Scope of FMCG Sector in Rural India.docx

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SCOPE OF FMCG

SECTOR IN INDIAN

RURAL MARKET

DISSERTATION -FINAL REPORT

GUNJAN GUPTA

ROLL NO. 68

PGDM 2012-14

JRE SCHOOL OF MANAGEMENT

MARCH 2014


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ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my

Dissertation Supervisor, Professor Sushil Pasrichafor his exemplary guidance,

monitoring and constant encouragement throughout the course of this report. The

blessing, help and guidance given by him time to time shall carry me a long way in the

journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude to JRE School of

Management for giving me this opportunity to work on my dream project. I am obliged

to staff members of JRE School of Management, for the valuable information provided

by them in their respective fields. I am grateful for their cooperation during the period

of my project.

Lastly, I would like to appreciate the guidance given by other supervisors as well as the

panels especially in my project presentation that has improved my presentation skills by

their comment and tips.

Gunjan Gupta


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DECLARATION

I, Gunjan Gupta, of JRE School of Management, Greater Noida, of PGDM 2012-14

[IInd Year] hereby declare that I have completed my dissertation, titled Scope of

FMCG sector in the Indian Rural Market. The information submitted herein is true and

original to the best of my knowledge.

Date: March 14th, 2014 Gunjan Gupta

Place: Greater Noida


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TABLE OF CONTENTS

1 Executive Summary 4

2 Introduction 5

2.1 Introduction to Rural India 5

2.2 Introduction to FMCG 5

3 Literature Review 9

3.1 Evolution of Rural Marketing 9

3.2 Rural Marketing Mix 10

3.3 Urge to go Rural 11

3.4 Market size of FMCG 15

3.5 Rural and FMCG 17

3.6 Rural Initiatives 17

4 Objectives 23

5 Research Methodology 23

6 Findings and Conclusions 24

6.1 Emerging Trends 24

6.2 Key Findings 27

7 Issues and Challenges 288 Way Ahead 33

9 References 35


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1. EXECUTIVE SUMMARY

The fast-moving consumer goods (FMCG) sector is an important contributor to

Indias GDP and it is the fourth largest sector of the Indian economy. Globally, the

FMCG sector has been successful in selling products to the lower and middle

income groups, and the same is true in India. Over 70% of sales are made to middle

class households today and over 50% is in rural India.

The sector is excited about a burgeoning rural population whose incomes are rising

and which is willing to spend on goods designed to improve lifestyle. Also with a

near saturation and cut throat competition in urban India, many producers of

FMCGs are driven to chalk out bold new strategies for targeting the rural consumer

in a big way. FMCG Industry in India is witnessing a change a change in the

pattern in which it is growingneedless to say, with the changing demographics,

the pattern of marketing would also change. As rural penetration increases, the ruralmarkets would command more and more share of the overall FMCG space.

Though the urban markets are growing too, the incremental addition in consumers /

households is much more in rural space as compared to urban markets. Rural

marketing has become the latest marketing mantra of most FMCG majors. The rural

India is vast with unlimited opportunities, waiting to be tapped by FMCGs. Hence

the Indian FMCG sector is busy putting in place a parallel rural marketing strategy.

Therefor a comparative study is made on growth, opportunity and challenges of

FMCGs in rural market. This paper will provide detailed information about the

growth of FMCG industry in rural market of India and examining the challenges,

opportunities for the FMCGs in rural market with growing awareness and brand

consciousness among people across different socio-economic classes in rural area of

India and how the rural markets are witnessing significant growth.


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2. INTRODUCTION2.1Introduction to Rural India

Definition of Rural: The Census of India defines any habitation with a

population density of less than 400 per sq. km, where at least 75 per cent of

the male working population is engaged in agriculture and where no

municipality or board, as a rural habitation exists.

Thus, the rural population consists of 800 million inhabitants, accounting for70 percent of Indias population. While defining a market as rural, the

following facts and figures should be considered:

As per the 2001 Census India has more than 20,000 villages whosepopulation ranges from 5,000-10,000. So any population cut-off criteria

should definitely include villages as rural areas. The majority of rural

institutions, agricultural markets and rural banks are located in larger

villages and towns, which have a population of up to 10,000. As the

population crosses this figure, characteristics such as occupation,

consumption and buying behaviours show a marked change, indicative

of the transition from rural to an urban/ semi-urban set-up.

Many villages, although now notified as towns due to their economicgrowth over the last three or four decades, continue to retain their rural

character.

Leaving aside HUL and ITC, most companies in the FMCG sector definea rural set-up as any place with a population of up to 20,000. Similarly,

durables and agri- input companies set this limit at 50,000.

2.2Introduction to FMCG:The Fast Moving Consumer Goods (FMCG) sector is a corner stone of

the Indian economy. This sector touches every aspect of human life. Indian

FMCG market has been divided for a long time between the organized sector


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and the unorganized sector. FMCG market remains highly fragmented with

roughly half the market going to unbranded, unpackaged home-made

product.

