DISTRIBUTION MODEL PHILIPS Depot Urban Distributor Rural Stockist Retailer Retailer Consumer
  • 14. PHILIPS DISTRIBUTION STRATEGY  Each depot cater at least 1 state.  Divided the pops(electrical wholesale outlets) into strata.  Distribution network covers 15000-20000 Locations.
  • 15. EMERGING DISTRIBUTION MODELS  SHG distribution model  Satellite distribution  Syndicated distribution  NYKS model  Petrol pumps  Agriculture input dealers  Other channels
  • 16. SHG DISTRIBUTION MODEL SHG is a group of 10-15 women organized by government bodies or NGOs, who come together to form a mutual thrift group, to inculcate savings discipline and boost feelings of self worth among women. Members of SHGs get matching loans from rural banks to set up income generating enterprises. There are over 10 lakh SHGs across India.
  • 17.
  • 18. HINDUSTAN LEVER’S PROJECT SHAKTI Interested women from SHGs were appointed as shakti entrepreneurs; they borrow money from their group corpus and provide services to 6-10 villages, covering a population of 6,000-10,000. They receive stock from HLL rural distributors and make sales to both retailers and direct consumers in villages. This increased penetration into the rural market for HLL and the ability to reach out to small villages that are often left out of the distribution circuit.
  • 19. HINDUSTAN LEVER’S PROJECT SHAKTI HLL earlier had only 70,000 villages in its ambit, but after the launch of project shakti this number has more than double. Small villages below 2000 population size are most common in rural areas. Project shakti was able to succeed in penetrating into small villages. The biggest beneficiaries of this project are the shakti entrepreneurs, who in some cases have been able to augment their incomes up to Rs. 1000.
  • 22. PEPSI AND COKE: PIONEERS OF THE HUB-AND-SPOKE MODEL Since soft drinks are sold in returnable glass bottles, one cannot sell through the conventional FMCG wholesale channel, to drive availability in rural markets. Therefore, Pepsi, has chosen a hub-and-spoke distribution format. The spoke is typically closest to the retail outlets and is serviced by a hub distributers, who is supplied directly from the manufacturing plant or the companies warehouse. This format allows for large loads travelling longer distance and short loads doing short distances, an arrangement that is cost effective.
  • 23.
  • 24. SYNDICATED DISTRIBUTION Two or more companies come together to form a syndicated trading organization, to jointly distribute a collective group of household products in rural markets by sharing distribution costs. Cavinkare used the distribution network of Amrutanjan pain balm, for its Chik shampoo.
  • 25. PROBLEMS WITH THE SYNDICATED MODEL OF DISTRIBUTION • Markets for coverage of two companies is different. • Terms of payments are different. • As the salesman of only one company accompanies the van, he pushes his own products and is lax about booking orders for the other company. • The salesman does not make serious efforts to collect payments for the other company.
  • 26. NYKS HAAT DISTRIBUTION MODEL Nehru Yuva Kendra Sangathan, a central government organization, was well established to promote and develop cultural and sports activities in rural India. It has regional office in all states and local offices in most districts. NYKS hires young people as National Service Volunteers (NSV) on a fixed term, 2 years contract and pays a monthly stipend of Rs. 2,000. NSVs are graduates, in the 18-35 age group and belong to a nearby area. NSVs retire at the end of 2 years to make way for a fresh batch.
  • 27. PROJECT DISHA: A NEW LOW-COST LAST MILE DISTRIBUTION MODEL  Colgate used ex-volunteers/youth club members to promote and sell company brands in rural areas.  Each ex-volunteers was equipped with branded bicycles, umbrellas, storage boxes, T-shirts and caps.  As against a typical van operation cost Rs. 3000/day, the volunteer model costs the company less than that per month.
  • 28. PETROL PUMPS In India there are over 12,000 petrol pumps spread across the country, 60% of which are located on highways close to villages. These pumps, in addition to selling petroleum products, have also started selling consumables like food products and toiletres. Oil companies are exploring the possibility of selling agri inputs, LPG cylinders and other rural-based items from these outlets.
  • 29. AGRICULTURAL INPUT DEALERS There are about 2,62,000 fertilizer dealers across the country. Fertilizer companies have retail outlets within a range of 5 Km. of any village. Marketers could explore the possibility of partnering them and utilizing their infrastructure for selling products.
  • 30. OTHER CHANNELS Hero Honda Motors has 400 dealers all over the country. The company has reported the emergency of an unofficial channel of distribution-village mechanics, local real estate agents and shopkeepers. These people take the motorcycles, usually in twos and threes, from company dealers after providing adequate security deposits and display them outside their premises for closing the sale.