Rural Distribution Strategy

Dr Bejoy Thomas
Introduction
• Awareness yields dividends
• Steps taken to ensure availability

• Availability determines
• Volume and Market share
• Consumer largely influenced by retailer
 Availability: The Challenges and the Dilemma
• Reaching 7.8 million retail outlets across 600,000 villages
• 85% of the villages have a population of less than 2,000
population

• Problems
• 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
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 need refrigeration
Availability: The Challenges and the Dilemma

• Most organizations
• Leverage traditional wholesale models
• Retailers
• Increasing consumer pull
• Need full assortment of products
• Regular frequency of service
• Challenge for suppliers
• Small size of each village
• Low throughput per outlet
• High cost of distribution
 The Evolution of Rural Distribution
Channels
• Distribution most important variable in Marketing Plan
• Managing a massive sales & distribution network –huge
task
• Market Intermediaries
• Wholesalers, Stockists, Transporters and Retailers
• 18 million
• Access more than 5000 cities & towns ; half a million
villages
• Family owned proprietary concerns
The Evolution of Rural Distribution Channels
LEVEL Channel Partners Marketplace

1 Company Depots/CFAs, Super stockists National/State

CFAs/Redistribution stockists Cluster of districts

2
Retailers/Modern/Traditional District Headquarters

Redistribution stockists Sub-district (Tehsil/Block)

3
Semi-wholesalers/Retailers Feeder town

Semi-wholesalers/Retailers Feeder town

4
Mobile traders in haats/vans Periodic market

Retailers/Vans/Barefoot agents (Shakti

5 dealers)/Cooperative societies/ Large and small villages
Government agencies (Fair price shops)
 The Evolution of Rural Distribution Channels
• Most companies
• Direct representation up to level 3 –redistribution stockists
• High outlet density & large consumer base
• Economies of scale – regular workings of sales –cum
distribution vans
• Large FMCG majors – HUL, Dabur, Colgate & ITC
• Extending reach to level 4 & 5
• Entering level 4
• Market planning for small towns
• Market potential & catchment population – dependent
rural areas
 The Evolution of Rural Distribution Channels

• Last mile distribution – most crucial & most challenging

- Existing models fail to provide
economically sustainable distribution of
products
- Form the bulk of the consumption
- Few players HUL, ITC & Colgate
 INITIATIVES BY COMPANIES

 ITC
 $7 billion conglomerate
 3 layers
 Distributor --- Stockist(Wholesaler) --- Retailer
 Rural Areas
 Population 10000 to 20000
 Adequate transportation infrastructure
 Not enough demand – traditional distributor
 Rely on sub distributors – narrow
assortments
 Population 5000 to 10000
 Good roads
INITIATIVES BY COMPANIES

• Served by vans
• Bypass distributors
• Supply to retailers directly
• Retailers use mobile technology
• To order
• Vans visit upto 3 times a day
• Population below 5000
• No paved roads
• Served by 2 0r 3 wheelers
• Deliver 1,2 or 3 times weekly to retail kiosks
• Carry ITC’s goods – small sizes for lower prices
 INITIATIVES BY COMPANIES

• TATA MOTORS
• Existing Dealer Network
• Urban & Semi-urban towns
• Population greater than 1Lac
• Added 2 indirect channels
• Since 2010
• Hired & trained Local residents
• ‘Tata Motors gram Mitras’ – village advisers
• Work on commission
• Develop leads for existing dealer sales
teams
INITIATIVES BY COMPANIES

• Formed Partnership
• Local Gas Station owners
• Earn commissions
• Feeding leads from customers to automakers
dealer network
• Increased sales of SCVs by 20%
• Piloted the programme in six states
• Rolling out nationally
• Expecting
• Sell additional 70,000 vehicles annually
• $500 million in revenue
INITIATIVES BY COMPANIES
• Idea Cellular
• Build cost-effectively
• Separate rural salesforce
• Recruited & trained
• 4000 youths near cell towers
• Supplements
• ‘grameen pratinidhis’
• Need extra income
• Already visiting remote villages
• Own business
INITIATIVES BY COMPANIES
• Vodafone India
• Village Entrepreneur model
• Partnering with independent businesses
• Network of mini stores
• “Lal Dukan”
• Run by Locals
• Invested Rs 35,000 to Rs 50,000
• Telecom needs of customers
• Within 18 to 32 km radius
• Sales to connectivity to technical support
• 94 million rural subscribers; 5,500 red stores
• Constitute 60% Vodafone’s customer base
INITIATIVES BY COMPANIES

