Fmcg Rural India
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INDIA
FASTEST GROWING FREE MARKET DEMOCRACY
RETAIL
FMCGs Bet on Rural India
www.ibef.org
India Brand Equity Foundation
P A G E 2
RETAIL
FMCGS BET ON RURAL INDIA
MNCs and Indian companies alike are plugging into rural India with a vengeance.A number of FMCG companies have now started relying on savvy entrepreneurs who trawl the rural hinterland, gathering mountains of village level data.
Every morning, at a time when most women in Indian villages perform household chores, women in villages across Andhra Pradesh, Madhya Pradesh, Karnataka and Gujarat are busy making money, selling products manufactured by FMCG company Hindustan Lever (subsidiary of Unilever Plc). Unlike the sub-stockists, the women entrepreneurs are directly connected to the HLL distribution chain. MNCs and Indian companies alike are plugging into rural India with a vengeance. Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately. Which means that rural marketing ventures are now no longer a pilot project at HLL nor are they charity efforts. “We are targeting Indian villages because of a belief that there is real prospect for growth,’’ HLL chairman V Banga told a national marketing conference last year. This is why rural marketing is now a core marketing activity at HLL and the company’s management trainees regularly spend 4 weeks with a retail entrepreneurs to get a first-hand feel of how village markets function. HLL has also established a single distribution channel by consolidating categories. The channel seeks to build a network of sub-stockists. In 2003, about 6000 such sub stockists were appointed to service 50,000 villages with a total population of 250 million. Likewise, at Coca Cola India, to reach out to rural villages, the company started out by drawing up a hit list of high-potential villages from India’s various districts. To ensure full loads, large distributors were appointed, and they were supplied from the company’s depot in large towns and cities. Full load supplies were offered twice weekly. On their part, the large distributors appointed small distributors in adjoining areas. The small distributors in turn fixed journey plan on a weekly basis. In addition to these innovative distribution techniques, a number of FMCG companies have now started relying on savvy entrepreneurs who trawl the rural hinterland, gathering mountains of village level data. One such entrepreneur, Pradeep Lokhande, distributes used computers to schools in about 28,000 villages through his Pune-based rural consumer organisation, Rural Relations. Lokhande supplies computers, collects data
www.ibef.org
India Brand Equity Foundation
P A G E 3
RETAIL
FMCGS BET ON RURAL INDIA
The focus on rural markets doesn’t really come as a surprise. India’s rural market has been growing steadily over the years and is now bigger than the urban market for fast moving consumer goods with an annual size estimated at around US $ 11 billion.
in exchange, which is then sold to companies. The company now has a database of 35, 000 schools. Besides tapping schools, Lokhande also strikes direct contacts with opinion leaders in villages and recording obscure details of the local economy. This data is now being lapped up. In 1996, Lokhande got his first customers for the data: Tata Tea and Parle. Today, he has clients like HLL, P&G, Marico, Asian Paints, Telco and DSP Merrill Lynch. The focus on rural markets doesn’t really come as a surprise. India’s rural market has been growing steadily over the years and is now bigger than the urban market for fast moving consumer goods (53% share of the total market). The annual size in value terms currently estimated at around US $ 11 billion. According to a study by the National Council for Applied Economic Research (NCAER), there are as many 'middle income and above' households in the rural areas as there are in the urban areas. Moreover, there are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas. As per the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the middle and high-income market is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. But despite the high rural share in these categories, the rural penetration levels are low, thus offering tremendous potential for growth. This is why Coke and HLL are looking to increase their reach. And others are following suit.
