Rural Distribution

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Learning Objectives
Grasp the realities of Indian rural retail channel Examine strategies for managing rural retail channel Understand limitations of traditional distribution channel Examine opportunities for organized rural retailing Be aware of threats and challenges for organized rural

retailing

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Retail: An Introduction
Retailing is, All the activities involved in selling

goods or services directly to final consumers for their personal non-business use.
Retail mix is the mix of variables including price,

location, communications, merchandise, physical attributes, services and personnel.

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Retail: An Introduction
Retail is primarily classified into two sectors as:

organised and unorganised retail sector

Organised retail sector has a single organisation having

large format retail stores providing wide varieties of goods in good number of locations.
Unorganised sector has large number of organisations

having single, small retail outlets with limited variety at single location.
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Indian Rural Retail Market

Rural markets are relatively virgin markets, which

evolved on their own with very little direct contact with them by the corporate world, but their size is compelling and attractive.
Of 33 lakh retail outlets in India in 1999, 21 lakh were in

rural areas.
7 Indian states account for 76% of countrys total rural

retail outlets.
184 districts accounted for 69% sales in 1999.
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Indian Rural Retail Market

In interior villages retailing is part time chore in a part of

house. The maintenance costs for retail outlets in interior villages are also low with most of cost spent on traveling and transportation.
In the 6,27,000 villages penetration into rural areas is

facilitated through the wholesaler, semi wholesaler, arhatia and itinerant merchant network through 3000 odd towns, 5000 wholesale assembly markets (with lot of overlap) and about 25,000 'haats/shandies'.

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Indian Rural Retail Market

One of main reason for explosion of retail and its

fragmented nature is that it is a form of disguised unemployment / underemployment.

Overcrowded agriculture sector, stagnating manufacturing

sector, hard nature of jobs and low wages in both, many Indians are virtually forced into retail sector.

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Indian Rural Retail Market

Given lack of opportunities, it is almost natural decision to

open a small shop depending on the available means and capitals. This explains the million of kirana shops and small stores.
Number of product categories stocked by rural retailer is

almost the same for FMCG products as an urban retailer. If, rural retailer was stocking 19 product categories then the urban retailer stocks 27.
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Indian Rural Retail Market

What varies is the number of companies they are

dealing with, 42 for rural and 92 for urban. So when we multiply number of companies by their brands or variants and Stock Keeping Units (SKUs), difference come in thousands. If there are 30 categories, each has 30 brands and for each there are 30 SKUs. It becomes 27,000 SKU.

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Strategies for Rural Retail Channel Management

Retailers are closest to POP and have access to a wealth of

information on consumer shopping behaviour.

Retailers

have

unique

advantages

for

managing

brands:

continuous and actionable dialogue with consumers, control over brand presentation at point-of-sale, control over shopping environment, display location/adjacencies, and signage.
Retailers relation with customer is based on the understanding of

their needs and buying habits and is cemented by retailer credit.

Rural areas having different retail environment; require separate

marketing strategies in order to penetrate into rural markets.

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Strategies for Rural Retail Channel Management

Understanding Retailer Behaviour: To develop ability to influence retailer to stock and promote products of an organisation requires identifying the manner in which he performs retailing. Mega Marketing: Organisations need to plan and implement integrated effort for managing rural retail channel. Standalone efforts are likely to provide limited success. Ensuring Availability: Availability is not a substitute for creating purchasing power or driving preference, but is a first step towards it. If marketer delivered their product at retailer doorstep, they might prefer those products or brands because; their time and transportation cost is reduced.
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Strategies for Rural Retail Channel Management

Provision of Credit: By selecting financially strong distributors and stockists, organisations can ensure provision of credit to the rural retailers through these channel partners. These channel partners can decide the quantum of credit to be offered to which retailer on the basis of their local knowledge. Companies can have a tie-up with banks and financial institution for the provision of credit to their distributors so that they can buy the goods from the companies in even larger quantity and can then provide these goods to the creditworthy rural retailers at a credit.
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Strategies for Rural Retail Channel Management

Provision of Quantity Based Discount for Distributors: By offering quantity based discounts, organisations can motivate distributors to lift stocks in good quantity and then to make special efforts to take them to rural retailers. Appointing Rural Sub-stockists: Organisations can appoint the sub-stockists in the rural areas itself, in the larger villages. These sub-stockists on the basis of their in-depth knowledge of adjoining villages can distribute the goods to retailers in the smaller, interior and adjoining villages in a cost effective manner and can serve retailers in the villages on regular basis.
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Strategies for Rural Retail Channel Management

Provision of Van Subsidy for Rural Distribution: Organisations can provide van subsidy to distributors who use vans to distribute products in rural areas. These subsidies can be linked with sales volume or mileage depending on the market scenario of the region. Exclusive Distribution Network for Rural Sector: This focused approach has its own advantages as well as challenges. If the rural markets can get better attention and service and enable deeper penetration and more revenues then there can be channel conflict because of the consequent overlaps.

