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SAJMMR Volume 1, Issue 3 (December, 2011) ISSN 2249-877X

South Asian Academic Research Journals

http://www.saarj.com

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Publ ished by: South Asian Academic Research Journals

SAJMMR:S o u t h A s i a n J o u r n a l o f

M a r k e t i n g & M a n a g e m e n tR e s e a r c h

RURAL RETAIL REVOLUTION: THE RISE OF RURAL MARKET

ASHISH GUPTA*

*Research Scholar, School of management Studies,Motilal Nehru National Institute of Technology, Allahabad, India.

ABSTRACT

The future lies with those companies who see the poor as their customers."C. K. PrahaladStrategic Guru

Rural India is characterized by low per capita income, low productivity, low literacyand low rate of industrialization along with absence of basic amenities. Theunprivileged class is set back by a lack of educational opportunities that couldempower them to confidently pursue economic progress and overcome thedebilitating effects of low literacy and rigid social hierarchies. The Indian rural

retail opportunity is currently estimated to be in excess of Rs. 1400 billion(approximately US$34 billion). The figure is likely to touch Rs. 1800 billion(approximately US$ 43 billion) in 2010 and go up to Rs. 2400 billion (approximatelyUS$ 58 billion) by 2015, according to CII - YES BANK Study on the Rural RetailSector

15. Indias rural markets are growing at double the rate of urban markets. The

retail revolution is going to act as a catalyst. So, the new concept that is hitting themarket today is the "Rural Retailing".

KEYWORDS: Rural India, Rural retail, rural market, Retail revolution, Kiranastores.

______________________________________________________________________________

INTRODUCTION

1. THE RETAIL REVOLUTION

In this land of 15 million retailers, most of them owning small mom and pop outlets, we alsohave a modern retail flourishing like never before. The rural revolution is driven by risingpurchasing power, changing consumption patterns, increased access to information and

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communication technology, improving infrastructure and increased government initiatives toboost the rural economy. The total number of rural households is expected to rise from 135million in 2001-02 to 153 million in 2009-10 giving a tremendous push to the rural retailopportunity. There is little room for conflict as evidenced from the fact that India presents aunique case of consumption-driven economy: while the US reels under recession, where supply

clearly outstrips demand, India confronts inflation, where Industry and retailers are as yet unableto provide what the consumer demands. Over the last few years Indian retail has witnessed rapidtransformation in many areas of the business by setting scalable and profitable retail modelsacross categories. Indian consumers are rapidly evolving and accepting modern retail formats.New and indigenized formats such as departmental stores, hypermarkets, supermarkets, specialtyand convenience stores, and malls, multiplexes and fun zones are fast dotting the retaillandscape. However, there is huge potential embedded deeper to penetrate the rural market byunderstanding the complex cross layers of the Rural India Consumer. The retailers find the ruralphysical and geographical expanse daunting. It is really a nightmare for any marketer to addressthe needs of 600,000 plus villages spread over a geographical area of over 3.2 million squarekilometers, and that too hardly connected by all weather roads.

OBJECTIVES OF THE STUDY

To understand the importance of rural retailing.

To understand the changes in rural consumption pattern.

To understand the challenges & opportunities in rural retailing and rural markets.

To study the initiatives taken by corporate houses for rural retail development.

To suggest some recommendations if any.

1.1 FEATURES OF RETAIL IN RURAL INDIA

India is basically a rural society as 2/3 rd of is population resides in villages which offers vastmarket opportunities. The following are the main features of rural retail:

The rural retail market is dominated by Kirana stores, haats& melas.

It is culturally diverse & highly fragmentedspread over more than 6 Lakh villages.

It mainly dependent on agriculture which generate seasonal income, mostly twice in ayear. Thus, purchasing powers of rural consumers are not uniform.

Generally, the standard of living of consumer is not very high and their outlook is veryconservative due to low penetration level of refrigerators, storage of food products.so,rural consumers prefer purchasing in low volumes and their purchase frequency is high.

Inadequate infrastructure in terms of roads, warehouses, communication, consumerfinance etc.

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1.2 POTENTIAL OF RURAL RETAIL IN INDIA

Led by the rising purchase power, changing consumption pattern, increased access toinformation & technology and improving infrastructure, rural retail market holds great potentialfor retailers. Many corporate houses in india as well as foreign players are firming up concreteplans to tap the rural retail market.