Chennai-based CavinKare Products which makes hair dyes, organises live demonstrations in remote areas where villagers get a free tinge of jet black or blonde or red – free of cost. Brooke Bond Lipton India markets its rural brands through magic shows and skits. Reckitt and Colemen uses NGOs in rural areas to educate customers about product benefits. www.ibef.org
India Brand Equity Foundation
P A G E 4
RETAIL
FMCGS BET ON RURAL INDIA But rural India isn’t just being developed as a consumer market. It is also
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India, its services reaching out to more than two million farmers in over 21,000 villages through 4100 kiosks across six states.
being developed as a cost effective supply chain. Tobacco and foods major ITC is focusing on the rural segment to bring down its transaction costs. With a judicious blend of click & mortar capabilities, agricultural communities in villages use internet kiosks known as e-choupals - to access ready information in their local language on the weather & market prices. They are also able to disseminate knowledge on scientific farm practices & risk management. The aggregation of the demand for farm inputs from individual farmers gives farmers access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer). Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than two million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over 21,000 villages through 4100 kiosks across six states. Whether the objective is to increase market share or to lower transaction costs, the end objective is to improve the robustness of the rural supply chain. Moreover, these are scalable and robust models, and, given the right policy environment, it should be possible to seamlessly integrate them in the months and years to come.
www.ibef.org
India Brand Equity Foundation
P A G E 5
RETAIL
FMCGS BET ON RURAL INDIA Related Resources :
www.ibef.org
•
To learn more about Pradeep Lokhande and how he’s creating a rural network, contact him at 91-20-6821034; or e-mail: [email protected]
•
For a better understanding of Hindustan Lever’s rural operations, visit the following links: - http://www.ap.nic.in/dwcra/hll_rural.htm - http://www.domain-com/companies/companies_h/hind_lever/ 20030204_rural_market.html
•
To learn more about the ITC rural project, visit: itcportal.com
India Brand Equity Foundation
AUGUST
2004
P A G E 6
RETAIL
The India Brand Equity Foundation is a public - private partnership between the Ministry of Commerce, Government of India and the Confederation of Indian Industry. The Foundation's primary objective is to build positive economic perceptions of India globally.
India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18 Udyog Vihar Phase IV Gurgaon 122015 Haryana INDIA Tel +91 124 501 4087 Fax +91 124 501 3873 E-mail [email protected] Web www.ibef.org
www.ibef.org
India Brand Equity Foundation
FASTEST GROWING FREE MARKET DEMOCRACY
RETAIL
FMCGs Bet on Rural India
www.ibef.org
India Brand Equity Foundation
P A G E 2
RETAIL
FMCGS BET ON RURAL INDIA
MNCs and Indian companies alike are plugging into rural India with a vengeance.A number of FMCG companies have now started relying on savvy entrepreneurs who trawl the rural hinterland, gathering mountains of village level data.
Every morning, at a time when most women in Indian villages perform household chores, women in villages across Andhra Pradesh, Madhya Pradesh, Karnataka and Gujarat are busy making money, selling products manufactured by FMCG company Hindustan Lever (subsidiary of Unilever Plc). Unlike the sub-stockists, the women entrepreneurs are directly connected to the HLL distribution chain. MNCs and Indian companies alike are plugging into rural India with a vengeance. Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately. Which means that rural marketing ventures are now no longer a pilot project at HLL nor are they charity efforts. “We are targeting Indian villages because of a belief that there is real prospect for growth,’’ HLL chairman V Banga told a national marketing conference last year. This is why rural marketing is now a core marketing activity at HLL and the company’s management trainees regularly spend 4 weeks with a retail entrepreneurs to get a first-hand feel of how village markets function. HLL has also established a single distribution channel by consolidating categories. The channel seeks to build a network of sub-stockists. In 2003, about 6000 such sub stockists were appointed to service 50,000 villages with a total population of 250 million. Likewise, at Coca Cola India, to reach out to rural villages, the company started out by drawing up a hit list of high-potential villages from India’s various districts. To ensure full loads, large distributors were appointed, and they were supplied from the company’s depot in large towns and cities. Full load supplies were offered twice weekly. On their part, the large distributors appointed small distributors in adjoining areas. The small distributors in turn fixed journey plan on a weekly basis. In addition to these innovative distribution techniques, a number of FMCG companies have now started relying on savvy entrepreneurs who trawl the rural hinterland, gathering mountains of village level data. One such entrepreneur, Pradeep Lokhande, distributes used computers to schools in about 28,000 villages through his Pune-based rural consumer organisation, Rural Relations. Lokhande supplies computers, collects data
www.ibef.org
India Brand Equity Foundation
P A G E 3
RETAIL
FMCGS BET ON RURAL INDIA
The focus on rural markets doesn’t really come as a surprise. India’s rural market has been growing steadily over the years and is now bigger than the urban market for fast moving consumer goods with an annual size estimated at around US $ 11 billion.
