The Indian Rural Market

A Snapshot

Anirban Basu
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Roadmap
Definition & The Rural Landscape

The Rural opportunity

What is driving the Rural opportunity? Companies tapping into Rural Communication Strategy 4 As for Rural
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What Constitutes Rural?

Definitions of Rural
CensusDefinition of Rural NABARD
Rural defined as place which is not Urban Urban defined as any place with density of population > 400/ sq km or with Local Self Govt (municipality etc) with more than 75% of male population not engaged in agriculture All locations irrespective of villages or town, up to a population of 10,000 is considered as rural operationally

Planning Commission

Habitations/ Towns with population up to 15,000 are considered together for planning proposes For many companies - In FMCG Category up to 20,000 population - For Durables up to 50,000 population

Companies

Our suggested definition Villages constitute Rural to clearly target the Gaon
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Rural Consumers: SEC Segmentation

SEC segmentation can lead to an indication of typical consumer profiles at each level
Source : IRS,2008

Households

Rural Pyramid

Population

AI 4.2

AI 21

R1 9.2

B 17.3

A2 7.1

R1 46.9

B 83

A2 34

R2 31.1

C 25.1

D 29.7

R2 158.4

C 121

D 143

R4/R5 50.5

R3 47.3

E 16.8

R4/R5 257.3

R3 241

E 81

HH 238 Mio

POPULATION 1186 Mio

The Urban SEC Grid, which uses Education levels and Occupational criteria of the Chief Wage Earner (CWE) of a household as measures to determine socio-economic classification, and segments urban India into 7 groups (A1 to E2) and The Rural SEC Grid, which uses Education and Type of House (pucca, semi-pucca, and katcha) as measures of socio-economic class, and segments rural India into 4 groups (R1,R2,R3,R4 & R5)

Population Spread
The rural proportion will fall, but continue to rise in numbers

India will continue to live in its villages

Rural Markets -Heterogeneous

Distribution of Villages half of the population stays in 17% villages

Source : Census 2001

Rural ringing in growth

Rural employment programmes for inclusive growth

Rural employment programmes creating a stable rural income base inclusive economic growth agenda of Government National Rural employment guarantee scheme, Bharat Nirman Yojana, Nehru National Rural health Mission, Pradhan Mantri Gram Sadak Yojana Allocation exceed USD 695 mio p.a.

Rural Economic outlays inclusive growth

In just 3 years: 2007-08 to 2010-11
Outlays on Bharat Nirman scheme doubled from Rs 24,600 cr to Rs 48,000 cr Outlays on NREGA shot up 3 fold Rs 12,000 cr to Rs 40,000 cr

x2 x3

Agricultural credit in 2010-11 is planned to be a whopping Rs 3,75,000 cr +66% in 3 years Government give away on rural credit, employment & infrastructure to continue

In addition, prices of agricultural products have gone up significantly over

the last 18-24 months some return in the farmers hands
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Composition of Rural Income

Traditional rural income sources from farming now changing Typically at least one person from farming households is employed in service sector regular monthly incomes allowing planned expenditure. Decreasing dependence on farm incomemore financial stability
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Rural Distribution
Right Villages rather than Stores Not effective to cherry pick Rural stores due to travel distances Rural distribution -79K villages achieve 60% ACV

Easier to Saturate the Village when we go

Key villages also starting points to drive Awareness
Rural ACV %

3.5 Mn Stores 135 Mn. HHs

Build models to cover the right villages

79K Villages 60% WD 1.6 MM Total Stores 1/3 Rural HHs (62MM)

.and generate awareness and demand in those!

Rural Household Spending

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Changing Demographics & Increasing consumption

Rural demographic and product consumption Literacy (male) Literacy (female) 10th+ education in HHs

2000
67 38 31 63

2005
72 44 35 60

2008
74 48 37 57

<30 years age group pop TV ownership

C&S penetration Motorcycle Packaged Biscuits Packaged Edible Oil Shampoo

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7 3 39 9 13

30
12 5 54 14 32

33
16 7 64 18 44

Rise in literacy levels and youth dominant market led to 2-3 times consumption growth in many categories
Source : IRS, Hansa Research & Population projection India 2001-26, Census of India

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Town Dispersion

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Size of Rural Markets

FMCG Agri-inputs Durables Automobiles (2 & 4 Wheelers) Rs.65000 crore Rs.45000 crore Rs.5000 crore Rs.8000 crore

Clothes, footwear etc. Construction material

Total
Source: CII Report (2008)

