Harvesting rural India for retail growth

Welcome to rural India, an appropriate place to experience the retail explosion that the country is witnessing. There was a time when people living in rural areas had to go regularly to the nearest town every week or fortnight to buy household stuff. Estimated at $28.6 billion, rural India market has already started getting attention of the retailers all over India who are in search of new areas for expansion. All the major retailers are planning in a big way to grab the wallets of the out-of-towners. ITC launched the first rural mall,  ‘Choupal Sagar', offering a diverse product range that include FMCG, electronics appliance and automobiles in an attempt to provide to farmers a one-stop destination for all of their needs. Then, we have Godrej Agrovet, which plans, instead of focusing just on agriculture, to become a 'complete solution provider' to the rural and semi-urban community.

Another initiative is by the DCM Sriram Group under the name of the ‘Hariyali Bazaar'. The outlet started off by providing farm related inputs and services. In due course of time, the company plans to introduce the complete shopping centre. Other corporate bodies include Escorts and Tata Chemicals (with Tata Kisan Sansar) and they are setting up agri-stores to provide products and services to farmers and tap the vast rural market. All these stores customise and tailor their inventories to the needs of local farmers, selling clothes, footwear, animal feed, irrigation equipment and even insurance.

The opportunity is here
With the benefits of economic development percolating down to rural and semi-urban India, the markets - especially the rural market - have changed a lot in the last few years. Today, the rural consumer is more educated and aware about products due to various options available to him or her. Shailendra Tyagi, VP (marketing), ITC, Choupal Sagar, elaborates, “Rural retail has been predominantly unorganised for a long time. Haats, traditional bazaars dominated the rural retail landscape. Organised players started focusing on rural retail during the last four to five years. Initial efforts of organised players gravitate towards agriculture and agri inputs. Organised players are enlarging their focus area to other categories like food, apparel and durables. Secondly, increasing penetration of electronic media is fuelling the demand for branded products and customers are becoming conscious of lifestyle products.”
However, Mr Rajesh Gupta, VP and Business Head, Hariyali Kisan Bazaar, DSCL, says, “The rural retail is still in its early days of development. There are only three or four active players that are taking interest in rural retail.” 
While elaborating on Hariyali Kisan Bazaar, Mr Gupta explains, “ About five years before, we started in the form of a pilot store with the aim of understanding the kind of retail we can do in rural market. Originally, we focused on the farming needs of the farmers. We had appointed some economists to work closely with them so as to understand their needs and requirements and create long term relationship with the farmers.”  
Highlighting the opportunities in rural retail segment, Mr RS Vijan, Executive Vice President, Godrej Agrovet, informs, “The opportunities - especially in the rural retail sector - are huge. Organised retail in India is still in its nascent stage – less than three per cent of the entire retail market.  To a large extent, the rural retail remains still unexplored. With a population of more than 70 crore and 13 crore households spread across 6.27 lakh villages, rural India offers a tremendous potential for organised retailing.”
Mr Tyagi says, “Indian rural markets offer huge opportunity for retailers. For almost all the product categories in absolute numbers, rural India has higher potential than urban markets. Low product penetration of all the product categories provides a lot of scopes for market expansion. However, these consumers are dispersed across six lakh markets and modal incomes are low.”

Services to rural consumers

Initially, the services provided by these retailers in rural areas were limited to farmers and their various requirements. Today, the situation is different and these retailers provide large and wide range of services. Mr Vijan says, “Godrej Aadhaar’s close interaction with the rural community in the initial period has resulted into a much better understanding of the specific needs and wants of the people. Hence, we have moved on in order to become a 'complete solution provider to the rural and semi-urban community’ instead of focusing just on agricultural needs and requirements. Now, we have adopted a more holistic objective, that of providing all the solutions under one roof - agri-inputs, free technical guidance and agri consultancies, consumer products and services, healthcare, education and entertainment services with a focus on facilitating financial, developmental activities in association with local clubs and NGOs.” According to Mr Gupta, “The product range is very large. All kinds of agricultural products including fertilisers, pesticides and implements are made available. Now, we are offering a whole new range of household products like apparel and lifestyle products, construction material, telecom products and auto products. We are also in talks with pharmacies (for JV) so as to increase our product range.” Similarly, Mr Tyagi, says, “Today, all the retailers are focusing only on  selling the products to rural consumers. Since the general income of rural India is low, only models of retail that help rural India in increasing its income, and, in turn, help them to buy quality products will succeed.”

Motivating force

Many retailers are entering the rural market. There must be some motivating or encouraging factors that prompt them to enter the segment. In this context, Mr Vijan opines, “Godrej Agrovet has been working in rural areas along with farmers for the last three decades and Aadhaar was mainly instituted as a complete solution provider to the agricultural sector. As a one-stop-shop, its enables farmers to improve their productivity and returns. Real India lives in the villages. The first Godrej Aadhaar store was launched in December 2003 at Ranjani, a small village situated at a distance of some 60 kms from Pune.” Similarly, Mr Gupta says, “Our organisation has a very long-term association (40 to 50 years) with the rural market. DSCL is a company, which brought Shriram urea into the country. We had a very strong association with rural market. Also, we had interest in sugar business, hybrid seeds. As we had a good understanding of the market, we thought of entering the rural retail segment.” However, Mr Tyagi informs, “The real inspiration comes from the inherent belief that the solution offered are tailored so as to create a  ‘win-win’ condition to both ‘companies’ and ‘rural community’. You can’t take urban models and compel them for rural consumers and, then, hope to succeed. Retailers have to become a part of the rural milieu.”

