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Rural Retail – The next phase in retailing

Contents
1. 1.1. Rural Market in India ________________________________________________1 Key Trends ________________________________________________________ 1

1.1.1. Rising Purchasing Power ____________________________________________ 1 1.1.2. Changing Infrastructural Scenario ____________________________________ 1 1.1.3. Government Initiatives ______________________________________________ 1 2. 2.1. 2.2. 3. 4. 4.1 4.2 4.3 4.4 4.5 5. 5.1 5.2 5.3 5.4 5.5 5.6 6. 6.1 6.1.1 6.1.2 6.1.3 6.1.4 7. 7.1. 7.1.1. Conventional Retail Channels _________________________________________3 The Distribution Network ___________________________________________ 3 Distribution Network: The Challenges_________________________________ 4 Meaning of Organized Rural Retail ____________________________________6 Key Components and Issues___________________________________________7 Real Estate _________________________________________________________7 Planning and Forecasting ____________________________________________7 Supply Chain Efficiency _____________________________________________7 Retail Leveraging Technology ________________________________________9 Human Resource Management _______________________________________9 Key Growth Drivers _________________________________________________10 Rising Income and Consumption of the Rural Population _______________10 Changing Consumption Patterns ____________________________________11 Increased Availability of Financial Services____________________________12 Increased Access to Information and Communication Technology ______13 Significant Improvement in Infrastructure ____________________________14 Supply Chain Streamlining _________________________________________15 Rural Retail: Global Experiences ______________________________________16 A look at Current Rural Retailing Scenario ____________________________16 China __________________________________________________________16 Russia__________________________________________________________17 Central European Countries- Poland _______________________________18 Latin America- Argentina and Brazil _______________________________19 Rural Retail in India_________________________________________________20 Insights on the Prominent Organised Rural Retailers ___________________ 24 DSCL-Hariyali Kisaan Bazaar _____________________________________24 1

Rural Retail – The next phase in retailing

7.1.2. 7.1.3. 7.1.4. 7.1.5. 7.1.6. 8. 8.1. 8.2. 8.3. 8.4. 8.5. 8.6. 9. 9.1 9.2 9.3 9.4

Tata Chemicals Ltd.-Tata Kisan Sansar _____________________________27 Godrej Agrovet Ltd. - Godrej Aadhaar______________________________28 ITC- Choupal Sagar ______________________________________________29 Triveni Engineering and Industries Ltd.-____________________________31 Indian Oil Corporation Ltd.- ______________________________________33 Poor Infrastructure_________________________________________________ 35 Seasonality of demand _____________________________________________ 35 Heterogeneous population __________________________________________ 35 Complex buying behaviour _________________________________________ 35 Duplicate or spurious products ______________________________________ 36 Highly price conscious consumers ___________________________________ 36

Challenges _________________________________________________________35

Implications ________________________________________________________37 Government ______________________________________________________37 Manufacturers ____________________________________________________38 Intermediaries_____________________________________________________38 Farmers __________________________________________________________38

Appendix 1: List of Figures _________________________________________________42 Appendix 2: List of Images __________________________________________________42 Appendix 3: List of Sources _________________________________________________42 Appendix 4: List of Boxes ___________________________________________________43 Appendix 5: List of Tables __________________________________________________43 Appendix 6: List of Abbreviations and Acronyms ________________________________43

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Rural Retail – The next phase in retailing

1. Rural Market in India
The rural market in India is undergoing a silent but definite revolution on the back of enhanced purchasing power of rural consumers, the changing consumption patterns and increasing overall value of consumption of goods and services. The sheer size of the rural market which has witnessed tremendous growth in the recent years as large sections of rural population transformed into discerning consumers has caught the imagination and incited business interest of the top conglomerates in the country.

1.1.

Key Trends
On account of rising purchasing power in rural India, the corporate sector is discovering the huge potential that can be realized by creating access and focusing marketing efforts in the rural segment. According to the National Council for Applied Economic Research (NCAER), there are as many middle-income and above households in the rural areas as there are in the urban areas. In fact, there has been a significant increase in the consuming class, with an annual income of Rs.45,000 to Rs. 215,000, from 13.5 per cent in 1995-96 to 25 per cent in 2006-07. This has been accompanied by an overall decrease in the segment of population with an annual income of less than Rs. 22,000 from 54.6 per cent to 25.1 per cent during the same period (Refer figure-3). A report by Assocham further states that by 2012, the per capita income of rural population will double and the rising per capita income will lead to an increase in their consumption levels.

1.1.1. Rising Purchasing Power

1.1.2. Changing Infrastructural Scenario
The focused market attention on the rural markets is aided by the slowly but surely changing infrastructural scenario in rural India. The budget proposals are an acknowledgement of the fact that India’s poor infrastructure needs urgent attention, which in turn is likely to address many of the ills besieging the country’s vast agricultural sector and the bottlenecks facing rural marketing in general and organized rural retail in specific. The plan outlays have progressively escalated from Rs. 140 billion in the VIIth plan to Rs. 300 billion in the VIIIth plan, and Rs. 600 billion in the IXth plan to a mammoth Rs. 900 billion in the Xth plan.

1.1.3. Government Initiatives
The focused approach of the government to bring about overall rural prosperity is evidenced by initiatives such as the doubling of farm credit

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53 billion allocation for high-yield milch animal scheme. It has been observed that India’s rural markets are growing at double the rate of urban markets. Focus charts Figure 1: Rural and Urban Potential Figure 2: Rural Population Dispersion Status Figure 3: Rural Income Dispersal Projection Source 1: NCAER-2004-05. Budgetary allocations such as a Rs. 1 billion for New Rainfed Area Development Programme. there is an immense opportunity for the marketer to create innovative and creative solutions to tap the rural potential. cashew and rubber. 40 billion for rural electrification and special funds for coffee. the total number of rural households is expected to rise from 135 million in 2001-02 to 153 million in 2009-10. Rs. 2250 billion in 2007-08. 1. which are significantly different from his urban counterparts. The infrastructure requirements and the marketing institutions that characterize the rural markets are very different from the urban setting. Moreover. 110 billion outlay for irrigation schemes. Rs. Incentives to the agricultural sector which has really been the backbone of the rural economy is bound to favourably and directly impact growth of the rural sector. YES BANK analysis 2 . 225 billion fertilizer subsidy and about Rs. Therefore. the rural consumers demand differential marketing effort on account of his socio-economic profile. Regional Rural Banks have been instructed to expand their branch networks and extend their services to non-resident Indians as well to expand their scope in general. approximately Rs. weather based crop insurance scheme are measures in this direction. reference points. This is likely to result in rural India becoming the largest potential market in the world. ability to discriminate between alternatives and value assignment behaviour.Rural Retail – The next phase in retailing to Rs. However.

the share of organized retailing is estimated to be around 80 per cent. 3 . It is estimated that there is no organized marketing and distribution in 87 per cent of India’s villages. Typical Stakeholders’ of Rural Distribution Network Figure 4: Typical Stakeholders' of Rural Distribution Network Rural distribution in India has coverage through rural super distributors or super stockists who are in charge of several stockists. C&F agents. and retail sellers. India. Developed European countries have an organized retailing share of 70 per cent while in Brazil and China it is 40 per cent and 20 per cent respectively.Rural Retail – The next phase in retailing 2. wholesalers. especially for nonperishable products consists of C&F agents (Carrying and Forwarding agents). The Distribution Network India’s distribution network in most parts of the country. depending on the size of the market in consideration. large firms have often resorted to dependence on makeshift and dispersed channels and supply chains to meet the ‘safety stock’ level needed for catering to the pan-India market. The traditional distribution model has followed a four-tiered structure consisting of regional distributors. on the other hand lags behind by a huge margin with only 4 per cent of the total sales controlled by the organized retailing. including mobile stockists who carry products in vans to all villages in their territory and leverage the circuit costs over a wide range of products and brands. Conventional Retail Channels In most developed countries. regional distributors. which is home to 50 per cent of the rural population. super stockists. In US. stockist/ warehouses. It is common to find many companies in unrelated/non conflicting product lines sharing the network in a territory. the retail market is characterized by the dominance of organized retailing. 2. As a result. stockists and retail outlets.1.