According to IBEF (Indian Brand Equity Foundation) Report, the fast

moving consumer goods (FMCG) segment is the fourth largest sector in the

Indian economy. The market size of FMCG in India is expected to grow

from US$ 30 billion in 2011 to US$ 74 billion in 2018. It has a strong MNC

presence and is characterised by a well-established distribution network,

intense competition between the organised and unorganised segments andlow operational cost. Availability of key raw materials, cheaper labour costs

and presence across the entire value chain gives India a competitive

advantage. Penetration level as well as per capita consumption in most

product categories like jams, toothpaste, skin care, hair wash etc. in India is

low indicating the untapped market potential. Burgeoning Indian population,

particularly the middle class and the rural segments, presents an opportunity

to makers of branded products to convert consumers to branded products.

IBEF March 2013 report suggests that

Source: IBEF March 2013 Report

43%

22%

12%

8%

4%4%

2%5%

Market Break-up by Revenues

Food Products Personal Care Fabric Care Hair Care

Household OTC Products Baby Products Others


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Report also suggests that

Source: IBEF March 2013 Report

The urban segment is the largest contributor to the sector, accounting for two-

thirds revenue. The sector is excited about a mushrooming rural population

whose income is rising and who are willing to spend on goods designed to

improve their lifestyle. Also with a near saturation and cut throat competition in

urban India, many producers of FMCGs are driven to chalk out bold new

strategies for targeting the rural consumers in a big way. But the rural

penetration rates are low. At present there is a tremendous opportunity for

manufacturing branded products and consumers can be persuaded to buy

branded products

The rural market offers a big attraction to marketers. Distribution is the most

important variable in the marketing plans of most consumer goods

manufacturers. It is estimated that there are over a million market intermediaries

distributers, super- stockists, wholesalers, stockists, transporters and retailers

who are involved in the distribution of a variety of consumer goods all over the

Urban66%

Rural

34%

Urban-Rural Revenue Break-up

Urban Rural


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country. Marketers use this network to access nearly 5,100 cities and towns and

over half a million villages.


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3. LITERATURE REVIEW:Over the past few years, the rural markets have emerged as one of the most

lucrative markets for Indian companies. In the recent past, many organizations

have forayed into rural areas and this has proved fruitful and beneficial for them.

The Indian rural markets provide abundant opportunities for organizations to

enter and operate profitably. The large population base of rural India enables the

companies to earn a reasonable amount of revenue. According to a white paper

prepared by CII-Technopak, the rural market grew at an impressive 25% in theyear 2008 and by the year 2010-11 has grown to approximately 720-790 million

customers with a size of US$425 bn. Rural India has emerged as a large market

for numerous goods and services such as financial services, FMCG, healthcare

and telecommunications. In today's competitive scenario, the rural markets are

as vital as the urban markets for marketers.

3.1Evolution of Rural Marketing:

1950-1970 Post Indepence large pop

to feed

Priority to increase foodproduction

Resources by state actingas conduit

Keeping sustenance limitcivil unrest 1

960-1980 Food Sustenance through

GREEN REVOLUTION

State architect of fooddistribution Network

Introduction to Equipments& Technology

Local trading and buyingowning to surplus

Local trader ascends toTrading Throne

1980-1995 Small but steady growth in

economy

Surplus continues,redistribution & export

Private sector entry, policyreviewm adro-priority

Priority lending and stateinfrastructure funding 1

995-2005 Economic Growth gains

fmomentum

Further surplus ,consumption up & export

continuesWages rise

Rural is no moreagriculture market butRURAL IS THE MARKET


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3.2Rural Marketing Mix:

a) Affordability:It is a fact that per capita rural incomes are still only half of urban

incomes, and all products and services designed for rural markets must

keep affordability in mind. However, it is important to realize that

creating an affordable product or service is not the same as creating a

low-cost-quality version of an urban product or service. It is vital to

design a product or service that caters to the needs of the rural consumes

in their unique environment and provides vale as perceived by them.

Rural consumers are driven by the value proposition, and not just by

cost. Affordability here simply means that it should be within their

purchasing capacity.

b) Availability:Availability remains the single largest challenge for marketers. Indias

638,000villages are spread over 3.2 million sq. km. If the product or

service is not available in a market, it cannot be purchased. A simple

enough concept, but the vastness of the country makes reaching the last

mile a Herculean task.

c) Awareness:Low levels of literacy remain a stumbling block for any communications

message for rural consumers. However, literacy rate are rising, indicating

that comprehension levels will rise, too. Access to mass media,

especially television, is very high in rural India, with half of all television

sets being sold in rural India. This means t that rural consumers are

exposed to the same advertising designed for urban markets, increasing

the demand for typically urban products and services such as fairness

cream, etc. However, alternative rural means of communication such as

wall paintings, vans, road shows, and nautankis in the local language

also play an important role in creating interest among rural consumers.


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d) Acceptability:Acceptability of a product or service vis--vis rural consumers is critical.

As mentioned earlier, a product or service developed and designed for

urban consumers may not necessarily be successful in rural markets. The

rural environments must be borne in mind, in terms of their living

conditions and how they would perceive and use the product or service.

A productive asset, one that adds to earning rather than a mere

consumption product, would have greater acceptability in a typical rural

household. Products that show greater versatility and adaptability to rural

conditions have an advantage over others.