Rs.35000 crore Rs.15000 crore

Rs.173000 crore

200 Million Target Rural Consumers Opportunity

Population (In Mio)
1 Mio+ Towns 0.1 - 1 Mio Towns < 0.1 Mio Towns RURAL

USD 5500

Global India 21 Mio Seeking & Striving India

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USD 1100

164 Mio Aspiring India

54

36

27

47

USD 500

422 Mio Deprived India

110

79

75

158

205 Mio Rural Potential Consumers

PCI pa

579 Mio

27

25

30

498

Total Pop = 1186 Mio

Source : NCAER,at current prices, with HH incomes converted into per-capita at Urban HH=4.81, Rural=5.09, IRS

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Rural Market: Untapped & Under-Served

Spread across 650,000 villages, with an average population of 1100 per village Rural India buys 46% of soft drinks, 49% of motorcycles, 59% of cigarettes sold; Rural India accounts for 40% of Nokia Indias $5 bio annual revenue Functional, specific purpose categories with tangible utility growing well
Television, Mobiles Mosquito repellent, digestives

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Getting cracking on rural markets

Top 10 markets:Punjab,Haryana,UP,Maharashtra,Gujarat,TN,Kerala,AP,Karnataka,WB High growth in Bihar Orissa, etc

6 key aspects of consumer mindset

Value orientation high (Price points, right quality products at right price)

One/ two simple and key rules & drivers for category & brand choice (e.g. color in tea, strength in coffee in rural Andhra Pradesh)
Practicality (clear and easy to use an operate/prepare) Visual driven in approach (show me rather than tell me alone) Brand trust key (Take to brands slowly & give up slowly, Trust in brands important as cant go wrong, see others before bringing brands, buy into a brand promise at an affordable price) Opinion leaders influence important (Village elders, Aaganwadi, doctor etc.)
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Building Brands in Rural India

Contrary to popular belief people in Rural India are fiercely brand loyal
Single Brand Villages

Once converted, difficult to dislodge them

First mover advantages

Route to Brand Building in Rural

Build customization Build Empathy / Relevance Build Recognition

Build customization
Godrej Chotu Kool
Specially designed refrigerator for the Indian hinterland, a nano refrigerator (43 litres cool box loaded from top) Co-created using suggestions from rural women and sold by rural women Red colour, only 7.8kg, Price Rs. 3200, Runs on battery even, has no compressor

Godrej No. 1
Soap, with simple branding (No.1) &
traditional ingredients

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Build Empathy / Relevance

Nokia Life Tools for farming and rural community Agri-information to farmers in association with Reuters Imparting of knowledge of English language to students by teaching one new word every day

Build Recognition
Rural folks understands symbols and colors better:
Pahelwan Chap MRF Haathi Beedi Laal Sabun Lifebuoy Peela Powder - Nirma

Pitfalls
This also leads to duplicates and spurious products Largely sold in the Haats (weekly markets) in Rural India
Rs.12000 crore p.a. is the estimated loss to FMCG sector

Colgate Cycle boy RTM for Rural

Identify educated, unemployed youth in villages as potential channel partners for Colgate products Selected youth act as entrepreneurs, paying cash for stock and earning from sale of products To keep costs low, youth travel by bicycle with a stock box attached for product storage Makeshift stall, using a branded umbrella, erected at venue to attract buyers Branding of channel partner through company logos on Tshirt, bicycle and box to increase visibility and ensure

authenticity

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HUL Khushion Ki Doli and Project Shakti

Khushiyon Ki Doli
Palki or Palanquin with LCD TV/ DVD
Live demonstration Sampling

Project Shakti
Partnership with Rural women Shakti Ammas Sell products, educate, earn an income

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Creating Partnership - Two to Tango Airtel & Nokia

Airtel & Nokia Jodi offer Create awareness & share advantage of mobility with the target group Coverage
248 districts, 35000 villages Strategic locations bombarded with communication 15 fairs in UP & Bihar covered, yielding about 150,000 eyeballs 3 haats covered by week Road shows, Street shows, interactive sessions, interactive games Implementation agency RC&M won the gold award in the 2009 WOW awards

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Hero Honda Har Gaon Har Aangan

Created & trained 500 rural Sales Executives Engaged a person from the target audience to sell motorcycles to others Conducted meetings with Sarpanches, headmasters, anganwadi workers Charted out events like festivals, marriages, harvests in the villages to take advantage of the cash holding capacity of villagers Vehicle finance tie ups with NBFCs, Cooperative banks,

Regional rural banks

From 2000 distribution contact points for Rural in 2000 to 4000 in 2009
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Castrol Rural Activation: Agricultural Modernization program for Tractor owners

Key Target
Successful village farmer (a reference for fellow farmers)

