Rural Market Methods

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.
Chapter 8
Distribution in Rural Markets
Rural Marketing, 2e
Learning Objectives
Understand
distribution
Describe the channels of distribution
Understand the rural retail environment
Explain channel behaviour in rural areas
Identify the prevalent distribution models of different

product categories
Describe innovations in rural distribution and rural-centric

distribution models
Discuss the logistic challenges in rural India
Rural Marketing, 2e
the
challenges
and
dilemmas
in
rural
Reaching 7.8 million retail outlets across 600,000 villages
85% of the villages have a population of less than 2,000

population
Poor road connectivity
Multiple tiers of distribution leading to higher costs
Low density of shops per village and high variation in their

concentration
Poor availability of suitable dealers
Rural Marketing, 2e
Availability: The Challenges and the

Dilemma
Inadequate bank and credit facilities to rural retail outlets
Poor storage systems leading to inadequate stocking
Highly credit driven market
Poor visibility of products on rural shelves
Poor communication of offers and schemes due to poor

reach of media
Inadequate power supply leading to spoilage of goods which

Rural
Marketing,
2e
need
refrigeration
Availability: The Challenges and the

Dilemma
LEVEL
Channel Partners
Marketplace
Company Depots/CFAs, Super

stockists
National/State
CFAs/Redistribution stockists
Retailers/Modern/Traditional
Cluster of districts
District Headquarters
Redistribution stockists
Semi-wholesalers/Retailers
Sub-district
(Tehsil/Block)
Feeder town
Semi-wholesalers/Retailers
Mobile traders in haats/vans
Feeder town
Periodic market
Retailers/Vans/Barefoot agents
(Shakti dealers)/Cooperative
societies/ Government agencies
(Fair price shops)
Large and small

villages
Rural Marketing, 2e
The Evolution of Rural Distribution

Channels
Most growth seen in smaller towns and larger villages
Rising incomes and rising consumerism
Lower penetration levels offer great opportunities
Need for designing cost effective distribution model to

overcome the challenges and take advantage of the
opportunities
Rural Marketing, 2e
Channel Dynamics
Rural Channel Members
Rural Marketing, 2e
The Rural Retail Environment
Represents
17% of
villages, 54%
of rural
population
and 60% of
Hardly
any
rural wealth
shops in 60%
of the villages
Percentage Percentage Percentage Number of

of Total
of
of retail
Outlets per
Villages
Population
Outlets
Village
> 5,000
22
14
28
2,001
5,000
14
32
32
16
1,001 - ,
2000
22
25
33
< 1,000
61
21
21
TOTAL
100
100
100
Source: Census of India 2001, and Rural Retailing in India 2008, Rural
Marketing Association of India
80% of durables and 70% of clothes and footwear are

purchased from small towns in the 20,000 to 100,000
population, numbering 1,900
Rural Marketing, 2e
Village
Population
Rural retailing accounts for INR 1.9 trillion with about 7.8
million retail shops
Number of retail outlets in rural have more than doubled in

the last decade
Average monthly turnover of rural outlets is INR 12,000
60% of the villagers prefer buying from haats due to wider

choice and lower prices
Companies need to appoint distributors up to the 10,000 to

20,000 population
Rural Marketing, 2e
The Rural Retail Spread
Retail Premises
Year
size of retail outlets
Size
(in sq. ft)
has increased to 140 sq. ft
19992000
2008
Rural shops normally an
Up to 100
71
53
extension of the house in which 10-250
25
37
the family lives
> 250
4
10
Retailing is part-time activity Source: AC Nielsen Shop Census 1999-200, RMAI 2008
due to fewer customers
Number of infrastructural
constraints
Shops
Type of Shop
(in per cent)
Low maintenance costs offset
Chemist
4
the high transportation and
General Stores
13
travel costs partially
Grocery Stores
62
Paan plus
21
Total
100
Source: Nielsen MAT 2009, Presentation by Partha Rakshit

at RMAI workshop 20-21 January 2010
Rural Marketing, 2e
Average
Product Category
Shops (in per cent)
Food Articles
75
Tobacco products
69
Cosmetics/toiletries
68
Groceries
53
Stationery
39
Electricals
31
Fruits and Vegetables
14
Clothes/Footwear
Construction Material
Agri-inputs
Durables
Kitchen Appliances
Source: RMAI Rural Retail Report 2008
Rural Marketing, 2e
Rural shops with first two

product categories present
in almost all villages.
Cosmetics,
stationery,
electricals
and
chemists
more visible near highways.
Shopping for items which