it is the distributors and sales agents who need to convince the retailer about stocking their products as well as ensuring that their items are replenished on time at the retail stores. catering to the need of more than 70 per cent of the country's population. It is typical for a local distributor to have 5–10 per cent margin while a C&F agent may make 2–4 per cent. The infrastructure comprises 882 direct distributors. Marico: Marico’s distribution network covers almost every Indian town with a population of over 20.000 villages through its supply chain network that consists of about 80 factories. Its parallel rural sales and distribution network ranks among the top three in the industry and contributes 24 per cent to the company’s top line. 153 super distributors-catering to 2393 small stockists and 4523 van markets.2. Industry Highlights Hindustan Unilever Limited: HUL. May 2007 2.000) that account for the retailing of a wide range of merchandise in the far reaches of the country. Box 1: Industry Highlights Source 2: Images Retail. their profit margins are also high (approximately 30 per cent of the retail price and the majority share is received by the retailer). Given the important role of the different parties in the distribution channel. a consumer product manufacturer covers an urban population of 1 million retail outlets and a rural market consisting of 50. 2000 suppliers and 5000 distributors. Multiple layers in the 4 . The role of these players in the distribution channel is extremely important as most of the retail stores can stock only 5–10 units of a given stock and often stock competing brands together in a small space. Distribution Network: The Challenges The dispersed population and the lack of cost effective modes for distribution has induced the firms in India to use multiple tiers in the distribution network (Refer figure-4). As a result.05 per cent of total households headed by petty shopkeepers and businessmen are in the rural area.000.000) and melas (exhibitions numbering around 25. 150 outsourcing units. This is due to the fact that a mere 5 and 0.Rural Retail – The next phase in retailing The rural market in India is also characterized by the presence of a large number of haats (periodic markets numbering around 42.

20 of the 28 states have implemented VAT as on date. The industry has been lacking in average load capacity which at 7 tonnes is way below the global standards. So far. as a result of which firms in India are often required to set up at least one warehouse in each state for compliance. As the industry evolves and firms strive to become more efficient in the distribution and transportation.Rural Retail – The next phase in retailing distribution network impact the final price the customer has to pay for the product. it is clear that such value added services are likely to be in great demand. once by the central government and again by the state government. The complex interstate tax laws do not enable firms to optimize the distribution network. the carrier of most of the business related transportation within India has been highly fragmented with about 2. there are very few organized third party logistics providers in India. Trucking industry. To mitigate these problems. 5 .7 million commercial fleets being operated by over half a million fleet operators. The taxation structure in India is also complex with products typically being taxed twice. Although outsourcing of logistics activities to third party firms is on the increase. A recent survey conducted by a leading Indian business daily found that many of the TPLs in India lacked the scale and financial support to provide value added services such as inventory management and order processing. Third party logistics (TPL) is still largely under developed with most business managing distribution and logistics themselves. Those that are operating are mainly in the trucking industry. the Indian government recently adopted the VAT structure (Value Added Tax) from the 1st of April 2005.

Rural Retail – The next phase in retailing 3. population density of less than equal to 400 and 75 per cent of the male working population engaged in agricultural activity are termed as rural. purchasing power and infrastructure facilities available.000. generally define all areas below the population of 20. population density of greater than equal to 400 per square k. Meaning of Organized Rural Retail The Census. One of the commonly used definition is taken from “census” which first classifies urban areas and than classifies all other areas as rural. Some consumer durables companies (such as LG) define rural areas as all areas with a population below 50. Existing Definitions of “Rural” Census: All places having a statutory municipal body that have a minimum population equal to 50.000 as rural. population size.m.000 are considered as rural.. Box 2: Existing Definitions of "Rural" 6 . population density and economic activity.000. This method of defining rural areas is not apt from the point of view of reaching out to the rural market and there is the need for clearly distinguishing rural areas based upon population size. and 75 per cent of the male working population engaged in non-agricultural activity is defined as a town. IRDA: All locations with a maximum population of 5000. population density. The FMCG (Fast Moving Consumer Goods) companies. Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority (IRDA) (Refer-Box 2) generally distinguish between urban and rural areas based on three metrics viz. RBI: Locations with population upto 10. All other locations are treated as rural. which have been most successful in penetrating the rural market.

1 Real Estate The initial selection of the retail space is critical to the success of a rural retailing venture and some of the important selection criteria for choosing a retail space are the potential for real estate development in the area. These factors along with the retail format. will determine the location. a fairly robust demand forecasting system may have to be undertaken.Rural Retail – The next phase in retailing 4. The use of store level. The key issues that have been identified in rural retail are: 4. would be requiring a long term commitment. The key issues in achieving supply chain efficiency in rural retail are the following: Inclusion of the consumer in the supply chain process o Consumer demand forecast based on sales history and anticipated demand (in some cases by collaborating with customers as well as suppliers) 7 .2 Planning and Forecasting Range planning should be accurate so as to ensure that the customers’ needs are met by the right width and depth of product and deliveries to the store are made at the right time. 4. Key Components and Issues The rural retail market in India is attractive but is fraught with a number of issues. road and rail connectivity. overall economic activity in the targeted catchment area. For tapping this market these issues. number and volume of stock keeping units under each product category and the time of sale. Based on this. time-phased planning has an enormous impact on minimizing the effect of these challenges while increasing sales and reducing supply chain costs. turnover. expected footfalls and sales conversion ratio. seasonality and local preferences. It consists of key decisions of products to source. size and ownership structure of the real estate to be acquired. air. potential. 4. cost reengineering and sustained innovation. product mix and shop-in-shop facility planned.3 Supply Chain Efficiency The rural retail supply chain presents many complex issues and needs focused efforts for solving them efficiently and effectively. capacity available. Proper estimation of the above requires the retailer to meticulously observe and analyse factors such as customer profile.

purchases etc. based on current plans to compare with budget and take corrective action on real time feedback o Projections rolled up from stock keeping unit to category to department to total store 8 . need to be converted to retail revenues. The distribution centre and suppliers utilize the information to create own replenishment plans Category management o Future projections of sales. ordering rules and parameters Replenishment plan calculation at each supply chain partner level for developing a fully integrated product needs schedule Product life cycle management o Decision to list or de-list products taken at a central level by proper forecasting at the store level and not at the distribution centre level o Retail forecast for creating replenishment plan based on each store’s unique position by identifying changes in demand o Distribution centre level replenishment plan calculated and shared with suppliers to provide complete visibility of product phase-ins and phase-outs Promotional planning o Promotional sales forecast added to the base forecast of consumer demand. inventory. cost etc.Rural Retail – The next phase in retailing o o Customised replenishment plan calculation at store level based on unique consumer demand forecast. at the store level o Replenishment plans for all stores added together to create the distribution centre's demand plan Seasonal products planning o Forecasts of each store’s consumer demand for a seasonal product based on historical sales and market knowledge o Identification of season end dates to minimize carry-over and product returns o Aggregate replenishment plan for all stores created by distribution centre.

the training and development should be focused to instill confidence in the human resource and to result in a uniform experience across stores to the customers. The enabling technology should be easy to manage with a centralised information system for the operations of the company. imperative to have the right technology for supporting not only the current business but also have scale up flexibility to meet fast paced growth plans. This is possible only by creating an information system which accurately captures consumer behaviour and shares it seamlessly with all partners across the chain. query resolution. 4.5 Human Resource Management Trained manpower is instrumental in the success of a retail store especially in the rural areas. 9 . It is important that a company venturing into rural retail invest in training its people so as to overcome the dearth of skilled manpower.Rural Retail – The next phase in retailing 4. Absence of good quality personnel supported by infrastructure and documented policies and procedures could result in malpractices and poor customer satisfaction. policies and procedures. reduce working capital requirements and streamline the supply chain and logistics costs. by employing the locally available talent it can expect to reduce human resource issues as well as ensure smooth operations of stores.4 Retail Leveraging Technology The foundation of modern retailing is precise estimation of each stock keeping unit of each product in each store. inventory management. customer service. A good information technology set-up helps a company to efficiently manage inventory. The technology enabler should have common systems and platforms across all units including suppliers to ensure smoother operations. therefore. encouraging management and well-documented company ethos. It is. thus reducing operating costs. Above all. capital expenditure and information technology. The employees must be motivated through a good work environment. Moreover. The key processes that need to be documented for efficient operations at the store level include cashiering.

