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By : Alok Sharma, Head/VP/GM-Marketing, XYZ
Industry : Retail Chain/Logistics Functional Area : Channel Management
Activity:  4 comments  7834 views  last activity : 12 30 2010 12:07:15 +0000
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Rural Retailing in India and its

Challenges

Understanding various formats, needs and

opportunities

By:

Alok Sharma

alok_sharma1@yahoo.com

Current Face of Rural Retailing

Complete utilization of space

in traditional outlets

• 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

Consumption Contribution of Rural India

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 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)

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

 

ITC- EChoupal

FARMERS INSURANCE

COMPANY

AGRI-INPUT

COMPANY

AGRICULTURE UNIVERSITIES/STATE

AGRICULTURE DEPT

INPUT SUPPLY

TECHNCAL

GUIDANCE

MARKETING

ASSISTENCE

TRAINING

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.

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.

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

Positioning of the Format

Community Store

• Emotional Affinity-

• Relationship with the customers beyond

products and price

Rational Benefit

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)

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 2.3 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

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

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,

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,

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

Other Challenges

o

– Increasing costs of land

o

– Pace of expansion

o

– High operating costs

o

– Low margin on agri-inputs

o

consumers

– Low purchasing power of

What should keep in mind to get

success in Rural market?

The 4A Approach

• Availability

• Affordability

• Acceptability

• Awareness

Recommendations

• The business model for rural retail can be successful only when

the profit and social motive

for it to be acceptable.

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

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

rural race and hence should venture into this territory.

integration betweenis apparent. The social angle needs to be pronouncedEmpowerment in terms of economic power, purchasing power, knowledge andlevel of penetration except for certain products, has been negligible so far.able to stay longer on this

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

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.

 
4 comments on "Rural Retailing in India - Challenges & Opportunities"
  Commented by  Rajat Jain, Freelancer, Retail Chain/Logistics    | 12 30 2010 12:07:15 +0000
Rural retail has tremendous opportunity considering the Marginal propensity to spend is increasing in rural community. The over all realization in terms of Capex is also More in rural market than Urban . In a best case scenario a realization of 30% is achievable.
But net realization is more due to less Spending on recurrences.
Mr Rohith Yogendra Led " Agri input and essential stores " is pioneering this in south india at break neck speed and i believe most of the people organised retailers will be caught off guard focusing only on Urban market. Rural is the mArket next going on 
Market Watch

Rajat Jain - Market watch
  Commented by  Rajat Jain, Freelancer, Retail Chain/Logistics    | 12 30 2010 12:06:08 +0000
Rural retail has tremendous opportunity considering the Marginal propensity to spend is increasing in rural community. The over all realization in terms of Capex is also More in rural market than Urban . In a best case scenario a realization of 30% is achievable.
But net realization is more due to less Spending on recurrences.
Mr Rohith Yogendra Led " Agri input and essential stores " is pioneering this in south india at break neck speed and i believe most of the people organised retailers will be caught off guard focusing only on Urban market. Rural is the mArket next going on.

Market Watch
  Commented by  pooja gupta, HUMAN RESOURCE MANAGER, -    | 10 10 2009 16:59:07 +0000
thank for such a good information on rural retailing.
  Commented by  Shailena Varma, Logistics Manager, Target    | 10 08 2009 06:00:30 +0000
Dear Alok, Please can you reduce the article Font? It will be easy to read.
Coming to the topic, yes, you are right. We should look towards rural retail very seriously. Organised retail in rural India is awaiting the arrival of Reliance Retail, current majors like ITC, Godrej and DSCL are expanding their retail operations by setting up more stores, entering new states and offering newer product categories. A shift from selling agri-inputs will help these stores target the non-farming segments. It is a little known fact that, while 25% of the rural population is not engaged in agriculture, it earns 50% of the rural income.

While organised retail centred on these stores, unorganised retail revolves around the local village shop and the haat. Shops are usually present in villages with a population of more than 500 people. They stock more product categories than what similar urban shops would, but there isn’t much variety offered within a category. Haats are weekly mobile supermarkets that are spread over 2-3 acres of land, with more than 300 stalls, selling anything from animal feed to local medicines.

Where unorganised retail disappoints is in that the goods sold are often spurious and there is no guarantee of quality for many of the goods being sold be it agri-inputs, FMCG etc. The typical shop is cluttered and congested with limited variety and few national brands. Many of the goods are sold at prices... 
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