Rural Retail new

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Rural Retailing in India-The Road Ahead

Shikhar Das Srivastava*

ABSTRACT

The decision to liberalize the Indian Economy in 1991 had far reaching consequences,

which is still continued into the new millennium also. On the marketing front, there was

the arrival of many well-known Multi National Companies especially FMCG product

dealers. In the initial years the focus was on the easily accessible well developed urban

markets but soon it got saturated because of proliferation of brands and intensecompetition, resulting in the near saturation of the urban market. This forced companies

to look for greener pastures, i.e. new markets.

All eyes turned to the worlds most promising potential markets of 742 million rural

consumers who had yet to taste the fruits of modernity, a promise that seemed ready to be

fulfilled because of explosion in buying capacity in rural sector.

Rural markets are proving to be vital for growth of most companies. Priority to develop

the rural markets and sincere efforts to overcome the difficulties would open the

floodgates, offering tremendous potential for growth. This paper will reveal such major

opportunities existing in rural sector for many major retail players and how they are

cashing the present and future gains out of that.

*Assistant Professor, Babu Banarsi Das University, Lucknow

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Rural Retailing in India-The Road Ahead

Shikhar Das Srivastava*

1. Introduction: Even after independence, Indian economy is still being dominated by

agriculture sector and the major reasons behind this- (i) its contribution in food grain

production which is consumed by both rural and urban market and (ii) self-employment.

Considering this fact, Central Govt. and other State Govt. have been emphasizing

developments of rural areas through investments in different sections like infrastructure,

agricultural technology and farm productivity. In addition to this private investors also

considering rural as Creamy sector and dominantly supposing as processing and

consumption centers. The demand for production and consumption of goods in rural

areas has increased substantially (two-third of countrys consumers live in rural areas)

both for household and industrial goods i.e. farm equipment and machinery, high yield

varieties of seeds, fertilizers, pesticides, detergent, personal care product, television etc.

Another picture of rural economy is the percentage increased in output namely food

grains, fruits and vegetables, milk, poultry products, handloom and handicraft products

that almost generate half of the Indias National Income. All these elements are raising

the opportunity of retailing in rural.

2. Description of rural market

2.2-What is Rural Area or Market?

There could be numerous approaches and methods in defining Rural Area/Market. All

villages with a population of less than say 4000 or 5000 (ora population of 5000 plus

*Assistant Professor, Babu Banarsi Das University, Lucknow

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a population density over 400 per sq. meter with at least 75% of the male workforce

engaged in non-farming activities) will be considered as rural area. Later on a new and

pure definition of rural area came up as- an area/s having population of less than 5000,

75% of the population engaged in agriculture, 50% of the national income is generated

by the rural population and 2/3rd of the countrys consumer lives in rural territory can

be considered a rural area.

2.3- Retail prospects in Rural India:

Rural India accounts for roughly 70% of the population where 6, 38,000 villages and 593

districts consist of 742 million people. 15% of rural population lives in 20,000 large non

urban areas with population more than 5,000 people. 63% of rural population lives in

villages of 1000 to 5000 people. Remaining 3, 90,000 villages have fewer than 1000

people accounting for 22% of the population. Growth in agriculture has resulted in the

rapid rise of rural incomes which results in the rise of consumption pattern especially for

factory produced goods in rural areas. The Indian rural market with its vast size and

demand base offers great potential to marketers. So for the retailers it is required to see in

which segment they are catering in the above division of villages. For example HULs

project Shakti caters to villages with a population of 500 or above where in Eveready

considers even the remotest of village as its target customer. It operates through more

than thousand company-owned vans and has over 4,000 distributors to directly providing

service to 6, 00,000 retail outlets. According to the IMD report 1998 of NCAER

(National Council of Applied Economic Research), the consuming class households

(annual income between Rs.45, 001-2, 15,000) in rural India equal the number in urban

India. It is well known that for the same level of income, the purchasing power in rural

areas is much higher as the expenditure on basic necessities is relatively much lesser/

subsidized or free in comparison to the urban India. Thus rural markets are immensely

attractive for most companies. The best example is Hindustan Unilever Ltd. a largestFMCG company, more than half of its sale of Rs.11, 700 cr. deriving from rural market.

