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DISTRIBUTION IN RURAL
MARKETS
Challenges in Rural Distribution
 Large number of small markets
 Dispersed population and trade
 Poor road connectivity
 Multiple tiers
 Poor availability of suitable dealers
 Low density of shops per village
 Inadequate banks and credit facilities
 Poor storage system
 Low investment capacity of retailers
 Poor visibility and display of products on rural shop shelves
 Poor communication of offers
Distribution Strategy
 Ensuring Reach and Visibility:
 Reaching upto Mandis, Towns and semi-
urban centers particularly for shopping
products and consumer durables
 Targeting larger villages:
 There are around 90000 large villages out of total
650000 with a population – covering 40% of rural
population and 60% of total rural consumption
 Understanding of peak season
 Marriages, festivals and harvest
Distribution Strategy
 Delivery vans:
 Company delivery vans which can serve two purposes:
they can take the products to the customers in select
rural areas and also enable the firm to establish direct
contact with them and thereby provide an opportunity
for promotion
 Collaboration for Distribution:
 Organizations with lesser distribution reach, collaborate
with organizations that have achieved high penetration
levels in rural areas. P&G had tie-ups with Godrej.
Marico with Nirma for distribution of Camay soaps.
Distribution Strategy
 Converting unorganised sector manufacturers
into distributors
 Small scale manufacturers have good knowledge
of the territory and have good sales network.
 Organizations like Exide are attempting to convert
these small scale manufacturers to become their
dealers.
 Company’s own Distribution Network
Distribution Channels in Rural India
 Cooperative societies:
 Over 4 lakh co-operatives for marketing, credit
and dairy cooperative in rural areas.
 Farmers Service Co-operative Societies function
like mini super market for soaps, detergents,
cloth, seeds, fertilizers, pesticides
 These societies have infrastructure for storage and
distribution
 Companies contact these societies to sell their
products
Distribution Channels in Rural India
 The SHG Model:
 Members of SHG get matching loans from banks
 Corporates work with SHGs for rural distribution
 HUL Shakti program
 The Youth Entrepreneurship Model
 Train young rural persons for distributing products
and services
 Colgate, HUL, Complan
 Insurance, telecom
Distribution Channels in Rural India
 Public Distribution System
 Under PDS about 4.37 lakh fair price shops
 Is utilized for marketing consumable items and
low value durables in rural areas
 Petrol Pumps
 Also sell consumables such as soaps, detergents,
biscuits etc, particularly on the highways
 Also stock certain agricultural inputs like fertilizers,
seeds and pesticides
Distribution Channels in Rural India
 Agricultural input dealers:
 2,62,000 fertilizer dealers in the country
 During off season consumer item companies sell
their products through these dealers
 Shandies/ Haats/ Jathras/ Melas
 Shandies operate in a weekly cycle
 Haats can be used for demonstration &
distribution
 Melas work best for introducing new brands and
building brands through events at the venue
Rural Distribution Channels
Layer Channel Partner Location
Layer 1 Company depot / C&F A National/state level
Layer 2 Distributor/van operator/
super stockist/ rural distributor
District level
Layer 3 Sub-distributor/ retail
stockist/ sub-stockist/ star seller /
Shakti dealer
Tehsil HQ, towns and large
villages
Layer 4 Wholesaler Feeder towns, large villages,
haats
Layer 5 Retailer Villages, haats
Rural Distribution Channels
FMCG Durables PDS Regional
/ Local
Cement Bulbs/
Tubes
Company
manufacturing
plant
Company
manufacturing
plant
Food
Corporation
of India
Manufacturers Company
Manufacturing plant
Company
Manufacturing
plant
Company Depot Wholesaler(city) Depot
C&F A C&F A Zonal Offices Wholesaler
(small town)
C&F A
Distributor District Office Distributor Distributor
Sub stockist Depot
Retail
Outlets
Exclusive
Dealers/ Dealers
Fair Price
Shop
Retailers, village
haats, mobile
Traders
Outlets Exclusive dealer/
Retail Outlets
Consumer Consumer Consumer Consumer Consumer Consumer
Wholesaling in Rural Markets