The following points reflect the growth potential of rural retail market in india:

Rural per capita consumption of FMCGs will catch up with the current urban levels by2017. As per expert report, The FMCG sector in rural area grow 40 % in comparison to25 % in urban market.

Right now, one out of six rural customers has access to organized retailing or distribution.So, rural retailing has tremendous potential for growth.

A major part of Bottom of Pyramid consumer class resides in rural areas.

There is paradigm shift towards higher value consumption among rural consumers likefrom tooth power towards tooth paste, from local brands towards national brands.

Though internet penetration in rural areas is very low, but concepts like m-cash by ICICIbank provide an impetus to rural retailing as mobile telephony has made rapids into ruralmarket.

Rural areas account for half the total market for television, tooth powder, fans, pressurecookers, washing soaps, tea, salt etc.

Currently, the presences of modern retail formats in rural areas are negligible. Rural retail marketat its nascent stage and it seems logical to take early mover advantage. The potential is immense,but right now, investment in rural retail market is very low as is focus is to grab urban market.

2. INDIAN RURAL RETAIL SCENARIO: AN OVERVIEW

Retail, one of Indias largest industries, has emerged as one of the most dynamic and fast pacedindustries with several players entering the market. Accounting for over 10% of the countrys

GDP and around 8% of the employment, retailing in India is gradually inching its way towardbecoming the next boom industry. It is on the threshold of a big revolution after the IT sector.Although organized retail market is not so strong as of now, but it is expected to grow manifoldsby the year 2010. The sector contributes 10% of the GDP, and is estimated to show 20% annualgrowth rate by the end of the decade. The current growth rate is estimated to be 8.5%, butCRISIL report says that the retail market is most fragmented in the world and only 2% of theentire retailing business is in the organized sector. There are about 300 new malls, 1500supermarkets and 325 departmental stores being built in the cities very soon. The rural consumermarket, which grew 25 per cent in 2008, is expected to reach US$ 425 billion in 2010-11 with720-790 million customers, according to a white paper prepared by CII-Technopak, in November2009. The figures are expected to double the 2004-05 market size of US$ 220 billion. The Union

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Budget for 2010-11 has hiked the allocation under the National Rural Employment GuaranteeAct (NREGA) to US$ 8.71 billion in 2010-11, giving a boost to the rural economy.

A Study on buying behavior of rural consumer indicates that the rural retailers influence 35% ofpurchase decisions. . At present 85 % of the organised retailing takes place in Indias urbanareas. But the good thing is that the retail focus has already shifted to the rural areas. The Indianrural market with its vast size and demand base offers great opportunities to marketers.Technopak estimates that the size of the Indian retail market is at present around USD 300billion with the rural-urban split in the ratio 55 45. The rural market consumes about 53% ofFMCG, and 59% of durables in India. Therefore sheer product availability can affect decision ofbrand choice, volumes and market share. India offers a huge, sustainable and growing ruralmarket which can be tapped effectively through innovative distribution channels with retailingbeing the most critical element of this strategy as it is the final touch point and the actual touchpoint with the customer which can be the most critical influence in the buying process. For timebeing all what retailers need is the requirement for stores in these towns for getting the rightmerchandise mix in tune with the local community's requirements.

FIG: PERCENTAGE OF ORGANIZED RETAIL ACROSS THE WORLD

Source: naukrihub.com

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Source: India Retail Report

India's largely rural population has also caught the eye of retailers looking for new areas ofgrowth .A slew of supermarket chains, including those of the Tata and ITC, are set to storm therural areas of the country as corporate realize the huge potential of the untapped market ITClaunched the country's first rural mall 'Chaupal Sagar', offering a diverse product range fromFMCG to electronic appliances to automobiles, attempting to provide farmers a one-stopdestination for all of their needs. Companies such as Godrej and DCM Shriram Consolidated arelaunching `one-stop shops' for farmers and their communities. Godrej Agrovet, for instance, isplanning to set up 1,000 Aadhar stores across rural India by 2010.