Moreover the following figures shows the lucrative picture of rural sector- Estimated

annual size of rural market in FMCG is of Rs.65000 cr., FMCD is Rs. 5000 cr., Agro-

inputs is Rs.45,000 cr., Two and four wheeler is of Rs.8000 cr. The rural market for

FMCG product enhanced by 30 % between 1992-93 and 1998-99 and accounted for

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about 53% of this product categorys total consumption in India. Similarly in 2001-02

LIC gathered 55 % of its business from rural sector only and for BSNL, half of its

customer base belongs to rural India. Thus market indicators such as size and growth for

many products are very much fascinating for any company to ignore.

2.3a-Characteristics of Rural Market:A rural area exhibits several distinctive

characteristics that are different from urban areas. Demographic features like income

level, literacy levels, family size, occupational patterns, social custom norms and many

other are unique to rural India.

Demographic changes incurring in India:

(i) INCOME Level-The increment in household incomes made a drastic change in rural

retail image. With the increased working population, the purchasing power of the rural

population has gone up from 40% in 1991to 42 % in 2001. The following diagram

depicts the population of Rural India divided on the basis of household incomes. Strivers

and seekers constitute the middle class. The diagram depicts how the increase in

household income will lead to increased consumption by various levels of consumers in

the stated diagram. The diagram shows the growth trend in household income since 1985

to upcoming 2025.

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By the graph, in 2005 the number of Aspires were 253 million (approx) which will in

next 10 year turned into 411.2 million i.e. roughly 158 million people more will be added

to the aspirers class. At the same time, in 2005 the population falling in deprived class

was around 513.5 million, which is expected to decline at the number of 402.5 million

(i.e. 111 million will shift from below poverty line to aspire class).

Similarly in connection to the context the next graph clearly shows the consumption level

change with the growth in disposable income of rural household. It is presumed that the

rural per-household consumption will rise and match the todays urban level by 2017.

The fact is that the urban consumers have to incur a high cost of living while the rural

population has a higher level of disposable income for the same levels of income. For

marketers, this is an encouraging fact. In 1983 the per-capita consumption expenditure of

the rural areas was Rs.112 /month whereas it was Rs.166 in the urban areas. In 2001, the

per-capita monthly income expenditure increases to Rs.486 in rural areas and to Rs.855

in urban areas. Moreover there is a shift in the expenditure pattern of rural consumers. In

1983, about 66% of the per capita consumption expenditure was on food and, by 2001,

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this proportion declined to 59%. These trends indicate that while income as well as

expenditure in rural areas has increased, their spending on non-food items has also

increased.

(ii) LITERACY Level- Still major population in rural is reluctant towards education.

Primary level education in the rural sector is below 60%. Thus the demand for products

likes books, magazines, notebooks, pens/pencils, drawing instruments, calculators,

computers etc. is low. But changes are taking place due to efforts of Govt. and corporate

people both .The govt. and corporate sector (in form of CSR) is coming together for

promotion of literacy in the rural sector and effect has been shown in form of risen

percentage up to 23%. This is result contributed significantly to an improvement in the

socio-economic status of the rural people. With this growth the demand for educational

products has increased positively.

(iii) FAMILY Size-Families in rural market are joint-ones. In which a group of people

lived under one roof, ate food from common chullah, held income and property in

common and were related to each other by bonds of kinship. Till now they live in joint

families. They check with the family and discuss everything before buying any product.

It is important to consider the size of the family, depending upon this they can go for the

product. The family members discussion influences the purchasing decision. Here

money plays the secondary role their composite decision matters a lot. But with rise in

population and resulting pressure on land and several other socio-economic factors, joint

families are breaking apart. A new concept of individualized joint families is emerging,

in which families stay in the same house but spend separately. Thus with the increasing

numbers of individualized joint and nuclear families, the range and number of branded

products coming into the family can increase.

(iv) OCCUPATIONAL Pattern- The shift can easily be seen from cultivator to wage

earner from last few decades in rural areas. Rural people are also moving towards jobs

and retailing professions. But there is a difference in wage and salary earner

consumption/investment pattern. A daily wage earner has to account for variation s in

income, whereas a salary earner brings home an assured fixed amount and therefore can

plan in a better way. 3/4th of rural household heads are either cultivators or wage earners,

whereas 3/4th of urban household heads are salary earners, petty shopkeepers and wage

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earners. The cultivators disposable income is highly seasonal with more disposable

income available immediately after the harvesting season. This is therefore the time when

he is more inclined to make purchases, especially of consumables and durables.