Rural Retail – The next phase in retailing 5. Correspondingly. which is at present Rs 7. The above developments have led to India's rural population accounting for more than Rs.41.05 per cent in 2006-07. 559 in 2004-05 as revealed by the 61st NSSO survey (Refer figure-5). A recent study of NCAER demonstrates that the low-income population in rural India has come down from around 65 per cent during the early 1990s to 25 per cent at present while the middle-income households have gone up from 33 per cent to 70 per cent during the same period. The per capita income for the rural populace. YES BANK analysis ∗ Conversion Rate: 1US$ = Rs. has emerged which has shown an increase from 0. drinking water or primary health care is negligible or in some cases nil. as on 17th August 2007.10 during 1993-94 to Rs.03 per cent in 1995-96 to almost 0. making them by far the biggest buyers in the country. the Monthly Per Capita Consumption Expenditure (MPCE) has shown a continual increase from Rs. 4157 billion (US$100 billion)∗ in consumer spending. Moreover.1 Rising Income and Consumption of the Rural Population There has been a significant increase in the income and correspondingly the consumption level of the rural masses. the rural rich. 286. Key Growth Drivers 5.57. the disposable surplus is high as the expenditure on house rent. a new socio-economic category. Figure 5: Trends in All India Average Rural Consumption Source 3: NCAER 2004-05. According to the NCAER.000 is expected to double by 2012 supported by transition of subsistence agriculture to commercial farming. Source: Economic Times 10 .

In rural India expenditure on cereals forms 18 per cent of total consumption expenditure at present compared to 41 per cent in 1972-73. YES BANK analysis With economic development and diversification of the consumption basket over time. the share of vegetables has increased by 2. egg. refreshments & processed food has increased by 2 percentage points since 1972-73 whereas it has declined for cereals. In rural India the share of food in total expenditure has fallen throughout the three decades prior to 2004-05 and the overall fall was from 73 per cent to 55 per cent.2 Changing Consumption Patterns An increase in education level and media exposure has led to significant changes in the consumption pattern of rural India. Figure 6: Historical Trend Analysis of Food Consumption Pattern in Rural India Source 4: NSSO. fish and meat and fruits & nuts have increased by about 1 percentage point each.Rural Retail – The next phase in retailing 5. the shares of milk and milk products. However. 11 . the choice tends towards a reduction of cereal consumption and an increase of consumption of other items such as the “beverages.5 percentage points while that of beverages.

462 in 1991 to 16. This is not only an indicator of greater financial inclusion but also that agriculture is no longer a taboo to large sections of the banking industry. 5. This is evident in the slow but subtle shifts in the banking sector's credit portfolio. medical care.650 in 2005.59 billion to Rs. Figure 7: Growth Trend of Rural Deposits & Credits Source 5: RBI. 695. Moreover.Rural Retail – The next phase in retailing refreshments and processed food” group. the rural middle and upper middle class prefers approaching a rural bank branch or an NBFC (Non-Banking Financial Company) for fulfilling his financing 12 . conveyance and other consumer services including conveyance) have grown from under 9 per cent to 23 per cent in rural India. sundry consumables. government stipulation is no longer required for extension of credit. The share of “miscellaneous goods and services” (here including education. agriculture in India is maturing into a viable economic activity and in several instances. Between 2002 and 2006. Figure 7 shows a steady increase in the rural deposits and credits in India. The greater access of rural areas to formal financial services can also be judged by the fact that the average size of population being served by a rural branch has meteorically jumped from 13. the flow of institutional credit to agriculture has increased from Rs. 1493.43 billion (Refer figure-8).3 Increased Availability of Financial Services There has been a conscious effort by the banking fraternity to increase their services to the rural areas owing to RBI guidelines and in search for the ‘fortune at the bottom of the pyramid’. YES BANK analysis The economic awakening of pastoral India is forcing the financial sector to sit up and take notice. Addressing this quantum growth of 23 per cent through organised rural retailing offers both a challenge and an opportunity. rent and taxes. In effect.

This is because the public sector banks and NBFCs offer them easier financing options to meet their credit needs. the rural rich and the upwardly mobile rural population having significant purchasing power have mass media coverage almost akin to the urban masses. YES BANK analysis 13 .Rural Retail – The next phase in retailing requirements rather than approaching a moneylender. TV and Mobile Services Source 7: Industry sources. Moreover.5 per cent to 20 per cent during the same period (Refer Figure-9). Figure 9: Access to Press.4 Increased Access to Information and Communication Technology The mass media coverage in the rural areas has shown a continual increase with press media penetration increasing from 14 per cent in 2002 to 19 per cent in 2006 and cable and satellite (C&S) households increasing from 9. YES BANK analysis 5. * Only up to 31 December 2006 Figure 8: Flow of Institutional Credit to Agriculture Source 6: Ministry of Finance.

The power of communication provides new opportunities of doing business and impetus to the growth of the service sector in the rural areas. although not comparable to urban centres. This is expected to benefit 66. Also rural electrification has been achieved in more than 80 per cent of the villages∗. 1.822 villages. The Government of India has a clear mandate towards rapid development of rural infrastructure to unleash the rural potential. The mobile telephony service acts as a bridge between the digital divide in the villages. It will also provide telephone connection to 66. Rajiv Gandhi Gramin Vidyutikaran Yojana. telecom connectivity. 1740 billion to upgrade rural infrastructure. every village of over 1000 population. The different schemes for carrying out the Bharat Nirman programme are Pradhan Mantri Gram Sadak Yojana(PMGSY). To achieve the targets of Bharat Nirman. electrification and water supply. has brought about quite a few changes in rural India. 5. Government of India intends that by end of financial year 2008 – 2009. which is a flagship programme for the country with a commitment of over Rs. has an all-weather road. Indira Awaas Yojana and Rural Infrastructure Development Fund(RIDF). ∗ Source: Industry sources 14 .185 k.802 unconnected eligible habitations in the country. A new class of brokers is likely to emerge to provide access to information which is the key to providing choices in an access-starved market. If the growth of availability of information is matched by relevant services and products at reasonable prices.5 Significant Improvement in Infrastructure The new road connectivity and up gradation of existing road network have shown continual increase from 2005-06 to 2006-07 and expected to continue in 2007-08. As part of the programme. an unprecedented economic boom can be foreseen in the near future.46. rural housing. or over 500 in hilly and tribal areas. The low-entry barriers will ensure competition and growth of a sector that is at present characterized by the intermediaries thriving on the lack of information and competition to earn high margins.Rural Retail – The next phase in retailing The penetration of mobile telephony.m of road length is proposed to be constructed by 2009. It has a holistic approach towards development of roads. The Government of India has conceived a time-bound plan under Bharat Nirman.