are
bought
on
special
occasions done in nearby
town or city due to variety.
The Rural Retail Shelf
Product Stocked
Penetration (in
%)
Cigarettes
62
Packaged biscuits
58
Shampoos
58
Washing powder
55
Tea
52
Confectionery
48
Toilet soaps
47
Blades/razors
46
Ready to eat snacks
45
Toothpaste
44
Chocolates
40
Pens
34
Source: RMAI Rural Retail Report 2008
Rural Marketing, 2e
Relatively
new
and
urban
oriented products now available
in rural
Main problem is ratio for brands

rather than product categories
Product
Categories
Rural
Urban
19
27
Marketers
develop
Brands need 42 to
92
display and storage systems for
rural
The Rural Retail Shelf
Average value of stocks in interior villages one-third of

feeder villages
Off-take of packaged foodstuffs and tobacco products

higher in interior villages with toiletries more in feeder
villages
Tendency to shop in nearby towns high within a 25-km

radius or in villages close to the highway
Marketers need to ensure product availability at the right

places
Rural Marketing, 2e
Stock Turnover and Rural Retail

Habits
Modern Retail in Rural Areas
Rural Marketing, 2e
First rural mall with shopping area of 7,000 square feet opened
in 2004
Located within tractor-able distance of 30 e-Choupals
Also serve as procurement centres
Product categories cover almost all consumer, consumer

durables and agri-inputs
Customer profile is farmers with large and medium land

holdings
24 outlets at present; plan to expand to 700 by 2013
Rural
Marketing, 2e
ITC Choupal Saagar
Based on experience of marketing seeds and sugar, DSCL set up

the first outlet in 2002
Hub with 4 acre campus containing banking services, a fuel

station and recreation area
Spoke format with small convenience stores of 4,000 to 5,000

sq. ft
Product categories cover agri-inputs and consumer goods
Customer profile is farmers, service class people and shop

owners
Rural Marketing, 2e
DSCL Hariyali Kisaan Bazaar
Tata Kisan Sansar
Started in 1998 as Tata Kisan Kendra (renamed TKS in 2002)

One-stop farmer solution shop
600 farm resource centres catering to 3.5 million farmers over

22,000 villages.
Hub as resource centre to cater to needs of TKS outlets
Each resource centre supports primarily 20 to 25 TKS franchisee

outlets
Product categories cover agri-inputs and consumer goods
Rural Marketing, 2e
Started by Godrej Agrovet
Future group picked up a 70% stake in 2008 to increase

penetration of insurance, micro-finance
Product categories cover consumer goods, consumer durables

agri-inputs and animal feeds
At present 66 Aadhaar outlets catering to 50.000 farmers spread

across 2,000 villages of Punjab, Haryana, Maharashtra and
Gujarat
Plan to set up 1,000 stores in the next five years
Rural
Marketing, 2e
Tie-ups
already
with Eicher Motors and HDFC Bank
Godrej Aadhaar
First mobile retailing venture using five vans in J.P. Nagar
Each van is visited by 150 to 200 customers with a daily sale

of INR 15,000 to INR 20,000
Company targets lower middle-class families
Plans to add 20 more vans and also open stores
Rural Marketing, 2e
3A Bazaar
Sourcing of stocks and purchasing cycle

Normally from wholesalers and distributor agents. Visits to
feeder towns twice or thrice a week
Stocking behaviour and seasonality

Moves around the harvesting and sowing seasons
Credit pattern
Ranging from 15 to 20% to as high as 60 to 70%
Transfer of capital from store to farm
Pricing by the channel some times even higher than MRP

because of additional costs
Rural Marketing, 2e
Channel Behaviour in Rural

Areas
Consumer loyalty to retailer is very high in rural
Retailers reluctant to stock new items
Need for retailer training
Retailer loyalty is greater than brand loyalty in rural
Marketers need to develop rural-centric models
Rural Marketing, 2e
Retailer Consumer Dynamics
FMCG Distribution Models in Rural

Markets: DM1
Rural Marketing, 2e
FMCG Distribution Models in Rural

Markets: DM2
Rural Marketing, 2e
Haats/shandies
Modern distribution models
Vans
The public distribution system
Cooperative societies
Petrol pumps and extension counters

Non-government organizations
Rural
Marketing, 2e
Rural-centric Distribution
Models
Haats
High degree of corporate presence in haats

Haat sellers make weekly purchases from wholesalers or retailers
Lower prices, better choices are the main triggers for sales
Rural Marketing, 2e
The SHG Model

