A rural retailer’s green shootsWhile organized retail chains in urban India are shutting stores and scaling downambitions, Hariyali Kisaan Bazaar is looking to add 200 rural stores to its existingchain of 300 in two yearsPosted: Tue, Jul 21 2009. 11:03 PM ISTKaran Vir comes calling the agronomist—or agricultural specialist—at the Hariyali Kisaan Bazaar store witha yellowing paddy plant (plucked out from his field), its roots covered in sand, in a small plastic bag.It doesn’t take the specialist long to discover the problem. He advises Vir to add sulphur to the soil tocounter excess salt being generated by the use of groundwater for irrigation. The 34-year-old farmer buysa 15kg bag of the chemical, but his attention is now captured by a shiny black Hero bicycle kept on display along with hundreds of other grocery and lifestyle products. On average, 300 villagers such as Vir, daily visit the Hariyali store in this village, about 35km east of Karnal, an agricultural town in Haryana. Most visit to seek advice on agricultural problems and buy farm products. And about 30% of them end up buying other products. Some buy sugar. Some buy shirts. The store manager says sales are up 40% compared with last year. In demand: (top and above) The Hariyali store in Ladwa. On average, 300 villagers visit the store daily. Ramesh Pathania / Mint While sales have shrunk over the last one year or so for almost all the so-called modern retail chains in urban areas on the back of an economic slowdown that affected consumer spending, rural India has witnessed swelling sales of everything from mobile phones to motorcycles. Hariyali currently operates a network of 300 stores in eight states and plans to increase the number of outlets to 500 overthe next two years.That number is significant because of the corresponding numbers for modern retail chains in urban India.The country’s largest discount-store operator, Subhiksha Trading Services Ltd, shuttered its nationwidenetwork of 1,600 stores amid severe cash crunch. The country’s largest listed retailer Pantaloon Retail(India) Ltd has seen its same-store sales at home segment retailing decline over the last six months andchains run by Aditya Birla Retail Ltd, Reliance Retail Ltd, Spencer’s Retail Ltd have shrunk as thecompanies closed stores and trimmed their expansion plans.A booming marketA thriving agricultural economy and high food prices—resulting in farmers earning more for theirproduce—helped the rural economy thrive even as that in large cities and towns slowed.
Rural families spent around 63% of their expenditure on food 15 years ago; this proportion declined to53% in 2005-06, according to the National Sample Survey Organization. Companies cite anecdotalevidence to claim that this proportion has declined further in the three years since.S. SivaKumar, chief executive of Agri business for conglomerate ITC Ltd, which runs Choupal Sagar storesand e-Choupal kiosks in at least 6,000 villages, says rural retailing has seen an average growth of 25-30%a year for the past three years and it has maintained its “secular trend” this year as well. Compared withthat, modern retailers in urban areas grew between 15% and 17% in the year ended March, down from35% a year ago, according to Retailers Association of India, an industry body.To be sure, if this year’s monsoon fails—it was around 30% below normal as of 15 July— things could bedifferent next year, but as things stand, rural India is a beacon of hope for marketers. And neithersentiment nor finances have been affected in India’s vast hinterland like they have been in most largecities on account of stock market bubbles and real estate crashes.“There was no speculative activity in rural India,” says Pradeep Kashyap, chief executive of MART, a ruralconsultancy group that advises various companies such as Colgate-Palmolive and Coca-Cola. “Nobody (inrural India) speculates in real estate because you construct a house only for your own use and similarlynobody would invest in speculative instruments as stocks as they only invest in postal savings. Therefore,their wealth is not eroded.”And the government has done its bit, spending around Rs66,000 crore over the last three years throughthe National Rural Employment Guarantee Scheme and another Rs62,000 crore last year through a farmloan waiver programme.A July report by the Indian arm of Australian investment bank Macquarie Group said “the last 12 monthshave been the year of the rural consumer. While same store-sales (sales at stores that existed a year ago)growth and demand for high-end discretionary goods came under pressure, rural consumption growth wasresilient. A good monsoon in 2008 and pump priming by the government helped demand for low ticketitems, helping staples companies deliver 15−20% top line growth.”A survey by MART to assess the impact of the economic slowdown on rural areas also found that mostsectors (barring handicraft and exports) showed positive growth.The result: a number of modern retailers that service in the countryside have been able to reap thebenefits of a booming rural economy.Home to around 70% of the country’s population of a little over a billion, rural India accounts for almost40% of the country’s overall Rs14,490 crore-in-sales retail market. The country’s largest two-wheelermanufacturer Hero Honda Motors Ltd sells 40% of its motorcycles in rural India.Those numbers may explain why India’s largest listed retailer early last year, Pantaloon Retail acquired achain of rural stores from Godrej Agrovet Ltd. It is repositioning its Aadhaar outlets as “rural malls” withadditional focus on fashion and electronics. Pantaloon plans to increase the reach of Aadhaar to 100villages by March from 62 currently.Apart from a thriving market, Hariyali’s success is built on two other factors—common to almost all ruralretailers.The first is real estate costs.Kashyap of MART says rural retailers have been able to stay profitable because of low real estate costs invillages, although they do end up paying more in transporting products to villages. Raj Kumar Goel, the