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When retailers meet rural India

By Karen Yap Lih Huey, IANS

New Delhi : Retailers and consumer goods companies are trumpeting their moves to target rural markets in India due to boundless opportunities, but experts say the success will not come without a rough ride.

“A major hurdle these companies today face is difficulty in reaching out to retail outlets because of the sheer vastness of the retail market,” said Gibson Vedamani, chief executive of the Retailers Association of India.

“And not everything that is sold well in the metros can be sold easily in the rural markets,” added Vedamani, whose organisation represents over 50 key organised retailers in the country.

The biggest challenge in rural retailing is to ensure products are available across the 638,000 villages, which are spread out over three million sq km.

The problem is further compounded by the geographical immensity of the 12 million-strong kirana (neighbourhood mom-and-pop) stores in the country.

Most of these stores are small, and consumer goods companies have to reach out to them in villages only through a channel of distributors and wholesalers, adding to the costs of distribution.

At the same time, these small retailers cannot be ignored — about 90 percent of them are in towns that have no more than a million people and some are in areas that have less than 100,000 people.

According to global research firm Ernst and Young, the rural market is projected to be bigger in India than the urban market for fast moving consumer goods, with an annual size of Rs.480 billion ($12 billion) in 2004 and growing.

The research firm said rural consumption expenditure accounted for around 60 percent, or Rs.9,135 billion ($228 billion), of the country’s total consumption expenditure.

This apart, the urban-rural wealth divide is also narrowing.

The ministry of communications and IT says that 54 percent of the rich and well-off households (with an annual income above Rs.500,000 or $12,500) live in urban areas and the balance 46 percent in rural areas.

“Hence, in total disposable income terms, rural India offers great market potential,” said Ranjan Biswas, a partner in Ernst and Young and its national leader for retail and consumer products practice.

“But it has its fair share of problems and challenges before any retail or marketing operations become successful and sustainable,” Biswas added.

Companies are left with no choice but to start building a strong distribution system and adapting to innovative means of transportation to combat bad roads and poor connectivity.

“This challenge affects the pace of replenishments of sold goods as the supply system is too fragmented and increases inventory holding costs for retailers,” said Vedamani.

“Some companies had set up area offices which in turn manage smaller rural offices,” added Biswas.

Due to lack of reliable infrastructure for logistics and since the supply chain is just developing in the country, fast-moving consumer goods companies have to plan their products in advance. So the supply pipeline becomes long and loaded.

More often companies have to redesign their products and rework on their pricing strategy to succeed in the rural markets — smaller pack sizes, product variants and perception of affordability are key to target rural markets.

Examples include shampoo in sachets and dry food in smaller packaging.

Biswas said using the media, which has deeper penetration in rural areas, goes a long way in building awareness and driving acceptance for products.

The channels include the state-run broadcaster Doordarshan, radio channels, local language advertising, cinema, outdoor media such as posters, banners and wall writing and tapping all forms of local entertainment.

The availability of more economical technology applications specific to rural markets will also help organise the fragmented retail formats, he added.

Yet, the teething problems notwithstanding, the future of the retail industry is bright, experts said.

Many major corporate entities such as AV Birla, Reliance and Godrej were focussed on rural India organised retailing and will soon achieve a pan-India presence, said Vedamani.

Discount formats are also emerging fast with brands like Subhiksha and they will find their way easier into rural India. The increasing consumption and growth of these retail majors will enable faster growth of organised retailing in India.

“On the other hand, modernisation of small and medium retail outlets will happen fast as friendly taxation policies will lead many retailers to become registered under all regulations,” Vedamani said.