3.3Urge to go Rural:

a) Large Population:According to Census 2011 Report

Persons Percentage

Rural 833,087,662 68.84%

Urban 377,105,760 31.16%

Total 1,210,193,422 100%

Source: Census 2011 Report

Approximately 70% Indias one billion plus population lives in around 627,000

villages in rural areas. This simply shows the great potentiality rural India has to

bring the much needed volumes and help the FMCG companies to bank upon

the volume driven growth.


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b) Increase in Income and Purchase Power:

Source: McKinsey Global Institute and MART Knowledge Centre

The Pyramid in next 10 years will take the shape of the Diamond. The per

capita income will increase and more people will start earning 1-5 USD and

thus shifting them to the middle class. These people will also have more

spending income.

c) Growth in the Market:The purchasing power in rural India is on steady rise and it has resulted in

the growth of the rural market. The market has been growing at 3-4% perannum adding more than one million new consumers every year and now

accounts for close to 50% of volume consumption of FMCG. The growth

rates of lot of FMCG are higher in rural markets than urban markets.

d) IT Penetration:Today there are over 15 million villagers in India who are aware of the

Internet and over 300,000 villagers have used it! The rural consumers spend

time and money to access higher level information. Studies have indicated


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that if the content has direct relevance and will result in commercial gains,

people in rural areas are willing to pay for information services.

Consumerism has altered rural buying behaviour in recent years. Spending

patterns of those who spend are now adapting to face the technology bug.

Today's rural children and youth will grow up in an environment where they

have 'information access to education opportunities, exam results, career

counselling, job opportunities, government schemes and services, health and

legal advice and services, worldwide news and information, land records,

mandi prices, weather forecasts, bank loans, livelihood options. If television

could change the language of brand communication in rural India, affordable

Web connectivity through various types of communication hubs will surely

impact the currency of information exchange. As the electronic ethos and IT

culture moves into rural India, the possibilities of change are becoming

visible.

e) Impact of Globalization:The impact of globalization will be felt in rural India as much as in urban.

But it will be slow. It will have its impact on target groups like farmers,

youth and women. Farmers, today 'keep in touch' with the latest information

and maximize both ends. Animal feed producers no longer look at Andhra

Pradesh or Karnataka. They keep their cell phones constantly connected to

global markets. Surely, price movements and products' availability in the

international market place seem to drive their local business strategies. On

youth its impact is on knowledge and information and while on women it

still depends on the socio-economic aspect. The marketers who understand

the rural consumer and fine tune their strategy are sure to reap benefits in the

coming years. In fact, the leadership in any product or service is linked to

leadership in the rural India except for few lifestyle-based products, which

depend on urban India mainly.


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f) Consumer Behaviour Changes:Increased literacy and greater awareness in rural markets create new

demands and discriminating buyers. This is observed more in the younger

generation. In villages today, this segment of buyers consumes a large

variety of products, both durables and non-durables. There is a visible

increase in the consumption and use of a variety of products, which is easily

observed

Lifestyle in Rural India

Goverment SchoolSelf-employed

Joint/ individualized family

Small/ scattered population

Ordinary/ spacious homes

Demographics

Agriculture being replaced by non- tradionaloccupations like shop/trade

skilled work

salaried jobs

physical sports

gossip

cinema

religious congregation

Activities

"Desi"food

Milk

Readymade clothes

Mobiles

Jewellery

Visiting Towns

Markets/melas

Interests


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3.4 Market Size of FMCG Sector:

According to IBEF Report August 2013, The FMCG sector in India

generated revenues worth USD36.8 billion in 2012, a 5.7 per cent rise

compared to the previous year.

Source: IBEF Report August 2013

The urban FMCG market in India has been growing at a fairly steady and

healthy rate over the years; encouragingly, the growth in rural markets has

been more fast-paced

During FY11, more than 80 per cent of FMCG products posted faster growth

in rural markets as compared to urban ones. Notable high growth sectors

include salty snacks, refined edible oil, healthcare products, iodised salt, etc.

Growing awareness, easier access, and changing lifestyles have been the key

growth drivers for the sector. Rural demand is set to rise with rising incomes

and greater awareness of brands.

The rural market generates almost more than half of the countrys income.

Rural India contributes a big chunk in Indias GDP by way of agriculture,


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self- employment services, construction, etc. The rural population is

empowered with rising income, improving education and awareness levels,

enhanced contact with outside world, evolving consumption patterns,

emerging lifestyles.

The shift in rural income may not necessarily be happening due to rising

food production, though it has a role to play, but the biggest challenge in the

rural India in the last few years have been the reducing dependence on farm

income. The contribution of the non-farm income to the total rural income

has increased. Thanks to infrastructure development happening in the

villages and guaranteed employment program (Mahatma Gandhi National

Rural Employment Act or MNREGA), people even at the bottom of the

pyramid now have the money in their hands.