The rural market is no longer a non-player in the retail game. It is now accounting for over one-third of the market for most durable and non-durable products. Even manufacturers aredeveloping new products with the rural consumer in mind besides using village-orientedmarketing strategies for brand promotions. Whether it is Rani Mukherjee promoting thechocolate Munch or master batsmen Sachin wowing village lads with a soft drink, both admakers as well as top company honchos know where to put their money and how. The ruralmarket is no longer of hypothetical empirical value but is well researched and reached by mostcompanies looking to tap India's vast and abundant bounty. Moreover lack of infrastructure andlogistics together with multiple tax rates, restrictions on goods movement, among others increaseinventories and, therefore, costs. Due to lack of scale and diversity in buying behavior, marketersare also forced to not only create multilayered distribution networks but also develop new

packaging and price points. However increasing penetration of TV, rebirth of radio, through FM,availability of broadband internet, fast spread of mobile phones, and rural road developmentprogrammes could in a short span of time may apart from improving infrastructure, bridge gapsin behavioral patterns across the country. For a retailer it is essential to see in which segment it iscatering in the above division of villages. For example Shakti caters to villages with a populationof 500or above. Where in Eveready considers even the remotest of village as its target customer.

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It operates through more than thousand company-owned vans and has over 4,000 distributors todirectly providing service to 6, 00,000 retail outlets.

The trends that are driving the growth of the retail sector in India are:

Low share of organized retailing

Falling real estate prices

Increase in disposable income and customer aspiration

Increase in expenditure for luxury items

India has topped AT Kearney's annual Global Retail Development Index (GRDI) for the thirdconsecutive year, maintaining its position as the most attractive market for retail investment. TheIndian retail market, which is the fifth largest retail destination globally, according to industryestimates is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010 and

US$ 637 billion by 2015. Simultaneously, organized retail which currently accounts for 4% ofthe total market is likely to increase its share to 22% by 2010.The Q410 BMI India Retail Reportforecasts that total retail sales will grow from INR16.51trn (US$380.39bn) in 2010 toINR26.02trn (US$679.32bn) by 201417. Strong underlying economic growth, populationexpansion, the increasing wealth of individuals and the rapid construction of organized retailinfrastructure are key factors behind the forecast growth. As well as an expanding middle andupper class consumer base, there will also be opportunities in India's second and third-tier cities.The greater availability of personal credit and a growing vehicle population providing improvedmobility also contribute to a trend towards annual retail sales growth of 12.3%. India's nominalGDP is forecast at US$1.66trn in 2010. Average annual GDP growth of 8.0% is predicted byBMI through to 2014. With the population expected to increase from 1.17bn in 2010 to 1.23bn

by 2014, GDP per capita is forecast to rise by more than 86% by the end of the forecast period,reaching US$2,652 17. Our forecast for consumer spending per capita is for an increase fromUS$796 in 2010 to US$1,445 in 2014. The growth in the overall retail market will be drivenlargely by the explosion in the organized retail market. Domestic retailers such as RelianceRetail and Pantaloon Retail continue to invest heavily in increasing their store networks andimproving in-store offerings, and the impact they have on growth will be boosted by the arrivalof expansion-orientated multinationals. Brand Loyalty is very high among less affluent class.Hence rural market is very critical for the companies. However, the size of rural retail is verysmall with limited number of brands stocked at a point of time (generally the most sought afterbrand).

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2.1 PHASES IN THE EVOLUTION OF RETAIL SECTOR

Weekly Markets, Village and Rural Melas

Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops

Neighborhood stores/convenience

Traditionaland pervasive reach

PDS outlets, Khadi stores, Cooperatives

Government supported

Availability/low costs/distribution

Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls

Shopping experience/ efficiency

Modern formats/ international

2.2 DRIVERS OF RURAL RETAIL

Driven by changing lifestyles, strong income growth and favorable demographic patterns, Indianretail is expanding at a rapid pace. The present-day retail sector in India is reflected in sprawlingshopping centers, multiplex- malls and huge complexes that offer shopping, entertainment andfood - all under one roof. The trends that are driving the growth of the retail sector in India maybe low share of organized retailing, falling real estate prices, increasing disposable income andconsumer aspiration and increasing expenditure for luxury. These key factors have been thegrowth drivers of the organized retail sector in India, which now boast of retailing almost all theluxuries of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries,Home & Office Products, Travel and Leisure and many more. With this, the retail sector in India

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is witnessing a revival as traditional markets make way for new formats such as departmentalstores, hypermarkets, supermarkets and specialty stores.