The Bharti-Wal-Mart JV is focusing entirely on the supply chain and is willing to invest the next three to four years in setting up the network. Subhiksha and the likes.6 Supply Chain Streamlining The existing supply chain in India is archaic and not in a position to cater to the needs of modern retailing. is also an initiative towards supply chain streamlining. either rural or urban. Reliance Retail’s plan of Rural Hubs. will be seen in the near future as the private sector try to bring about efficiency and best practices into their supply chains.Rural Retail – The next phase in retailing Figure 10: New Connectivity and Upgradation of Roads under PMGSY Figure 11: Project-wise Number and Amount Sanctioned for Roads under RIDF Source 8: Ministry of Rural Development. YES BANK analysis 5. 15 . by corporates such as Pantaloons (Future Group). A number of other such initiatives. Similarly. The new and existing players entering the system are thus investing to get the back-end operations established which is essential for the efficient roll out of their retail network. a procuring cum processing hub besides a one stop shop for farmers. ITC. DSCL.

This programme is expected to cover 70 per cent of all villages and is likely to open huge opportunities for the organized retail players. The urban-rural divide is continually assuming significance considering the tremendous potential in the rural areas and the need for a focused effort to tap the rural consumption spree. The countries representing the region are China. Rural Retail: Global Experiences This report concentrates on three main regions in the developing world. The proposed national rural retail network finds a way around these existing rural retail structures and is cost effective besides ensuring faster 16 . These rudimentary open-air fairs are filled with fake commodities and illegal dealings due to lack of quality surveillance equipment and regulations. the majority of the populations still live in rural areas or smaller regional towns. whereas in China.1 A look at Current Rural Retailing Scenario 6. almost half of the world population continues to live in rural areas in 2007.Asia. All these countries have been showing robust economic growth with investor friendly environment. Central Europe and Latin America for analyzing the global retail scenario. India and Poland. approximately two country markets only for every sixty thousand peasants. preferential treatment and support from local governments is likely to pave the way for the private retail operators to access the hitherto unexplored rural market.1. Poland. commissions and taxes increase the transaction cost and discourage peasants from entry. Russia. Registration fee. Brazil and Russia have predominantly urban populations.Rural Retail – The next phase in retailing 6. The underlying promise of a distribution infrastructure improvement. The rural population amounts to more than 70 per cent of the country's population but has a disproportionate consumption capacity.1 China The Chinese Government has embarked on an ambitious national rural retail network in February 2005 for transforming the rural retail sector within a time frame of five years. According to the latest estimates of United Nations. there are. Argentina. They are also pushing for a private-led equitable growth for balancing the rate of growth between the urban and rural areas. Moreover. Brazil and Argentina which also include the three major economies from the BRIC countries. 6.

are reaching saturation point and an emerging need for expansion of retail into the lesser accessed regions is evolving. Moscow has traditionally been an obvious entry point into Russia. Big cities like Moscow.g. etc. On successful completion. Volgograd. Media Marketing-belonging to METRO group). Three important developments that have been responsible for the above trends are: Rising income levels of population in the regional areas Stiff competition in Moscow and the other cities with a population of more than one million Scarcity of quality retail space in the bigger cities for both new and old players 17 . St. Until few years ago the retailers were highly dependent on the suppliers but now the retailers are gaining bargaining power and have started demanding stringent delivery schedules.000 supermarkets and convenience stores chain in the major towns and villages by the end of 2008. 6.Rural Retail – The next phase in retailing implementation. Saint Petersburg (e. The existing retailers face stiff competition at the regional level where remoteness of the territories has a strong impact. this programme expects to see around 250.1. However. standardized packaging and labeling. a new trend is emerging wherein the retail players are announcing entry strategy through store openings in regional cities like Samara (e. The programme aims at enticing willing retail operators to take over or co-operate with existing rural stores and country fairs by means of franchising or voluntary retail operation. Castorama). etc.g.2 Russia Russia has around 27 per cent of the total population residing in the rural areas. Novosibirsk. This programme aims to ensure a smoother transition to organized retailing with participation of the existing channel members and provide urban retailing convenience in rural areas. Kazan. For many of the largest retail players. lower prices. It still accounts for around 25 per cent of the retail trade in Russia. easier credit terms. the sheer size of Russia with twelve time zones and the geographical position of cities with more than one million population. The logistic services are not highly developed in the country and frequent delay in deliveries is a challenging problem for the retailers. significantly constrains logistic efficiency. However. Petersburg.

there has been a rapid expansion of supermarkets like Carrefour and Tesco.Rural Retail – The next phase in retailing Regional chains are being developed by retailers mainly through the franchising route while the scale up is being accomplished through the inorganic route of acquisition of existing retail stores in the regional areas. Bulgaria and Slovakia Discount stores are rapidly gaining market share while supermarkets and hypermarkets are losing their position As the retail market in major cities is nearing saturation.Poland The major trends in retailing are to a certain extent similar to all the Central European countries and are: The market share of small businesses. groceries and local markets is constantly declining in favour of the homogenised supermarkets. 6. This is attracting large players like Aldi who are set to enter the Polish market. Thus. the small towns and rural areas have a tremendous potential for the discount stores and supermarkets.000) and are expected to grow rapidly.1. The discount stores 18 . The key to the rural market has been through supermarkets and discount stores which are efficient in meeting local needs offering a broad array of customized products. bolstering sales and changing consumer habits The number of shoppers who choose the best quality products instead of the least expensive is increasing. The country has a very low population density and only 4 per cent of the population living in the capital city while around 37 per cent population in the rural areas. Thus. retail chains are exploring opportunities further afield in more rural areas.3 Central European Countries. More and more customers are beginning to appreciate the quality of services provided as well as ease and comfort of shopping instead of simply the value for money factor In Poland as the urban metropolitan areas are increasingly becoming saturated the retailers have started looking at smaller formats to expand into the rural areas. hypermarkets and discount stores Retail sale is likely to continue growing at a substantial rate despite last year’s slump in some countries. The growth is expected to be the fastest in Romania. Discount stores have also been hugely successful in smaller towns and rural areas (having a population of less than 10.

Brazil has a rural population of only about 16 per cent while Argentina is lesser at around 10 per cent of the total population.Rural Retail – The next phase in retailing are expected to achieve a peak in 10 years but it may drag out for 20-30 years until incomes have increased significantly.1. Brazil is showing a strong comeback and has climbed to 27th rank in the ATKearney Global Retail Development Index (GRDI).57. Argentina has also a similar case with consumer spending decreasing after the economic crisis of 1998 but showing a comeback.41. Over the past three years. The developments mentioned above pertain mainly to the urban areas and rural retail scenario in the Latin American countries like Brazil and Argentina do not present so high a potential as in the other countries discussed above.Argentina and Brazil Latin America is slowly recovering from the economic crisis from 1998. The share of organized retail is sizable with a share of more than 40 per cent though it does not figure on the top 30 countries in the GRDI. Small markets and family-owned retail outlets have gradually been replaced by larger chain stores. Source: Economic Times 19 . 10392. However.50 billion (US$250 billion)∗. 6. With a population of 185 million. Brazil’s retail market is worth Rs. ∗ Conversion Rate: 1US$ = Rs. some segments—including restaurants and certain retail franchises—have managed continuous growth.4 Latin America. This is because majority of the population live in the urban areas. as on 17th August 2007.

consumer goods. The traditional methods of approaching the rural consumer have been through each prospective seller of goods and services reaching out to the individual 20 . Durables. the rural economy must be given a new impetus and as such the rural retail initiatives by the corporate sector are both timely and apt. Billion Year 2010F 2015F * Includes FMCG. At an estimated market size of greater than Rs.Rural Retail – The next phase in retailing 7. durables. Most of these stores started out as shops selling agricultural inputs but have now become destination stores offering FMCG. Moreover.12 billion population. Billion 1500 1000 500 0 2000 2005E Rs. The rationale for approaching the rural consumers with an organized retail format has been mainly to offer the consumer choice of authentic products in a streamlined and a user friendly package. agricultural inputs including tractors and 2-4 wheelers) and more than 60 per cent of the country’s 1. Agricultural inputs Figure 12: Rural Market Size Estimation Source 9: Industry estimates. Rural Retail in India The Indian retail industry is gearing up for massive structural changes on both the urban and the rural front with global players like Wal-Mart and Tesco competing for a share of the Indian retail market and domestic companies lining up huge investments for setting up rural retail chains. Rural Market Size Estimation* 2500 2000 Rs. the rural retail market is too precious to be missed by corporate India. for ensuring a sustained double-digit growth of the economy. includes only FMCG. 1400 billion (approximately US$34 billion. YES BANK analysis At present almost all the companies venturing into the rural market have a significant agribusiness interest. automobiles and electronics. thus providing the last mile accessibility to the rural consumers.

