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JANUARY 2015 THE RURAL MARKETING JOURNAL products, and hence, growth of merchandise retail, high disposable income with the end-consumer and rapid construction of organised retail infrastructure. Growth is expected to come from clothing, textiles, fashion accessories, jewellery, watches, footwear, health, beauty care, pharmaceuticals, consumer durables, home appliances, mobiles, furnishings, utensils, furniture, food, grocery, catering, books, music, gifts, entertainment and other segments in retail. The Rural Story As per Technopak, the rural retail market was estimated to be worth $273 billion in 2014. Owing to rapid urbanisation, it is expected that an increasing share of incremental merchandise retail will come from urban and semi-urban centres. Demand is also expected to come from the emerging towns and clusters, where the primary source of livelihood has moved from agriculture to other professions. Nearly, $21 billion (56 per cent of total corporatized retail) comes from the top 24 cities that contribute to 30 per cent of the total retail basket. This is due to low penetration of corporatized food and grocery retail, poor infrastructure, inefficient supply chain and concentrated customer segment in the overall landscape. It is believed that, in the future, growth will be driven by the penetration of corporatized retail beyond these urban centres. Technopak's study reveals that even though rural India offers myriad opportunities for retailers, it is not likely to become an extension of urban India in the next decade. This is because, there exist key differences in the types of demand coming from these two pockets, even though the rural areas manage to mirror the consumption of the urban in the various retail categories. Rural Indian consumers do not seek low-priced products. Instead, they prefer products that are functionally at par, while justifying their affordability. Rural income generation being largely dependent on agriculture, is seasonal, and so is the consumption. This is unlike urban India, which follows a regular, monthly income-expenditure cycle. The erratic nature of the rural income-expenditure cycle makes credit more significant. Therefore, the availability— of credit and welfare support from the government, in particular cash reimbursement of subsidies—impacts rural spending and consumption patterns to a great extent. It is vital for brands and retailers to have a deeper understanding of rural markets and pin their fortunes on the penetration of these. However, this is easier said than done. Damodar Mall, Chief Executive Officer, Value Retail, at Reliance Retail, says, “Even in the metro cities, corporate or modern retail comprises only 25 per cent of the total retail. A lot of work needs to be done there. That is why, people are not going bullish yet. The market is too complex right now and they'd rather focus on the more feasible markets where work is still to be done.” The Challenges India's diversity poses the biggest challenge for retailers. The food and grocery category has been a tough nut for companies to crack. The corporatised retail share of food and grocery grew from a mere 1 per cent to 3 per cent, whereas apparel grew from 14 per cent to 19 per cent, reveals Technopak. It has been observed that non-food categories have been more receptive towards corporatised retail and are poised to grow with improved distribution processes. They are also set to reach beyond the major urban centres and develop alternate retail. Food and grocery has been unable to migrate to the corporatised retail platform preventing it from growing to its potential. Preferences, especially in food, are extremely localised. Capturing the various demand catchments and catering to specific taste nuances is a Herculean task. This, and the fact that the supply chain does not follow a linear pattern from urban to rural, has resulted in a fairly low penetration of modern retail in rural India. Technopak's research states that this scenario is not going to change much in the near future, as policy uncertainties and 4
THE RURAL MARKETING JOURNAL JANUARY 2015 lack of structural reforms across the value chain will continue to act as deterrents. Furthermore, high fragmentation, low density of population at the consumption centres, poor transportation infrastructure and complex tax regimes make it a complex market to operate in. Organised retail also faces competition from the local momand-pop stores that have been around for long and enjoy familiarity and trust among rural consumers. This makes it imperative for new retailers to invest in effective and engaging marketing campaigns, to create awareness and induce trials. Mall points out that a lot of (food) production happens around the urban areas, making it easier to distribute. “They also prefer aggregation of demand. While the demand does exist, its density is not high in rural areas, unlike in the urban,” he says. So, even though the demand for retail products in rural areas continues to outpace that of the urban areas, the dominant form of retailing in the former continues to be unorganised or informal. This comprises the traditional kirana stores for both grocery and non-grocery items, primarily due to their ease of access, affordability, credit options and convenience. Been There Done That Corporates have forayed into the rural retail market in the form of specific rural outlets selling food and grocery products. However, most of them have either exited the market or have changed their business models to sell nonretail items. DCM Shriram Consolidated Limited's (DSCL) Hariyali Bazaar retail stores, launched in 2002, in the rural areas, shut shop in 2012. Instead, it has now opted to sell fuel products. Triveni Engineering too exited the rural retail business in 2010. It operated 42 Khushali Bazaar outlets in Uttar Pradesh and Uttarakhand. On the other hand, chains such as Choupal Saagar and Aadhar continue to run in the hinterland. Aadhar is a joint venture between the Future Group and Godrej Agrovet, focussing on retail distribution of consumer products for personal and household use, in rural and semi-urban India. Positioned as a rural supermarket, it currently has 40 stores spread over 100,000 sq. ft., across Gujarat and Punjab. Initially, when Godrej Agrovet launched the chain, the stores were owned and operated by the company. After Future Group bought a majority stake in the venture in 2008, it closed some company-owned outlets and expanded through franchisees. In early 2012, it entered the cash-and-carry business to sell to wholesalers and Aadhar outlets. ITC first developed linkages through its eChoupal initiative to buy agricultural products from farmers and improve productivity, helping raise their incomes. It then launched Choupal Saagar stores to sell a variety of products and services including farm inputs, consumer goods and durables, apparel and fuel. Recently, the Future Group's food and FMCG arm — Future Consumer Enterprise Limited (FCEL)— has acquired Nilgiris, the chain of convenience stores run by the Nilgiri Dairy Farm Pvt Ltd. The chain has 1,405 outlets spread across Kerala, Karnataka, Andhra Pradesh and Tamil Nadu. With this acquisition, FCEL hopes to expand geographically, by increasing its footprint of convenience stores in South India. Companies such as Hindustan Unilever Limited (HUL) are implementing special initiatives, such as Project Shakti, which is a rural distribution initiative in villages. The project benefits HUL by enhancing its direct rural reach and at the same time creates livelihood opportunities for underprivileged rural women. Having started with 17 women in one state, it has a network of 65000 Shakti entrepreneurs today. Its products are distributed in over 165,000 villages and reach over four million rural households. Opportunities The rural market, despite presenting numerous impediments in the expansion of retail, also paints an encouraging picture. Reports state that rural incomes and consumptions are rising steadily. The average wages, under the National Rural Employment Guarantee Programme, 5
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