FIG.1: DEPICTS THE CHANGING DEMOGRAPHICS OF RURAL INDIA.

Source: MGI India consumer Demand model, v1.0

The above diagram depicts the population of Rural India divided on the basis of householdincomes. Strivers and seekers constitute the middle class. The diagram depicts how the increasein household income will lead to increased consumption by various levels of consumers in thepyramid.

In 2005: Number of Aspirers= (32*790/100) million= 252.8 million

In 2015: Number of Aspirers= (47*875/100) million= 411.2 million

That is roughly 158 million people will be added to the aspirers class.

In 2005: Number of Deprived= (65*790/100) million= 513.5 million

In 2015: Number of Deprived= (46*875/100) million= 402.5 million

This depicts that 111 million people will shift from below poverty line to the aspirers class.

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FIG.2: SHARE OF RURAL CONSUMPTION BY INCOME CLASS

Source: MGI India consumer Demand model, v1.0

By 2015 the aspirer class of household will be the largest group at 47% of rural population or 80million households and will control 55% of the spending. In 2015, 47% of rural population(aspirers) will account for 55% of the rural consumption. Wherein in 2025 one-fifth of thepopulation (seekers) will account for roughly one-third of the rural consumption. The shift in

rural population from one segment to another will shift rapidly. Hence it will be important for theretailer to keep a track of this and change the merchandise mix in the store accordingly.

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3. OPPORTUNITIES IN RURAL RETAILING

The Indian rural market with its vast size and demand base offers great opportunities tomarketers. Two-thirds of countries consumers live in rural areas and almost half of the nationalincome is generated here. It is only natural that rural markets form an important part of the total

market of India. Our nation is classified in around 450 districts, and approximately 630000villages, which can be sorted in different parameters such as literacy levels, accessibility, incomelevels, penetration, distances from nearest towns, etc. 70 % of India's population lives in 627000villages in rural areas24.

According to the NCAER study, 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 millionhouseholds in rural areas.

In urban India, the same is expected to grow from 46 million to 59 million. Thus, theabsolute size of rural India is expected to be double that of urban India.

As organized retail in rural India awaits the arrival of Reliance Retail, current majors like ITC,Godrej and DSCL are expanding their retail operations by setting up more stores, entering newstates and offering newer product categories. A shift from selling agri- inputs will help thesestores target the non-farming segments. It is a little known fact that, while 25% of the ruralpopulation is not engaged in agriculture, it earns 50% of the rural income. When organized retailfirst made its presence felt in rural India, it wasnt a pure retailing operation targeting the ruralmasses. Companies like DSCL and Godrej who had significant agri-business interests, set themup to meet the needs of farmers in a stores catchments area. A typical agri-input store wouldhave a catchment area of around 100 villages spread over 20-25 kms. These stores are one-stopshops meant to meet the occupational needs of farmers by providing agri-inputs and fertilizers.These stores, like DSCLs Hariyali Kisan Bazaar, ITCs Choupal Saagar etc. tend to be located

in small towns that function as procurement hubs where the farmers come to sell their produce.Their earnings are tapped then and there, by getting them to combine their visit with shopping.These stores tend to target farmers with all sizes of holdings, while organized retail centered onthese stores, unorganized retail revolves around the local village shop and the haat. Shops areusually present in villages with a population of more than 500 people. They stock more productcategories than what similar urban shops would, but there isnt much variety offered within acategory. Haats are weekly mobile supermarkets that are spread over 2-3 acres of land, withmore than 300 stalls, selling anything from animal feed to local medicines. "Rising ruralincomes, healthy agriculture growth, boost in demand, rising consumerism across India, betterpenetration of FMCG products in the rural market are contributing to high growth and rapidexpansion of the FMCG industry in rural India," Traditionally, for the auto industry, the ruralmarket has been largely restricted to tractors and two-wheelers, though the penetration ofscooters and motorcycles in villages is only 10 percent, as compared to 25 percent in urban areas.Any marketer worth his salt knows that in the wild blue yonder of rural India lies a huge marketfor many products and brands. He will know that it accounts for over 50 per cent of the goodsconsumed in the country. For two-wheelers, colour TVs and fridges rural areas account for 30

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per cent or more of the market. However, thats at a broad, macro level; an acknowledgement of

a vast markets existence.