Program-Operation Attack
Modernization of agricultural practices Education of farmers on better yield, tilling practices Message on usage of tractors & Castrol CRB usage increasing the life of the tractor, technical knowledge

Top 110 districts targeted Contributing 56% of total sales & 61% of tractor owners universe

Results: 18% incremental sales Vehicles used: Bus talkies & live technical demonstration
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Brookebond Sehatmand Rural Activation

Initiative to educate consumers on new products. Brooke Bond Sahetmand Chai launched in rural areas starting from the states of MP and Chhattisgarh.
The brand visited around 700 800 villages across 5 6 districts in this region to start with creating awareness on health and the goodness of having nutritious food. The brand is in the process of running a tutorial via the mobile which needs to be amplified through a megaphone. Ability to drive campaign across 700 800 villages simultaneously using automated calls to the school masters mobile phone which was amplified for the kids/mothers to listen. Could reach interiors and rural areas through this campaign.

Life Insurance programs

Yeshasvini Cooperative Farmers Health

scheme
Public Private partnership Insurance Premiums from Rs 5 onwards

Bima Gulak - Max Vijay

Partnerships with local Agents, NGOs Premiums start as low as Rs. 1000/- and top-ups @ Rs 10+ per day One size does not fit all

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HPCL - Rasoi Ghar

Women from SHG (Self help group) is a caretaker Local panchyat contributes a room (10x10) Women bring basic materials & pay Rs. 2-3 for half hour for using gas and take away cooked food home

Rasoi Ghar is a village for few months till sizeable individual

connections set up & then moves to another village

Demonstration of LGP benefits Clean, convenient, safe cooking, pollution free

5kg cylinder SKU with an initial connection cost of Rs. 800 and refill at Rs. 95 introduced

Communication of release of time for better utilisation for

better child care, domestic chores, etc.

Petroleum ministry has approved 80,000 Rasoi Ghars
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ICICI - Kamdhenu
ICICI Bank: Cattle loan + ICICI Lombard General Insurance

Easy cattle loan

Awareness of rural consumers about hedging their economic loss in the event of injury or loss of cattle

Top 50 districts program

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Communicating to win over Rural consumers - Coca Cola example

Thanda matlab Coca Cola television campaign (targeted at 26% of Rural households having a television)
Thanda means cold drink

Local, common language

Dialogue became part of common parlance Local idiom

Communication execution
Out of a common mans life Rural setting Hero was a normal guy, a common man, a farmer or a clerk People warmed up across India to that as the country was becoming more confident
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Coca Cola Jalsa

Folk fare & show Entertainment show organized in villages with an audience base of 10,000+ (folk dance, poetry, play dance & contest basis the tickets as well lucky draw)

Show entry through product purchase

(1 free ticket with every 500ml bottle)

Micro nutrient drink Vitingo introduced in

the rural areas (18g sachet at Rs. 2.50) affordable nutritional beverage
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Mahindra - From Transactional to Emotional bonding

Mahindra Bhoomi Information for better Agriculture
Mobile soil testing laboratory vans to assist
farmers & also static soil testing labs attached to Mahindra dealerships Activity touched 30,000 farmers, footfalls in

dealerships increased by 4-5%

Mahindra Swasth Tractor Scheme

Tractor check
Health check for Rural denizens

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Tata Tea RTM approach with NGOs

Leverage NGO penetration in Rural UP through which rural entrepreneurs were identified to

supply to rural retailers

Leverage the super - stockiest network,

wholesale channel and village haats

20,000 retailers in 10,000 villages were added and market share increased from 18% to 27% between 2006-2008 in UP

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Dabur Amla Rural Activation

Dabur Amla Banke Dikhao Rani

Rural beauty & talent hunt

Recognises & Rewards sundarata, Susheelta & Yogayata among young girls

Enlarge beauty & confidence of rural women

Contest across 52 districts in UP, MP, Bihar covering 2000

villages
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Rural Distribution Company Benchmarking

HUL reaches 83.3% of stores, with P&G the next best distributed company reaching just over 64% of the stores; Nestle reaches about 39% of the store universe
CADBURY INDIA GLAXO SMITHKLINE JOHNSON & JOHNSON HUL FOOD GHARI DETERGENT ITC FOOD EVEREADY INDS PERFETTI VAN MELLE NESTLE INDIA JYOTHY LABORATORIES BRITANNIA INDS NIRMA LIMITED MARICO INDS ITC RECKITT BENCKISER GODREJ CONSUMER PRODS CAVINKARE EMAMI COLGATE-PALMOLIVE PARLE PRODS DABUR PROCTER & GAMBLE HINDUSTAN UNILEVER LIMITED 0%
25.0% 27.2% 27.6% 29.5% 33.3% 35.3% 36.2% 36.9% 39.0% 40.5% 41.5% 42.1% 43.9% 46.6% 47.2% 47.7% 50.2% 53.2% 58.1% 60.0% 62.2% 64.0% 83.3%
Distribution Increases Rank