(v) SOCIAL CUSTOM Norms-Social norms and customs play a significant role in

determining individual and collective behavior in rural India. Village elders and

individuals such as the titular head of the village, caste leaders, priests and such socially

important people have a major influence on the rural people. They frequently influence

the purchase decisions of others in the village, acting as credible sources of information

or playing the role of opinion leader. Similarly there are some social norms and festivals

on which certain kind of products demands shoots-up instantly. Thus Companies must

have to see the rural market as potential market and must develop significant market

strategies for its growth and development.

2.4-Highlights of Rural Retail

Indian urban consumers have experienced the taste of organized retailing which in fact

enlarged the picture of Retail and Consumer stature mainly in rural area. But at the same

time, Marketers are also aware of the fact that urban market would face the stage of

saturation later or sooner and thats the reason they are armoring themselves by owning

the strategies of diversification and exploring new markets for growth. The major portion

of rural market at the moment is still untouched and especially in retail sector, the

companies like HUL and ITC are leading in rural area and catering the rural demand but

yet there is much more opportunity exists for the other players also.

When organized retail first made its presence felt in rural India, it wasnt a pure retailing

operation targeting the rural masses. Companies like DCM Sriram Consolidated Ltd.

(DSCL) and Godrej who had significant agri-business interests, set them up to meet the

needs of farmers in a stores catchments area. These stores are one-stop shops meant to

meet the occupational needs of farmers by providing agri-inputs and fertilizers. These

stores tend to target farmers with all sizes of holdings. While organized retail centered on

these stores, unorganized retail revolves around the local village shop and the haat.

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There are some major players in rural retailing to cater the need of Rural Population. They

are;

(i) DSCL - Hariyali Kisan Bazar

(ii) Godrej- Aadhaar

(iii) HUL Project - Shakti

(iv) ITC - e-choupal and Chaupal Sagar

(v) Kisan Seva Kendra

1. DSCL-Hariyali Kisaan Bazaar

DSCL backed by years of experience in the agri-business, has implemented a

one of a kind rural retailing initiative, the Hariyali Kisaan Bazaar rural departmental

stores, to provide single-point solution to the diverse needs of the contemporary Indian

farmer. Each store covers an area of 3-4 acres and is managed by a team of 7-8 people

whom the Company trains continuously. The total number of Hariyali outlets stood at

302 outlets till 2011. Hariyali Kisaan Bazaar offers the rural household all farming and

consumer products and related services along with financial services under one roof.

These include wide choice and multi-brands of agri-inputs, FMCG, consumer durables,

apparels, footwear, toys, general merchandise, insurance etc. The outlets also

provide the farmer, the expert advice of agronomists and the technological

support in shifting from subsistence farming to technology led commercial

farming. The company also launched credit services during its second quarter 2007-08, in

association with HDFC bank, providing loans for various purposes.

The company also stepped up its bulk procurement activity and trading activity

under review to include various grains (maize, wheat), pulses (chana), oilseeds

(mustard), menthe oil, coriander etc.

2. Godrej- Aadhaar

Godrej Aadhaar is the agri services cum retail initiative of Godrej Agrovet Ltd. It is a

complete solution provider for the Indian farmers and provides professional guidance

with an objective to improve productivity, higher returns and improved cost benefit ratio.

The services offered are crop advisory services, soil & water testing services; buy back of

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output, crop finance, supply of agri inputs and animal feeds, transfer of information

(weather, price, and demand supply), door delivery of products etc. While, the venture

begun by offering agri solutions to the farmers, based on their feedback, it has over the

last few months diversified into offering a number of other product categories like

durables, FMCG, apparels, footwear etc, thus catering to the complete requirement of the

rural household. A one-stop shop for Rural India. A number of corporates are already in

the process of partnering Aadhaar for various projects for furthering the initiative.

Presently there are 70s Aadhaar Centers across the country in the States of

Maharashtra (Mancher, Alephata, Ranjini, Umbraj, Ozar Sangli, Dindori, Niphad,

Shikrapur, Ottur, Akluj). GAVL also opened its second petro format Aadhaar Express in

Kashti, Maharashtra. GAVL revamped its Warden Road Natures Basket outlet by

positioning it as Authentic World Food. This store has introduced new product

categories like wine, cheese, cold cuts, processed foods in addition to its existing

portfolio of fresh fruits, vegetables & herbs and specialty foods.