3.1 RETAIL AS AN EMPLOYMENT GENERATOR

The retail sector can generate huge employment opportunities, and can lead to job-led Economicgrowth. In most major economies, services form the largest sector for creating employment. US

alone have over 12% of its employable workforce engaged in the retail sector. The retail sectorin India employs nearly 21 million people, accounting for roughly 6.7% of the total employment(CII-technopak, 2009). However, employment in organized retailing is still very low, because ofthe small share of organized retail business in the total Indian retail trade. The share of organizedretailing in India, at around 2%, is abysmally low, compared to 80% in the USA, 40% inThailand, or 20% in China, thus leaving the huge market potential largely untapped. A modernretail/retail services sector has the potential of creating over 2 million new (direct) jobs withinthe next 6 years in the country (assuming only 8-10% share of organized retailing), according toArvind Singhal, CMD, KSA Technopak, Retail can create as many new jobs as the BPO/ITsector in India. A strong retail front-end can also provide the necessary fillip to agriculture &

food processing, handicrafts, and small & medium manufacturing enterprises, creating millionsof new jobs indirectly. Through its strong linkages with sectors like tourism and hospitality,retail has the potential of creating jobs in these sectors also. Though the Planning Commissionhas identified retail as a prospective employment generator, in order to strengthen the multipliereffect of the growth in organized retailing upon the overall employment situation, a pro-activegovernmental support mechanism needs to evolve for nurturing the sector. Issues like FDI inretail, allocation of government-controlled land on more favorable terms, strong political andbureaucratic leadership, etc., need to be addressed adequately.

4. RURAL RETAILING AND ITS CHALLENGES

Some of the challenges faced by marketers and retailers in rural India are low per capita income,dependence on the monsoons for purchases, difficulties in communication and high distributioncosts. Marketers are addressing these issues through the 4A's of Availability,Affordability,Acceptability, Awareness and coming up with innovative campaigns toaddress the rural segment. Understanding of rural customers and their needs is what will makethe rural foray retailers successful.

The main difficulties faced by the retailers in rural markets are:

Large and scattered market.

Major income from agriculture.

Low standard of living

Traditional outlook.

Diverse socio economic backwardness.

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Lack of proper physical communication and infrastructure facilities.

Many languages and dialects.

Dispersed Markets.

Low per capita Income.

Low levels of Literacy.

Prevalence of spurious brands and seasonal demand.

Most of the modern retail opportunities are in the urban areas and the rural retail potential hasremained untapped. While there is a large potential in rural areas, fragmentation and cost ofmarket access are real deterrents. No doubt that rural retailing is gradually gaining grounds withthe explorations by the corporate like ITCs Choupal Sagar (rural hypermarket), HLLs Shakthi

and Mahamaza. However, the pace at which the retail sector has been expanding in rural areas

should have been much faster. The higher purchasing power in rural and semi-urban areas hassignificantly modified peoples lifestyle; for e.g. the sachet phenomenon is a thought to reach tothe bottom of the pyramid. Lot of people in rural India are just not willing to buy a whole bottleof shampoo, but that doesnt mean they wont buy it. Thus, the key is in slicing the relevantcustomer segments and developing appropriate formats. If the specific needs ofconsumers are recognized, there would be a considerable market expansion, which would diverta part of retail business to rural areas and help in reducing rural-urban imbalance. In addition tothese problems the number people below poverty line has not decreased in any manner. Vastnumbers of rural people tend to be highly superstitious, are tradition bound, believe in oldcustoms, traditions, habits, taboos and practices. Initial costs to penetrate into these marketswill be very high. Increasing costs of land in the rural areas also add to retailers problems.

Pace of expansion by competitors, High operating costs, supply chain problems, low margin onagri inputs and low purchasing power of the customers will further add to thechallenges faced by the retailers. A huge and distinct rural market has emerged in the country.One needed to distinguish between a developed rural market and a developing rural marketand adopt new strategies with an aspiring middle class in the scene. Inadequate data and poorinfrastructure are still impediments on the way. The rural diversity, in terms of language andculture, among the States add to the challenges. The rural population has become very consciousof the value of money and cannot be taken for granted any more. Everything sold in metroscannot be sold in rural markets anymore.

