You are on page 1of 20

Supply Chain Management

Birla Institute of Technology & Science, Pilani


Department of Management

FMCG Supply Chain Initiatives to Penetrate into Indian Rural Market

Submitted To: DR. SATYENDRA SHARMA

Submitted By: Group 4 MAITRAYA RAI VIJAY KABRA VICTOR SAHA ADITYA SHARMA

Page |1

Content
S.No. 1 2 3 4 5 6 6.1 7 8 9 Topic Abstract Introduction Review Research Gaps Methodology Data Analysis Profit Loss Statement Managerial Implication Conclusion References Page No. 2 3 5 8 9 11 12 14 16 17

[Type here]

Page |2

Abstract: In the year 1991, the Indian economy was liberalized and the wave of globalization swept the country in an astounding manner. The country witnessed high growth rates year-on-year. This economic growth led to the increase in disposable incomes of the people and also it led to rise in aspirations of the middle class. Meanwhile, the Indian rural market started to provide enormous growth potential for all the FMCG companies. HUL was a prime mover in this market and over the span of few years it witnessed impressive margins and profitability. This report has attempted to study the supply chains of companies like HUL and Parle which have been very successful in the rural markets owing to their responsive supply chains. The report also attempts to understand the rationale behind some of the other FMCG companies which have failed to take advantage of this hugely potential market segment. At the end, some suggestions in respect of the supply chains of the FMCG companies have been provided which would increase the probability of their success in the challenging rural Indian diaspora. The usefulness of backward integration strategy has been stressed upon in this report which can be a pivotal step in gaining wider margins as well as trust and penetration in the rural consumer segment.

[Type here]

Page |3

Introduction: Indias economy has been soaring for the past few years mainly because of the advent of foreign companies or investors and also because of the many domestic companies which sprouted in numbers, across the country, to churn the same benefits from the economy. All the sectors have seen such advent but the most crowded and competitive one is the FMCG sector. This sector constitutes 2.15 percent of the GDP. These companies through the year has expanded exponentially throughout the geographies of the country. Because of the tough competition, these companies continuously strive hard to tackle the challenges of reducing cost and improving brand trust and quality every day, which is extremely necessary considering the fact of numbers of players in the game. The race is to achieve the maximum market share and ultimately to increase the profits. In this attempt the companies try every possible strategies to get an advantage over their contemporary companies. Today when we go to any mall or shopping complex, we can see numerous brands lined up in a shelf which sure reflect the overly populated sector where the consumer rarely switches from his or her brand and where trust is of prime essence. The companies till 90s had expanded profusely in the urban areas but had missed a very essential section, where lies the heart of this country, Villages or the Rural India. More than 70 percent of the population lives in villages. This part of the country till 90s had remained pristine and untapped. With the growing economy, the conditions of the natives in villages has also improved. But this was not the condition decades ago, now the people in villages are much aware about the brands and are spending five times more, what they used to spend in earlier times. Earlier, for the corporates in any company, the rural India was an area of darkness where there was a huge risk and little chance of return on investment. But this perspective over the time has changed and every company has now realized the potential of the market. There is indeed a huge investment required to enter into villages since a company has to setup and formulate a best possible distribution strategy to get the maximum reach, then there would be challenges in deciding the price of the product that company has projected for this particular market. Various companies have ventured into the rural India after 90s. Some of which are Hindustan Unilever Limited, ITC, Coca Cola, Dabur etc. These companies saw the opportunity that lied in the market and did not delay any further to jump on to the benefits. The FMCG companies before entering into villages, had to device various strategies because this area was new and before them no company had ever dared to even reach to them. Various strategies such as distribution channels, transportation, pricing, marketing etc. which the company had been using for their urban market could not have been useful for an area which was completely different. All the strategies needed to be revised and reengineered. Because of which even when the rural India had been growing not all companies were willing to take the risk of this investment which is why even after decades of HULs, ITCs and few other domestic companies entry into the villages, many companies still did not have that trust. But the revenues of the companies that forayed into this market had increase many folds. For e.g. 50 % of Dabur Indias sales comes from Rural India. Dabur also was able to increase the touch points in rural India from 14000 in 2012 to around 36000 in 2013. In the September quarter of