Total 8.4 Mn Dealers DEC10 Dealer% on FMCG -All India (U+R)

2 1

Source: Ac Nielsen FMCG Distribution 2010

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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Rural FMCG growth ahead of Urban growth Good growths in FMCG across states

Retailers
4.8 million retailers in Rural India They play a significant role:
Influence leader
Brand promoter Relationship marketer

Harbinger of change
Money lender

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Haats
Haats periodic markets 42,000 A place for political, social, and cultural contact Weekly 75% Bi-weekly 20% Daily 5% Average number of visitors 4,600

Average sale per day Rs. 2.25 lakhs

Number of stalls/ Haat300+ 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
Source: MART study

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Mandis
Mandis agricultural markets set up by state governments to procure agricultural produce

Total Mandis6,800

Most agricultural areas with population more than 10,000 have Mandis

Average population catered to each Mandi ~1.36 lakhs

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Melas
Melas fairs and festivals A place for entertainment and shopping

Number of Melas
500 major ones 25,000 total

Average number of visitors 7.5 lakhs Average number of outlets -850 Average sales Rs. 2.5 crores Melas may be classified as:
Religious, cultural or commercial Local, regional or national One day, short duration or long duration
Source: MART study

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Challenges in Rural Distribution & Merchandising

Large number of small markets, Dispersed population and trade Cost of coverage: Viability, Frequency, Logistics, Route plan Managing wholesale as high wholesale dependence Poor road connectivity (all weather roads) Multiple tiers leading to higher cost Availability of right channel partners Poor storage system Credit driven market Activation challenges: Display in rural shops, communication of others & schemes, Local offtake driving activation

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Understanding the Characteristics of the Rural Masses

Very intelligent and clever cannot be easily hoodwinked. Daily activity is reutilized
Plenty of time / No Sundays

Very conscious of value for money Does not like to pay extra for frills he cannot use.
E.g. Color TV

High involvement in any product purchased

E.g. Durables

Perceptions, traditions, values vary from state to state and in some cases from region to region within a state.(MRF Bullock Cart Tyres) Divisions based on caste, community & other hierarchical factors continue to exist.

Issues in Rural Communication

Low levels of literacy *
Rural literacy 60.4%
44 81 68 56
Urban Rural

Urban literacy 80.3%

30

28

24

20

16 7 5 0.3

Reach of mass media not high Wide geographical spread

TV Press Mobile Radio

Cinema Internet

With varying traditions and cultures (state to state, region to region)

*Source : Census 2001

Then how do we communicate?

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Rural Communication
Television does not distinguish between urban and rural You may be able to get away with a common TVC for both urban and rural audience particularly for FMCG products provided your communication is not gimmicky, suggestive and is easy to comprehend. But when it comes to Durables, where rational decisions are involved, it is advisable to target the opinion leaders first. While urban oriented TVC may register with opinion leaders and help create awareness, for real impact down the line, a region specific and need specific communication program has to be devised which provides for demonstration and touch & feel of the products.

Rural Urban Divide in terms of communication continues to exist Hence need for different communication packages focused on rural audience

Build word-of-mouth
Importance of opinion leaders

Educated village youth as opinion leaders

Women and children as demand generators Customized events targeting specific groups with focused communication

Demonstrations
Keep the communication simple
No scope for gimmicks

Take time in communicating the message

Quickies have no impact.

Think in the local language to capture the local spirit in the communication aimed at specific region.

Lessons from the Success of regional brands in recent times

They understand the regional ethos better

They satisfy a perceived local need

Their communication touches a chord which helps in brand acceptance They are flexible
Adapt to changing market situations

E.g. Anchor, Gadi, Ajanta, Cavinkare (Chik), Power, Goldwinner, Arasan If you are small with limited budgets start by concentrating on smaller areas Outdoor / local Cable TV / Radio / participate in local festivals etc Even Nirma started very small - Today it is a Rs.2000 plus crore company!

4 As (Actions) for Rural

Acceptability (CONCEPT) Affordability (PRICING) Availability (DISTRIBUTION)

Awareness (COMMUNICATION, ACTIVATION,EXPERIENCE, EDUCATION)

True success will come from inclusive purpose inspired growth strategy to touch & improve consumer lives in Rural

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