Retail In South India

Retailing Channel Enhancement Strategies Adopted by FMCG Companies in South Indian Rural Markets V Ramanathan*

In the last two decades, the developed and developing nations have seen their economies change from being a manufacturing-led to a service-led, in terms of wealth creation, employment and investment. From the day, when our country opened the doors of our economy to the process of liberalization, privatization, and globalization, the manufacturers as well as the distributors of both domestic and global markets have started to herald their products in our rural destination. The increase in the number of south Indians working in rural environment, the exposure of products through the media, frequent trips abroad made by the rural educated youth, and the level of increasing literacy in south Indian rural public, have all created a brand consciousness among south Indian rural customers. They equate brand with quality, prestige, and status. At present, the penetration of Fast Moving Consumer Goods (FMCGs) in rural markets has delineated the new marketing strategies to promote their branded items available in all rural outlets. So, they have started to adopt channel enhancement strategies in south Indian rural markets, where availability determines the volumes and market share. The word ‘retailing’ has its origins in the French verb ‘retailer’, which means to cut up, and refers to one of the fundamental retailing activities, which is to buy in larger quantities and sell them in smaller quantities.

Introduction Retailing is the activity of selling goods and services to a final consumer for his/her own use. It is concerned with getting goods in their finished state into the hands of customers who are prepared to pay for the pleasure of eating, wearing, or experiencing particular product-items. Retailing is all about distribution of goods and services. The word “retailing” has its origins in the French verb “retailer” which means to cut up, and refers to one of the fundamental retailing activities, which is to buy in larger quantities and sell them in smaller quantities. Retailers form the link between the manufacturers, wholesalers, agents, and the customers. They are the persons who keep in touch with the customers and get an opportunity to understand their needs and preferences. *

Lecturer, Department of Management Studies, Sri Chandrasekharendra Saraswathi Maha Vidyalaya, Enathur, Kanchipuram, India. E-mail: [email protected]

© 2007 The Icfai University Press. All Rights Reserved. Resrved.

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The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007

The Retail Industry’s Contribution to the Economy Moving away from the role of retailing in the marketing activity of an individual producer, retailing activity can also be viewed as a significant contributor to the economy in general.1 In the last two decades, the developed and developing nations have seen their economies change from being a manufacturing-led to a service-led in terms of wealth creation, employment, and investment. Around one-third of consumer expenditure takes place through retail outlets, and retail industry employs one in nine workers2. The retail price index is frequently referred to as an economy indicator. It is a measure on a ‘basket of products’ across all retail sectors and compares prices over a period of time in order to reveal the changes in the cost of households with typical purchase needs.

The Impact of Globalization in Retailing Industry The increase in regionalism or in the tendency towards economic cooperation between countries within regions, particularly in the form of free trade areas, is increasing

the

internationalization

opportunities

for

Fast

Moving

Consumer

Goods (FMCG) in retailing market. A free trade area is an area whose member countries agree to have a free movement of goods among themselves without the imposition of tariffs or quotas. From the day, when India opened the doors of her economy to the process of liberalization, privatization and globalization, the manufacturers as well as the distributors of both domestic and global markets have started to herald their products more in the rural destinations. The product categories, which are familiarly known as FMCG, seek to clinch the south Indian rural market and especially to penetrate the untapped potential of the rural market. If one goes through the recent histories of our economy, one can find the leverage of our relaxed trade and industrial policies inducing the manufacturers, marketers, traders from both domestic and host market to make a turn towards the rural market. Even though the South Indian Rural Market consists of consumers who are mostly daily wage earners and dependents on monsoons, who spend their low per capita disposable income, major FMCG players are gearing up with their own conventional and modern marketing strategies to lure these vagrant buyers.

Retailing Industry in India In India, the retailing industry, which is an unorganized player, accounts for 92 percent of the industry’s turnover. The fragmented nature of the industry 1 2

Source: Principles of Retail Management by Rosemary Varley, Palgrave Macmillan publications. Ibid.