[Type here]

Page |4

2012, HUL sales had risen to 13.2%, the sales from the rural areas constituted the huge chunk of it. These growth and profits are just the part of which the companies can achieve once they fully fledged. According to C K Prahlad, the rural part of the world is a multibillion dollar market which is still needed to be tapped. According to him, of all the countries in the world, India has the maximum percentage of rural area both geographically and population wise. If this area is explored then by 2050 the total consumer in rural market of India will be larger than the total consumer in countries such as South Korea or Canada today. Through this project we have highlighted the companies that ventured into the rural market and what distribution channel they had. We have tried to explain the strategies in brief of few of the companies mentioned above with the prime focus on HUL. We have discussed the HULs distribution network in detail and also about their revolutionary project Shakti. Through the project we have also taken care to explain the advantages and drawbacks which these companies faced in their ventures.

[Type here]

Page |5

Literature Review: Today there are many brands in rural areas with almost same supply chain strategies. To explain some of the best strategies adopted by companies we will take few examples. The best example to explain it would be of Hindustan Unilever Limited, Parle and ITC, which have delved deep to establish a stronghold in this market. HULs Supply Chain and Distribution Network: In 90s the Indian economy began to show signs of significant growth, it was the time when every company was struggling, to not just stay in the competition but to stride away long, in terms of market share and revenues from their competitors. In short they were looking for an opportunity. It was the same time when the rural India also rose alongside the country. It was also the best time for companies to venture into the untapped market. One of the first companies to understand this fact were HUL. HUL used the strategy of Indirect Coverage Approach for rural areas. Under this approach company vans were replaced by vans belonging to Redistribution Stockists, which serviced a selected group of neighboring markets. Rural areas with lower business potential but accessible were assigned to retail stockist accessing all villages on fortnightly basis. Still the system was not full proof when in 1998 company implemented Project Streamline under which HUL created Hub and Spoke system and appointed sub-dealers who had the opportunity to serve villages in their vicinity. This project covered villages with population of 2000. The pivot of Streamline is the Rural Distributor (RD), who has 15-20 rural sub-stockists attached to him. Each of these substockists is located in a rural market. The sub-stockists then performs the role of driving distribution in neighboring villages using unconventional means of transport such as tractor, bullock cart, etc. and transport suitable to interconnecting roads, like cycles & scooters . The sub stockist is known as the Star seller for that area. The star seller reaches the product to retailers in villages in his area and collects the money from them as stocks are purchased by him on credit from the distributor. Hindustan Lever is thus trying to circumvent the barrier of motor able roads. As a result, the distribution network, as of now, directly covers about 50,000 villages, reaching about 250 million consumers. The company simultaneously uses the wholesale channel, suitably incentivizing them to distribute company products. The Streamline system has extended direct HUL reach in rural markets to about 37% of India's rural population from 25% in 1995 and the number of HUL brands and SKUs stocked by village retailers has gone up significantly. Under Project Shakti, HUL partnered with SHGs of rural women which helped in distributing the products to households as well as to small shops nearby for which they were given a monthly pay of Rs 1000. Later to motivate more sales the company introduced a scheme wherein the husbands of the top five Shaktiammas from a village were also given the responsibility of distribution. These Shaktiammas and Shaktimans perform the last mile distribution which added 20,000 more villages in their reach.

[Type here]

Page |6

HUL maintained the low price for its product in the rural India. They adopted the strategy of high responsiveness for which they have a redistribution stockist, which takes care of most of the things after manufacturing of product on the companys behalf. It also provides warehouse where a buffer stock is always maintained to meet the changing demand of consumers.