in exchange, which is then sold to companies. The company now has a database of 35, 000 schools. Besides tapping schools, Lokhande also strikes direct contacts with opinion leaders in villages and recording obscure details of the local economy. This data is now being lapped up. In 1996, Lokhande got his first customers for the data: Tata Tea and Parle. Today, he has clients like HLL, P&G, Marico, Asian Paints, Telco and DSP Merrill Lynch. The focus on rural markets doesn’t really come as a surprise. India’s rural market has been growing steadily over the years and is now bigger than the urban market for fast moving consumer goods (53% share of the total market). The annual size in value terms currently estimated at around US $ 11 billion. According to a study by the National Council for Applied Economic Research (NCAER), there are as many 'middle income and above' households in the rural areas as there are in the urban areas. Moreover, there are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas. As per the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the middle and high-income market is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India. But despite the high rural share in these categories, the rural penetration levels are low, thus offering tremendous potential for growth. This is why Coke and HLL are looking to increase their reach. And others are following suit.
Chennai-based CavinKare Products which makes hair dyes, organises live demonstrations in remote areas where villagers get a free tinge of jet black or blonde or red – free of cost. Brooke Bond Lipton India markets its rural brands through magic shows and skits. Reckitt and Colemen uses NGOs in rural areas to educate customers about product benefits. www.ibef.org
India Brand Equity Foundation
P A G E 4
RETAIL
FMCGS BET ON RURAL INDIA But rural India isn’t just being developed as a consumer market. It is also
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India, its services reaching out to more than two million farmers in over 21,000 villages through 4100 kiosks across six states.
being developed as a cost effective supply chain. Tobacco and foods major ITC is focusing on the rural segment to bring down its transaction costs. With a judicious blend of click & mortar capabilities, agricultural communities in villages use internet kiosks known as e-choupals - to access ready information in their local language on the weather & market prices. They are also able to disseminate knowledge on scientific farm practices & risk management. The aggregation of the demand for farm inputs from individual farmers gives farmers access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer). Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than two million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over 21,000 villages through 4100 kiosks across six states. Whether the objective is to increase market share or to lower transaction costs, the end objective is to improve the robustness of the rural supply chain. Moreover, these are scalable and robust models, and, given the right policy environment, it should be possible to seamlessly integrate them in the months and years to come.
www.ibef.org
India Brand Equity Foundation
P A G E 5
RETAIL
FMCGS BET ON RURAL INDIA Related Resources :
www.ibef.org
•
To learn more about Pradeep Lokhande and how he’s creating a rural network, contact him at 91-20-6821034; or e-mail: [email protected]
•
For a better understanding of Hindustan Lever’s rural operations, visit the following links: - http://www.ap.nic.in/dwcra/hll_rural.htm - http://www.domain-com/companies/companies_h/hind_lever/ 20030204_rural_market.html
•
To learn more about the ITC rural project, visit: itcportal.com
India Brand Equity Foundation
AUGUST
2004
P A G E 6
RETAIL
The India Brand Equity Foundation is a public - private partnership between the Ministry of Commerce, Government of India and the Confederation of Indian Industry. The Foundation's primary objective is to build positive economic perceptions of India globally.
India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18 Udyog Vihar Phase IV Gurgaon 122015 Haryana INDIA Tel +91 124 501 4087 Fax +91 124 501 3873 E-mail [email protected] Web www.ibef.org
www.ibef.org
India Brand Equity Foundation