3. Project Shakti

HUL launched Project Shakti in the year 2001, in keeping with the purpose of

integrating business interests with national interests The model was piloted in Nalgonda

district of Andhra Pradesh in 50 villages in the year 2000. The Government of Andhra

Pradesh took the pioneering step of supporting the initiative by enabling linkages with the

network of DWACRA Groups of rural women set up for their development and self-

employment. Most SHG women view Project Shakti as a powerful business proposition

and are keen participants in it. It has since been extended to in Andhra Pradesh, Bihar,

Chattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra,

Orissa, Punjab,Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal with the total

strength of over 39,880 Shakti Entrepreneurs. Under the project, HUL offers a range of

mass-market products to the SHGs, which are relevant to rural customers. HUL isinvesting significantly in resources that work with the women on the field and provide

them with on-the-job training and support. This is a key factor in ensuring the

stabilization of their fledgling businesses. HUL imparts the necessary training to these

groups on the basics of enterprise management, which the women need to manage their

enterprises. For the SHG women, this translates into a much-needed, sustainable income

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contributing towards better living and prosperity. Armed with micro-credit, women from

SHGs become direct-to-home distributors in rural markets. A typical Shakti entrepreneur

conducts a steady business which gives her an income in excess of Rs.1,000 per month

on a sustainable basis. As most of these women live below the poverty line, and hail from

extremely small villages (with populations of less than 2000), this earning is very

significant, and almost twice the amount of their previous household income. For most of

these families, Project Shakti is enabling families to live with dignity, with real freedom.

In addition to money, there is a marked change in the woman's status within the

household, with a much greater say in decision-making. This results in better health and

hygiene, education of the children, especially the girl child, and an overall betterment in

living standards. The most powerful aspect about this model is that it creates a win-win

partnership between HUL and the consumers, some of whom will depend on the

organization for their livelihood, and builds a self-sustaining cycle of growth for all. HUL

envisions the creation of 1,00,000 Shakti Entrepreneurs covering 5,00,000 villages, and

touching the lives of 600 million rural people.

i-Shakti - an IT-based rural information service has been developed to provide

information and services to meet rural needs in agriculture, education, vocational

training, health and hygiene. i-Shakti has been set up in 400 villages in Andhra Pradesh,

and have been functional since August 2003. Through i-Shakti kiosks, ICICI Bank and

HUL will work together to provide a new delivery channel for rural India, which offers a

multitude of products and services to the rural customer. In the first phase, Life and

General Insurance will be offered through this channel. Other financial services including

Investment products (Equity, Mutual Funds, Bonds) ICICI Bank Pure Gold (gold coins),

Personal Credit, Rural Savings Accounts and Remittances will be introduced

subsequently.

4. ITC- e-Choupal and Choupal Sagar

ITCs e-Choupal is an example of how a commercial venture can provide a

channel for knowledge and opportunity, bringing global resources and practices

to Indian villages as well as higher incomes for farmers, and helping create the

conditions for many other enterprises to cater to the rural market. E-Choupal is an

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entirely new channel for procuring the purchase of the farmers. Today they operate

through 6,500 choupals in 9 states. In e-Chaupal they started with two channels known as

Sanchalak and Sanyojak. Sanchalak: Sanchalak is the person in whose house the ITC sets

up the e-Choupal. E-Choupal consists of a computer; linked to the Internet via phone

lines or, increasingly, by a VSAT connection. Each Sanchalak serves an average of

600 farmers in 10 surrounding villages within about a 5 kilometers radius.

Samyojak: Samyojak is the cooperating commission agents. They look for the logistical

support and are responsible for cash disbursement to the local farms for their

produce.They basically facilitate the purchase of the products for ITC fromfarmers. They

take care of 40 Choupals and the average distance a farmer has to travel to reach

Samyojak to sell his produce is 25-35 kilometers.