Self-help group of 10 to 15 women who come together to
form a mutual thrift group
Matching loans from rural banks to set up incomegenerating enterprises
Project Shakti by HUL
The Youth Entrepreneurship Model
Huge force with proper orientation and training
Colgate Disha
HUL Shaktimaans
Rural Marketing, 2e
Modern Distribution Models
Coverage of stockist area through vans loaded with stocks
Vans used for distribution and promotion
Very expensive
Eveready uses model most successfully through 1,000 vans

covering 44 warehouses and 4,000 distributors
Rural Marketing, 2e
Vans
A system of distribution of essential goods through a

network of fair price shops
Network of 476,000 shops of which 380,000 are in rural

areas
One FPS caters to 1000 population in rural areas
Huge infrastructure base which can be used for distribution

of consumer products by marketers
Rural Marketing, 2e
The Public Distribution System
500,000 cooperatives spread over the country
Cooperatives account for 34% of fertilizers sold in the

country
4,398 primary marketing societies and

multipurpose primary marketing services
Warana Bazar and Farmers Services Cooperative Societies

function like mini-supermarkets
Rural Marketing, 2e
2,933
large
Cooperative Societies
Petrol Pumps and Extension Counters

12,000 petrol pumps of which 60% on highways close to
villages
Also sell consumables like food products and toiletries
IOC Kisan Seva Kendra
Non-government Organizations
3.3 million NGOS operating largely in rural
Tata Tea Gaon Chalo
Rural Mobile Traders
Traders travelling to interiors to sell their wares
Concentrate mainly on local brands and lack credibility
Rural Marketing, 2e
Others
The Hub and Spoke Model

All traffic moves along spokes
connected to the hub at the
centre.
Stockists are appointed in major
towns and feeder towns
Stockists operate their own
delivery vans.
Retailers grow to stockist level
over a period of time
Also
called
satellite
distribution system
Rural Marketing, 2e
Syndicated Distribution
Normally for non-competing
products
Sharing of distribution costs.
Problems arise when markets
for
two
companies
are
different or payment terms
are different.
Salesperson of one company
does not push the other
company products
Rural Logistics
1.
Why do you think the youth entrepreneur was chosen as

a channel partner? Who else could have been chosen in
their place. Why?
2.
What were the key success factors of project DISHA?
3.
Do you think this model is sustainable and scalable? Can

it be replicated by other players? Give arguments to
support your choice.
4.
Which product categories and players can replicate this

model for rural distribution? Why?
Rural Marketing, 2e
Rural Marketing Case

Colgate Disha

Rural Market Methods

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Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Describe the channels of distribution

Understand the rural retail environment

Explain channel behaviour in rural areas

Identify the prevalent distribution models of different

Describe innovations in rural distribution and rural-centric

Discuss the logistic challenges in rural India

Reaching 7.8 million retail outlets across 600,000 villages

85% of the villages have a population of less than 2,000

Poor road connectivity

Multiple tiers of distribution leading to higher costs

Low density of shops per village and high variation in their

Poor availability of suitable dealers

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Availability: The Challenges and the

Inadequate bank and credit facilities to rural retail outlets

Poor storage systems leading to inadequate stocking

Highly credit driven market

Poor visibility of products on rural shelves

Poor communication of offers and schemes due to poor

Inadequate power supply leading to spoilage of goods which

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Availability: The Challenges and the

Company Depots/CFAs, Super

Large and small

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

The Evolution of Rural Distribution

Most growth seen in smaller towns and larger villages

Rising incomes and rising consumerism

Lower penetration levels offer great opportunities

Need for designing cost effective distribution model to

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Rural Channel Members

The Rural Retail Environment

Percentage Percentage Percentage Number of

80% of durables and 70% of clothes and footwear are

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Number of retail outlets in rural have more than doubled in

Average monthly turnover of rural outlets is INR 12,000

60% of the villagers prefer buying from haats due to wider

Companies need to appoint distributors up to the 10,000 to

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

The Rural Retail Spread

Source: Nielsen MAT 2009, Presentation by Partha Rakshit

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

Shops (in per cent)

Fruits and Vegetables

Source: RMAI Rural Retail Report 2008

Rural shops with first two

Shopping for items which

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

The Rural Retail Shelf

Ready to eat snacks

Source: RMAI Rural Retail Report 2008

Main problem is ratio for brands

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.

The Rural Retail Shelf

Average value of stocks in interior villages one-third of

Off-take of packaged foodstuffs and tobacco products

Tendency to shop in nearby towns high within a 25-km

Marketers need to ensure product availability at the right

Copyright 2012 Dorling Kindersley (India) Pvt. Ltd.