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Rural Retailing in India and its
          Challenges
Understanding various formats, needs and
 opportunities

           ...
Current Face of Rural Retailing
Complete utilization of space
in traditional outlets
Consumption Contribution of Rural India


 •             46% of Soft drink sales,
 •             49% of motorcycle sales,
...
An Example of Successful Rural
 Retail Model in Indian Context
E-Choupal
• Initial Objective:
   – To develop a Channel directly linking Farmers to Organization,
     thereby achieving ...
Approach Towards Rural Retailing
•   Go to the producer directly,
•   Set up knowledge exchange centers,
•   Earn respect ...
ITC- EChoupal




                        INPUT SUPPLY




                                                             MA...
Benefits to Farmer from E-Choupal-
               Sagar
• Option of selling to Choupal sagar or mandies.
• In some crops f...
Benefit to ITC
• Alternate procurement channel,
• High quality agricultural output availability,
• Platform to develop and...
Bundled Offer to Farmers
•   Information / Interaction
     – Current market rates,
     – Information on Weather, Best pr...
Positioning of the Format
            Community Store
• Emotional Affinity- Rational Benefit

• Relationship with the cus...
Main Competitors
•   Hariyali Bazar – DCM Sriram,
•   Godrej Aadhar – Godrej,
•   Kisan Seva Kendra – IOC,
•   Tata Kisan ...
SWOT Analysis of Indian Rural
      Retail Market
Strength
• 70 % of India's population lives in 627000 villages in
  rural areas
• At the highest income level there are 2....
Weakness
Large and Scattered market
Major income from agriculture
Low standard of living
Traditional Outlook
Diverse socio...
Opportunity
• 3 times more families lives in Rural India,
• rural India has a large consuming class with 41
  per cent of ...
Threat
• Improper / Oversupply of the format in same key market.
• Shifting of young generation from rural to urban cities...
Key Challenges
• Fortune is “AT” the bottom of the Pyramid

                   But

• Organization has to spend Fortune “F...
Other Challenges
o – Increasing costs of land
o – Pace of expansion
o – High operating costs
o – Low margin on agri-inputs...
What should keep in mind to get
   success in Rural market?

The 4A Approach
    •   Availability
    •   Affordability
  ...
Recommendations
•   The business model for rural retail can be successful only when integration between
    the profit and...
1. Essential commodity act: The fertilizer industry is
centrally regulated by the government through an
administered prici...
4. Under PN4/2006 --100% FDI is allowed through
the automatic route in -Floriculture, Horticulture,
Development of Seeds, ...
Rural  Retailing In  India By  Alok  Sharma
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Rural Retailing In India By Alok Sharma

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Rural Retailing In India By Alok Sharma