Rural Retail – The next phase in retailing with more often than not. Most of the players started their rural foray in 2002-04. For the promoting agency too. Initial successes have led to ambitious expansion plans being drawn up by these players for the coming years. similar products which created heightened conundrum in the consumers’ mind. services and formats to instill trust and goodwill among the consumers At present the rural retail industry is still in its formative stages and is expected to take a few years from now for the above objectives to be achieved. 21 . The key success factors in organised rural retailing are: Customized offerings suiting the rural mindset Attaining scale of operations coupled with a strong backend infrastructure Developing and implementing streamlined technological solutions for effective store management Uniformity in product quality. this has often meant wastage and duplication of resources that could have been used more effectively elsewhere.

22 . In the coming years the relatively wealthier southern states are expected to be the fore runners in the growth of the rural retail industry. 2001-2006. YES BANK analysis Figure 16: Percentage of Villages with Electricity Source 11: YES BANK analysis The growth of organized rural retailing in India has seen major action mainly in the Indo-Gangetic plains consisting of the states of Uttar Pradesh. 2001.Rural Retail – The next phase in retailing The Agriculturally Advanced Northern and Southern States are Expected to Lead the Growth in Organized Rural Retail Figure 13: Percentage of Surfaced Road to Total Road Length Regions with high penetration Figure 14: Projection of Urbanisation for the Different Regions Regions with low penetration but high potential requiring market development Regions with low penetration but high potential Figure 15: Rural Retail Potential Map Source 10: Population projections for India & states. Department of Road Transport & Highways. Ministry of Human Resource & Development. The eastern region has mainly been left out of the advent of the organized rural retailing but holds immense potential if appropriate market development efforts are made by the corporates. Punjab and Haryana owing mainly to the advanced state of agriculture in these states. Census India.

YES BANK analysis High 23 . Kerala. Haryana Potential Bihar. Jharkhand Not economically viable Low Penetration Figure 18: Opportunity Matrix for Rural Retail in India Source 12: NSSO. Below 450 450-550 550-650 650-800 800 and above Opportunity Matrix for Rural Retail in India based on MPCE and Agricultural Activity High Rajasthan. West Bengal Punjab. Orissa. Maharashtra. Chhattisgarh.Rural Retail – The next phase in retailing Rural Retail: An analysis of the States in India Figure 17: An analysis of the States in India Monthly Per Capita Consumption Expenditure (MPCE) (Rural) in Rs. Andhra Pradesh. Madhya Pradesh. Tamil Nadu. Uttar Pradesh. Gujarat.

2007. 3. These stores. seeks to empower the farmer by # YES BANK analysis 24 . Each store will be equipped with a testing laboratory to analyse soil samples. ITC Ltd. Box 3: Murugappa Group Source 13: Images Retail. 4. 2. Tamil Nadu. The Group has decided to initially set up 100 Mana Gromor stores.000 farmers living in 50 villages surrounding the shop. Karnataka and Maharashtra.1. 25 lakhs each. Murugappa Group. DCM Shriram Consolidated Ltd. water management.Rural Retail – The next phase in retailing Some of the prominent players in the rural retail sector in India are: 1. HKB apparently started as a marketing arm to leverage DSCL’s strong brand equity (especially its Shriram brand in Uttar Paradesh) and to reach out to the rural masses. Apart from various agricultural inputs the stores will also provide hassle free credit to farmers and also impart education and training to farmers on soil condition. DSCL-Hariyali Kisaan Bazaar DSCL is a DCM group company with primary business interest in agribusiness. Indian Oil Corporation Ltd. HKB is expected to expand its network to around 200-250 stores in the next 12-15 months. will come up in Andhra Pradesh. Murugappa Group: The latest entrant into rural retail The Chennai-based. Insights on the Prominent Organised Rural Retailers# 7. Tata Chemicals Ltd. in April. 6.1. The HKB chain.1. collected by its trained personnel from the fields. crop timing and optimum use of inputs. Godrej Agrovet Ltd. May 2007 7. Triveni Engineers and Industries Ltd. 5.” at Sattanpali in Guntur District of Andhra Pradesh. etc. These outlets are designed to service the requirements of about 5. Hariyali Kisaan Bazaar (HKB) is the rural retail initiative of DSCL and to achieve faster growth the company has decided to convert HKB into a subsidiary company. costing about Rs. chemicals and plastic. launched its agricultural retail venture with the opening of its first agricultural retail stores branded “Mana Gromor.

which bridge the last mile gap by providing all encompassing solutions to the farmers under one roof. it seems to be following a focused approach of expansion into the high potential regions of the IndoGangetic plains consisting of the states of Punjab and Haryana. These stores also include fuel pump facilities. access to new markets and output related services Image 1: Hariyali Kisaan Bazaar 25 . At present HKB has established its presence in the northern and central parts of India and has intensified its efforts to penetrate into the southern states which are high potential states with low penetration of organized rural retail. pesticides. Each HKB centre operates in a catchment of about twenty k. and caters to agricultural land of about 50000-70000 acres. veterinary products. seeds. multi-brand agricultural inputs like fertilizers. DSCL started the first HKB store at Delpandarva in Uttar Paradesh (UP) where it had a strong brand image and then rolled out other stores in different parts of UP. an area of about two acres. animal feed. Thereafter. The HKB stores are characterized by being located away from town centres and have. consumer durables and apparels. irrigation items and other key inputs like diesel. petrol at fair prices Access to modern retail banking & farm credit through simplified and transparent processes as also other financial services like insurance A wide range of FMCG. farm implements and tools. Agricultural consultancy services through a team of qualified Agronomists Farm produce buyback opportunities.Rural Retail – The next phase in retailing setting up centres. on an average. A typical store provides the following services: A complete range of good quality.m.

DSCL is running pilot projects of sourcing for Big Bazaar and RPG-Spencers.Rural Retail – The next phase in retailing DSCL is planning to explore the potential of sourcing fresh fruits and vegetables as well as grains like wheat and rice from farmers and supply the same to various retail chains across the country. DSCL will place contract farming orders with farmers and is likely to invest heavily on creating back-end infrastructure as it will be required to set up an extensive network of cold chain. By setting up FHWL health stores in conjunction with Hariyali Kisaan Bazaar. visual merchandising and attractive in-store promotional display The stores besides having quality agricultural inputs also provide for a wide range of FMCG. the one stop healthcare retail chain has announced its plans to reach rural India through its tie up with Hariyali Kisaan Bazaar. refrigeration. Key features of Hariyali Kisaan Bazaar Store management is superior with proper layout. Box 4: Urban Healthcare to Rural Population 26 . apparels. transportation and distribution centres. electronics. and thus cater to the needs of the entire rural community The location of the stores at a distance from the town centres makes it easily accessible for the consumers from the surrounding villages Urban Health Care to Rural Population Fortis HealthWorld (FHWL). Fortis HealthWorld seeks to empower rural India. OTC. It will leverage the existing network of HKB stores and act as the interface between the farmers and the retail chains. mainly the farming community by providing services to meet all healthcare needs under one roof. Wide range of fast moving health good and support systems. Prescription. consumer durables. Currently. etc. With the intension of reaching out to the remotest corner of rural India and providing the best of products and services for all healthcare needs to the farmers and their family Fortis HealthWorld will have the following key features at the stores: OPD facility (Doctor’s consultation) Telemedicine Routine pathology tests collection centre (SRL Ranbaxy). Alternate medicines (Ayurveda & Homeopathy) and also veterinary medicines.