• Banking services firm

• Fino Paytech
• Established 38000 self employed bandhus or banking
correspondents
• Provides appropriate technology
• Pays fee
• Front end operations – lending money, opening
accounts & providing insurance and remittances
• Bandhus earn average Rs 2000 to Rs 3000
• Serve 76 million customers in 26 states
 Channel Dynamics

• 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

17
 Channel Dynamics
FMCG Durables PDS- Govt Fake Goods Cement Bulbs &
Tubes
Company manufacturing plant Company FCI Manufacturers Company Company
manufacturing manufacturing manufacturing
plant plant plant
Company Depot Wholesalers Depots
(city)
CFAs CFAs Zonal offices Wholesalers CFAs
(Small Town)
Redistribution stockists District office Distributors Distributors
Sub-Stockists Depot
Retail outlets Exclusive Fair price Retailer(Villag Outlets Exclusive
dealers/ shop e, haat, dealers/ retail
Dealers mobile trader) outlets
Consumer Consumer Consumer Consumer Consumer Consumer
 Rural Channel Members
• Supplement company depots
• Cater to one region or state
• With investment in stocks and without investment
CFAs in stocks
• Majority in second category

• Critical link covering 30% of the rural retailers

Redistribution • Located at district headquarters
stockists • First customers
• Invest in stock; employ salesforce
• 70% of rural market not covered
• Principally a food grain merchant
• Believes more in speculation rather than distribution
Wholesalers • Most wholesalers are also large retailers
• Companies depended on wholesalers
• Wholesalers exploited companies

• Procure stocks from wholesalers – nearby feeder towns

• Some cases supply vans from stockists
Retail outlets • Permanent outlets
• Mobile traders
 The Rural Retail Environment

Percentage Number of
Village Percentage of Percentage of
of Total Outlets per
Population Population retail Outlets
Villages Village
Represents 17% of > 5,000 3 22 14 28
villages, 54% of
2,001 –
rural population 14 32 32 16
and 60% of rural
5,000
wealth 1,001 - ,
22 25 33 9
2000
Hardly any shops in
60% of the villages < 1,000 61 21 21 2
TOTAL 100 100 100 6
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
Traditional Retail
• Easy to distribute truckload of soaps in urban market
• Covering small geographical area

• Same truckload in rural market

• Cover hundreds of small and large villages

• 54% of rural population

• 1 Lakh odd large villages
• Population exceeding 2000
• All weather roads
• Account for 60% of rural wealth
Traditional Retail

• At the other end

• 3,90,000 small villages
• Population less than 1000
• Hardly any shops

• HUL, Eveready, ITC and other companies

• Cover large villages

• 1000-2000 population villages

• Account for one-fourth of population
• 33 % retail outlets
• Companies may look to expand to these villages
Traditional Retail
• Durable companies define rural
• Population less than 50000

• RMAI study
• 80% of durables and 70% clothes & footwear
• Purchased from small towns – 20,000 to 1,00,000 population

• National players
• ensure distribution reach to small towns
 The Rural Retail Spread
• Rural retailing accounts for INR 1.9 trillion with about 7.8 million retail
shops ( out of 18.5 million retail shops in India)