Rural Sales Promoter (RSP) Third Party


HUL C & F agent

Urban Redistribution stockist

Rural Redistribution stockist

Combined Direct Coverage (CDC)

Shakti Dealer

Whole seller

Whole Seller

Redistributio n Stockist Salesman (RSSM)

Shakti Entrepreneur

Urban Retailer

Rural Retailer

Consumer

Consumer

Consumer

[Type here]

Page |7

Parle Gs Distribution Network and Supply Chain: Parle Company, for its Parle G brand to project in rural India, adopted Intensive Distribution strategy. This is the ideal strategy for the market leader as intensive distribution has advantages such as increased coverage and sales, increased product availability and it also encourages retailers to compete aggressively. Higher competition leads to narrower margins for the retailers and hence it helps manufacturer in maintaining the low cost. Parle offers a margin of 8% to its distributors to keep them motivated.
Manufacturing Unit

Parle Depots

Wholesalers and Distributors

Retailers: Pan/Bidi Stores

Consumers

Parle depots were made so as to maintain the level of safety stock intact. For its rural market, Parle pushes its products through small Pan Shops, Bidi stores and mom and pop shops in rural areas. The biggest advantage they had with this kind of distribution was that it helped it in increasing the responsiveness at various levels. Because, the kind of market villages are, there is only one differentiating factor that could bring a big difference that is the low price. For which Parle adopted backward integration where it became the self-supplier of raw material for its products which helped in the reduction of cost to an extent as well as it helped in reducing the lead time. Sticking to low pricing strategy has never been easy for Parle. At one point in time they were facing conflicts on trade margins from their suppliers. Any change in the assumed decision used to affect the revenues of the company but Parle tackled the situation by making sure that the suppliers dont default when they are most needed. One of the ways was giving a good margin and the other was to get into long term contract with the best supplier providing best offers to the manufacturer.

[Type here]

Page |8

Research Gaps: There have been many studies conducted on the supply chain, distribution network and FMCG in rural India in which the authors have discussed the key points on the mentioned points. In almost all of these journals, only the way with which the companies approached rural areas were highlighted. Some also states the need behind the venture. However, none of these studies explains the drawbacks or shortcomings in any of the above mentioned topics. We, through our project have tried to find out some drawbacks and shortcomings in the supply chain of HUL. As we have mentioned above, HUL has been aggressive in its attempt to penetrate deep into the villages for its proper functioning and sustenance for which it had made some changes to its supply chain when compared to what they had for urban areas. The stockist in towns acts as the distributor for rural areas. Every Rural distributor in town has some number of stockist under them, called Star Stellar, who then takes the product to the retailers in villages. We propose that in villages where the company have their Shaktiammas and Shaktimans and the villages which are in reachable limits to Rural Redistribution stockist, there these Shaktiammas and Shaktimans can be called to collect the stocks and they would then distribute it to the retailers in their respective villages. This way the company can save the cost of bearing wholesalers as intermediaries.

[Type here]

Page |9

Methodology: Research is a process of systematically obtaining accurate answers to the significant and most pertinent questions, by the use of scientific methods of gathering and interpreting information. This study is an exploratory in nature, it states the FMCG supply Chain in Rural India. We had planned the list of objectives to do, to get the clear picture of the various problems, solutions, advantages, disadvantages and shortcomings in the decisions and attempts the FMCG companies faced or made while entering into the rural India. We therefore tried to assess, whether the FMCG giants have made any profits after their venture into the rural market, did there decision come to any fruition, for which we sifted through various official sites and annual reports to get the exact number and data which could have provided the relevant support to the facts, as stated in literatures till now. The fast moving consumer goods sector, in the present scenario, has penetrated deep into the rural market, which has grown at a fast rate. With more awareness, people in rural India have developed a taste for more contemporary taste for brands, which further suggests the scope and potential which this sector offers. According to Nielsons report, the FMCG industry of India in December 2011 showed growth of 10.8% and 10.7% in urban and rural markets respectively. A remarkable market growth was seen the very next quarter, where it reached 17.20% and 16.5% by March 2012. Indias rural market is conducive to FMCG investments as it is currently managed by mostly unorganized players. With more than 700 million consumers coming from rural India, it can be seen as a huge growth platform for companies involved in the food manufacturing and processing sectors. We have learned that FMCG is the fourth largest sector in the Indian economy and is expected to grow to $ 74 billion by the year 2018. Food Products currently amount up to 43% of overall market share. The other leading segments are personal care at 22% and fabric care at 12%. Although the prospects of FMCG market growth look promising in the rural and Semi-urban areas, it is still only about 33% of the overall market size. The largest proportion of FMCG market revenue comes from urban areas, accounting for around 2/3 of the overall market size. 53% of rural spending is on FMCG products. Following are the factors we realized, after analyzing journals that following are the major drivers of growth of FMCG in the rural parts of the country: The income level has increased and hence it increased has the disposable income. Awareness about the products and the inquisitiveness among the natives of villages to know more about the urban lifestyles has increased, which has ultimately led to the creation of opportunities for the FMCG companies. Governments plans have helped increasing the income. The labor and transportation costs are less when compared to what the company spends in urban areas.