m. Tata Chemicals Ltd.m. a storage godown. Each TKS spans a radius of about eight k. and covers about sixty villages. Every TKVK is equipped with an administrative office. providing agricultural inputs. facilitating farm credit and providing quality agricultural inputs from a single source leading to improved farm income. farmer credit financing and produce buyback arrangements. The TKS network operates on a hub and spoke model wherein the company owned Tata Krishi Vikas Kendras (TKVK) act as the hub with the franchisee TKS as the spoke. The TKS was set up with the objective of helping farmers to create value by improving farm productivity through better agronomic practices. The TKKs enabled farmers to purchase required products and also get expert information. a soil-testing laboratory.2. Each TKVK has a command area of around sixty k.Rural Retail – The next phase in retailing 7. all under one roof. Each TKVK contains the entire infrastructure necessary to work as a comprehensive resource centre to fulfill the needs of the TKS network. Tata Kisan Kendras (TKK) were initially setup as one stop agricultural input shops for fulfilling the Indian farmers’ requirements. Finally after an extensive branding exercise. 27 . The TKVK serves as a resource centre for both the TKS (franchisee) and the farmer.1. The franchisee TKS typically operates as a branded retail outlet of TCL. an exhibition hall and a TKS retail outlet. farm advisory services. farm equipments. a training hall. and covers forty TKS. Four years later the company conducted a strategic review of the TKKs and decided to evolve its focus and give it a greater thrust as a distribution tool. a research and development farm. the TKKs evolved into Tata Kisan Sansar (TKS)-a one stop farmer solution shop. (TCL) is mainly concentrated in the Indo-Gangetic plains having the most fertile soils and being the main grain cropped area in the country. a crop clinic. This in turn helped TCL in establishing a reputation as an approachable and reliable business partner for the farmer that offered end to end farm management solutions. from seed sowing to post-harvest activities in the year 1998.-Tata Kisan Sansar The fertilizer business of Tata Chemicals Ltd.

Bihar and West Bengal that have a majority share in TCL’s fertilizer business. Uttar Pradesh. Key features of Tata Kisan Sansar Formation of strong relationships and brand awareness among the farming community Scope of revamping the TKS stores to a slightly larger format to provide products and services to the entire rural community Image 3: Tata Kisan Sansar 7. . Godrej Agrovet Ltd. GAL is a key player 28 . Moreover.Godrej Aadhaar Godrej Aadhaar (GA) is the rural services cum retailing venture of Godrej Agrovet Ltd.1.Rural Retail – The next phase in retailing Image 2: Tata Krishi Vikas Kendra (TKVK) The TKS network seems to be expanding with the strategy of exploring the potential of the states of Punjab. each TKS seeks to service one mandi and further expansions are carried out in locations where there are gaps in servicing a mandi through TKS. Haryana. (GAL) and belongs to the Godrej group.3.

results in an enduring relationship with the farmer. pharmacy. Besides. these outlets will include a host of services such as banking. The GA stores. achieved through its e-Choupal initiative. and demand-supply). crop finance and output buyback services. ITC. GA.Rural Retail – The next phase in retailing in the Indian agricultural sector with a large presence in cattle. price. agricultural inputs and oil palm development. cycle after cycle.Choupal Sagar The Choupal Sagar is the rural retail initiative of ITC’s International Business Division (ITC-IBD). 29 .000 sq ft and the spoke around 3. while enhancing their capability to sustain thereon The new format Aadhaars’ promise a very conducive urban retail atmosphere and a women-friendly interface. Overtime the concept has metamorphosed to become a multi-category retail outlet providing not only complete agricultural solutions but a wide range of products and services suited to meet the daily needs of the rural populace. providing agricultural inputs and a wide array of consumer products. in order to achieve this objective. Demonstration of the improved productivity benefits of the Aadhaar programs. postal services and petrol pumps to make GA a destination point for all conveniences in rural areas. have decided to move out of the standalone store format to a hub and spoke model wherein the hub would cover about 10. ITC-IBD is involved in the trading of a wide range of agricultural commodities and aqua foods.4. provide quality agricultural inputs.1. It is one of India’s largest exporters of agricultural commodities and has one of the finest supply chain models in India. thus halting shopping migration of consumers to nearby big towns 7. Key features of Godrej Aadhaar Unique ‘capability led empowerment’ process of the Indian farmer to sustain an improved productivity cycle. insurance. professional crop advisory services. in order to expand into the semi-urban and rural market. transfer of information (weather. poultry and aqua feeds. The GA initiative seems to have evolved out of an objective of GAL to become a complete agricultural solution provider to the farmers and to reach out to the farming community directly by reducing the participation of intermediaries in the channel.000 sq ft.

m distance of the e-choupals’(a single Choupal Sagar hub caters to around forty e-Choupal spokes) The e-Choupal acts as the procurement centre for ITC-IBD wherein a farmer finalize his contract with a Sanchalak (representative of ITC-IBD in the e-Choupal) for selling his agricultural produce. After finalizing the contract a farmer carry their produce to the Choupal Sagar hubs. The existing stores at Madhya Pradesh. which combines a procurement yard and a warehouse with a multicategory hypermarket. Image 4: ITC-Choupal Sagar The expansion of the Choupal Sagar network seems to be following the procurement objective of ITC-IBD.m distance of all target farmers. Uttar Pradesh and Maharashtra have the objective of procurement of soyabean and wheat. 30 . Second tier is the Choupal Sagar (hub) at the cluster level which is located within thirty k. is designed to leverage the traffic of the cash rich farmers who come to deposit their produce at the warehouse. The Choupal Sagar.Rural Retail – The next phase in retailing The Choupal Sagar initiative is a procurement driven effort of ITC-IBD to establish the hub-and-spoke Choupal network at two tiers in the villages which are as follows: First tier is the e-Choupal (spoke) at the village level which is located within five k. The future stores are expected to come up in states like Rajasthan (for soyabean and wheat). Karnataka (for coffee) and Andhra Pradesh (for aqua products). deposits the produce at the warehouse and collects payments.

it may move on to other states such as Haryana and Punjab. TEIL’s association with the sugar industry dates back to the pre-independence era. At present. TEIL is one of India’s leading companies in the business of sugar manufacturing and engineered-to-order mechanical equipments. it is the largest sugar producer in the country. Triveni Engineering and Industries Ltd.46 lakh farmers and procures over Rs. However. Uttar Pradesh is located next to the sugar mill) or rural and semi-urban commercial centres.Rural Retail – The next phase in retailing Key features of Choupal Sagar The stores cater to the needs of the entire rural population with a wide range and depth of merchandise Uniformity in layout and design across all the existing stores The store management is superior with excellent visual merchandising and promotional display A qualified team of seven Agronomists are actively involved in agricultural advisory and supervision of field trials 7. The larger stores are located near to the sugar mills (the TKB at Deoband. The smaller stores on the other hand are located near to the villages. which is a subsidiary of Triveni Engineering & Industries Ltd (TEIL). In the near future. presently there has been a conscious effort by the management to clearly differentiate between the agribusiness and the retail initiative.1. Triveni Khushali Bazaar (TKB) started as an effort to further Triveni’s agribusiness interest with a better and improved reach to its primary stakeholders-the farmers.5. 31 . TEIL has a command area of over one lakh ha under sugarcane cultivation that covers more than 1. TKB is following a strategy in which it is expanding its store network in a concentric pattern in the states of Uttar Pradesh and Uttarakhand. with four plants in the state of Uttar Pradesh. 3 billion worth of sugarcane per annum from these farmers. TKB is positioning itself as a lifestyle solution provider for the rural masses in the semi-urban and rural areas besides also providing for the needs of the farming community by banking on the TEIL brand.-Triveni Khushali Bazaar Triveni Khushali Bazaar is an initiative under Triveni Retail Ventures Ltd. TKB operates through company owned large and small format stores.