 54% of rural consumption is routed through
wholesalers located in nearby feeder markets
frequented by village retailers to replenish stocks
 Indian wholesaler is a trader rather than a distributor
 Tends to support a brand during periods of boom and
withdraws support during periods of slump
Rural retail System
Village
Population
% of Total
Villages
% of
Population
% of Retail
Outlets
No of outlets
per village
>5000 3 22 14 28
2001-5000 14 32 32 16
1001-2000 22 25 33 9
<1000 61 21 21 2
Total 100 100 100 6 (average)
Rural retail System
 Rural India accounts for 65% of retail outlets in the
country
 High distribution costs due to geographical spread
and low volumes per outlet act as a barrier to the
entry of products in rural markets
 The average monthly sale per village shop is less
than Rs.5000, which restricts the variety and range of
the products stocked
 58% villagers prefer to buy from a haat for better
price, quality and variety wholesalers located in
nearby feeder markets frequented by village retailers
to replenish stocks
Stock Turnover in Rural Distribution
 Average stock in villages is about a third of that in
feeder villages
 Off-take of packaged food and tobacco is higher in
villages; toiletries are higher in feeder villages
 Average monthly sale per village shop is less than
Rs.5000, which restricts the variety and range of the
products stocked
 58% villagers prefer to buy from a haat for better
price, quality and variety wholesalers located in
nearby feeder markets frequented by village retailers
to replenish stocks
Rural Retail Shelf
 Rural retail shelves are flooded with local and
regional brands as these
 Number of categories stocked by rural and urban
stores does not vary significantly; but what does vary
is the number of companies/brands
 Slow-moving products covered with dust. The
visibility of brands poor due to absence of racks and
display boxes and stands
 Marketers need to devise strategies to occupy rural
retail shelf space by providing display and storage
systems
Mobile Vans
 Salesman loads the van with stocks from stockist or
company stock point
 Eveready batteries and torches established
distribution network that includes 1000 vans, 4000+
distributors and 44 warehouses. These vans reach 6
lakh retail outlets directly, each van making 50 to 60
calls per day. The company ensures that the van
revisits a retailer every 15 days. The stock for these
vans is supplied by the small town distributors.
Rural Mobile Traders – Last-Mile Distribution
 Mobile trading is an age-old, direct to home,
unorganized distribution system in rural areas
 Sell daily-need and FMCG products, footwear etc
mostly local brands
 Carry products on bicycles, mopeds, handcarts or on
foot
 Have a deep reach in small villages to avoid
competitions from shops in bigger villages
 Enjoy good rapport with their clients
 Mostly sell fakes and local brands
Haats and Shandies
 Are the periodic markets and the oldest marketing
channel in India
 Provide an opportunity to purchase consumer goods
and sell surplus agricultural products
 Popular as it is also a place for social, political and
cultural contact
 Haats – data – next slide
Haats and Shandies
 Number of haats: 43000 around
 Average annual sale per haat: Rs 80 crores
Large Haat Small Haat
No. of stalls 545 327
Av No. of visitors 12000 5600
No. of villages
covered
57 21
Ref: RMAI – 2010 report
Public Distribution System (PDS)
 A system of distribution for essential commodities
through a network of FPS (Fair Price shops, also
referred ‘ration shops’)
 The commodities are wheat, rice, sugar, edible oil
and kerosene. PDS reach urban and rural population
 PDS with a network of about 5.27 lakh FPS is the
largest distribution network of its type in the world
Behaviour of Rural Channels
 Purchasing cycles: In high turnover feeder villages,
rural shopkeepers visit the neighboring urban
wholesale market for their purchases 3 to 4 times a
week. In other areas, where rural shopkeepers
depend only on counter sales buy once a week or
once a fortnight
 Seasonal pattern of stocking: Main buying season
for rural consumers is during the harvest and retail
stocking of toiletries, cosmetics, ribbons, bangles,
clothes, fertilisers, seeds also follow this pattern.