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 in India. The problem isfurther compounded by the geographical immensity of reaching the 12 million-strongkirana (neighborhood mom-and-pop) stores in the country. Most of these stores aresmall, and consumer goods companies have to reach out to them in villages only through achannel 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 nomore than a million people and some are in areas that have less than 100,000 people. Companies

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are left with no choice but to start building a strong distribution system and adapting toinnovative means of transportation to combat bad roads and poor connectivity. This challengeaffects the pace of replenishments of sold goods as the supply system is too fragmented andincreases inventory holding costs for retailers. Some companies had set up area offices which inturn manage smaller rural offices. 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 toplan their products in advance. So the supply pipeline becomes long and loaded. More oftencompanies have to redesign their products and rework on their pricing strategy to succeed in therural markets smaller pack sizes, product variants and perception of affordability are key totarget rural markets. Examples include shampoo in sachets and dry food in smaller packaging.Using the media, which has deeper penetration in rural areas, goes a long way in buildingawareness and driving acceptance for products. The channels include the state-runbroadcaster Doordarshan, radio channels, local language advertising, cinema, outdoormedia 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 alsohelp organize the fragmented retail formats.

4.1 ITC'S E-CHOUPAL INITIATIVE: A LEAD TOWARD RURAL RETAIL

Another innovator in rural distribution -- the $3.6 billion, Calcutta-based tobacco-to-hotelsconglomerate ITC -- has also been trying to build a platform that others can use. At a recentseminar on rural marketing, ITC chairman Y.C. Deveshwar outlined plans to create a trust thatcould work as an agency through which companies -- both private and public -- could marketgoods and services to Indian farmers. The trust route would hopefully make other companiesmore willing to sign up with their offerings. ITC has the right credentials to launch this trust.

Like Hindustan Lever's project Shakti, its eChoupal venture has been the subject of several casestudies.ITC's foray into an enhanced distribution network came from the recognition that the

existing agri-produce distribution channels were inefficient.

The company exports various agricultural products -- soybean, rice and wheat, to name a few. Itneeds to source them from farmers."In 2000, ITC embarked on an initiative to deploy technologyto reengineer the procurement of soybeans from rural India," says S.Sivakumar, CEO of ITC'sagri-business division. "Kiosks -- called eChoupal -- consisting of a personal computer withInternet access were set up at the villages." He explains that soybean farmers could access thiskiosk for information on prices, but had the choice to sell their produce either at the local marketor directly to ITC at their hub locations. A hub location services a cluster of eChoupal. Bypurchasing directly from the farmer, ITC significantly improved the efficiency of the channeland created value for both the farmer and itself. "While the eChoupal network was initiated to

facilitate more efficient and effective procurement, the connectivity -- both physical andinformational -- between the farmer and the market that it facilitated has allowed ITC to use itfor distribution of goods and services from the market to the farmer," says Sivakumar. It has thusevolved into a business platform.

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The e Choupal infrastructure consists of:

A kiosk with Internet access in the house of a trained farmer, called a Sanchalak. Thiskiosk is within walking distance of target farmers.

A warehousing hub managed by the former middleman, called a Samyojak. This is withina tractor-driveable distance of target farmers. (The former middlemen were given a roleto avoid resistance to the project. They joined because they could see that their traditionalbusiness was in jeopardy.)

A collaborative network of companies orchestrated by ITC with a pan-India presence.

This is, of course, a simplified structure. And there has been a stream of new initiatives. Forinstance, in August 2004, ITC introduced the Choupal Sagar, a rural retail outlet at the hub. Thefirst was set up at Sehore in Madhya Pradesh. "This 7,000 sq. ft. mall sells consumer goods aswell as agri-products," says Sivakumar. The benefits to the farmer are obvious. And ITC itselfgains. Apart from the more efficient channel, there is money to be made from the reverse flow.

In 2005-06, ITC generated $23 million selling chemicals and fertilisers. That may not sound likemuch, but it's early yet. In a recent move, ITC has set up its first urban outlet, the other end of theeChoupal chain, to retail fresh fruit and vegetables.

What about other companies? Does it make sense for them to climb on the bandwagon?Sivakumar gives the example of PI Industries, which has increased its market share in MadhyaPradesh from 12.3% in 2003 to 33% in 2005 after partnering with ITC to sell through theeChoupal."The eChoupal project is already benefiting more than 3.5 million farmers," saysSivakumar. "Over the next decade, the eChoupal network will cover more than 100,000 villages,representing one-sixth of rural India, and create more than 10 million e-farmers."