HUL. It has also signed a MoU with SBI to provide unlimited. Key features of Triveni Khushali Bazaar Easy accessibility and brand visibility as the larger stores are located adjacent to main roads near large mandis or towns.Rural Retail – The next phase in retailing Image 5: Triveni Khushali Bazaar The larger TKB stores are designed like dome shaped structures operating on a low capital cost (leased) model. cement. IFFCO. Chambal. Apollo. Godrej. The stores cater to the entire basket of goods required by the rural populace besides the farming community with products such as agricultural inputs. diesel. Atlas. unsecured financing to farmers. farming implements (for sale and rental). insurance and agricultural consultancy. The smaller stores are located near to villages The stores carry a broad range of products which can cater to the needs of the entire rural population and not just the farming community Provision of quality agricultural inputs in the Terai region of Uttar Pradesh which have problems of shortages during peak season Unique provision of easy credit to the farmers on the basis of crop hypothecation without a lien on land Employing a team of qualified agronomists to offer consultancy services to the farmers 32 . TKB has established tie-up with a number of leading companies like HPCL. consumer goods and services such as facilitating institutional credit. to sell their products through these stores. etc.

Image 6: Indian Oil Kisan Sewa Kendra The KSKs are low cost (a typical outlet costs around Rs. The Kisan Seva Kendras (KSK) is the recent rural retail initiative of IOCL to strengthen its presence and explore the potential of the rural market with fuel and non-fuel retail.Rural Retail – The next phase in retailing Tapping employees of TEIL and the sugar mills as customers 7.6.550 sales points. At present IOCL is not charging a share in the revenues from non-fuel sales (IOCL takes a one time security deposit from the KSK 33 . four to five lakhs) retail outlets and are operated on a dealership basis by IOCL. The KSKs seeks to achieve a first mover advantage in the rural areas that have a low penetration of organised retail and thereby build and retain a loyal customer base. The kendras are set up on the dealer’s land who gets the revenues from the non-fuel sales besides earning a margin on the sale of diesel (60 paise per litre of diesel) which is similar to that earned by the petrol pump operators.455. In view of the increased margin pressure on fuel retail. As the flagship national oil company IOCL. numbering 16.1.-Kisan Seva Kendras The government owned Indian Oil Corporation Ltd. it is a prudent initiative by IOCL to diversify into non-fuel retailing by leveraging its extensive network in the rural areas. distributes petroleum products to millions of people everyday through a countrywide network of 32. Indian Oil Corporation Ltd. It also operates the largest and the widest network of petrol and diesel stations in the country. together with its IBP Division. (IOCL) is the largest company in India in terms of sales.

Rural Retail – The next phase in retailing dealers) but it is likely to happen on a later date when non-fuel sales will pick up in the rural areas. Indo-Gulf Fertilizers. TATA. The KSKs seem to be following an expansion strategy based on the potential of fuel sales in an area and the minimum fuel sales required to set up a KSK is thirty kilo litre (kl) per month. Godrej. Key features of Kisan Seva Kendra Extensive network that have reach across the length and breadth of the country Low cost and de-risk model of the KSKs’ as the management of the kendras rests on the dealers The IOCL brand has a top of the mind recall in the entire country 34 . Dabur. Bank of Baroda. Airtel. The management of the KSK rests with the dealer and IOCL have formed tie-ups with various companies like National Seeds Corporation. Dena Bank and Oriental Bank of Commerce for the products and services at the KSK. The average fuel sale in the KSKs’ is fifty kl per month which is a healthy figure when compared to the all-India average throughput of 70 kl per month per outlet.

Poor Infrastructure Poor physical and institutional infrastructure is the main reason that is holding back the private sector in exploiting the potential of the rural market. This fact is of particular importance for inventory planning and category management in the rural stores.4. Thus.1. rural India is characterized by a highly heterogeneous population in terms of purchasing power. it may take some years before the issues are satisfactorily resolved. thereby increasing shareholder value and the stock of the rural poor. language. For the marketer. etc. Therefore. Challenges The key challenges encountered in retailing in rural areas are: 8. social and religious customs. that not only have a bearing on the yield and consequently the revenue but also his belief system.3. Complex buying behaviour The rural consumer’s lifestyle revolves around key factors such as social and religious customs. The combination of these factors influences the buying behaviour. tastes and preferences.Rural Retail – The next phase in retailing 8. understanding of the rural consumer and designing customized offerings is going to be a key challenge in exploring the rural market. the corporates venturing into the sector have to factor these issues into their future plans for effectively tapping the rural market. Such interplay of climatic and social factors is seldom seen in the urban context even for the consumers in the same income bracket. 35 . 8. it translates into the need for gaining an appreciation of not only prevalent norms and customs but also the economic condition of the residents. literacy rate. Seasonality of demand There is high seasonality of cash inflows and outflows in the rural households owing mainly to the agrarian nature of the rural economy. 8. 8. climatic considerations. Heterogeneous population In comparison to the urban centres. before embarking on a marketing campaign. Although at present the situation is slowly improving.2.

5. Duplicate or spurious products The phenomenon of duplicate or spurious products is prevalent all over India but it is much more rampant and virulent in the rural areas. The mindset for securing quality for an extra additional rupee has still not seeped in to the desired extent into the rural mind. It is likely that as soon as the rural consumer becomes aware that the branded goods are costlier (than the local unbranded or fake products) due to their quality. The manufacturers are resorting to legal means to curb the menace of fake products. they will switch over and become a part of the branded products purchaser category. The problem is thriving on the demand-supply gap existing in the rural areas.6. which is beneficial to them.Rural Retail – The next phase in retailing 8. the most effective method may exist in building a better rural distribution network which is most likely to put the manufacturers of fake products out of business. However. The company distributors in many cases stick to the villages closest to their towns and service the small retailers in the far off villages through mobile distributors who stock counterfeit products. 36 . 8. Highly price conscious consumers The rural consumers are more price conscious than quality conscious. The key lies in making the rural consumer aware through sufficient promotional efforts.

As the rural retail phenomenon evolves it can be expected to usher in huge employment opportunities as well as a general increase in the standard of life in the rural areas with increase in rural economic activity. This is aided by the thrust provided by the government initiatives such as Bharat Nirman and is expected to eventually result in a well established and efficient supply chain. storage. there is a catalytic growth in infrastructure development being witnessed in the countryside. It is likely to happen through the resurgence of the rural economy as well as the fact that increased sales will occur through the organised route. as well as other support activities like grading. 37 .2 Infrastructure development With the increased attention to the rural areas by the corporate sector on the back of increasing demand.1. sorting.1. etc. Implications The rural retail sector in India is at a nascent stage and as the industry emerges the key implications for the various stakeholders can be enumerated as below: 9. 9.1.1 Employment generation A direct impact of the growth of rural retail in India will be employment generation. The generation of indirect employment may be expected to result from direct fallout of the changes in the value chain at the manufacturers’ level.Rural Retail – The next phase in retailing 9. 9.3 Revenue and tax generation Increased activity in the rural retail domain holds the promise of increasing revenue and tax generation for the government.4 Check rural migration The reasons for migration of individuals from the rural to urban areas are mainly in the search of better employment and quality of life.1 Government 9. Moreover. Retail business is labour intensive and thus there is ample scope for creation of both direct and indirect employment in rural retail and ancillary services. facility management. information technology. which is not likely to be the case with organised retail. transportation and various other support services such as security. training. 9.1. the unorganised sector is notorious for tax evasion. packaging.