Behaviour of Rural Channels
 Credit facilities to customers: Credit sales
account for 60 to 70% of sales in some districts,
while in others it is 15 to 20%. Final settlement takes
place at the harvest time
 Pricing by the channel: Interior villages retailers
sell at a price higher than the MRP justifying that
they spend time and money to fetch the products
from town wholesalers. A town wholesaler may
deliberately cut the price of a fast-moving brand to
increase his business.
Behaviour of Rural Channels
 Stocking behaviour: Rural retailers stock particular
items because of consumers demand and to a lesser
extent because of wholesaler’s push or competitor
stocks the item too
 Purchase source: Retailers go to the nearby town
/large feeder village once or twice a month to buy
their stock. The agents do not visit them often
 Transfer of Capital: Pattern follows retailer’s own
need to transfer capital from store to their own
cultivation. After harvest, they invest cash from crops
to build retail inventories
Behaviour of Rural Channels
 Channel Promotion: Interior rural retailers do not
qualify for discount schemes. Feeder market retailers
buy in bulk and get the benefit of discount schemes
 Rural retailer – consumer dynamics: Rural
consumer loyalty to retailer is very high. Retailer
influence on consumer is very high and consumers
trust the rural retailers
Comparison of Distribution Systems
 (see separate file)
Rural Logistics
 Hub and Spoke System
 Traffic moves along the spoke connected to the
hub. Also known as Satellite Distribution concept
 Syndicated Distribution
 Companies come together to form a syndicated
trading corporation (Indus Towers, IFFCO). Small
companies hand over the distribution responsibility
to already established distributors (L&T, Jyoti Ltd)
Modern Retail in Rural Areas
 ITC Choupal Saagar
 DSCL Hariyali Kisaan Bazaar
 Tata Kisan Sansar
 Godrej Aadhaar
 Started by Godrej Agrovet. Now 70% controlled by
Futures Group
 3A Bazaar (Chaudharpur, JP Nagar, UP)
 Triveni Kushali Bazaar (Unit of Triveni
Engineers)

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8 distribution in rural mkts.ppt Rural Marketing

  • 2. Challenges in Rural Distribution  Large number of small markets  Dispersed population and trade  Poor road connectivity  Multiple tiers  Poor availability of suitable dealers  Low density of shops per village  Inadequate banks and credit facilities  Poor storage system  Low investment capacity of retailers  Poor visibility and display of products on rural shop shelves  Poor communication of offers
  • 3. Distribution Strategy  Ensuring Reach and Visibility:  Reaching upto Mandis, Towns and semi- urban centers particularly for shopping products and consumer durables  Targeting larger villages:  There are around 90000 large villages out of total 650000 with a population – covering 40% of rural population and 60% of total rural consumption  Understanding of peak season  Marriages, festivals and harvest
  • 4. Distribution Strategy  Delivery vans:  Company delivery vans which can serve two purposes: they can take the products to the customers in select rural areas and also enable the firm to establish direct contact with them and thereby provide an opportunity for promotion  Collaboration for Distribution:  Organizations with lesser distribution reach, collaborate with organizations that have achieved high penetration levels in rural areas. P&G had tie-ups with Godrej. Marico with Nirma for distribution of Camay soaps.