Retailing Channel Enhancement Strategies Adopted by FMCG Companies in South Indian Rural Markets

65

deprives customers of the benefits of the organized retail industry, such as stabilized pricing, wide range of selection, and comfortable shopping. Many new players, domestic as well as international, are entering the Indian retail industry. It was only in the late 1990s that FMCG companies organized heavy retailing in India. Till 1990, a few of the organized retailing industry were controlled by the manufactured-owned retail stores. With the liberalization of Indian economy in 1990, FMCGs entered the Indian retailing industry. Encouraged by the response among consumers to branded retail stores, Indian entrepreneurs have set up large stores, shopping malls, and multiplexes.

South Indian Rural Market The south Indian rural market is an area of darkness to the Indian entrepreneurs. It is the market where communication is poor and the population poorer because their operations are small-scale and inadequate, therefore inefficient. Yet, the south Indian rural market represents the largest prospective and promising market in India, which encompasses over 67 percent of population. Its primary activities are agriculture, animal husbandry, fisheries, and forestry which account for half of the national income. Rural assets also amount to more than 43 percent of the country’s tangible wealth. According to the data published by the National Sample Survey (NSS), the wealth distribution in the south Indian rural market is uneven and the top 16 percent farmers’ landholdings account for 37 percent of the cultivated area, and the top 10 percent of the rural population accounts for 42 percent of expenditure on consumer goods.3 However, with the increasing spread of the rural income, consumer goods are expected to make substantial penetration into the lower income strata by the normal percolation effect.

Penetration of FMCGs in South Indian Rural Markets The increase in the number of south Indians working in rural environment, the exposure of products on the media, frequent trips abroad made by the rural educated youths, and the level of increasing literacy in South Indian rural public, have all created a brand consciousness among south Indian rural customers. They equate brands with quality, prestige, and status. The brands which hitherto occupied a place in the minds of south Indian rural customers have started to disappear, and the quality brands from FMCGs have slowly started to attract the south Indian rural customers. Hence, the south Indian rural market retailers should strive to maintain the superior quality products and enhance the brand image

of their

FMCGs

to

retain the

rural

customers’

confidence and

win

their loyalty. 3

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Data gathered from NSS survey.

The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007

Rural Retail Distribution As sellers of merchandise to the final consumer, manufacturers are dependent on the supply of it in order to provide a high level of service to their customers. In rural markets the small retailers do not have the resources to get heavily involved in supply chain management, nor will it be cost-effective for them to do so. In addition, the opportunities for them to collaborate with suppliers are severely limited. However, they still need to make decisions regarding logistics arrangements on a small scale. In a competitive and saturated retail market, customers are intolerant of stock-out. Therefore, small retailers must manage their stock to the best of their ability even in rural markets. Periodic review is a simple but an effective stock control system appropriate for small- and medium-sized rural retailers, where items sold have a relatively predictable demand

pattern.

Reasons for Targeting South Indian Rural Markets by FMCGs The FMCGs have identified the south Indian rural markets as having tremendous potential for retailing as well as brand building; that in turn has persuaded them to adopt impugned proliferated marketing, selling, and retailing strategies. Conventionally, the south Indian rural consumers prefer to buy products from available retailers. Retailers’ proximity to one’s living area influenced the buying of customers over brand considerations. Most of the time rural retailers are unable to update their inventory due to financial constraints and lack of interest in brand promotions. Now the penetration of FMCGs in rural markets has thrown up new marketing strategies to promote the branded items available in all rural outlets.