who are in many cases unreliable and augment the problem of spurious products through inadequate servicing.2. This change process is likely to eventually bring about efficiency in delivery of goods and services and lower costs for the consumers.2.3 Intermediaries In the existing supply chain structure. The intermediaries are likely to benefit from alternative options as they get re-intermediated in the supply chain.1 Increased efficiency in supply chain Improved supply chain efficiency will lead to better production schedules and accurate forecasting of demand.4.Rural Retail – The next phase in retailing 9. Organised rural retail is also likely to promote improved farming 38 . 9. 9.2.1 Increased efficiency in agriculture Development and growth of organised rural retail is most likely to result in disintermediation in the food supply chain and increase production efficiency through alignment of production with consumer demand. 9. The re-intermediation might result in the origination of new roles and functions for these supply chain players and might result in innovative marketing channels in the rural areas. there are many levels of redundant intermediaries.3 Greater reach into the rural market As the organised rural retail formats penetrate deeper into the rural areas the manufacturers are likely to gain access to the marginally penetrated rural markets. these intermediaries are most likely to play a pivotal role for the corporates in increasing the market penetration.2 Higher potential of category growth and ease in launching new and innovative products Organised rural retail may enable manufacturers to isolate retail chain data which is invaluable for performance tracking and evaluation of product category. It has also the scope of reducing the dependence on the intermediaries. As the rural retail revolution progresses. 9. who do not add value to the products or services reaching the rural populace. It offers manufacturers meaningful and actionable information for various category management initiatives as well as measuring the performance of specific projects such as new launches and line extensions.4 Farmers 9.2 Manufacturers 9.

3 Check the growth of duplicate or spurious products The increased penetration of organised rural retail may check the growth in the sale of duplicate and spurious products. It is likely through greater availability of branded and authentic products and the rural consumers would get access to better quality at affordable prices without facing the hazards of duplicate or spurious products. thereby helping better crop realization to the benefit of the farmers. 9. 39 .Rural Retail – The next phase in retailing technologies which will directly impact agricultural production both in quantity and quality. grading.2 Better price discovery Investments in technology up-gradation in the entire value chain including production. storage and logistics will reduce wastage and duplication of efforts and enable farmers to realize better prices. packaging. 9.4.4.

Gujarat.Rural Retail – The next phase in retailing Table 1: Rural Retail – A Snapshot Retail store Year of launch Geographical presence Punjab. Uttarakhand Uttar Pradesh. Karnataka. Tamil Nadu. Andhra Pradesh. Orissa. West Bengal Punjab. Madhya Pradesh. Haryana. Uttarakhand States with highest density of KSK-Uttar Pradesh. Madhya Pradesh. Rajasthan. Haryana. Punjab. Bihar Number of stores Future plans (no. Punjab. Maharashtra Uttar Pradesh. Maharashtra. Uttar Pradesh. Bihar. of stores) 200-250 in next 12-15 months Not available Setup 1000 stores in next five years Not available 80 by 2008 and 200 by 2009 3000 in next four to five years DSCL-Hariyali Kisan Bazaar 2002 70 Tata Kisan Sansar (TKS) 2004 800 TKS franchisees Godrej Aadhaar 2003 31 ITC-Choupal Sagar Triveni Khushali Bazaar 2004 19 2005 45 IOCL-Kisan Seva Kendras (KSK) 2006 1400 40 . Uttar Pradesh. West Bengal Madhya Pradesh. Haryana.

ft. # The stores have an average of 15000 SKU’s.Rural Retail – The next phase in retailing Table 2: Operational Details Store Hariyali Kisan Bazaar TATA Kisan Sansar Godrej Aadhaar ITCChoupal Sagar# Triveni Khushali Bazaar (Mother stores) IOCLKrishi Seva Kendra Store area (sq.Footfalls* Sales/month Footfalls(average)* agri) (peak) (average)* 3000-3500 200-350 33 2-5 lakhs 10 10 25 -4-6 8 200 150250 -- NA 950-1000 -- 200 300-500 100-500 15-20 30-40 50-60 -2-3 lakhs 20-30 lakhs 15006000 10 4 250300 2500-3000 400-500 40 2-5 lakhs 4400 10-15 -- -- -- 100-150 -- 30000 * The figures may vary depending upon the store location. 41 .) 90001000 300 30005000 7000 Catchments’ Field staff radius (km) (Agronomist) 25 4 SKU* (agri) 300 SKU*(non.

................................ YES BANK analysis ..................................................................................................................................................10 Source 4: NSSO..........................................13 Source 8: Ministry of Rural Development.................................... 32 Image 6: Indian Oil Kisan Sewa Kendra ..............................................................................................................................................................................................................4 Source 3: NCAER 2004-05.................................................................................15 Source 9: Industry estimates...................................... TV and Mobile Services................................................................................................................................................................. 28 Image 3: Tata Kisan Sansar.............20 Source 11: YES BANK analysis ..................................................................................................... YES BANK analysis ....................22 Figure 14: Projection of Urbanisation for the Different Regions .................................................................23 42 .............................................................11 Source 5: RBI.... YES BANK analysis ......................................2 Figure 4: Typical Stakeholders' of Rural Distribution Network .................................................................................................................................11 Figure 7: Growth Trend of Rural Deposits & Credits ........20 Figure 13: Percentage of Surfaced Road to Total Road Length ........................................................................................12 Figure 8: Flow of Institutional Credit to Agriculture......................................15 Figure 11: Project-wise Number and Amount Sanctioned for Roads under RIDF ............................................................10 Figure 6: Historical Trend Analysis of Food Consumption Pattern in Rural India........................................................................................................... YES BANK analysis ... YES BANK analysis ................................13 Figure 9: Access to Press...22 Source 12: NSSO...............................................12 Source 6: Ministry of Finance......................... YES BANK analysis...............................3 Figure 5: Trends in All India Average Rural Consumption ........................... 30 Image 5: Triveni Khushali Bazaar ............ May 2007...2 Figure 2: Rural Population Dispersion Status ........22 Figure 16: Percentage of Villages with Electricity ..23 Appendix 2: List of Images Image 1: Hariyali Kisaan Bazaar ...............................................................................................................................................................................................................................13 Source 7: Industry sources......................Rural Retail – The next phase in retailing Appendix 1: List of Figures Figure 1: Rural and Urban Potential ........................................................................................................................................ YES BANK analysis .................................................. 33 Appendix 3: List of Sources Source 1: NCAER-2004-05...... YES BANK analysis ...................................................... 25 Image 2: Tata Krishi Vikas Kendra (TKVK)..........23 Figure 18: Opportunity Matrix for Rural Retail in India ...........2 Source 2: Images Retail.........................................................................................22 Figure 17: An analysis of the States in India .......................................................................13 Figure 10: New Connectivity and Upgradation of Roads under PMGSY.....................................................................15 Figure 12: Rural Market Size Estimation ................................................................................................ YES BANK analysis .........................2 Figure 3: Rural Income Dispersal Projection ........................................ 28 Image 4: ITC-Choupal Sagar..................................

.............................................................................................24 Appendix 4: List of Boxes Box 1: Industry Highlights ................................. 26 Appendix 5: List of Tables Table 1: Rural Retail – A Snapshot........................................................................... 6 Box 3: Murugappa Group........................... 4 Box 2: Existing Definitions of "Rural" ......................................................... 40 Table 2: Operational Details......................................................................................................................................................... May 2007 ........ 41 43 ... 24 Box 4: Urban Healthcare to Rural Population ..........................................................................................................................................................................................................................Rural Retail – The next phase in retailing Source 13: Images Retail..........................

Rural Retail – The next phase in retailing Appendix 6: List of Abbreviations and Acronyms 44 .

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