Are rural consumers receptive?
For a long time, rural consumers have been making all their purchases from the local retailers. Now, organised players are offering them another option of buying. In such a situation, it becomes important to see if rural consumers are receptive and accept these new retail outlets. According to Mr Vijan, “Trust and relationship plays a very vital role in the decision making process of rural population. Now, rural consumers are more educated and aware and, accordingly, their need is also changing. They are open to experimentation and have responded very well to our concept of ‘Godrej Aadhaar’, which is essentially an agri services-cum-retailing venture. They look forward, to a greater choice, reliable quality and value for money offering. They are keen to avail a host of agri consultancies and other consumer services. But, still trust and relationship plays a very vital role in all their decision making process.”  The views of Mr Tyagi also go on similar lines and he says, “Yes. During the six months of buying season, the footfalls are as high as 500-600 a day. Farmers come and sell their produce and avail of products and services offered at Choupal Saagars. They have also started enquiring about some new products and services, which help us in augmenting our offerings on a regular basis.” Regarding the acceptance of organised players in rural retail, Mr Gupta opines, “Yes, the response is very encouraging from the consumers in rural India.”

Facing the competition
Big organised retail players are entering the rural market and, therefore, competition cannot be ignored and avoided. Mr Vijan, says, “We believe in establishing a long-term, value-based relationship with rural community, and thus follow a capability-led-empowerment’ route in order to improve the conditions of the farming community. The entire idea revolves around building up a sustainable and flourishing rural economy by providing agri-advisory services, sharing scientific agricultural practices and meeting the needs for quality agri-inputs at the right price. In the process, we also meet the daily needs of the rural households by offering consumer products and services. In short, we are addressing a number of requirements of rural India by aggregating huge number of products and services under one roof. We propagate happiness and prosperity - Godrej Aadhaar: Khushiyon Ka, Khushhali ka, and, once, the rural community members realise the benefits of the association, they become loyal customers.”  In this context, Mr Gupta says, “We are the pioneers in the market, we have strong presence, partnerships and associations though there is a room for several other players in rural retail.” 

Initial challenges
Challenge in rural India is that of offering all the services, which are available in retail stores of a town. Retailers have to handle under one single roof a wide range of categories products: pesticides, fertilisers, seeds, apparel, FMCG, consumer durables, diesel etc.  Being a new market for organised players, the challenges in rural India are many. Mr Vijan says, “We had to face the regular challenges that any retailer or organization doe face - putting in place the supply chain management system, real estate and skilled manpower across the rural landscape etc. Besides these, the core challenge was driving away the perception among the villagers that a retail format does not necessarily mean that the products and services provided in the store are expensive. We had to educate the villagers and the farmers about the various facilities available at Aadhaar. It took sometime, but we overcame their resistance, and once they started visiting the stores, they understood the value addition that Aadhaar will be doing to their lives and their community.”  Mr Tyagi informs, “The challenges are related to poor transport infrastructure. Poor public transport limits customers visiting the stores, which are far off from their residences. Due to poor transport infrastructure, it takes longer time for the products from urban manufacturing centers to reach rural stores. It makes the whole supply chain less reliable while management effort and cost of managing remote operations and building logistics networks are also increased.” Mr Gupta observes, “Understanding the consumer is very difficult. Though it is a common problem, it becomes a bit more difficult in the case of rural areas. There is vast and complex range of consumers in rural market. Besides logistics, connectivity is another problem for rural markets.”

Trends in rural retail industry
Rural retail is going through several changes with the entry of big retailers. These retailers are following some methods to promote the industry. According to Mr Vijan, “The latest trends can be seen in the boost in agriculture, spread of education and training in rural India, rural infrastructure and supply chain, laws and regulations supporting participation of business houses in overall rural development.”
However, Mr Tyagi, opines, “With the advent of organised retailers, customers are becoming quality conscious. They have also started appreciating convenience offered at one-stop stores. Retailers should be geared up to increase range of products at different price ranges.”

Prospect of rural retail
Organised retail, especially in rural India, is still in a very nascent stage. But, the kind of potential rural India holds in terms of need-gaps and rising income level promises huge growth in rural retail industry. Within the next couple of years, the rural retail industry shall see a very rapid growth. And, to support this expansion, there is today a great need to address the challenges of supply chain, real estate and skilled manpower across the rural landscapes of the country. More organised players will be looking to rural retail as urban retail is becoming crowded and saturated with more and more players. The future appears to be very good and bright. It brings in lots of benefits and choice for consumers.

 

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