[Type here]

P a g e | 10

To get the real picture of the economy, we searched through the official government pages of the country. The approach was simple, to validate the information as was mentioned in many journals that the country was growing with the real data. Then we came across an alleged fact that the rural parts of the country was also getting the benefits from the growth of the economy. To ratify it with the actual facts we again referred to journals and newspaper articles.

The companies, we took as an example to show the few types of distribution strategies adopted by them, were HUL and Parle. These two companies developed innovative supply chains to increase their reach and coverage. HULs attempt is considered to be the bravest as it was one of the first companies to venture into the market and can also be attributed with the fact that they were the first ones to understand the trend and changes in the economy and adapted accordingly. The company got the praise not just from the wise people of India but also from the rest of the world. Since, it was a very big turning point in the way the things were done before it, it motivated us to delve into the realities of the facts projected. To get more insights on the way the two companies, mentioned above, dealt with the situation when they understood the importance of the rural market, we went through several journals, articles and feeds on the internet. That was the time when after knowing about such big opportunity in hand, the companies would have tried everything to get reach to the pristine market before others could. This definitely would have caused haste in the decisions of the managers at the higher levels who have had the authority of taking decisions. This is also where we analysed whether the decisions made at that time was made in hasty or whether it was a well thought approach. We learned after reading journals and articles that since the managers at the corporate levels in those companies had never faced any such situations before, they made decisions that were not perfect but needed many reforms and changes to get to the almost perfect setup. After these companies made their decisions and developed strategies accordingly for their new venture, they implemented those ideas to check its ability to sustain and revert back by increasing the sales and revenues of the company. We also tried to analyse some questions such as: What was the strategy of the company? What supply chain they adopted? What changes they made to their supply chain? Did they come across any failures in their attempt to reach the rural market?

We therefore, analysed and reviewed the all possible facets of the fact related to the growth and strategy of FMCG Companies in rural India and the result we got, states the authenticity and audacity in the approach of theses companies.

[Type here]

P a g e | 11

Data Analysis: The literature states that the companies which approached the rural market with innovative strategies and supply chain, have reaped the maximum benefits. Various articles and journals have supported this fact and further adds that the growth is likely to be increase with time. Following, we have tried to verify various facts: Validating the growth of economy in 1990s: The economy of India was on the rise in the 90s. It was a historic decade in the history of India. Economic growth rate increased as policies were liberalised. There were many factors which were the direct cause to this factor: Indias GDP grew at an impressive 5.5% in 1990. Rate of growth of population decreased. License Raj came to an end. GDP per capital nearly doubled from US$1,380 in 1990 to US$2420 in 2000 (This rate of growth was 11th fastest in the world). Foreign Direct Investment contributed to about 1% to GDP of India from less than 0.1% earlier. Foreign Exchange Reserves which had plunged to zero, surged to 50 billion US dollars. Short term external debt which had risen to 350% of foreign exchange reserves plunged to 25% of foreign exchange reserves. Foreign Direct Investment started to become positive. The Indian rupee dropped from 25:1 to 45:1 compared to the USD. Contribution to the service sector increased rapidly.

