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Introduction In rural India, availability determines volume and
market share amongst 111.5 million households Infrastructure
60 %villages - connected by all-weather roads 73 %villages - electrified >35000 branches of commercial banks 35 lakh outlet for consumer goods
3.8 lakh fair price shops 68% of rural market still lies virtually untapped
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Challenges and Dilemma Large number of small markets Poor road connectivity Large number of intermediaries leading to higher costs
Poor availability of suitable dealers High demand for credit by retailers Poor storage systems Credit driven market and low investment capacity of
dealers Poor display of products at outlets Low media coverage
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Coverage Status in Rural India 52.5% of rural India resides in villages with population of
2000 and more (17% of the villages). They contribute to60% of the rural wealth
Hardly any shops in villages with population of500 or less
(38% of villages) Rural shops mainly cater to FMCG with 90% of the
durables being purchased from Class II and III towns
Villages Number of Shops
Pop. Strata None 1 - 4 5 - 15 16+
Up to 500 26% 56% 15% 3%
501-2000 7% 41% 41% 10%
2000+ 2% 8% 43% 46%
Source: RMP 1990 IMRB
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Channels of Distribution
Level1
Level 2
Level 3
Level 4
Level 5
CHANNEL LEVEL
Company Depot /CFA State
Distributor/Van/Super Stockist
District HQ(May cover 2 to 4)
Sub-distributor/stockistSub stockist/Star seller
DistrictHeadquarters
WholesalersNGOs Vans
Tehsil HQFeeder Towns
RetailersVillageHaats
Most Companies have direct presence up to Level 3
Approaching Layer 4 requires prior selection of feeder towns and large
villages to feed peripheral villages
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CFAs
Normally employed by FMCG Companies tosupplement their own depots
Cost of CFAs is lower than running own depots They provide space and are involved in the order
processing from distributors/stockists The orders are booked by the Company
representatives and passed on to the CFA for
execution
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Distributors They are the main link between the Company and the
rural channels. They have vans and a sales force to cover the rural
retailers. Cover about 30% of the rural retailers and are located
at district headquarters. Some companies also have a next level of sub-
stockists (also called star sellers) who are located atthe tehsil (thana) level.
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Wholesalers
Wholesaling: More than 70% of rural market is stillout of reach of direct distribution
50% of rural consumption through wholesalers
located nearby. The reasons of wholesaling in Indiaare:
Limited product availability to feed the channel
Company focused on large number of retailers in urbanareas
Neglect of rural market due to low density of retail outlets& small off-take per retailer
Wholesalers are seen as speculators and exploit thecompanies and the retailers
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Retailers Also act as money lenders in rural areas.
They play a significant role: Credibility Influence leader Brand promoter Relationship marketer Harbinger of change
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Retailers Average monthly sales per outlet in rural
is Rs.5000 Customers prefer buying from haats Infrastructural constraints:
Insufficient space Inadequate power supply Improper storage
Shops in rural largely on ownedpremises
SKUs 115 in large villages and 50 ininterior villages
For toiletries feeder villages keep 2 to 3months stocks while in smaller villages itis 1 month
Shop SizeSq. Ft.
Rural Urban
Up to 100 71 64
101-250 25 28
251-1000 4 7
> 1000 0 1
Source: A C Nielsen Shop Census 1999-2000
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Distribution
TO
The Outlet
Number of brands inrural 42 vs. 92 in urbanHigher penetration required
Companies have to investinto display and storagesystems
If our brands are notavailable in the rightquantity, form and qualitythen it will not sell
DistributionIN
The Outlet
Stocks will not sell if thestock is there but notvisible to the consumers.
Rural Distribution Priorities
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Retailers Report 2008 Average floor area of rural outlets is 140 sq. ft. Majority of them are in 76 to 100 square feet. On an average the number of categories in rural
outlets is 19 against 25 in the urban segment. Number of brands 42 vs. 92 The most widely stocked categories are food items. Cosmetics and toiletries has the largest number of
products.
The most widely stocked products are beedis andcigarettes (nearly two thirds stock them)
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Retailers Report 2008 Amongst groceries the most widely stocked is
sugar (49%) followed by edible oil (41%). Rice isonly at 33% and wheat at 22%
The penetration of stationery items is 39% Other reasonably widely stocked categories are
bulbs (25%) and batteries (15%) Clothes/footwear account for only 6.4% and
durables even lower
The popular durables are pressure cookers, fansand wrist watches Agri-input s are stocked only by3.7%
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RetailersVillage
PopulationLevel
Villages(%)
% ofpopulation
which is rural
RetailOutlets
Thousands
RetailOutlets
(%)
Up to 1000 61 21 84 21
1001 to 2000 22 25 130 33
2000 to 5000 14.0 32 130 32
Over 5000 3.0 22 55 14
Source: Francis Kanoi Report 2008
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Retailers
ZoneRural
population(millions)
% of populationwhich is rural
Retail OutletsThs.