Source: MART Knowledge Centre

60%

40%

Change in Income Trend

Non-Farm Farm


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3.5FMCG and Rural India

Product Penetration (in per cent)

Edible Oil 96

Washing powders/liquids 90

Tea 89

Washing cakes/bars 85

Biscuits 76

Hair Oil 70

Toothbrush 56

Toothpaste 51

Vanaspati 42

Toothpowder 29

Ghee/Desi ghee 18

Utensil cleaner 18

Toiler cleaner 8

Coffee 8

Milk powder/dairy whiteners 4

Instant noodles 3

Ketchup/Sauces 1

Jam 1

Source: Data taken from IRS, Q1-2010 published in Households-other

products consumption in Media Market Guide India 2010 by R. K Swamy

Media Group.

3.6 Rural Initiatives:

a) HUL Project Shakti:

Hindustan Unilever Limited (HUL) to tap this market conceived of Project

Shakti. This project was started in 2001 with the aim of increasing the

company's rural distribution reach as well as providing rural women with


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income-generating opportunities. This is a case where the social goals are

helping achieve business goals.

The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with

the executives of HUL identifying the uncovered village. The representative

of the company meets the panchayat and the village head and identify the

woman who they believe will be suitable as a SA. After training she is asked

to put up Rs 20,000 as investment which is used to buy products for selling.

The products are then sold door-to-door or through petty shops at home. On

an average a Shakti Amma makes a 10% margin on the products she sells.

An initiative which helps support Project Shakti is the Shakti Vani program.

Under this program, trained communicators visit schools and village

congregations to drive messages on sanitation, good hygiene practices and

women empowerment. This serves as a rural communication vehicle and

helps the SA in their sales.

The main advantage of the Shakti program for HUL is having more feet on

the ground. Shakti Ammas are able to reach far flung areas, which were

economically unviable for the company to tap on its own, besides being a

brand ambassador for the company. Moreover, the company has ready

consumers in the SAs who become users of the products besides selling

them.

Although the company has been successful in the initiative and has beenscaling up, it faces problems from time to time for which it comes up with

innovative solutions. For example, a problem faced by HUL was that the

SAs were more inclined to stay at home and sell rather than going from door

to door since there is a stigma attached to direct selling. Moreover, men were

not liable to go to a woman's house and buy products. The company

countered this problem by hosting Shakti Days. Here an artificial market

place was created with music and promotion and the ladies were able to sell

their products in a few hours without encountering any stigma or bias.


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This model has been the growth driver for HUL and presently about half of

HUL's FMCG sales come from rural markets. The Shakti network at the end

of 2008 was 45,000 Ammas covering 100,000+ villages across 15 states

reaching 3 m homes. The long term aim of the company is to have 100,000

Ammas covering 500,000 villages and reaching 600 m people. We feel that

with this initiative, HUL has been successful in maintaining its distribution

reach advantage over its competitors. This program will help provide HUL

with a growing customer base which will benefit the company for years to

come.

b) ITC e-Choupal:

The e-Choupal model has been specifically designed to tackle the challenges

posed by the unique features of Indian agriculture, characterized by

fragmented farms, weak infrastructure and the involvement of numerous

intermediaries, among others.

Appreciating the imperative of intermediaries in the Indian context, 'e-

Choupal' leverages Information Technology to virtually cluster all the value

chain participants, delivering the same benefits as vertical integration does in

mature agricultural economies like the USA.

'e-Choupal' makes use of the physical transmission capabilities of current

intermediaries - aggregation, logistics, counter-party risk and bridge

financing, while dis-intermediating them from the chain of information flow

and market signals.

With a judicious blend of click & mortar capabilities, village internet kiosks

managed by farmers - called sanchalaks - themselves, enable the agricultural

community access ready information in their local language on the weather

& market prices, disseminate knowledge on scientific farm practices & risk

management, facilitate the sale of farm inputs (now with embedded

knowledge) and purchase farm produce from the farmers' doorsteps

(decision making is now information-based).


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Real-time information and customized knowledge provided by 'e-Choupal'

enhance the ability of farmers to take decisions and align their farm output

with market demand and secure quality & productivity. The aggregation of

the demand for farm inputs from individual farmers gives them access to

high quality inputs from established and reputed manufacturers at fair prices.

As a direct marketing channel, virtually linked to the 'mandi' system for

price discovery, 'e-Choupal' eliminates wasteful intermediation and multiple

handling. Thereby it significantly reduces transaction costs.

'e-Choupal' ensures world-class quality in delivering all these goods &

services through several product / service specific partnerships with the

leaders in the respective fields, in addition to ITC's own expertise.

While the farmers benefit through enhanced farm productivity and higher

farm gate prices, ITC benefits from the lower net cost of procurement

(despite offering better prices to the farmer) having eliminated costs in the

supply chain that do not add value.

Launched in June 2000, 'e-Choupal', has already become the largest initiative

among all Internet-based interventions in rural India. As India's 'kissan'

Company, ITC has taken care to involve farmers in the designing and

management of the entire 'e-Choupal' initiative. The active participation of

farmers in this rural initiative has created a sense of ownership in the project

among the farmers. They see the 'e-Choupal' as the new age cooperative for

all practical purposes.

Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the

benefits of agricultural best practices to small and marginal farmers. Backed

by intensive research and knowledge, this initiative provides agri-extension

services which are qualitatively superior and involves pro-active

handholding of farmers to ensure productivity gains. The services are

customized to meet local conditions, ensure timely availability of farm

inputs including credit, and provide a cluster of farmer schools for capturing

indigenous knowledge. This initiative, which has covered over 70,000

hectares, has a multiplier impact and reaches out to over 1.6 million farmers.


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c) Dabur:

Dabur follows traditional Distribution Model to reach its consumers. The

sales force of Dabur is now equipped with Mobile Phones and Tablets to

stay connected.

Dabur uses various promotional activities to create the brand presence. The

most famous of them have the Dabur Gulabari fresh face contest. This

Beauty Pageant was organized in the North India.

Dabur plans to double its rural reach to have direct access to some 27,000

villages with more than 3,000 people this fiscal, in a bid to keep pace with

market leader Hindustan Unilever.

The maker of Dabur Chyawanprash and Vatika shampoo has identified 10

states that contribute 72% of the entire FMCG sales in the country through

an initiative dubbed 'Project Double'.

"The canvas is very large and one needs to play this very carefully as cost of

reach and activation is disproportionately high in rural markets," George

Angelo, executive director - sales at Dabur, said.

He said the company used digitised maps and economic data to select

villages for coverage. It focused on 353 districts of Uttar Pradesh, Punjab,

Rajasthan, Bihar, West Bengal, Assam, Orissa, Maharashtra, Madhya

Pradesh and Karnataka. Dabur currently has stockists in about 14,000

villages.

Dabur's latest move follows the company's recent rejig in 'route to market'

strategy to utilise synergies across divisions, maximise reach and maintain

cost.

Under the new strategy, Dabur segmented its products into two - those

operating in larger urban markets requiring exclusive category focused sales

and those meant for smaller towns and rural markets requiring an integrated

sales force.

d) Coca-Cola:

Coca-Cola in 2002 launched the Thanda matlabCoca-Colacampaign with

Amir Khan being the brand ambassador. The campaign was instantly


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accepted by the Rural Consumers as the advertisement was very catchy and

along with it Coke launched the 200ml bottles priced at Rs. 5.

Coke opted for the hub and spoke model for the distribution. They also hired

rickshaw pullers who travelled to villages.

Recently, Coca-Cola has introduced fountain machines on trucks and they

take it to haats, melas and other such gatherings, and serve Coca Cola or our

other beverages in a cup at 5and it works very well, as there are rarely any

permanent shop in these gatherings.

e) Hairyali Kisan Bazaar:

It is the decision of DMC Shriram consolidated LTDs Agri business. The

company operates in two lines of business: Agri/rural, Chemicals and

polymers. Their Agri-business offering agriculture inputs, both

manufactured and merchandised, outputs and services. The company

initiated rural retailing with the objective to move towards providing total

solutions to farmers. Hence it can be said one stop shop for meeting farming

and family needs of rural population. It has 264 outlets in many villages of

eight different states: Haryana, Punjab, Utter Pradesh, Rajasthan,

Uttrakhand, Madhya Pradesh, Maharashtra and Andhra Pradesh.


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4. OBJECTIVE:To main objective of this report is to understand the scope of FMCG sector in

the Rural Market of India.

The Sub-Objectives are:

To study the different in the Rural Market for the FMCG Companies To understand the challenges being faced by the FMCG sector in the

Rural Market

5. RESEARCH METHODOLOGY:It is an exploratory research. And my findings would be based on the secondary

data. Apart from that, I have analysed and verified the data from more than 25

different references to come up with this primer report on FMCG in Rural India.


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6. FINDINGS AND CONCLUSION:6.1Emerging Trends:

a) Information and Communication Technology:The goal of using ICT with underprivileged group is not only about

overcoming the shortcoming, but rather enforcing and passing the

process of social inclusion to the next level, which is required for change

of the environment and social system that reproduces scarcity.

I.T. has varied applications in it, through which the development of the

rural area can be possible accurately. Government had introduced a

number of programs through which the people of rural India can come

forward and use the I.T. enabled services and work more systematically.

Some of the programs run by the Government, NGO and Private

Companies are:

i) E-Mitra:Launched by Rajasthan Governmentii) Community Information Centres: These centres connect seven

northeast states namely; Arunachal Pradesh, Assam, Manipur,

Meghalaya, Mizoram, Nagaland and Tripura.

iii) Rural e-Seva- Initiated by Andhra Governmentiv) E-Choupal- Imitated by ITCv) TARAhaat, Drishtee, Aksh-Imitated by Private companies

andNGOs

vi) Gyaandoot- Initiated by Madhya Pradesh Government

b) Bringing Technology and Innovation to Rural Market:i) Kan Khajura Tesan: Started by HUL it is a fully advertiser-

funded mobile-based entertainment-on-demand initiative in India.

The KKT is a free mobile radio station in Bihar that enables


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users to access 15 minutes of content every week. People can

access this using their feature phones.

ii) Usage of Smart Phones and Tablets: Companies like HUL, ITCand Dabur have equipped their sales and distribution team with

Smart Phones and Tablets so that the orders can be reported

quickly.

iii) Godrej Chotukool: Chotukool is a small innovative refrigeratorwithout a compressor. It looks like a 43- litre cool box that is

loaded from the top and can run on battery. It weighs only 7.8

kgs. Given the power shortage in the countryside, it also uses

high-end insulation to stay cool for hours without power

c) Role of Rural Women:Till a few decades ago, rural women used to remain in purdah. They

hardly left their homes except to attend social functions and festivals,

always accompanied by male members of family.