The above mentioned points proves the fact that country was growing at a phenomenal rate and thus had provided fruitful environment for the companies to spread and expand across the country. The rural India grew with the country in the 90s. The agriculture contributed 30% to the GDP of the country in 90s and successfully maintained the growth for coming few years. This data drawn from the official government site supports the fact that the household income in the rural parts of the country rose. Analysis of success of FMCG supply chain in Rural India: Hindustan Unilever Limited brought innovation and uniqueness in their supply chain so as to increase their reach to the people in villages and also to increase their revenue. From its entrance in the new market in 1990s and with the project Shakti in 2001, the company has increased its reach to astonishing 630,000. The company has 45,000 Shakti employs which it aims to increase to 75,000 by 2015. All this could be attributed to the effective implementation of the supply chain at all levels. This supply chain has helped the company in increase its coverage. The flexibility of the supply chain can be proven by the fact that every year HUL is adding more than 10,000 Shakti employees as well as many wholesalers and retailers, still it is able to maintain the responsiveness at the expense of low margin. Project Shakti accounted for nearly 47% of the companys global revenue in 2008.

[Type here]

P a g e | 12

To prove that the company has benefitted from the supply chain and strategies it adopted, we have taken the five year Profit and Loss account of the company and relevant ratios. Profit and Loss Statement Mar '13 12 mths Mar '12 12 mths Mar '11 12 mths Mar '10 12 mths Mar '09 15 mths

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp. Capitalised Total Expenses Operating Profit Inventory Turnover Ratio Asset Turnover Ratio Material Cost Composition

25810.21 0 25810.21 1215.3 31.13 27056.64 13633.79 319.91 1318.34 0 0 6565.55 0 21837.59 4,003.75 10.21 8.34 52.82

22116.37 0 22116.37 397.18 -128.73 22384.82 11701.45 285.21 1107.28 0 0 5602.36 0 18696.3 3,291.34 8.79 7.17 52.90

19735.51 0 19735.51 479.71 290.53 20505.75 10515.56 274.74 961.26 0 0 5596.09 0 17347.65 2,678.39 7.02 7.53 53.28

18462.34 693.22 17769.12 199.73 19.47 17988.32 9003.97 244.34 936.3 412.19 3737.52 656.57 0 14990.89 2,797.70 8.99 7.01 50.67

21927.23 1422.95 20504.28 276.54 434.33 21215.15 11380.05 301.37 1152.12 297.34 3857.48 985.31 0 17973.67 2,964.94 9.26 -55.50

Sales Trend
[VALUE] [VALUE] [VALUE]

[VALUE] [VALUE]

12 MTHS MAR '13

12 MTHS MAR '12

12 MTHS MAR '11 Sales Turnover

12 MTHS MAR '10

15 MTHS MAR '09

[Type here]

P a g e | 13

Operating Profit
[VALUE] [VALUE] [VALUE]

[VALUE]

[VALUE]

MAR '13

MAR '12

MAR '11

MAR '10

MAR '09

Inventory Turnover Ratio


[VALUE] [VALUE] [VALUE] [VALUE] [VALUE]

MAR '13

MAR '12

MAR '11

MAR '10

MAR '09

We can see from the profit and loss statement that the companys Sales Turnover has increased significantly over the years. The company has also achieved an increase in the Operating Profit. We can see that the companys consumption of Raw Material has increased still it is able to convert it into sales. The Inventory turnover ratio too has increased from 2009 to 2013. The increase in turnover ratio shows that the company is very efficient in converting its inventories into sales. Since almost 50% of the total sales is from rural market we can attribute this growth to the exceptional supply chain strategy which the company has employed.

[Type here]