  • 5. Distribution Strategy  Converting unorganised sector manufacturers into distributors  Small scale manufacturers have good knowledge of the territory and have good sales network.  Organizations like Exide are attempting to convert these small scale manufacturers to become their dealers.  Company’s own Distribution Network
  • 6. Distribution Channels in Rural India  Cooperative societies:  Over 4 lakh co-operatives for marketing, credit and dairy cooperative in rural areas.  Farmers Service Co-operative Societies function like mini super market for soaps, detergents, cloth, seeds, fertilizers, pesticides  These societies have infrastructure for storage and distribution  Companies contact these societies to sell their products
  • 7. Distribution Channels in Rural India  The SHG Model:  Members of SHG get matching loans from banks  Corporates work with SHGs for rural distribution  HUL Shakti program  The Youth Entrepreneurship Model  Train young rural persons for distributing products and services  Colgate, HUL, Complan  Insurance, telecom
  • 8. Distribution Channels in Rural India  Public Distribution System  Under PDS about 4.37 lakh fair price shops  Is utilized for marketing consumable items and low value durables in rural areas  Petrol Pumps  Also sell consumables such as soaps, detergents, biscuits etc, particularly on the highways  Also stock certain agricultural inputs like fertilizers, seeds and pesticides
  • 9. Distribution Channels in Rural India  Agricultural input dealers:  2,62,000 fertilizer dealers in the country  During off season consumer item companies sell their products through these dealers  Shandies/ Haats/ Jathras/ Melas  Shandies operate in a weekly cycle  Haats can be used for demonstration & distribution  Melas work best for introducing new brands and building brands through events at the venue
  • 10. Rural Distribution Channels Layer Channel Partner Location Layer 1 Company depot / C&F A National/state level Layer 2 Distributor/van operator/ super stockist/ rural distributor District level Layer 3 Sub-distributor/ retail stockist/ sub-stockist/ star seller / Shakti dealer Tehsil HQ, towns and large villages Layer 4 Wholesaler Feeder towns, large villages, haats Layer 5 Retailer Villages, haats
  • 11. Rural Distribution Channels FMCG Durables PDS Regional / Local Cement Bulbs/ Tubes Company manufacturing plant Company manufacturing plant Food Corporation of India Manufacturers Company Manufacturing plant Company Manufacturing plant Company Depot Wholesaler(city) Depot C&F A C&F A Zonal Offices Wholesaler (small town) C&F A Distributor District Office Distributor Distributor Sub stockist Depot Retail Outlets Exclusive Dealers/ Dealers Fair Price Shop Retailers, village haats, mobile Traders Outlets Exclusive dealer/ Retail Outlets Consumer Consumer Consumer Consumer Consumer Consumer
  • 12. Wholesaling in Rural Markets  54% of rural consumption is routed through wholesalers located in nearby feeder markets frequented by village retailers to replenish stocks  Indian wholesaler is a trader rather than a distributor  Tends to support a brand during periods of boom and withdraws support during periods of slump
  • 13. Rural retail System Village Population % of Total Villages % of Population % of Retail Outlets No of outlets per village >5000 3 22 14 28 2001-5000 14 32 32 16 1001-2000 22 25 33 9 <1000 61 21 21 2 Total 100 100 100 6 (average)
  • 14. Rural retail System  Rural India accounts for 65% of retail outlets in the country  High distribution costs due to geographical spread and low volumes per outlet act as a barrier to the entry of products in rural markets  The average monthly sale per village shop is less than Rs.5000, which restricts the variety and range of the products stocked  58% villagers prefer to buy from a haat for better price, quality and variety wholesalers located in nearby feeder markets frequented by village retailers to replenish stocks
  • 15. Stock Turnover in Rural Distribution  Average stock in villages is about a third of that in feeder villages  Off-take of packaged food and tobacco is higher in villages; toiletries are higher in feeder villages  Average monthly sale per village shop is less than Rs.5000, which restricts the variety and range of the products stocked  58% villagers prefer to buy from a haat for better price, quality and variety wholesalers located in nearby feeder markets frequented by village retailers to replenish stocks
  • 16. Rural Retail Shelf  Rural retail shelves are flooded with local and regional brands as these  Number of categories stocked by rural and urban stores does not vary significantly; but what does vary is the number of companies/brands  Slow-moving products covered with dust. The visibility of brands poor due to absence of racks and display boxes and stands  Marketers need to devise strategies to occupy rural retail shelf space by providing display and storage systems
  • 17. Mobile Vans  Salesman loads the van with stocks from stockist or company stock point  Eveready batteries and torches established distribution network that includes 1000 vans, 4000+ distributors and 44 warehouses. These vans reach 6 lakh retail outlets directly, each van making 50 to 60 calls per day. The company ensures that the van revisits a retailer every 15 days. The stock for these vans is supplied by the small town distributors.
