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RURAL MARKETING IN INDIA: RETAILING THROUGH MICROFINANCE INSTITUTIONS

Group Member

Ayushi Deriya Rajkumar Bhalodia Tanmay Garg Prajesh Borkar Omnath Koyande Gaurav Kumar

WHAT IS RURAL ?
Government agencies like IRDA(Insurance Regulatory and Development Agency and NCAER(National Council for applied Economic Research) define Rural as villages with a population <5000 with 75% male population engaged in agriculture etc Why Rural Market? Size of the market Largely untapped Too Crowded Urban Market Income on rise (Disposable Income)

RURAL MARKET

Rural consumption per person has increased by 19 per cent yearly between 2009 to 2012. Organised segment accounts for 8 per cent of the total retail landscape. The Indian retail industry has expanded by 10.6 % between 2010 to 2012 and is expected to increase to US$ 750-850 billion. The rural market is still growing at 10-14% whereas the urban markets are either marginally de-growing or are flat.

CHANGING LANDSCAPE OF RURAL MARKETS IN INDIA


India lives in its villages. Mahatma Gandhi 6.27lakhs- villages, 70%-population, 3.2 million sp.kmarea. Agriculture lynch-pin of Indian economy. Ability to generate employment opportunities (2003, 60% of the total labor from agricultural sector) and contribution to Indian GDP (in 2008 at 17.2%). Net Domestic Product (NDP) shares comprised agriculture at 46%, industry at 21% and services at 33%. Total income in rural India (about 43% of total national income) is expected to increase from around $220 billion in 20042005 to $425 billion by 20102011, a CAGR of 12%.

60% road connectivity, 90% electrified, 44% home have electricity, growth in the literacy rate from 12.10% in 1951 to 59.40% in 2001. These developments, apart from the awareness through media like radio, television, etc., led to changing lifestyles of rural individuals. Especially in terms of product demand, buying patterns and consumer behavior. Rural markets account for half the total market for FMCGs like TV sets, fans, pressure cookers, bicycles, washing soap, blades, tea, salt, toothpowder etc.

National Sample Survey 20032004, rural India accounts for 62% of consumer expenditure in comparison with 38% of urban India. Increasing demand- attributable to factors like growth in income and increase in purchasing power. Factor- increase in procurement prices, good monsoons, government schemes, loan waivers. Increase in awareness Media Increase Demand. Companies like HUL, Britannia, Colgate Palmolive, Coca-Cola, etc., started catering to the needs of rural consumers. 17% of villages account for 50% of rural population and 60% rural wealth

CHALLANGES IN RURAL DISTRIBUTION


Large number of small markets Dispersed population and trade Poor road connectivity Multiple tiers Poor availability of suitable dealers Low density of shops per village Inadequate banks and credit facilities Poor storage system Low investment capacity of retailers Poor visibility & display of products on rural shop shelves. Poor communication of offers

RURAL DISTRIBUTION CHANNELS


Five layers of distribution channels for the movement of products from the company depot to the interior village markets.
Layer Layer 1 Layer 2 Channel partner Company depot / C&F A Distributor/van operator/ super stockiest/ rural distributor Location National/state level District level

Layer 3

Sub-distributor/ retail stockiest/ Tehsil HQ, towns and large sub-stockiest/ star seller / villages Shakti dealer Wholesaler Retailer Feeder towns, large villages, haats Villages, haats

Layer 4 Layer 5

SUPER MARKET OF INDIA

Mobile Trader

CORPORATES NEW CHANNEL FOR REACHING RURAL CUSTOMERS


In 2001, HUL came out with Project Shakti, with a vision to reach over 100,000 villages and 100 million consumers. HUL partnered with women from Self Help Group (SHGs) and made them direct-to-consumers sales distributors (direct-tohome distributors) under Project Shakti. The Shakti entrepreneur was trained by HUL for 3 months, on techniques of marketing and business management. Shakti entrepreneur conducted business of INR 15,000 per month, which gave her an income in excess of INR 1,000 per month. Shakti entrepreneur, a rural woman borrowed money from her SHG or a micro-finance bank. SHG comprises of 1020 members, who were mostly poor and underprivileged people.

After 2 years of initiating this project, in 2003, Project Shakti contributed to 10%15% of HULs rural sales. This initiative made HULs products available in the areas, which lacked access and also increased brand visibility. 2008, Godrej & Boyce, developed a Nano refrigerator called ChotuKool for village segment. On the basis of feedback given by MFI distributors, the price was brought down from INR 3,700 to INR 3,200. The sale of each refrigerator is generating commission of INR 150 for SHG member and INR 100 for Sakhi Retail. Many other MFIs like SKS Microfinance, Spandana Sphoorty are coming forward to tie-up with companies, for distributing their products.

CORPORATE-MFI PARTNERSHIPS: THE OPPORTUNITIES AND CHALLENGES

MFIs serve over 50 million individual customers, majority of which are served and governed through SHG model. MFIs are teaming up with companies with the idea of serving the poor in better ways. MFIs are looking at the monetary benefits of such tie-ups, which can create a social impact. Besides, corporate-MFI tie-ups are also resulting in the creation of micro-entrepreneurs, who can earn livelihood and improve their lifestyles. One of biggest challenges for corporate-MFI partnerships is the alignment of goals.

Blending the developmental approach with profit perspective is a major challenge for corporates as well as MFIs. Despite ensuring that corporate-MFI tie-ups benefit the poor, problems are cropping up at different levels. producing cost effective goods for the rural segments, creating awareness about the products to rural poor, gaining their acceptability, etc. are few challenges at the companies front.

poor are always served with quality goods, consumers are not obligated to purchase the products, ensuring that the social mission of MFI is not overlooked, etc. are few challenges to be dealt by MFI.

HULS DISTRIBUTION NETWORK


Products are distributed through a network of 7000 redistribution stockists. 1 million retail outlets 250 million rural consumers 35 C&FAs in the country Who feed these redistribution stockists regularly. Provide tailor made services to each of its channel partners. 2000 suppliers and associates 40 manufacturing plants decentralized across 2 million miles of territory

EVOLUTION OF HUL DISTRIBUTION MODEL

Phase 1A Direct Coverage Phase 1B Indirect Coverage Phase 2 Operation Streamline Phase 3 Operation Shakti Phase 4 Operation Bharat