Introduction

In rural India, availability determines volume and

market share amongst 111.5 million households Infrastructure

68% of rural market still lies virtually untapped

60 % villages - connected by all-weather roads 73 % villages - electrified >35000 branches of commercial banks 35 lakh outlet for consumer goods 3.8 lakh fair price shops

Challenges and Dilemma

Large number of small markets Poor road connectivity Large number of intermediaries leading to higher costs Poor availability of suitable dealers High demand for credit by retailers Poor storage systems Credit driven market and low investment capacity of dealers Poor display of products at outlets Low media coverage

Coverage Status in Rural India

52.5% of rural India resides in villages with population of

2000 and more (17% of the villages). They contribute to 60% of the rural wealth Hardly any shops in villages with population of 500 or less (38% of villages) Rural shops mainly cater to FMCG with 90% of the durables being purchased from Class II and III towns
Villages Pop. Strata Up to 500 None 26% Number of Shops 1-4 56% 5 - 15 15% 16+ 3%

501-2000
2000+

7%
2%

41%
8%

41%
43%

10%
46%

Source: RMP 1990 IMRB

Channels of Distribution
CHANNEL LEVEL State District HQ (May cover 2 to 4) District Headquarters Tehsil HQ Feeder Towns Village Haats

Level 1 Level 2 Level 3 Level 4 Level 5

Company Depot /CFA Distributor/Van/ Super Stockist Sub-distributor/stockist Sub stockist/Star seller Wholesalers NGOs Vans Retailers

Most Companies have direct presence up to Level 3 Approaching Layer 4 requires prior selection of feeder towns and large villages to feed peripheral villages

CFAs
Normally employed by FMCG Companies to

supplement their own depots Cost of CFAs is lower than running own depots They provide space and are involved in the order processing from distributors/stockists The orders are booked by the Company representatives and passed on to the CFA for execution

Distributors
They are the main link between the Company and the

rural channels. They have vans and a sales force to cover the rural retailers. Cover about 30% of the rural retailers and are located at district headquarters. Some companies also have a next level of substockists (also called star sellers) who are located at the tehsil (thana) level.

Wholesalers
Wholesaling: More than 70% of rural market is still

out of reach of direct distribution 50% of rural consumption through wholesalers located nearby. The reasons of wholesaling in India are:
Limited product availability to feed the channel Company focused on large number of retailers in urban

areas Neglect of rural market due to low density of retail outlets & small off-take per retailer

Wholesalers are seen as speculators and exploit the

companies and the retailers

Retailers
Also act as money lenders in rural areas.

They play a significant role: Credibility Influence leader Brand promoter Relationship marketer Harbinger of change

Retailers
Average monthly sales per outlet in rural

is Rs.5000 Customers prefer buying from haats Infrastructural constraints:

Insufficient space Inadequate power supply Improper storage

Shop Size Rural Urban Sq. Ft. Up to 100 71 64

101-250
251-1000 > 1000

25
4 0

28
7 1

Shops in rural largely on owned

premises SKUs 115 in large villages and 50 in interior villages For toiletries feeder villages keep 2 to 3 months stocks while in smaller villages it is 1 month

Source: A C Nielsen Shop Census 19992000

Rural Distribution Priorities

Distribution TO The Outlet
If our brands are not available in the right quantity, form and quality then it will not sell

Number of brands in rural 42 vs. 92 in urban Higher penetration required

Distribution IN The Outlet

Stocks will not sell if the stock is there but not visible to the consumers.

Companies have to invest into display and storage systems

Retailers Report 2008

Average floor area of rural outlets is 140 sq. ft. Majority of them are in 76 to 100 square feet. On an average the number of categories in rural

outlets is 19 against 25 in the urban segment. Number of brands 42 vs. 92 The most widely stocked categories are food items. Cosmetics and toiletries has the largest number of products. The most widely stocked products are beedis and cigarettes (nearly two thirds stock them)

Retailers Report 2008

Amongst groceries the most widely stocked is

sugar (49%) followed by edible oil (41%). Rice is only at 33% and wheat at 22% The penetration of stationery items is 39% Other reasonably widely stocked categories are bulbs (25%) and batteries (15%) Clothes/footwear account for only 6.4% and durables even lower The popular durables are pressure cookers, fans and wrist watches Agri-input s are stocked only by 3.7%

Retailers
Village Population Level Up to 1000 1001 to 2000 2000 to 5000 Over 5000
Villages (%) % of Retail population Outlets which is rural Thousands Retail Outlets (%)

61 22 14.0 3.0

21 25 32 22

84 130 130 55

21 33 32 14

Source: Francis Kanoi Report 2008

Retailers
Zone NORTH EAST SOUTH WEST TOTAL
Rural population (millions) % of population Retail Outlets which is rural Ths. Retail outlets per Thousand Population

Average Monthly Turnover (Claimed)

218.0 207.5 149.1 149.2 723.8

76.8 81.8 66.5 64.9 73.0

1328 1102 718 871 4019

6.09 5.31 4.82 5.84 5.55

9962 13390 13365 12967 12154

Source: Francis Kanoi Report 2008

Van Operation
Coverage of rural markets by stocking products into

painted vans Vans used for sales and promotion Eveready Example
Master Van Programme of 12 X 2 days per month Frequency - Weekly, Fortnightly, Monthly 50-60 avg. calls per day Exclusive area of operation Van Running Cost subsidized