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Strategies for Rural Retail Channel Management

Placement of Company Staff with the Distributors: To monitor and motivate sales effort of distributors in rural market. These staff members can be selected locally to have better knowledge of local terrain and will also be able to talk with rural retailers in local dialect. They can act as eyes and ears of company and can conduct formal and informal research at retailer and consumer end and inform company on a periodic basis competitors moves of the in their territory.
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Modern Distiribution Model

1.SHG MODEL: Project Shakti(HUL) 2.YOUTH ENTEREPRENEURSHIP MODEL:Shaktimaans (HUL),Eveready,Van,PDS,Co-operative Societies,Petrol Pumps & Extension Counters,NGOs,Rural Mobile Traders

RURAL LOGISTICS: Hub & Spoke System(Coca-cola),Syndicated distribution(BharatiAitel& SKS,IFFCO

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Summary: Points to Ponder

Indian retail market is not only one of the largest in the

world but also the most fragmented one.

Serving rural market through rural retail outlets is one of

the most challenging task for the FMCG organisations.

Organisations especially those marketing FMCGs need

to undertake in-depth analysis of rural retailer behaviour.

Ensuring availability of goods at the rural retailers shelf

is critical for an organisation that intends to target the rural market effectively.
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Summary: Points to Ponder

Organisations need to ensure provision of credit for rural retailers by selecting financially strong distributors and stockists and than helping them to have the credit facility from the banks so that they can further provide credit to the rural retailer. Organisations can offer retailer promotion schemes on the quantity based discounts. This will ensure undertaking of special efforts by the distributors to take goods deep into the rural market. Organisation can also consider setting up of exclusive distribution channel or appointing special sub stockists for serving the rural market

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Limitations of Traditional Distribution Channel

Push strategy Very basic level of service Spurious, adulterates and counterfeits Limited choice to the rural customer Strong bargaining power of retailer

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Opportunities for Organised Rural Retailing

Rising aspiration of the rural consumers; to have urban

like experience while shopping.

Integrated package of products and enablers are available

under single roof.

Provision of advisory services along with the products can

build the association with these stores.

Increasing desire in rural areas to buy quality products and

frustration with counterfeits and fakes.

Rural retailers charging more for the same products. Opportunity to provide an outing to family and kids.
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Challenges for Organised Rural Retailing

These newly set up organised retail stores for rural market, either owned

or franchised by the large corporates are going through learning phase. They're grappling with high fixed costs, low revenues and channel conflicts with existing dealers and credibility issues.
Availability of credit for the rural consumer at the Kirana store, which

might not be available at these organized rural super markets. Most of the rural consumers do not pay at the end of the month but after harvest (after 3 or 4 months).
There is lack of organized institutional mechanism to lend money on

credit to farmers with undependable and irregular income streams.

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Challenges for Organised Rural Retailing

Loyalty of rural consumer with the retailer is higher than

the brand loyalty.

Seasonality of the demand is tied with the harvest and

festivals and daily wage earners only getting small dues on daily basis (for max 20 days a month during off season).
During the monsoons good numbers of villages are cut off

from neighboring villages and towns.

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Strategies for Organised Rural Retailing

Experiments in domain of organised retail for rural world are in

advanced stage. There have been good learning and accordingly suitable modifications are being made in proposed business models.
In case of ITC and some others there is a strategy in the place.

To make immediate payment to farmers who sell his produce at the mall and thus farmer has a ready cash to make bulk purchases for the few months at one go. Along with that there is attraction for him to bring his family and children in form of amenities like cafeteria and games. Presence of the family members that too with cash creates a right situation for marketers to target rural audience for selling their products and services.

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Strategies for Organised Rural Retailing

Some of the retailers like Shubhlabh of Mahindras are

developing tie-ups with banks and insurance companies and making their presence under the same roof as enablers for the purchase in case of non-availability of cash with the farmers.
Provision of value added advisory services could be of great

advantage to bring in new consumers to these retail outlets for the first time. Then the experience of providing quality products can take over from there to build a long-term relationship with the rural consumers.
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Strategies for Organised Rural Retailing

Appropriate merchandising and integrating solutions as a

package that can meet the needs for all types of consumers can be a good strategy to serve the needs of the relatively poor people to some extent.
Organisations can start by opening retail outlets in the

regions or states, which have relatively better connectivity and are less likely to face the transportation problems during the rainy season.
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Conclusion
The organized retail formats are offering good quality branded

products and the value added services for villagers.

This is first time such an attempt is being made and this will definitely

ensure that the consumers are not purchasing fakes and counterfeits.
The future scenario with respect to these will be determined by the

overall success achieved by these initial experiments.

Only thing is how to scale up the model and still keep the operational

and capital expenditure low to make a decent return on investments made in the process.
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Summary: Points to Ponder

To provide last mile connectivity with rural consumers,

corporate sector is establishing branded stores in rural and semi-urban areas.

If it is a forward integration strategy for some players, for

others it is a strategy to overcome limitation of conventional distribution channel.

This is a new format where players are in learning phase

and are experimenting with different options. These options range from company owned stores to joint ventures and also through the franchisee route.
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Summary: Points to Ponder

Even the petroleum companies have started to leverage

their wide distribution network of petroleum retail outlets to market non-petroleum products.
Rising income level and aspirations, increasing demand for

quality quality products and counterfeits are the reasons which justify potential and opportunities for organized and products, desire for urban like experience, frustration with low branded retail outlets in rural areas.
Provision of credit by rural and semi-urban retailer, loyalty

of rural consumer with existing retailers that have served their needs for decades, seasonality of demand and lack of 12-28 around the year accessibility of these stores to the rural consumers are the serious challenges in front of these

Summary: Points to Ponder

Corporates will have to develop strategies to lower down

the infrastructure and operational costs and resolve conflict with existing channel partners, then only they will be able to leverage and set-up these stores on a large scale at national level.

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