Retail outletsper Thousand
Population
AverageMonthlyTurnover(Claimed)
NORTH 218.0 76.8 1328 6.09 9962
EAST 207.5 81.8 1102 5.31 13390
SOUTH 149.1 66.5 718 4.82 13365
WEST 149.2 64.9 871 5.84 12967
TOTAL 723.8 73.0 4019 5.55 12154
Source: Francis Kanoi Report 2008
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Van Operation
Coverage of rural markets by stocking products intopainted vans
Vans used for sales and promotion Eveready Example
Master Van Programme of12 X 2 days per month
Frequency - Weekly, Fortnightly, Monthly
50-60 avg. calls per day Exclusive area of operation
Van Running Cost subsidized
Success lies in training, systems and controls
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Rural Mobile Traders Selling wares on bicycles, mopeds or handcarts Cover 1 or 2 villages per day and cover 30 to 40
households Goods normally picked up from wholesalersVillages are normally population of less than 2000 Most however sell fake brands but can be
encouraged to sell the genuine stuff
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Haats Haats periodic markets A place for political, social, and
cultural contact Most of these are held once a week;
others twice a week Total Haats 47,000 Average number of visitors 4,600 Average sale per day Rs. 2.25 lakhs Number of stalls/Haat300+ Villages covered perHaat 15 to 20 88% are regular visitors
77% of the participants attend 4haats every week
32% own permanent shops invillages
Categories of Outlets %
Agricultural products 39.5
Manufactured goods 24.3
Processed foods 13.2
Handlooms and handicrafts 8.4
Services 3.3
Fish, meat and poultry 3.2
Forest products 2.1
Others 6.0
Source: MART study
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MandisMandis agricultural markets set up by state
governments to procure agricultural produce TotalMandis6,800 Most agricultural areas with population more than
10,000 haveMandisAverage population catered to eachMandi1.36 lakhs
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Public Distribution System System for distribution of essential commodities at
subsidised prices through 3.8 lakh outlets in rural Products distributed through Food Corporation of
India offices, depots The shops are run by individuals Cooperatives
Involved in distribution of agricultural inputs 34% of fertilisers sold through this channel
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Channel Behaviour Credit facilities to customers a common phenomenon in
rural Pricing by the channel at a premium to cover costs Reason for stocking a product/brand more on pull than
push Seasonal pattern of stocking to coincide with harvest Wholesaler is the main information source and influence
on the retailer
Purchase source of the retailer normally from wholesalersin nearby small towns Channel credit for larger retailers Purchasing cycle normally once or twice a week Channel promotion through quantity discounts
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Consumer Purchase Behaviour andChannels
Shift from purchase from nearby towns to local
purchase Loyalty to retailer stronger than loyalty to brand Supplementing of van operations with mobile traders
will help
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Prevalent Rural Distribution Models Smaller companies operate through wholesalers
while larger companies service the retailers throughstockists/sub-stockists and/or vans
Distribution Model 1 Common CFAs with separate distribution for urban
and rural Rural distribution through distributors to sub-
distributors. Smaller retailers through distributors towholesalers
National companies follow this model Used by companies with higher number of SKUs
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Distribution Model 2 No separate channel for rural Minimises distribution costs Better margins to channels Push strategy Used by companies with
limited SKUs and high salesvolumes
Preferred by new entrants
Company
CFA/Depot
Distributor
Retailer(Local)
Wholesaler
Retailer
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Distribution Model of Durables Sold mainly in small towns and hence lower levels Not sold in villages because of:
Limited space High level of investment High transportation costs
Some low cost durables are however sold in rural
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Distribution of Fake Products Manufacturer to wholesaler/retailer in big city or small
town, or directly to customerWholesaler in big city to wholesaler in smaller cityWholesaler in small town to village retailer/mobile
trader/haats
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Emerging Distribution Models Self Help Group Model Satellite Distribution Model Syndicated Distribution Model NYKS model use of NGO manpower for
distribution of Colgate Use of IT kiosks ITC E-Choupal Cooperatives Public Distribution System Petrol Outlets 7000 in ruralAgricultural Input dealers
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Reaching the smaller villages with conventional distribution modelunviable for the stockist
Self Help Groups formed in villages with population less than 5000 Group of10-15 women come together to form a mutual thrift society
Inculcates savings, discipline and self worth amongst women
formed by the Govt or NGOs
micro credit from the rural banks to set up enterprises
Micro Credit from banks and a meaningful income generationactivity offered by HLL(creating affluence) to stimulate demand/
consumption Self-help Groups to operate like a Rural Direct to Home team of
sales women (access, awareness, changing attitudes, selling)
The Idea
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Shakti - The Model
The principal customer of HLL is an individual from an SHG works as a HLL distributor and is known as a Shakti Entrepreneur Receives stocks at her doorstep from the HLL rural distributor Sells direct to consumers as well to the retailers in the village Each Shakti Entrepreneur services 4-6 villages in pop strata 500 to
1500 Selling Rs. 10,000 - 20,000 per month; gross profit of Rs. 700 - 1500
per month (~7%)
Doubles her household income
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Project Shakti
Launched in Nalgonda, AP, to cover 50 villages in 2000 As on date covers
15 states 385 districts 39,880 female entrepreneurs (Shakti Ammas)
100,000 villages
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Satellite Distribution Model Stockists are appointed in feeder towns for financing,
warehousing and sub-distribution Retailers in and around the towns are attached to
these stockists Manufacturer supplies goods to stockists on cash and
carry or credit or consignment basis Bigger retailers are elevated to stockists over a period
of time creating newer satellites
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Syndicated Distribution Two or more companies come together for joint
distribution of productsA prerequisite is that the companies do not deal in
the same products Some of the problems in the model:
Markets for coverage of the two companies are different Different payment terms
Product push by lead company at expense of other Lower emphasis on collections for other company