Channel Behaviour in Rural Areas

Dimensions of Channel Behaviour

Sourcing of stocks & purchase cycle Stocking behaviour & seasonality Credit pattern Transfer of capital Pricing by the channel Channel promotion Retailer consumer dynamics

Sourcing of Stocks & purchase cycle

Sourcing For retailer, wholesaler is the most important influencer, source of information, & stocks In interior areas, retailers are not serviced by distributors agents go to nearby feed towns or large villages once or twice a month In feeder villages, retailers purchase from distributors agents who visit their shops at regular intervals & supply material Purchasing Cycle High t/o feeder villages visit nearby wholesale urban market 3 to 4 times a week In other areas where only counter sales take place buy once a week or fortnight If purchasing brands directly from company salesmen, buy once a month or when the sales man comes If one brand not available, will substitute brands Rural retailers will look for better margins will visit several wholesalers to get best margin For grains from mandis Company has to give wholesaler the best terms & make sure that it is passed on to the retailer

Stocking Behaviour & Seasonality

Seasonality pattern in stockholding Retailer investment goes up 3 to 4 times during harvest (toiletries, cosmetics, clothes, footwear) After harvest, seeds & fertilizer stocks go up, in preparation for sowing Thereafter tapers off, and shop inventories also come down Usually, demand dictates stock position Marketer must promote brand to consumer & wholesaler Restrict the number of dealers, promote brans, prevent undercutting, improve dealer margins

Credit Patterns
Retailers offer consumers between 15 to 70% credit Running credit, settled partially every month, cleared after harvest Settlement may be in cash or kind Promotions to be made at harvest time, as funds available Credit usually on essentials like rice, wheat, cooking oil, not on branded products National brands on pull, as cash & carry, local brands on push, as available on credit

Transfer of Capital
Retailer may transfer capital from shop to cultivation At harvest when produce is sold, will invest in building up inventory in shop Will then move capital to purchase seeds & fertilizers Marketers launch promotions during this period in between

Pricing by Channel
In interior villages, sometimes sell higher than MRP Justifies greater effort and expenses Want larger margins, but unwilling to pass on to the consumer Festival discounts used to stock up, but benefit not passed on Need for better communication to final consumer Wholesalers resort to undercutting to increase sales on fast moving items, then loose interest when margins drop drastically

Channel Promotion
Retailers in interior villages buy small quantities, and do not qualify for discounts Retailers in feeder towns purchase in bulk (retail as well as supply to retailers in interior villages), so discounts to be targetted at them

Retailer-Consumer Dynamics
Customer loyalty to retailer is high depends on him Retailer is a key influencer trustworthy family relationships - recommendations are valued Retailers stock brands customers are used to buying reluctant to change Coca Cola University on Wheels training of retailers 2 hour audio-visual aid based on customer, shop, stock & finance best practices Shop layout & location, display, basics of finance, knowledge of credit card transactions, people management skills

Distribution Models in Rural Markets Distribution Models for FMCGs DM1 Advanced Model
Company

CFA

Distributors (Rural)

Distributors (Urban) Wholesalers

Sub-Distributors

Wholesalers

Retailers (Local)
Retailers (Urban) Retailers (Rural) Retailers (Satellite Markets) Retailers (Urban)

Channel Structure Rural separated to give focus Rural Distributor area clearly defined Sub-distributors up to 5000 pop villages Rural Distributor services wholesalers Wholesaler reached satellite markets where company distribution has not reached This model ensures company's products reach max locations Wholesalers role reduced, better discipline HUL Distributors at District level, star sellers for a cluster of 20 - 25villages; star seller invests money in the business. To reach below 2000 pop villages, SHGs under Project Shakthi own village as well as 4 to 5 other villages

Transportation From production unit to CFA to Distributor done at company expense Done on heavy trucks with fixed annual contract Rural Distributors use light commercial vehicles Urban Distributors use 3-wheelers Sub-Distributors use vans or pick-up trucks get higher margims or 1 to 1.5% of sales T/O to cover salaries of sales men & vehicle maintenance costs

Coverage Permanent journey plan in consultation with Distributor & Sales Team Haat days, distance, number of outlets to be covered, type of vehicle to be used PJP for 6 working days Outlets covered fortnightly Outlets per day : 30 -40, of which 12 20 productive Distributor area 50 km radius

Traditional Distribution Model DM 2

Company

CFA (Depot)

Distributor

Retailers

Wholesalers

Retailers

Channel Structure No separate rural channel Minimises distribution cost, better margins Wholesalers act as feeder markets, cover villages not reached by company Distributor large territory Regional cos with high volumes (Gari, Priyagold) New entrants without infrastructure

Transportation Stock to co depot on transfer basis To disributor on freight paid basis, heavy vehicle Distributors use Matadors or tempos, owned by them Distributor employs sales people

Coverage Area covered by Distributor is large No sub-distributor to cover interiors Wholesaler responsible for interior coverage Not good for launching new products, wholesalers prefer products with demand Works for high volume, low SKUs

Rural-centric Distribution Models

Learning from old rural distribution systems Haats / Shandies, mobile traders, PDS Optimizing existing physical & social infrastructure SHG, Cooperatives, NGOs, Youth groups, petrol pumps Collaboration principle

Haats / Shandies
Total no. of haats Average annual sales 43,000 Rs 5,000 billion Large Small haat haat 545 12,000
57

Total no of stalls Avg no of visitors

Catchment villages

327 5,600
21

 Products sold at haats Category Agri products Manufactured goods Processed foods Handicrafts Forest products Services Meat / poultry Others % of outlets 53 19 6 5 5 4 3 5

Corporate presence at haats Mahindra Hero Honda Bajaj TVS Tata Ace Ceat tyres Emami Nippo Batteries Parle Products HUL Coca Cola Nestle Dabur Samsung Airtel Reliance Vodafone Tata Docomo

Modern Distribution Models

SHG Model Groups of 10 -15 women organized by NGO Members contribute amount, matched by rural banks Income generating enterprises Project Shakthi Youth Entrepreneurship Model Educated, unemployed youth in villages Entrepreneurs orientation & training HULs Shakthimaans distributors on bicycles 1,50,000 villages with popn less than 2000 Company provided cycle Distributes company's products to consumers

 Vans Eveready 44 warehouses, 4,000 distributors, 1000 vans Vans reach 3.3 million retail outlets 9rural + urban) Each van 50 -60 calls per day Extends to < 5000 popln villages Van visits retailer every fortnight Exclusive territories are marked for van operators, wholesalers and retail stockists

Public Distribution System 476,000 FPS (wheat, sugar, rice, edible oil, kerosene) 80% in rural areas (380,000) FPS to Micro Malls in Gujarat Deregulate all kinds of goods & services Can also get gas cylinders, cosmetics, recharge vouchers, fertilizers, seeds, packaged goods ITC, HUL, Videocon, Hutch, LIC

Cooperative Societies Agri inputs & credit 500,000 cooperatives Play key role in economic value chain production, marketing, procurement, distribution Warana Bazar Kholapur (MS). Two big shops with 50 branches in Sangli & Kholapur Dist. FMCGs, durables, auto components, agri products

Petrol Pumps 12,000 petrol pumps 60% on highways close to villages Food products, toiletries Agri-inputs, cooking gas Kisan Seva Kendra

NGOs 3.3 million Rural Development & SHG NGOs reach; companies employment opportunity Tata Tea Gaon Chalo
12 NGOs in UP covered 10,000 villages added 2000 retailers & 500 distributors