Retailing Channel Enhancement Strategies Adopted by FMCGs •

FMCGs began to rely on heavy promotional budget through suitable promotional mix campaigns;

•

The

emergence

of

satellite

channels—as

a

source

of

promotional

advertisements—in rural markets has made the FMCGs prefer mass media advertisements. According to a recent survey conducted by the

Cham ber of Com m erce and Industry–South India,

the

non-food

categories such as toilet soaps, washing powders and liquids, tooth pastes, and detergents are heavily promoted by the producers of FMCG’s in the rural market; •

The FMCG promoters now realize that copartnership retailing strategies can help penetrate the south Indian rural markets. Through these strategies, the FMCG promoters identify the prospective retailers from

Retailing Channel Enhancement Strategies Adopted by FMCG Companies in South Indian Rural Markets

67

respective rural markets and educate them to promote the FMCGs in the rural markets through proper training tools; •

Most of the promoters of FMCGs are insisting the rural retailers to design their outlets, which attract the rural consumers to buy from their assortments;

•

The retailers in south Indian rural markets prefer to promote particular brands available in their assortments which provide them a decent and consistent profit margin. Therefore, all the FMCG promoters try to attract the rural retailers by offering them a sizeable and lucrative margin;

•

The promoters of FMCGs have started to patronize the long daydreams of rural retailers, i.e., conducting sales contests for them, as is being done for urban retailers, where the top selling retailers from rural markets are identified and given awards (cash awards and incentives), rewards (‘best retailer’ award), and special family package trips to various places—both to domestic and foreign places of attraction;

•

Producers of FMCGs have started redesigning the traditional distribution channel systems adopted in south Indian rural markets. Normally, FMCGs decline to offer exclusive dealership for rural retailers. Now they are encouraging the rural retailers to go for exclusive dealerships for FMCG products by way of offering good profit margin for their investment and provide a reasonable credit support;

•

Promoters of FMCGs are insisting that their direct marketing teams assist the rural

retailers to

promote their

respective brands.

The direct

marketing teams of FMCG promoters jointly promote their products with rural retailers and assist them to handle rural consumers effectively; •

The rural retail outlets have been stimulated to store fast moving brands of different FMCG product categories;

•

The rural retailers are educated to manage the cost of retailing their products, and manage their inventories and the cost associated with it;

•

Most of the promoters of FMCG believe in the importance of relationship marketing,

and

the

same

is

inculcated

among

the

rural

retailers

by educating them in the ways of managing the relationship with rural consumers; •

Even though support has been extended by the FMCG manufacturers and marketers to rural retailers to promote their products in rural markets, many retailers detest going for mass retailing of FMCG items

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because of the financial burdens. For this reason FMCG promoters help the rural retailers to get loan from rural infrastructure promotion banks. FMCG promoters are extending their support in the form of giving guarantees to rural retailers and recommending micro loans from various rural banks to the retailers; •

Nowadays, the banks in rural areas are compelled to help rural retailers in sanctioning both long-term and short-term loans for meeting the retailer’s capital requirements and operating expenses;

•

Of late, the FMCG promoters are keen to apply the new concept of ‘retailing entrepreneurship’ in rural south Indian markets, through which they identify the educated unemployed youth in various rural areas with the help of Entrepreneurship Development Program (EDP) in coordination with rural NGOs and motivate the rural youth to actively participate in the venture of retailing FMCGs in their geographical locations;

•

and

Most of the FMCG promoters have entered into a tie-up with rural Non-Governmental Organizations (NGOs) through a program called Rural

Entrepreneurship

Development

Program

for

identifying,

motivating, and training educated unemployed young retailers to involve themselves in retailing of FMCG items.

Conclusion Generating awareness pays dividends only when steps are taken to ensure continuous availability of products. In the south Indian rural markets, availability determines volumes and market share, because the consumer usually purchases what is available at the outlet, influenced largely by retailers. Therefore, over the decades, the producers of FMCGs have progressively strengthened their distribution reach in the south Indian rural market. Direct rural distribution begins with the coverage of villages adjacent to small towns. The company’s stockists in these places are made to use their infrastructure to distribute products to outlets in these villages. To fully realize the potential and prospects in south Indian rural markets, FM CGs

require

a

ma trix

of

init iati ves,

suc h

as

und erst andi ng

of customer behavior and tastes, providing moral support to rural retail outlets (business partners), and ensuring the availability of goods at the doorstep of consumers through retail outlets. Above all, it calls for innovation, perseverance, and

patience. 

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