Now, however, the status of rural women is changing. They are more

educated and more aware of health and education need of family. The

growing presence of the media also exerts a strong influence on their role

and behaviour. They are no longer confined within their homes. They

step out for several purposes- education, health services, social services,

functions and festivals. Therefore, their involvement in the family buyingdecision process is also increasing.

d) Training Retailers:The recognition of the importance of retailers in rural sales and the

emergence of organized retailing are responsible for the recent interest in

retailer training.

Coca-Cola has already rolled out a large scale retail programmes to tapthe potential in tier II and tier III towns. The programme, called


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Parivartan, focuses on inculcating the knowledge of best practices in the

retail business

Astra (Advanced Sales Training for Retail Ascendance (ASTRA), is acustomized training programme for the frontline sales force at Dabur

India Ltd. The programme is aimed at managing channel complexities

with respect to sales and distribution and is undertaken through train the

trainer programme using 75 professional actors to train more than 2,000

channel partners across the country.


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6.2Key Findings: Rural Population is 833,087,662 which constitutes approx. 69% of total

population

The Fast Moving Consumer Goods (FMCG) sector in rural and semi-urban India is estimated to cross USD20 billion by 2018 and USD100

billion by 2025. 60% of consumption of FMCG products happen in

Rural India

The rural FMCG market expected to increase at CAGR of 16.3% to USD100 billion during 2011-25. During September 2011 to September 2012,

FMCG Moving Annual Turnover (MAT) increased 16.4 per cent to

USD11.7 billion in rural areas.

Rural India per capita disposable income is estimated to rise to USD631in 2020 from USD 441 in 2010

The Indian government has been supporting the rural population withhigher MSPs, loan waivers, and disbursements through the NREGA

programme. These measures have helped in reducing poverty in rural

India and have thus propped up rural purchasing power.

FMCG companies are now following unconventional methods ofdistribution and communication to reach their customers. They are also

focusing on building trust among their rural consumers.

Women emerging as the buying-decision makers.


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7. ISSUES AND CHALLENGES:Hindrances to Growth are:a) Distribution Network:

Channel Partners Market-Place

Level 1 Company depots/ CFAs/ Super Stockists National/ States

Level 2 CFAs/ Re-distribution stockists/ Retailers ( Modern/

Traditional)

Cluster of districts/

District Headquarters

Level 3 Re-distribution stockists/ Semi-wholesalers/

Retailers

Sub-district ( Tehsil/

Block)/ Feeder town

Level 4 Semi- wholesalers/ Retailers/ Mobile traders in haat/

van

Feeder town/ Periodic

Market

Level 5 Retailers/ Vans/ Barefoot Agents ( Shakti dealer)/

Cooperative societies/ Government agencies ( Fair-

price shops)

Large and small villages

Most companies have direct representation up to level 3 in the form of

redistribution stockists. However, large FMCG majors like HUL, Dabur,

Coalgate and ITC are extending their reach to levels 4 and 5 in feeder towns

hand village as the next growth is coming from these markets, using

conventional as well as innovative low-cost distribution channels.

The last mile distribution is the most critical as well as the most challenging

link, where existing distribution models fail to provide an economically

sustainable distribution of products to villages. Only few players like HUL,

ITC and Colgate have been able to reach this level directly, using out-of-the-

box and innovative distribution channels.

While a company operating in a developed market needs to carefully

consider its distribution network design in order to achieve profitability,


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companies operating in rural emerging market face particular challenges

because of the low density of the population and poorly developed

transportation infrastructure.

b) Affordability:One of the key issues that may prevent rural consumers in emerging markets

from making a purchase is lack of substantial and consistent household

income. By better understanding the size and patterns of earnings in rural

emerging markets, companies can design both products and purchasing

schemes that help unlock the enormous purchasing potential of populations

in rural emerging markets. The most famous example of success in this area

is the single-serve sachets of fast moving consumer goods (FMCG) products

such as shampoo and laundry detergent that are available in even the deepest

rural areas in India. While a traditional bottle of shampoo may be too

expensive for a rural customer to afford, they can often afford the Rs.1 price

of a single-serve amount of the same shampoo. Hindustan Unilever (HUL)

was a leader in the sachet revolution and now single-serve sachets of

shampoo make up 70 percent of HULs shampoo sales in India.