Chaupal Sagar: Following the runaway success of its e-Choupals, the tobacco-to-hotels-

to-foods major ITCs rural foray, which kick-started a silent revolution amongst the

harried soya farmers of MP in June 2000, the company has now moved on to the second

phase. And the result is Choupal Sagar, the first of which was unveiled at Sehore

near Bhopal in August 2004. A rural hypermarket or a rural mall, Choupal Sagar

provides multiple services under one roof, like selling produces and buying

quality products for farm and household consumption. Chaupal Sagar are built near

Samyojak, so that when farmers come to sell their produce to samyojak and receive cash

money then they can shop in Chaupal Sagars. Till now there are 19 Choupal Sagars. All

of these stores are located in the rural areas of Madhya Pradesh, Uttar Pradesh and

Maharashtra.

5.Kisan Seva Kendra

Kisan Seva Kendra is a low cost business model by Indian Oil corporation of a

retail outlet offering fuel and other non fuel value added services with penetrationin rural markets generating high returns. KSK a one stop center of service (seva) for the

farmers at his doorstep making available:

Diesel and Petrol with Q&Q

Seeds, pesticides,fertilisers and other agri needs

Nutan stove, Hurricane lamps

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Daily needs such as grocery, personal care

Stationery for children

Tools, auto spares

Location specific value additions

Low investment ranging from Rs 6 to 9 lacs with a pay back period of 3 to 4years.It

currently has approx. 100 operational stores.

2.5- More to Come:

Another step to tap the rural market was `Operation Bharat' wherein low-priced sample

packets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to

20mn households. As a part of their rural strategy, BPCL introduced Rural Marketing

Vehicles (RMVs) that move from village and village and filling cylinders on the spot for

rural consumers keeping in mind the low-income of the rural population. The Company

also introduced a smaller size cylinder to reduce both the initial deposit cost as well as the

recurring refill cost. As clear from the story on Reliance Fresh and Metro, organized

retail sector can bring a revolutionary change in rural India unless it goes for quick short-

term gains. With Wal-Mart famous for its 'Always Low Prices' came in India with

Bharati as equal partner, Indian farmers and rural craftsmen can hope for a better direct

deal. Retailing does not benefit just the consumer. It can give huge benefits to other

industries, to government, and to the entire economy. The rural market is no longer a

non-player in the retail game. It is now accounting for over one-third of the market for

most durable and non-durable products. Even manufacturers are developing new products

with the rural consumer in mind besides using village-oriented marketing strategies for

brand promotions. Whether it is Rani Mukherjee promoting the chocolate Munch or

master batsmen Sachin wowing village lads with a soft drink, both ad makers as well as

top company honchos know where to put their money and how. The rural market is no

longer of hypothetical empirical value but is well researched and reached by most

companies looking to tap India's vast and abundant bounty.

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Conclusion

The Indian retail scenario is poised for a quantum leap. Not only are newer names set to

dot the retail landscape but also new and emerging retail formats (especially in rural

sector retailing) will drive the diversity of the fast-changing retail backdrop. Organized

Retail means 'Big Stores' a common mythnothing can be further then the truth. In its

very essence, organized retailing is about "aggregating value" and what shape, size and

configuration your customer facing entity takes is largely a function of your offer and

proposition. A growing population, a young workforce and zooming consumer

confidence will fuel the expansion of the retail sector. As organized retail in rural India

awaits 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 andoffering 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. The retail

market is the next growth frontier for corporate India. It offers an opportunity for a large

player to build a Rs. 40,000 Cr retail business spanning multiple categories by 2015 (at

current prices). However, to capitalize on the opportunity, a player needs to be aggressive

in its outlook and build scale quickly.

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REFERENCES

1. MGI India Consumer Demand Model v1.0, sample.

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3. Ajita, Shashidhar, Colas countryside crusade, Business line, July 3, 2003

4. Datt Ruddar & Sundharam K P M, Indian Economy, 2004

5. Consumption of some important commodities in India, (1999-2000,) NSSO, 2001

6. Krishna M, Rural Markets by mail order Indian Journal of Marketing, Vol 6,

No 1-2, pp 12-13

7. Social & Research Institute, Villages of India, A study of Indian Market

Research Bureau, 1990

8. Velayudhan, Sanal kumar, Buyer Behaviour in Rural Markets: A study of Soap

markets Productivity, Vol 39, No 2 July- September, 1998

9. Wanmali Sudhir, Periodic Markets & Rural development in India, B R

Publishing Corporations, New Delhi 1981

10. Mukund Das & Somnath Sen, Commercial Aspects-The Rural Way, A&M,

October, 1991

11. National Human Development Report (2001), Planning Commission, Govt of

India, New Delhi, Mar 2002.

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