• 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

• Distributors should have the reach to cover villages with population of

2,000+
 Retail Premises

 More permanent shops than kiosks

 Transition from all-in-one to
specialization shops: Bakeries,  Changing lifestyle
stationers, chemists  Wider Choices
 Entry of speciality shop categories non-  Changing consumption habits
existent earlier: Mobile shops, VCD  Greater use of specialized
shops, Photo studios, beauty parlours, products/services
computer centres  Improved in-store experience
 New categories in food segment: ice-
cream parlours, cold drink milk
parlours etc.
 Improved availability of brands
 Entry of new product categories:
Noodles, Chips, Chocolates, milk food
drinks etc,
 Retail Premises
•Average size of retail outlets has
increased to 140 sq. ft

•Rural shops normally an extension

of the house in which the family lives Year
Size
(in sq. ft) 1999–2000 2008
•Retailing is part-time activity due
Up to 100 71 53
to fewer customers
101-250 25 37
> 250 4 10
•Number of infrastructural Source: AC Nielsen Shop Census 1999-200, RMAI 2008
constraints and financial constraints

•Low maintenance costs offset the

high transportation and travel costs
partially
Retail Premises
• COCA COLA INDIA
• First India foray faltered – insufficient attention to refrigeration
• Rural Markets
• Electricity & refrigerators scarce – refrigeration important
• Return in 1993
• Overhauled its supply chain
• Greater focus on refrigeration
• Electricity-deficient areas – UP
• Brine coolers – 12 hours without electricity
• Trade agreements with ice makers
• 2009 sales grew by 30%
• Reported profits first time - since 1993
 The Rural Retail Shelf
Product Category Shops (in per cent) • Rural markets used to have shops
Food Articles 75
stocking groceries and tobacco
products
Tobacco products 69

Cosmetics/toiletries 68
• Rural shops with first two product
Groceries 53 categories present in almost all
Stationery 39 villages.
Electricals 31

Fruits and Vegetables 14 • Cosmetics, stationery, electricals

Clothes/Footwear 6
and chemists more visible near
highways.
Construction Material 4

Agri-inputs 4
• Shopping for items which are
Durables 3
bought on special occasions done
Kitchen Appliances 2 in nearby town or city due to
Source: RMAI Rural Retail Report 2008
variety.
 The Rural Retail Shelf
Penetration (in
Product Stocked
%) • Relatively new and urban
Cigarettes 62 oriented products now available
Packaged biscuits 58 in rural
Shampoos 56

Washing powder 55 • Main problem is ratio for brands

Tea 52 rather than product categories
Confectionery 48
Rural Urban
Toilet soaps 47
Product
19 27
Blades/razors 46 Categories
Ready to eat snacks 45 Brands 42 92
Toothpaste 44
• Marketers need to develop
Chocolates 40
display and storage systems for
Pens 34 rural
Source: RMAI Rural Retail Report 2008
 Stock Turnover and Rural Retail Habits
• 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
• 70% groceries, toiletries and other daily need products -
villages
• 80% of durables & 70% of clothes/ footwear- nearby towns
& cities
• Marketers need to ensure product availability at the right
places
Modern Retail in Rural Areas

ITC Choupal Sagar

Tata Kisan Sansar

Godrej Aadhaar

3A Bazaar
 ITC Choupal Saagar
• 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, villagers and semi-urban consumers

• 24 outlets in 2014; expand to 700 by 2020

 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

• Recently added are financial services, IT-enabled market information

and lifestyle products
 Godrej Aadhaar
• Started by Godrej Agrovet

• Future group and Godrej entered into JV 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

• Tie-ups already with Eicher Motors and HDFC Bank

• In negotiations with Apollo Hospitals and BPCL outlets

 3A Bazaar
• First mobile retailing venture using five vans in J.P. Nagar in UP
• Launched by a leading export house in north India
• Visits 700 odd villages
• Operates in villages - population less than 10000

• Each van is visited by 150 to 200 customers with a daily sale of INR 15,000 to
INR 20,000
• Stuffed with 1300 items – worth INR 2 lac to 2.5 lac

• Company targets lower middle-class families

• Helps Companies
• Reach interior villages – consumers have access to communication media but not
products

• Plans to add 20 more vans and also open stores

 Channel Behaviour in Rural Areas
• Sourcing of stocks and purchasing cycle

Normally from wholesalers and distributor agents.