Success lies in training, systems and controls

Rural Mobile Traders

Selling wares on bicycles, mopeds or handcarts Cover 1 or 2 villages per day and cover 30 to 40

households Goods normally picked up from wholesalers Villages are normally population of less than 2000 Most however sell fake brands but can be encouraged to sell the genuine stuff

Haats
Haats periodic markets A place for political, social, and
Categories of Outlets Agricultural products Manufactured goods Processed foods Handlooms and handicrafts % 39.5

cultural contact Most of these are held once a week; others twice a week Total Haats 47,000 Average number of visitors 4,600 Average sale per day Rs. 2.25 lakhs Number of stalls/Haat 300+ Villages covered per Haat 15 to 20 88% are regular visitors 77% of the participants attend 4 haats every week 32% own permanent shops in villages

24.3
13.2

8.4
3.3 3.2 2.1 6.0

Services
Fish, meat and poultry Forest products Others
Source: MART study

Mandis
Mandis agricultural markets set up by state

governments to procure agricultural produce Total Mandis 6,800 Most agricultural areas with population more than 10,000 have Mandis Average population catered to each Mandi 1.36 lakhs

Public Distribution System

System for distribution of essential commodities at

subsidised prices through 3.8 lakh outlets in rural Products distributed through Food Corporation of India offices, depots The shops are run by individuals Cooperatives
Involved in distribution of agricultural inputs 34% of fertilisers sold through this channel

Channel Behaviour
Credit facilities to customers a common phenomenon in

rural Pricing by the channel at a premium to cover costs Reason for stocking a product/brand more on pull than push Seasonal pattern of stocking to coincide with harvest Wholesaler is the main information source and influence on the retailer Purchase source of the retailer normally from wholesalers in nearby small towns Channel credit for larger retailers Purchasing cycle normally once or twice a week Channel promotion through quantity discounts

Consumer Purchase Behaviour and Channels

Shift from purchase from nearby towns to local

purchase Loyalty to retailer stronger than loyalty to brand Supplementing of van operations with mobile traders will help

Prevalent Rural Distribution Models

Smaller companies operate through wholesalers

while larger companies service the retailers through stockists/sub-stockists and/or vans Distribution Model 1
Common CFAs with separate distribution for urban

and rural Rural distribution through distributors to subdistributors. Smaller retailers through distributors to wholesalers National companies follow this model Used by companies with higher number of SKUs

Distribution Model 2

Company

No separate channel for rural Minimises distribution costs Better margins to channels Push strategy Used by companies with limited SKUs and high sales volumes Preferred by new entrants

CFA/Depot

Distributor

Wholesaler

Retailer (Local)

Retailer

Distribution Model of Durables

Sold mainly in small towns and hence lower levels Not sold in villages because of: Limited space High level of investment High transportation costs Some low cost durables are however sold in rural

Distribution of Fake Products

Manufacturer to wholesaler/retailer in big city or small

town, or directly to customer Wholesaler in big city to wholesaler in smaller city Wholesaler in small town to village retailer/mobile trader/haats

Emerging Distribution Models

Self Help Group Model Satellite Distribution Model Syndicated Distribution Model NYKS model use of NGO manpower for distribution of Colgate Use of IT kiosks ITC E-Choupal Cooperatives Public Distribution System Petrol Outlets 7000 in rural Agricultural Input dealers

The Idea
Reaching the smaller villages with conventional distribution model

unviable for the stockist Self Help Groups formed in villages with population less than 5000
Group of 10-15 women come together to form a mutual thrift society Inculcates savings, discipline and self worth amongst women

formed by the Govt or NGOs

micro credit from the rural banks to set up enterprises

Micro Credit from banks and a meaningful income generation

activity offered by HLL(creating affluence) to stimulate demand/ consumption Self-help Groups to operate like a Rural Direct to Home team of sales women (access, awareness, changing attitudes, selling)

Shakti - The Model

The principal customer of HLL is an individual from an SHG
works as a HLL distributor and is known as a Shakti Entrepreneur Receives stocks at her doorstep from the HLL rural distributor Sells direct to consumers as well to the retailers in the village Each Shakti Entrepreneur services 4-6 villages in pop strata 500 to 1500 Selling Rs. 10,000 - 20,000 per month; gross profit of Rs. 700 - 1500 per month (~7%)

Doubles her household income

Project Shakti
Launched in Nalgonda, AP, to cover 50 villages in 2000 As on date covers

15 states 385 districts 39,880 female entrepreneurs (Shakti Ammas) 100,000 villages

Satellite Distribution Model

Stockists are appointed in feeder towns for financing,

warehousing and sub-distribution Retailers in and around the towns are attached to these stockists Manufacturer supplies goods to stockists on cash and carry or credit or consignment basis Bigger retailers are elevated to stockists over a period of time creating newer satellites

Syndicated Distribution
Two or more companies come together for joint

distribution of products A prerequisite is that the companies do not deal in the same products Some of the problems in the model:

Markets for coverage of the two companies are different Different payment terms Product push by lead company at expense of other Lower emphasis on collections for other company