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5. RURAL MARKET PLAYERS

When organized retail first made its presence felt in rural India, it wasnt a pure retailingoperation targeting the rural masses. Companies like DSCL and Godrej who had significant agri-business interests, set them up to meet the needs of farmers in a stores catchments area. These

stores are one-stop shops meant to meet the occupational needs of farmers by providing agri-inputs and fertilizers. The various retailers who have ventured in rural retailing are discussed asunder:

1. HARIYALI KISAAN BAZAAR

DSCL backed by years of experience in the agribusiness, has implemented a one of a kind ruralretailing initiative, the Hariyali Kisaan Bazaar rural departmental stores, to provide single-pointsolution to the diverse needs of the contemporary Indian farmer. Each store covers an area of 3-4acres and is managed by a team of 7-8 people whom the Company trains continuously. The totalnumber of Hariyali outlets stood at 101 as of 30th Sep, 2007, which DSCL plans to expand to250-300 outlets by the end of FY 2008-09. Hariyali Kisaan Bazaar offers the rural household all

farming and consumer products and related services along with financial services under one roof.These include wide choice and multi-brands of agri-inputs, FMCG, consumer durables, apparels,footwear, toys, general merchandise, insurance etc. The outlets also provide the farmer, theexpert advice of agronomists and the technological support in shifting from subsistence farmingto technology led commercial farming.

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via phone lines or, increasingly, by a VSAT connection. Each Sanchalak serves an average of600 farmers in 10 surrounding villages within about a five kilometer radius. Samyojak:Samyojak is the cooperating commission agents. They look for the logistical support and areresponsible for cash disbursement to the local farms for their produce. Chaupal Sagar: Followingthe runaway success of its e-Choupals, the tobacco-to-hotels-to-foods major ITCs rural foray,

which kick-started a silent revolution amongst the harried soya farmers of MP in June 2000,Chaupal Sagar are built near Samyojak, so that when farmers come to sell their produce tosamyojak and receive cash money then they can shop in Chaupal Sagars. Till now there are 19Choupal Sagars. All of these stores are located in the rural areas of Madhya Pradesh, UttarPradesh and Maharashtra.

5. KISAN SEVA KENDRA

Kisan Seva Kendra is a low cost business model by Indian Oil Corporation of a retail outletoffering fuel and other non fuel value added services with penetration in rural markets generatinghigh returns. KSK a one stop center of service(seva) for the farmers at his doorstep makingavailable: PDiesel and Petrol with Q&QPSeeds, pesticides,fertilisers and other agri needs

PNutan stove, Hurricane lamps PDaily needs such as grocery, personal care PStationery forchildren PTools, auto spares PLocation specific value additions Low investment ranging from Rs6 to 9 lacs with a payback period of 3 to 4 years as said by Sandeep Sharma, SeniorManager(Retail Sales) Indian Oil Corporation, Mumbai; in rural retail summit 2007. It currentlyhas approx. 100 operational stores.

SWOT ANALYSIS OF RURAL RETAIL MARKET

STRENGTHS

About 70% of India's population lives in 627000 villages in rural. Middle and higher

income households in rural India are expected to grow from 80 million to 111 millionby 2010.

In urban India, the same is expected to grow from 46 million to 59 million. Thus theabsolute size of rural India is expected to be double to that of urban India.

Young population.

WEAKNESS

Low literacy rates

Low standard of living

Traditional outlook

Prevalence of spurious brands and seasonal demand.

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Limited Distribution network for example cold storage.

Gaps in road and Telecommunications connectivity.

Lack of reliable electricity and water supply

OPPORTUNITIES

3 times more families lives in Rural India.

Rural India has a large consuming class with 41 per cent of India's middle-class and 58per cent of the total disposable income.

Population-becoming brand conscious.

Exposure and increase in literacy rates will open market further.

THREATS

Shifting of young generation-rural to urban cities.

Entry of small time players Study on buying behavior of rural consumer indicates thatthe rural retailers influences 35% of purchase occasions.

Vast majorities-rural people-tradition bound, fatalistic and believes in old customs,traditions, habits, taboos and practices.

Competition from local players.