There are two income patterns that are characteristic of the rural poor in

emerging markets.

i) Lack of substantial household incomeii) Sporadic nature of peoples income

Although consumers in rural emerging markets clearly have low and

sporadic incomes, it would be a mistake to assume that these consumers

necessarily desire to purchase cheap products. Instead, as Prahalad writes,

the consumers are very brand-conscious and are motivated to buy quality

goods. However, at the same time, they are by necessity very value-

conscious. The challenge for companies entering this market is to offer

consumers high-quality products and brands while also offering prices and


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payment schemes that fit with the income levels and patterns of the

population

c) Lack of Brand Trust:Any company selling products and services to consumers must first establish

trust with the consumer. For a company like Coca-Cola in the United States,

this is easy because the Coca-Cola brand is well known and trusted by the

entire consumer population. In addition to the Coca-Cola brand, consumers

in the United States will trust a new product offering from Coca-Cola

because the countrys government enforces laws that guarantee product

safety and prevent fakes from being sold. The situation is very different for a

company entering into a rural emerging market with a new product or

service and an unknown brand. Not only will consumers be less aware of

many brands, they will also have less innate trust in new brands because of

their lack of access to information and because of the plethora of fake and

poor-quality brands being offered in the marketplace. This is not to say that

rural consumers are not brand-conscious. As C.K. Prahalad points out, the

poor are actually very brand-conscious and seek out the brands they know

well and trust. The challenge for a company entering a rural emerging

market with a new product or service is to establish trust.

Analysis by the rural marketing consulting firm MART in India has also

shown that when trust is established with rural consumers, they become

brand sticky, meaning they are resistant to switching to new brands,

further contributing to a companys long-term success in the market.

d) Lack of Education:Rural consumers lack of education in topics like hygiene, health, and

modern agriculture practices also poses challenges for a companys

marketing channels in an emerging market. Often times, before a company

can begin sales of its product or service, the company needs to educate

consumers about the benefit the product or service will have on their lives.


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Companies should consider this activity as an exercise in unlocking latent

need for their product or service, and it should be considered just as

important as branding and distribution. As Pradeep Kashyap, founder

MART, writes: For a brand to establish itself, the company needs to

educate rural consumers, develop their interest through interactive

communication, encourage their desire to own/use new products and deepen

their confidence in the brand through live demonstrations. C.K. Prahalad

agrees when he states simply: Education of customers on product usage is

key.

e) Lack of After-Sales Service:An important component of marketing channel design that many companies

in rural emerging markets overlook is providing quality after-sales service to

customers.

Companies should consider after-sales service an important component of

building a consumers trust in the companys brand. Although the activity

takes place after a purchase has already been made, if a companys after-

sales service is poor, customers will likely not purchase the companys

products again and will tell other potential customers about their bad

experience. C.K. Prahalad explains that because word of mouth through

existing customers is a primary driver of new buyers, quality and service

satisfaction takes on an added importance.

While clearly important, providing quality after-sales service to customers in

rural emerging markets poses the same set of challenges that product

distribution does. The cost of shipping in spare parts and replacement

products, along with the cost of maintaining repair staff, is high due to the

geographic dispersion of demand and poor transportation infrastructure.

Companies have found, however, that good after-sales service is expected by

consumers in rural emerging markets and that providing quality service can

increase consumers trust in a companys brand.


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f) Consumer Behaviour:The biggest mistake a FMCG company can make while entering the rural

India is to treat it as an extension to the existing urban market. But there is a

vast difference in the lifestyles of the rural and urban consumers. The rural

Indian consumer is economically, socially, and psychographic ally different

from his urban counterpart. The kind of choices that an urban customer takes

for granted is different from the choices available to the rural counterparts.

The difference in consumer behaviour in essence stems from the way of

thinking with the fairly simple thought process of the rural consumer in

contrast to a much more complex urban counterpart. On top of this there has

hardly been any research into the consumer behaviour of the rural areas,

whereas there is considerable amount of data on the urban consumers

regarding things like - who is the influencer, who is the buyer, how do they

go and buy, how much money do they spend on their purchases, etc. On the

rural front the efforts have started only recently and will take time to come

out with substantial results. So the primary challenge is to understand the

buyer and his behaviour.

g) Copy-Cat and Fake Products:Look- alike products are available in the rural market. Local players try to

copy the Branded products and launch local counterfeit product. In terms of

quality, MART found that spell- alikes and duplicates have very poor quality

and the consumer realises that he or she is duped after using the product. In

fact, Nielsen report revealed that eight out of ten customers who have

purchased such products were cheated unwittingly. The supply of original

products have led to the birth of counterfeit products. Examples:

Viggo for Vicco Shagun for Lifebuoy Lalita Amla for Dabur Amla Pomes for Ponds


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7. WAY AHEAD:

The Indian rural market is expected to grow more than tenfold to become a USD$100

billion opportunity for retail spending in the next 10 years. The future of the rural

market is bright, but to exploit its potential, companies will have to take a dedicated

look at this market, have innovative rural distribution strategies, work on approaches

like forward innovation and inclusive marketing, etc. These approaches are:

a) Dedicated Rural Teams:Although companies have begun to look at the rural market as a high-potential

market, very few have created separate rural team to cater to the specific needs

of this market. It is recommended that companies shift power to where the

growth is by creating dedicated, empowered team for rural markets. Such a team

would be more responsive to market needs and changes, and would allow

strategies and products to evolve based on the ground realities, a bottom-up

approach rather than a top down one. This would also counteract the resistance

that a typical urban- based sales team would have in covering the more difficult

and smaller off-take rural markets. In most cases, sales executives dump the

rural quota onto their urban distributors, thereby avoiding the hardship of

travelling to remote locations. This results in an under-serving of rural markets.

b) Forward Innovation:Ever since the BoP concept was introduced at the turn of the century, many

companies have tried to transform their business models through single-serve

sachets, low-cost production, and extended mom-and-pop distribution and NGO

partnerships. But in the rush to capture the fortune at the base of the pyramid,

something may have been lost- the perspective of the poor themselves. Most

such initiatives have failed to hit the mark. Pushing the companys reformulated

or repackaged products into villages may indeed produce incremental sales in

the short term. But in long term, this strategy will almost certainly fail because

the business remain alien to communities it intends to serve.