P a g e | 14

Managerial Implication: This project has yielded the findings that have both managerial insights on Supply Chain in rural market and the impact of such distribution network. The managerial implication offers the remarks and suggestions for further Supply chain research in rural market. Till now we discussed the different approaches which some of the companies adopted in their supply chain and its effect on the overall development of the company. HULs supply chain amongst its competitors and contemporaries has been the most complex and the most effective. To meet the ever-changing needs of the consumer, HUL has set up a distribution network that ensures availability of all its products, in all outlets, at all times. This includes, maintaining favourable trade relations, providing innovative incentives to retailers and organizing demand generation activities among a host of other things. The credit of which goes to the managers at higher levels who had took the risk of implementing it at such a great level. But the success didnt come at once for HUL. The supply chain which the company now has developed, came through several changes and development. The first phase of the HUL distribution network had wholesalers placing bulk orders directly with the company. Large retailers also placed direct orders, which comprised almost 30 per cent of the total orders collected. The company salesman grouped all these orders and placed an indent with the Head Office. The focus of the second phase, which spanned the decades of the 40s, was to provide desired products and quality service to the company's customers. In order to achieve this, one wholesaler in each market was appointed as a "Registered Wholesaler," a stock point for the company's products in that market. The company salesman still covered the market, canvassing for orders from the rest of the trade. He would then distribute stocks from the Registered Wholesaler through distribution units maintained by the company. The Registered Wholesaler system, therefore, increased the distribution reach of the company to a larger number of customers. The highlight of the third phase was the concept of "Redistribution Stockist" (RS) who replaced the RWs. The RS was required to provide the distribution units to the company salesman. The RS financed his stocks and provided warehousing facilities to store them. The RS also undertook demand stimulation activities on behalf of the company. HUL soon realized that the RS would be able to provide customer service only if he was serviced well. This knowledge led to the establishment of the "Company Depots" system. This system helped in trans-shipment, bulk breaking, and provided a stock point to minimize stock-outs at the RS level. In the recent past, a significant change has been the replacement of the Company Depot by a system of third party Carrying and Forwarding Agents (C&FAs). The C&FAs act as buffer stock-points to ensure that stock-outs do not take place. The role performed by the Redistribution Stockists has also undergone changes over the years. Financing stocks, providing manpower, providing service to retailers, implementing promotional activities, extending indirect coverage, reporting sales and stock data, screening for transit damages are some of the functions performed by the RS today. In order to rationalize the logistics and planning task, an innovative step has been the formation of the Mother Depot and
[Type here]

P a g e | 15

Just in Time System (MD-JIT). Certain C&FAs were selected across the country to act as mother depots. Each of them has a minimum number of JIT depots attached for stock requirements. All brands and packs required for the set of markets which the MD and JITs service in a given area are sent to the mother depot by all manufacturing units. The JITs draw their requirements from the MD on a weekly or bi-weekly basis. From this we get to understand that the company did not take any decisions in hasty, instead at first when they decided to grasp this opportunity, they tried to implement the most basic of the supply chains, which was easy to implement from the companys perspective and then made changes to it in accordance with the kind of need and necessities they came across with. This could have been possible because of the wise, judicious and circumspect qualities of the managers, who did not budge when the supply chain did not work instead handled the situation sagaciously. HUL then in 2001 introduced a project called Shakti which was a conspicuous reflection of the aggressive managerial decisions being taken at the higher levels of the management. Project Shakti was made to increase the reach and coverage of the company in the rural parts of the country. The managers had huge expectations behind the success of the project as it would have been a winning factor over the companys competitors and would have given the company with ample opportunity. Under immense pressure and crucial circumstances the managers went ahead with the project from a village in Andhra Pradesh. The rest of the story created history. The managers of the company always remained true to their policy of low pricing for their products. Low pricing strategy was a differentiating factor as the population in rural areas are price sensitive and a slight increase in price could have resulted in loss of a consumer. But, to keep the price of the products low brings along several other complications such as low margins, it may result in conflict with the suppliers because of the low marginal discounts, which the company offers and many more. This decision again was crucial for the company and the managers of the company managed to keep their prices low as well as have maintained a healthy relation with their suppliers and stockists. Maintaining responsiveness in the supply chain for such a huge population is a great challenge in itself. To maintain the responsiveness the company has to maintain a sufficient level of inventories to handle the ups and downs in demand. Redistribution stockist were made a part of the supply chain to bout with the problem of responsiveness while keeping the cost at check. The redistribution stockists not only provides warehouses for stocking the products but it takes care of almost all of the rest of supply chain from him or her to the retailer and then to consumers.