  1. 1. Rural Retailing in India and its Challenges Understanding various formats, needs and opportunities By: Alok Sharma alok_sharma1@yahoo.com
  2. 2. Current Face of Rural Retailing
  3. 3. Complete utilization of space in traditional outlets
  4. 4. Consumption Contribution of Rural India • 46% of Soft drink sales, • 49% of motorcycle sales, • 59% of Cigarettes sales, • 59% of consumer durables sales, • 53% of FMCG sales, • 50% of BSNL mobile connections June 5, 2009 4
  5. 5. An Example of Successful Rural Retail Model in Indian Context
  6. 6. E-Choupal • Initial Objective: – To develop a Channel directly linking Farmers to Organization, thereby achieving access to target Soya producing markets and achieve organized buying over the current Indian Soya procurements systems in long term. • Mid Objective: – To develop a Channel directly linking Farmers to Organization, thereby achieving access to key agricultural/ products producing markets and achieve organized buying and selling in Key Indian Rural Markets. • Current Objective: – To expand the network further and offer a complete package to serve rural customer daily needs and develop the platform for the future ( to get services like ITES, web tourism, etc)
  7. 7. Approach Towards Rural Retailing • Go to the producer directly, • Set up knowledge exchange centers, • Earn respect and confidence with locals, • Provide a rewarding platform for there agricultural output, • Treat farmers with respect and serve them as customers, • Reduce middleman to share the benefit to the producer, • Provide a retail environment with local flavor and needs, • Be instrument to develop the local economy
  8. 8. ITC- EChoupal INPUT SUPPLY MARKETING ASSISTENCE TECHNCAL GUIDANCE FARMERS AGRI-INPUT INSURANCE COMPANY COMPANY TRAINING AGRICULTURE UNIVERSITIES/STATE AGRICULTURE DEPT June 5, 2009 9
  9. 9. Benefits to Farmer from E-Choupal- Sagar • Option of selling to Choupal sagar or mandies. • In some crops farmers earn 25% higher prices then selling to mandies, • Profit realization increased up to 60% • Difference in net earning will be high if saving on commission to middle man and cost of transport are considered. • Availability of Brands / quality products at best prices. • Availability of loan facilities, • Exposure of latest information on various things.
  10. 10. Benefit to ITC • Alternate procurement channel, • High quality agricultural output availability, • Platform to develop and sell rural focused products, • Additional earning from other like minded organization/ brands who wants to sell and need platform in those markets, • Additional earning to exports division • Additional distribution network, • Introduction of new categories – Match box, Incense sticks, soaps, shampoo etc to cater to new channel requirement.
  11. 11. Bundled Offer to Farmers • Information / Interaction – Current market rates, – Information on Weather, Best practices, FAQ, etc • Selling of Crop • Buying Point: – Various categories like FMCG, Durables, Bike, Tractor, – Services- Fuel Selling, Tractor / Bike servicing, – Food Court, – Medical consultation, Path Labs, – Soil Testing Facility, – Banking & ATM, – Insurance, – Photography, – Pharmacy, – Loans, etc • Storage facility for crops on rent
  12. 12. Positioning of the Format Community Store • Emotional Affinity- Rational Benefit • Relationship with the customers beyond products and price
  13. 13. Main Competitors • Hariyali Bazar – DCM Sriram, • Godrej Aadhar – Godrej, • Kisan Seva Kendra – IOC, • Tata Kisan Sansar- Tata Chemicals, • Mahindra Subh Labh – M&M, • Parry’s Corner – Murugappa Group • Rural Business Hub- Reliance Industries • TRIVENI – Triveni Eng & Ind Ltd. (UP)
  14. 14. SWOT Analysis of Indian Rural Retail Market
  15. 15. Strength • 70 % of India's population lives in 627000 villages in rural areas • At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas • Middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. • In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. • Young Population, • Increasing purchasing power
  16. 16. Weakness Large and Scattered market Major income from agriculture Low standard of living Traditional Outlook Diverse socio-economic backwardness Infrastructure Facilities Lack of Proper Physical Communication Facilities Many Languages and Dialects Dispersed Market Low Per Capita Income Low Levels of Literacy Prevalence of spurious brands and seasonal demand Different way of thinking
  17. 17. Opportunity • 3 times more families lives in Rural India, • rural India has a large consuming class with 41 per cent of India's middle-class and 58 per cent of the total disposable income. • There purchasing power is increasing, • Exposure and increase in literacy rates will open market further, • Govt focus on agricultural policies will increase in rural earning, • Population is becoming brand conscious,
  18. 18. Threat • Improper / Oversupply of the format in same key market. • Shifting of young generation from rural to urban cities, • Entry of small time players – Study on buying behavior of rural consumer indicates that the rural retailers influences 35% of purchase occasions. , • Underdeveloped People and Underdeveloped Markets: - The number of people below poverty line has not decreased in any appreciable manner. Thus underdeveloped people and consequently underdeveloped market by and large characterize the rural markets. Vast majorities of the rural people are tradition bound, fatalistic and believe in old customs, traditions, habits, taboos and practices. • Substitution : Direct distribution model- HLL Shakti, – Mobile Model- HLL Project Bharat,
  19. 19. Key Challenges • Fortune is “AT” the bottom of the Pyramid But • Organization has to spend Fortune “FOR” the bottom of the pyramid Initial cost to penetrate such a vast market is very high
  20. 20. Other Challenges o – Increasing costs of land o – Pace of expansion o – High operating costs o – Low margin on agri-inputs o – Low purchasing power of consumers
  21. 21. What should keep in mind to get success in Rural market? The 4A Approach • Availability • Affordability • Acceptability • Awareness
  22. 22. Recommendations • The business model for rural retail can be successful only when integration between the profit and social motive is apparent. The social angle needs to be pronounced for it to be acceptable. • Empowerment in terms of economic power, purchasing power, knowledge and information dissemination is crucial for rural retail ventures to succeed. The model should empower the rural consumer and at the same time take advantage of this empowerment through creation of demand for its own products and that of its partners. • The level of penetration except for certain products, has been negligible so far. However, so far as the rural share in consumer expendables like cooking oil, tea, electric bulbs, hair oil, shampoo, toilet soap, toothpaste, washing cakes and washing powder is concerned, their share on an average, is much higher than consumer durables. Though the rural-urban differentials are not so pronounced in the case of durables, the rural market penetration is low with respect to urban areas. However, in case of health beverages and cosmetics like shampoos, nail polish and lipsticks, large gaps exist. Hence these products provide substantial opportunity to enter the rural markets. • Definitely there is lot of money in rural India. But there are hindrances at the same time. The greatest hindrance is that the rural market is still evolving and there is no set format to understand consumer behaviour. Lot of study is still to be conducted in order to understand the rural consumer. Only FMCGs with deeper pockets, unwavering rural commitment and staying power will be able to stay longer on this rural race and hence should venture into this territory.
  23. 23. 1. Essential commodity act: The fertilizer industry is centrally regulated by the government through an administered pricing mechanism & sales allocation under Essential Commodities Act (ECA). In the year 2002-03, the government announced a long term Pricing policy for urea. 2. Indian Land Acquisition Act 1894 3. Agricultural Produce (Grading & Marking) ACT, 1937 (ACT No. 1 of 1937)(as amended up to 1986) June 5, 2009 24
  24. 24. 4. Under PN4/2006 --100% FDI is allowed through the automatic route in -Floriculture, Horticulture, Development of Seeds, Animal Husbandry Pisciculture, aqua-culture, cultivation of vegetables, mushrooms, under controlled conditions and services related to agro and allied Sectors. 5. Intra state agricultural land taxes -- vary, prompting the current finance-minister to moot for a common GST (Goods and services tax) which would help in bringing all the various state taxes under a common fold including the agricultural income taxes levied individually state to state. June 5, 2009 25

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