Some MNCs have even set up innovation centres in emerging markets to takeadvantage of lower cost scientists and engineers to develop low-cost options and


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produce more from less. These more affordable products developed in such

centres are then marketed in developed economies. This approach, popularly

referred to as reverse innovation, is useful for selling to the affordable middle

income segment, which is relatively small in size in these affluent economies.

However, it is in the emerging economies that the affordable segment is growing

at a phenomenal rate, and offers a huge market opportunity.

c) Inclusive Marketing:Companies need to go way beyond simply selling to the BoP. They should look

at the or not only as consumers, but also as producers/ suppliers of goods and

services. Such an approach offers the promise of adding economic value to the

goods and services contributed by the poor, and can therefore impact poverty

positively. This approach is called Inclusive Marketing.

d) Innovative Rural Distribution:The biggest challenge in rural areas remain availability, or reaching your product

to a massive 600,00 villages, compared to the 5,000 odd towns in urban areas. A

few new rural distribution and procurement models have been innovated by ITC

e-Choupal and HUL Project Shakti, but much more needs to be done in this

area. Companies need to explore the possibility of using the social infrastructure

being created by the government.

e) A New Price- Performance Paradigm:Some very successful products in rural markets are those that deliver on the core

benefit with no frills at a lower price point than the established competition.

Nirma or Ghari washing powders are excellent lower performance- lower cost

products, as compared to the global Surf and Ariel brands. They may not offer

softeners or whiteners, but they do deliver on cleanliness- the core requirement

of a washing powder. A company should aim at providing 75% of the

performance at 50% of the cost to create definite impact in rural consumers

mind-sets.


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8. REFERENCES:a) economictimes.indiatimes.com

b) Growth Markets in Rural:http://www.business-standard.com/article/management/growth-markets-in-

rural-india-113020400032_1.html

c) Journal of Business Management & Social Sciences Research (JBM&SSRVolume 2, No.1, January 2013

d) A Comparative Study of Growth, Challenges and Opportunities in FMCG ofRural Market by Kabitha.T.C

e) Indian Brand Equity Foundation:http://www.ibef.org/industry/indian-consumer-market.aspx

f) Impact of Rural Marketing on Indian Economy by Lakshmi priya , VandanaBajpai

g) The Indian FMCG Sector- The Innovation Imperative by PWC, Feburary2013

h) Marketing Revolution in Rural India: Emerging Trends and Strategies byNizamuddin Khan, Aligarh Muslim University

i) Rural India market of futurehttp://www.thehindu.com/business/companies/rural-india-market-of-the-

future/article4147251.ece

j) Indias Rural FMCG market to grow to $100 Billion by 2025 http://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2

%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.html
http://www.business-standard.com/article/management/growth-markets-in-rural-india-113020400032_1.htmlhttp://www.business-standard.com/article/management/growth-markets-in-rural-india-113020400032_1.htmlhttp://www.business-standard.com/article/management/growth-markets-in-rural-india-113020400032_1.htmlhttp://www.ibef.org/industry/indian-consumer-market.aspxhttp://www.ibef.org/industry/indian-consumer-market.aspxhttp://www.thehindu.com/business/companies/rural-india-market-of-the-future/article4147251.ecehttp://www.thehindu.com/business/companies/rural-india-market-of-the-future/article4147251.ecehttp://www.thehindu.com/business/companies/rural-india-market-of-the-future/article4147251.ecehttp://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.htmlhttp://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.htmlhttp://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.htmlhttp://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.htmlhttp://www.nielsen.com/us/en/newswire/2010/india%C3%A2%C2%80%C2%99s-rural-fmcg-market-to-grow-to-100-billion-by-2025.htmlhttp://www.thehindu.com/business/companies/rural-india-market-of-the-future/article4147251.ecehttp://www.thehindu.com/business/companies/rural-india-market-of-the-future/article4147251.ecehttp://www.ibef.org/industry/indian-consumer-market.aspxhttp://www.business-standard.com/article/management/growth-markets-in-rural-india-113020400032_1.htmlhttp://www.business-standard.com/article/management/growth-markets-in-rural-india-113020400032_1.html


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k) Emerging Trends in Rural Marketing in India by Harpreet Kaur Sandhul) http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG081.htm m)http://censusindia.gov.in/n) Rural Marketing by Pradeep Kashyapo) Rural Marketing by C.S.G Krishnamacharyulu and Lalitha Ramakrishnan
http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG081.htmhttp://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG081.htmhttp://censusindia.gov.in/http://censusindia.gov.in/http://censusindia.gov.in/http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG081.htm

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