[Type here]

P a g e | 16

Conclusion: As we have discussed the supply chains of companies like HUL and Parle, who have successfully ventured into the foray of rural consumer markets, it has been increasingly evident that the supply chain strategies that might work very well in the urban market, might not be as efficient in the rural areas. The case in point is the failure and fearfulness of so many companies who have not yet ventured or yet have failed in the rural diaspora, in spite of the tremendous growth opportunities and market potential that these rural markets promises to provide. Both HUL and Parle had adopted the strategy of implementing a responsiveness supply chain. The reason being consumers in the rural areas rely on cheaper prices of items which at the same time are readily available. Thus a responsive supply chain works very well for the rural diaspora. Moreover a responsiveness supply chain helps a great deal in minimizing the cost and at the same time enabling the companies to attain operational efficiencies as well. Project Shakti of HUL was a great success which improved the margins and penetration of the company in the rural market many-fold. The companies which want to venture into the rural market, given the ample opportunities provided by this market owing to the economic growth that has further led to the growth in disposable income, should take cues from the already successful companies like HUL and Parle in respect to the supply chains and their marketing strategies. It is very important to have proper number of distribution centers at strategic location and if required companies may either have to adopt the strategy of backward integration in the rural markets. The companies might well focus on empowering the distributors who can add real value as far as last mile delivery is concerned. Forward integration in rural markets may not be a good idea as carrying out the task of distributing the final goods in remote sections of the rural market may incur huge costs upon the company, which in turn would decrease the efficiency of their supply chains and a rise in prices of their goods sold. Thus it is important for any company that ventures into the rural market to take care of the accessibility in those markets by setting up proper distribution channels and also set up a realistic pricing objective. In case of companies like HUL and Parle, given the success that they have already experienced and also given the fact that they are well accustomed with the rural market, it is important that they dont get complacent and should be looking to further better their strategies. One strategy that they can implement is empowering the Shaktiammas with mobile phones, so that the stocks can be replenished well on time. Given the economic growth that India is going through and the resulting rise in disposable incomes and aspirations of the rural consumers, it is great opportunity for all FMCG companies to come up with efficient strategies in terms of effective and responsive supply chains and innovative marketing campaigns so as to penetrate into this highly potential growing market.

[Type here]

P a g e | 17

References: Supply Chain Management by Sunil Chopra, Peter Meind, DV Kalra, Pearson Publication. Factors Influencing Purchase of FMCG by Rural Consumers in South India: An Empirical Study by Md. Abbas Ali, Venkat Ram Raj Thumiki and Naseer Khan. INDIAN RURAL MARKET: CHALLENGES AND WAYS AHEAD by SUDESH KUMAR, DR. BIMAL ANJUM and DR. SUMAN NAYYAR. Understanding the Indian Rural consumers by Rina Dave1, Ankur Amin and Nimesh Rawal. A Comparative Study of Growth, Challenges and Opportunities in FMCG of Rural Market by Kavitha T. C. Indian Rural Market: An Impulse to FMCG Sector by Avinash Pareek, Dr. Satyam Pincha. Emerging Consumer Demand: Rise of the Small Town Indian A report by AC Nielsen. A Study on Rural Marketing Strategy with Special Emphasis on Selected Customer Preferences for Hindustan Uniliver Limiteds (H.U.L.) Selected Products in Valsad District by Shukla Priteshkumar Y. Rural Marketing of FMCG Companies in India by KC Behura and JK Panda. FMCG - A report by IBEF Rural Marketing: A Case Study on Hindustan Unilever Limited by Manpreet Kaur Achieving Rural & Global Supply Chain Excellence The Indian Way by N. Viswanadham Capturing Robust Market Potentiality of Rural-India by Anil Kumar Yadav and Preeti Singh. Operations Management by Jay Heizer, Barry Render, J Rajashekhar, Pearson Publication. http://www.pwc.com/us/en/view/fall09/corporate-responsibility-pg4.jhtml https://www.pwc.in/en_IN/in/assets/pdfs/rc-publications/innovation-in-fmcg.pdf http://www.cs.berkeley.edu/~brewer/ict4b/Fortune-BoP.pdf

[Type here]

P a g e | 18

http://pib.nic.in/archieve/others/2012/mar/d2012031302.pdf http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=4 http://timesofindia.indiatimes.com/business/india-business/Changing-Face-Of-SupplyChain-Mgmt/articleshow/6726465.cms?referral=P

[Type here]

P a g e | 19

[Type here]