Distribution In Rural Markets

The challenge of Availability

Awareness becomes meaningful only if availability is ensured In rural markets availability ensures market share (retailer will influence sales) Physical distribution 7.8 million retail outlets 600,000 villages 18 million market intermediaries (wholesalers, stockists, transporters, retailers) 5000 cities & towns, besides villages 85% of villages with population less than 2000 unviable

Problems in Rural distribution

Many small markets Dispersed population & trade Road connectivity poor Many intermediaries higher costs Lack of suitable dealers Low density of shops per village Poor viability of retail outlets lack of credit to retailer Poor communication offers & schemes Power supply lack of refrigeration

Rural markets want urban service

Increasing consumer pull (acceptability = pull; availability = push) Want full range of products Frequent delivery, door delivery Credit to fund cash flow Promotions, fair prices, merchandising Activation support for shops Distance and scattered nature no longer acceptable explanation Acceptability twice as much as availability

Distribution Channels In Rural Markets

Understand
Where does the rural consumer buy? What is rural retail behaviour? What is suitable logistics management & stocking pattern of retailers? What is the retailers education level, economic capabilities, physical environment?

Traditional Indian Distribution System

Family owned proprietary concerns Advantages Efficient because of experience Specialization Knowledge of local conditions Low cost operations low overheads

Distribution Channel Layers

Level Channel Partner
Co. depot / CFA / Super stockist CFA / Redistribution stockists / Retailers
Redistribution stockists / Semi-wholesalers / Retailers
Semi-wholesaler / Retailers / Mobile traders in haats / vans
Retailers / Vans / Barefoot agents (Shakthi dealers) / Co-operative societies, Govt fair price shops

Marketplace
National / State
Cluster of districts / District HQ
Sub-district (Thesil/Block) Feeder town

2
3

4
5

Feeder town / periodic market

Large & small villages

Present situation
Up to level 3 companies have direct representation Can service using sales cum distribution vans Challenge to reach level 4 & 5 with stocks in time Last mile distribution level 5 crucial existing models unviable

Functions played by rural channel

Moves good producers to sellers consumers Overcomes time, place & possession gaps
Carrying & Forwarding Agents Redistribution stockists Wholesalers Retailers

CFAs
First link Supplement company depots Cater to one region or state Either invest in stocks & move it to next level Or acts as transporter provides godown space for stock keeping supplies to redistribution stockists Orders booked by company representatives and passed on to CFA for execution

Redistribution stockists
At District HQ or larger cities Supplies to both urban & rural markets Invest in stock, employ sales men covers rural & urban retailers as per permanent journey plan (PJP) Usually covers about 30% of rural retailers

Wholesalers
Control 50% of rural supplies and consumption 70% of rural markets beyond reach of direct distribution No clear distinction between wholesaler & retailers especially in feeder markets Wholesalers believe that business is speculative and not distributive supports brand during boom, abandons during slump In urban markets retail-based distribution, so wholesale neglected In rural markets, wholesalers exploited their advantage of reach undercutting & distribution of fakes Need to build wholesalers loyalty to companies

Retailers
Last link before consumers Stock from wholesaler in feeder towns or supplies from stockists in vans May have permanent shops, or may be mobile (door to door & haats)

Rural Retail Environment

Traditional Retail small retail shops Modern Retail Large company owned retail stores

Traditional Retail
No. of % of % of Outlets Total Retail per Village % of Population Villages Population Outlets village > 5000 3 22 14 28

Category

Represents 17% villages, 54% rural popln & 60% rural wealth 2001 5000 1001 Hardly any shops in 60% 2000 small villages <1000

14

32

32

16

22 61

25 21

33 21

9 2

Rural Retail Spread

Rural Retail Rs. 1.9 Trillion 7.8 million retail outlets out of 18.5 million total in India Need to invest in distribution long term perspective Average monthly t/o Rs. 12,000 Haats are cheaper, better choice (60% prefer to buy here) Cos have to appoint distributors in 10,000 20,000 pop towns, taking it to 2,000 distributors Each distributor covers 150 outlets in 45 50 locations This way, villages above 2,000 pop can be covered 9 (about 1,00,000) Retail Premises Avg size 140 sq feet Permanent structure instead of kiosks Extension of house part-time activity Retail outlet cost travel & transport prefers door delivery

The Rural Retail Shelf

Type of Shop Chemist General Stores Grocery Stores Pan + Shops % 4 13 62 21

Product Category
Food articles Tobacco products Cosmetics / toiletries Groceries Stationery Electricals

Shops %
75 69 68 53 39 31

Fruits & Vegs Product Stocked

Cigarettes Packaged Biscuits Shampoos Washing powder Tea Confectionery Toilet soap Blades / razors Ready-to-eat snacks Tooth-paste Chocholates Pens

14
6 4 4 3 2

Penetration %
62 58 56 55 52 48 47 46 45 44 40 34

Clothes / Footwear Construction material Agri-inputs Durables Kitchen appliances

70% of groceries, toiletries, daily needs from villages 80% of durables from nearby towns 70% of clothes, footwear from nearby towns

Modern Retail in Rural Areas

Only 10,000 out of 6,00,000 villages have organized retail Companies have taken agri-input & agrioutput routes
ITCs Choupal Sagar DSCL Hariyali Kissan Bazaar Tata Kissan Sansar Godrej Aadhar 3A Bazaar

ITC Choupal Sagar

First rural mall Self service facility Integrated model with ITCs e - Choupal Marketing hub, with farm gate presence of e Choupal Farmers sell produce, get cash, spens st Choupal Sagar Footfalls 400 500 per day, up to 900 during the season Can buy FMCG, durables, agri-inputs (2:1 Consumer to Agri-inputs). Clothing & shoes for rural customers. Soil testing, health clinic, caf, quality certification, banking & finance, fuel, training center Farmers can sell produce at best price to Choupal Sagar Consumers farmers, villagers, semi-urban consumers

DSCL Hariyali Kisaan Bazaar

DCM Shriram Consolidated Ltd Sugar & seed business Long term relationship building All under one roof retailing & direct sourcing Hub & spoke format Hub banking, fuel, recreation, agri-services, retail shop & sourcing Spoke convenience stores agri-services & select retail 1:1 agri-inputs and consumer goods Customers farmers, service, shop owners Transparent pricing, open shelf system Tie-up with Motorola (cell phones), BPCL (fuel), ICICI Bank ( agri credit, insurance)

Tata Kisan Sansar

Tata Chemicals One-stop farmer solution shop Agri inputs, agri services (testing), crop advisory IT-enabled market information Tata Sonata watches, Tata Indicom tele-services, Tata BP Solar products

Godrej Aadhar
Retail venture of Godrej Agrovet Future Group 70% stake All requirements of rural households Insurance, micro-finance, credit, sourcing agri-products Soil & water testing, weather information, pricing information, advisory Tie up with Eicher Motors, HDFC Bank, Apollo Hospitals, BPCL

3 A Bazaar
Mobile retail through mobile vans Only in J.P Nagar of UP, covers 700 villages Five mobile vans Groceries, FMCG, stationery, garments Each van 3 to 5 villages per day Sales per van Rs. 15 to 20 K per day Quality products, fair prices, at doorstep