RECOMMENDATIONS AND CONCLUSION

Integration of rural initiatives into business model like ITC.

Corporate should supplement government efforts & resources (infrastructuredevelopment, education system, storage).

Creating retail stores which should be rural in nature so that the rural masses identifythemselves with these stores.

Innovative & Exciting Initiatives such as Village BPO should be given impetus to tap the

talent in the rural India.

The business model for rural retail can be successful only when integration between theprofit and social motive is apparent. The social angle needs to be met for it to beacceptable.

Selection of location of the store is very important. Selecting a store in the locality willpay off than having it at the out skirts of the village.

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Empowerment in terms of economic power, purchasing power, knowledgeand information dissemination is crucial for rural retail ventures to succeed.

The model should empower the rural consumer and at the same time takeadvantage of this empowerment through creation of demand for its own products and

that of its partners.

The level of penetration except for certain products has been negligible so far. However,so far as the rural share in consumer expendables like cooking oil, tea, electric bulbs,hair oil, shampoo, toilet soap, toothpaste, washing cakes and washing powder isconcerned, their share on an average, is much higher than consumer durables.

Though the rural- urban differentials are not so pronounced in the case of durables, therural market penetration is low with respect to urban areas. However, in case of health beveragesand cosmetics like shampoos, nail polish and lipsticks, large gaps exist. Hence these productsprovide substantial opportunity to enter the rural markets. Definitely there is lot of money inrural India. But there are hindrances at the same time. The greatest hindrance is that therural market is still evolving and there is no set format to understand consumerbehavior. Lot of study is still to be conducted in order to understand the rural consumer.

REFERENCES

WEBSITES

1. www.ibef.org

2. www.echoupal.com

3.

www.dscl.com

4. http://www.murugappa.com/companies/coromandel/subsidiaries.htm

5. www.indiaretailing.com

6. www.naukrihub.com

7. www.indiareports.com

8. www.imagesretail.com

9.

www.coolavenues.com

10.http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172

11.http://www.researchandmarkets.com/reports/541244/
http://www.echoupal.com/http://www.dscl.com/http://www.murugappa.com/companies/coromandel/subsidiaries.htmhttp://www.indiaretailing.com/http://www.indiareports.com/http://www.imagesretail.com/http://www.coolavenues.com/http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172http://www.coolavenues.com/http://www.imagesretail.com/http://www.indiareports.com/http://www.indiaretailing.com/http://www.murugappa.com/companies/coromandel/subsidiaries.htmhttp://www.dscl.com/http://www.echoupal.com/

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BOOKS

1. Bhupesh Bhandari: The reign of rural retail

2. Berman Barry and Evans Joel.R., Retail Management- A Strategic Approach- NinthEdition, PHI.

3. Cox, Roger and Brittain, Paul. Retailing-An Introduction- Fifth Edition, PearsonEducation.

4. Madaan: Rural retail in India (http://books.google.co.in/books)

REPORTS& ARTICLES

1. CII-Yes Bank Study, 2010

2. CRISIL report,2010

3.

BMI India Retail Report,2010

4. CII-Technopak, November 2009

RESEARCH PAPERS & ARTICLES

1. Janet S. Ayres, F. Larry Leistritz and Kenneth E. Ston (1992): Rural Retail BusinessSurvival: Implications for Community Developers, Econpapers.

2. P.Ryan (Sept.2006): Indias growing consumer product & retail market, marubeniresearch institute.

3. Siddhatharan Sundaram and Shrikant Kulkarni, AC-NIELSEN ORG-MARG Pvt. Ltd,Retail digest.

4. Piyali Ghosh, Vibhuti Tripathi, and Anil Kumar (November 2009): Customerexpectations of store attributes: A study of organized retail outlets in India Journal ofRetail & Leisure Property Vol. 9, 1, 7587.

5. Soumen Banerjee (June 2010): Rural Marketing: Challenges in Distribution andChannel Management.(http://www.coolavenues.com)

6. Ashish Kr. Shrivastava and saket ranjan praveer (July-sept.2009): organized retail inFMCG segment: Rural marketprospect. SCMS Journal of Indian management.

7. Baba gnanakumar (April 2008): Marketing to Rural consumer-Understanding andtapping rural market potential, IIM-Kozhikode.
http://www.coolavenues.com/http://www.coolavenues.com/

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