  • 18. Rural Mobile Traders – Last-Mile Distribution  Mobile trading is an age-old, direct to home, unorganized distribution system in rural areas  Sell daily-need and FMCG products, footwear etc mostly local brands  Carry products on bicycles, mopeds, handcarts or on foot  Have a deep reach in small villages to avoid competitions from shops in bigger villages  Enjoy good rapport with their clients  Mostly sell fakes and local brands
  • 19. Haats and Shandies  Are the periodic markets and the oldest marketing channel in India  Provide an opportunity to purchase consumer goods and sell surplus agricultural products  Popular as it is also a place for social, political and cultural contact  Haats – data – next slide
  • 20. Haats and Shandies  Number of haats: 43000 around  Average annual sale per haat: Rs 80 crores Large Haat Small Haat No. of stalls 545 327 Av No. of visitors 12000 5600 No. of villages covered 57 21 Ref: RMAI – 2010 report
  • 21. Public Distribution System (PDS)  A system of distribution for essential commodities through a network of FPS (Fair Price shops, also referred ‘ration shops’)  The commodities are wheat, rice, sugar, edible oil and kerosene. PDS reach urban and rural population  PDS with a network of about 5.27 lakh FPS is the largest distribution network of its type in the world
  • 22. Behaviour of Rural Channels  Purchasing cycles: In high turnover feeder villages, rural shopkeepers visit the neighboring urban wholesale market for their purchases 3 to 4 times a week. In other areas, where rural shopkeepers depend only on counter sales buy once a week or once a fortnight  Seasonal pattern of stocking: Main buying season for rural consumers is during the harvest and retail stocking of toiletries, cosmetics, ribbons, bangles, clothes, fertilisers, seeds also follow this pattern.
  • 23. Behaviour of Rural Channels  Credit facilities to customers: Credit sales account for 60 to 70% of sales in some districts, while in others it is 15 to 20%. Final settlement takes place at the harvest time  Pricing by the channel: Interior villages retailers sell at a price higher than the MRP justifying that they spend time and money to fetch the products from town wholesalers. A town wholesaler may deliberately cut the price of a fast-moving brand to increase his business.
  • 24. Behaviour of Rural Channels  Stocking behaviour: Rural retailers stock particular items because of consumers demand and to a lesser extent because of wholesaler’s push or competitor stocks the item too  Purchase source: Retailers go to the nearby town /large feeder village once or twice a month to buy their stock. The agents do not visit them often  Transfer of Capital: Pattern follows retailer’s own need to transfer capital from store to their own cultivation. After harvest, they invest cash from crops to build retail inventories
  • 25. Behaviour of Rural Channels  Channel Promotion: Interior rural retailers do not qualify for discount schemes. Feeder market retailers buy in bulk and get the benefit of discount schemes  Rural retailer – consumer dynamics: Rural consumer loyalty to retailer is very high. Retailer influence on consumer is very high and consumers trust the rural retailers
  • 26. Comparison of Distribution Systems  (see separate file)
  • 27. Rural Logistics  Hub and Spoke System  Traffic moves along the spoke connected to the hub. Also known as Satellite Distribution concept  Syndicated Distribution  Companies come together to form a syndicated trading corporation (Indus Towers, IFFCO). Small companies hand over the distribution responsibility to already established distributors (L&T, Jyoti Ltd)
  • 28. Modern Retail in Rural Areas  ITC Choupal Saagar  DSCL Hariyali Kisaan Bazaar  Tata Kisan Sansar  Godrej Aadhaar  Started by Godrej Agrovet. Now 70% controlled by Futures Group  3A Bazaar (Chaudharpur, JP Nagar, UP)  Triveni Kushali Bazaar (Unit of Triveni Engineers)