Retailers in interior areas – wholesalers
Retailers in feeder villages – distributor agents
 Visits to feeder towns twice or thrice a week

Marketers need to find out the wholesaler or stockist

Guide to company stockist or provide extra benefits to
preferred stockist
 Channel Behaviour in Rural Areas
• Stocking behaviour and seasonality
 Moves around the harvesting and sowing seasons
 Harvesting – consumer novelty items
 Sowing – Agri-inputs
 Consumer purchases taper off – planting of next crop
 Retailers curtail inventory

 Marketer effort should be directed to consumer and wholesaler

 Retailers stock due to consumer demand & not due to wholesaler push

• Credit pattern
 Ranging from 15 to 20% to as high as 60 to 70%
 Consumers have running credit – part paid every month &
settled at the time of harvest
Channel Behaviour in Rural Areas

Credit extended –rice, wheat and cooking oil ; not on packaged

goods
National brands to cash customers; push regional brands to
credit customers
• Transfer of capital from store to farm

• Pricing by the channel some times even higher than MRP because
of additional costs

• Channel promotion not effective in interior villages but effective

in feeder villages – Bulk discounts
 Retailer Consumer Dynamics
• Consumer loyalty to retailer is very high in rural

• Retailers reluctant to stock new items

• Need for retailer training

• Coca-Cola – Parivartan
• 20 seater bus
• 20 small retailers – 300 sq.ft shops
• Audiovisual aids – 2 hr session
• Training content – customer, shop, stock and finance
• Advanced Parivartan – shop layout and location, display, basics of finance,
knowledge of credit card transactions & people management skills

• Retailer loyalty is greater than brand loyalty in rural

• Marketers need to develop rural-centric models

FMCG Distribution Models in Rural Markets:
DM1
FMCG Distribution Models in Rural Markets:
DM1
• Channel Structure
• HUL
• Rural distributors – District level
• Star sellers – 20 to 25 villages
• Invest money and stock all lines
• Big wholesaler is selected
• Remotest villages
• HUL project shakti
• Transportation
• Stock from Production units  CFA  distributors
• company expense
• Heavy transport vehicle
 FMCG Distribution Models in Rural Markets:
DM1
• RD use LCV to cover the market
• Urban distributors use three-wheelers
• SDs cover using van or pick-up truck
• Cost of coverage for distributor – 1 to 1.5 % of the volume of
business
• Coverage
• Permanent Journey Plan(PJP)
• Consultation with distributor & sales team-optimize effort &
reduce expenses
• Factors – haat days, distance, number of outlets to be covered &
type of vehicle required
FMCG Distribution Models in Rural Markets:
DM1
• Prepared for six working days
• 30-40 outlets covered in a day
• 15-20 are productive
FMCG Distribution Models in Rural Markets:
DM2
FMCG Distribution Models in Rural Markets: DM2

• Channel structure
• No separate channel for rural distribution
• Minimizes distribution costs
• Better margins to distributors & channel partners
• Wholesaler locations – feeder markets
• Companies with limited SKUs and high sales volumes
• Distributor is given larger territory
• Eg) Ghari Detergent; Priyagold biscuits
FMCG Distribution Models in Rural Markets: DM2

• Transportation
• Stock to company depot – transfer basis
• Stock to distributor – freight-paid basis
• Distributors use Matadors or tempos
• Coverage
• Area covered by distributor
• Bigger for DM2
• Wholesaler must ensure availability in innermost villages
FMCG Distribution Models in Rural Markets:
DM2
• Ghari
• Second largest selling brand in India
• Entered through economy segment
• Focused
• Small-town housewives and villagers
• Extremely value conscious without brand loyalty
• Settled for 9% net profit margin – industry standard 12 to 13 %
• UP
• Population 167 million
• 12% of country's FMCG sales
FMCG Distribution Models in Rural Markets: DM2

