Amity Business School

Amity Business School

MBA M&S, Semester IIIrd
Rural Distribution
Garima Malik

1
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Distribution in Rural Market

There are 7.8 million retail outlets spread across
600,000.

Despite the growing number of consuming class

households and increasing disposable income , small
and remote villages (85 percent of the total villages
house a population less than 2,000)
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Main Problems in Rural Distribution are:

• Large number of small markets.

• Poor road connectivity.
• Multiple tiers (large number of intermediaries)leading to higher
costs.
• Low density of shops per village.
• Inadequate bank and credit facilities for rural retailers.
• Poor storage system, leading to inadequate stocking of products.
• Highly credit driven market and low investment capacity of
retailers.
• Poor Visibility and display of products on rural shop shelves.
• Poor communication of offers and schemes due to poor reach of
media.
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Rural Distribution

Physical Distribution Channels of Distribution

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Physical Distribution
• Physical Distribution is the process of delivering
products to the marketing channels and
consumers.

Transportation

Warehousing Communication
 Channels of distribution
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O Level 1 Level 2 Level 3 Level 4 Level

Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer

Distributor C&F Agent C&F Agent

Consumer Distributor Distributor

Retailer Retailer

Retailer Stockist

Consumer Consumer
Retailer
Consumer

Consumer
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Example O Level
• An innovative concept Apni Mandi has been
introduced in Northern states. In Apni Mandi
there is direct between the farmer-producer and
the consumer. The prices in Apni mandi are low
since there are no involvement of middlemen.
The first Apni Mandi was started in Chandigarh
in 1987. followed by Apni mandi in Kranal in
1988. Subsequently such Mandis have been
established in Rajasthan also
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Example 1 Level
• Mahindra and Mahindra Tractors have
appointed dealers in important rural markets. A
dealer either covers one district or two-three
tehsisl. The company arrange for supply of
tractors to these retailers from their
manufacturing unit. The dealer looks after sale
and service of tractor.
• Royal Enfield has about 250 direct dealers
spread across the country and they undertake
sales and service of two wheelers.
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Examples 2 Level
• Manufacturers of tea, coffee and branded
oil, appoint distributors in district/taluka
headquarters and these distributors
service the retailers' in villages.
• Distribution of seeds in rural areas.
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Example 3 Level
• In this case the manufacturer moves the
stocks to company depot/depot operated
by C&F agent and from these depots
stocks are supplied directly to distributors
who in turn service the retailers
• Agrochemenical companies like Syngenta
are using two/three intermediaries to reach
the farmers in remote villages.
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Example 4 Level
• This is lengthy marketing channel and the
manufacturer opens his own depots or
appoints C&F agents in state capital or in
key cities in each state.
• This method has been used by companies
like Colgate, HUL, Marico, and Parle to
penetrate rural markets.
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Channel Behavior in Rural Areas

• Sourcing of Stocks and Purchase Cycles

• Stocking Behavior and Seasonality
• Credit Patterns
• Transfer of Capital
• Pricing of Channel
• Channel Promotion
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Coca-Cola’s University of Wheels

• In late 2008, Coca-Cola’s University on wheels launched

a nation-wide training programme called Parivartan (a
positive change) on 20 seater buses for mom-and-pop
retailers in Tier II and III towns across India. The
objectives was to help these retailers develop skills to
survive , compete, sustain and grow in a fast-changing
retail scenario in the country. Around 20 small retailers
who typically own 300 sq.ft kirana shops are taught the
tricks of the trade with the help of audiovisuals aids in
two hour session. The training content is structured
around the four pillars of retail, customer, shop, stock
and finance.
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Ghari (Case Study)

• Ghari, the second largest-selling detergent brand in India an INR 18
billion turn over in 2009-10, enjoys a 17 percent market share with
an average annual growth of 15-20 percent. Ghari entered the
market through the economy segment where real volumes. It
focused on small-town housewives and villagers, who are extremely
value-conscious buyers with no brand loyalty. The value for money
approach helped Ghari to differentiate its products. To offer value for
money the Ghari management settled for a net profit margin of 9
percent against industry standard of 12 to 13 percent for the
premium brands. Further, it restricted itself to Uttar Pradesh which,
with a population of 167 million (The highest in India) ,accounts for
over 12 percent of country FMCG sales. Ghari also implemented an
extensive dealer network throughout the state.
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• Furthermore nine of its 18 manufacturing units are in

Uttar Pradesh, Thus the company kept its 60-70 percent
of its sales come from Uttar Pradesh, Madhya Pradesh
and Maharashtra. On the promotion front the company
kept only INR 3.5 billion to promote the brand through
local media.
 Ghari Distribution System
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Company

C&FA Depot

Distributor

Wholesaler

Retailer Retailer
 Distribution Models Amity Business School

Nirma Distribution System

Nirma Ahmedabad

Hyderabad, kolkata,
Depot
Kanpur
Distributor
At the district level
Covers 300-400 outlets
Sub-distributor/Big directly
wholesalers
At the tehsil level

Retailer
Wholesaler Retailer wholesaler
 LG
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Depot
New Rural District Office

Warehouse
C&F Agent

Exclusive Dealers
Multiple Dealers

Consumer
 Phillps
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Depot

Urban Rural Stockiest

Distributor

Retailer Retailer

Consumer
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Rural Centric Distribution Models

• Haats/Shandies

Total number of haats 43,000

Average Annual Sales INR 5,000 billion

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Modern Distribution Models

• SHG
• The Youth Entrepreneurship Model
• Vans
• PDS
• Cooperative Societies
• NGOs
• Rural Mobile Trader
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A Comparison of the Different Distribution systems

Parameter Cavinkare Eveready HLL Britannia Niram Ghari Priyagold

No. of 6 7 7 6 3 3 3
channels
partners in the
DS

Different Yes Yes Yes Yes Yes Yes Yes

channels for
rural and
urban

Margin Urban:6 Urban:5 Urban 4:75 Urban:5 NA NA NA

Rural 3+5 Rural Rural 6-7 Rural:6
5+1+Van

Coverage Order Booking Order Order Booking Order Booking Order Booking Order Booking Order Booking
Pattern Booking

Mode of Advance cheques Advance Advance Advance Advance Cash/draft on Advance

payment to the cheques cheques cheques cheques delivery cheques
company