• Implemented extensive dealer network

• 9 of its 18 manufacturing units
• Supply chain close to key market
• Transportation cost is less
• 60-70% from U.P, M.P and Maharashtra
• Promotion less than 2% of t/o – industry average 13-15%
• In 2012
• Market share of 17.4 ; Wheel 16.9 %
 Distribution Model for Durables

• Durables purchased from small & large towns

• Number of locations for distribution
• few thousand
• Managed by few channel partners

• Two types – similar to FMCG distribution

• First – Traditional model
• Undifferentiated approach
• Rural markets serviced – urban distribution channels
• Usha International ,Bajaj Electricals
Distribution Model for Durables
• Second Model
• Separate distribution & service network – rural markets
• Philips & L.G

• Philips distribution system

• Product – Manufacturing plant(Gujarat)  Company-owned
depots
• Each Depot caters to one state
• Directly services urban & rural distributors – orders placed
• Urban Distributor –City
• Services roughly 900-1200 retail outlets
Distribution Model for Durables
DM 2
 Distribution Model for Durables
• Rural Distributor
• Covers a population strata – 15000 to 20000
• Wholesale outlet – rural location
• Below 15000 population

• LG Electronics
• Market leader in white goods segment
• LG introduced a new set up
• Introduction of the company’s rural office – district level
• Separate stocking point
• Appointed dealers and one exclusive dealer to rural audience
Distribution Model for Durables
DM 1
Distribution Model for Durables
• Today
• 40 branch offices; 65 remote area offices; 230 service centres
• 2,600 mobile authorized service personnel – villages less than
10,000
• Rural Market for LG
• Grew at 25% over 2009-2010 – against 15% in urban areas
 Rural-centric Distribution Models
• Haats/shandies

• Modern distribution models

• Vans

• The public distribution system

• Cooperative societies

• Petrol pumps and extension counters

• Non-government organizations

• Rural mobile traders

 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
 Modern Distribution Models
• 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 income-
generating enterprises
• Project Shakti by HUL

• The Youth Entrepreneurship Model

• Huge force with proper orientation and training
• Colgate Disha
• HUL Shaktimaans
 Faster Turnaround of
money
Better repayment
Social Fulfilment
B
a
n
k
Income/ Investment
Income generating opportunity
activities Shakti Business Skills
Government Shakti Entrepreneur Economic
Less dependence on
grants Empowerment

H
U
L
Better product reach
Low-cost communication
channel
Category penetration
Social fulfilment
 Vans
• 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
 The Public Distribution System

• 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
 Others
• 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
Tata Tea Gaon Chalo
• Launched in Dec, 2005
• Joined hands with 12 NGOs – rural UP
• By the end of 2006
• Added more than 20000 retailers
• Including 500 new rural distributors
• 10000 villages
• Agreement
• Signed with NGOs
• To act as main distributor – district level
• Collecting products from Tata tea on credit
• Giving them out to rural distributors
Tata Tea Gaon Chalo

• The structure of Project Gaon Chalo

• Project head
• In charge of the project – 8 districts of UP
• Coordinates with District Coordinators and the Client
• District Coordinator
• Appoints supervisors at tehsil level
• Supervisors appoint RD2 at village level
• RD2 in charge of one village
• Stock of Tata tea received – on order by DC
• Transportation cost borne by the company
• Distributes stock to supervisors
• Transportation cost borne by supervisor
Tata Tea Gaon Chalo

• Supervisor distribute the stock to RD2

• RD2
• Local person with experience
• Sells to local retailers
• Retailers
• Margins very high
• No sharing of margins between District Distributor & retailer
• District Coordinator and Supervisors are employed on salary
basis
 Rural Logistics
• The Hub and Spoke Model • Syndicated Distribution
• All traffic moves along spokes • Normally for non-
connected to the hub at the competing products
centre.
• Sharing of distribution
• Stockists are appointed in
major towns and feeder towns
costs.
• Retailers in and around these • Problems arise when
feeder towns get attached to markets for two
these stockists companies are different
• Stockists operate their own or payment terms are
delivery vans. different.
• Retailers grow to stockist level • Salesperson of one
over a period of time company does not push
• Also called satellite the other company
distribution system products