Chapter 8

Distribution in Rural Markets

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Rural Marketing, 3/Ed Pradeep Kashyap
 Learning Objectives
• Understand the challenges and dilemmas in rural
distribution

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• Describe the channels of distribution

• Understand the rural retail environment

• Explain channel behaviour in rural areas

• Identify the prevalent distribution models of different

product categories

• Describe innovations in rural distribution and rural-centric

distribution models

• Discuss the logistic challenges in rural India

Rural Marketing, 3/Ed Pradeep Kashyap
 Availability: The Challenges and the
Dilemma
• Reaching 7.8 million retail outlets across 600,000 villages

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• 85% of the villages have a population of less than 2,000
population

• Poor road connectivity

• Multiple tiers of distribution leading to higher costs

• Low density of shops per village and high variation in their

concentration

• Poor availability of suitable dealers

Rural Marketing, 3/Ed Pradeep Kashyap
 Availability: The Challenges and the
Dilemma
• Inadequate bank and credit facilities to rural retail outlets

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• Poor storage systems leading to inadequate stocking

• Highly credit driven market

• Poor visibility of products on rural shelves

• Poor communication of offers and schemes due to poor

reach of media

• Inadequate power supply leading to spoilage of goods which

need refrigeration
Rural Marketing, 3/Ed Pradeep Kashyap
 The Evolution of Rural Distribution
Channels

LEVEL Channel Partners Marketplace

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Company Depots/CFAs, Super
1 National/State
stockists
CFAs/Redistribution stockists Cluster of districts
2
Retailers/Modern/Traditional District Headquarters
Sub-district
Redistribution stockists
3 (Tehsil/Block)
Semi-wholesalers/Retailers
Feeder town
Semi-wholesalers/Retailers Feeder town
4
Mobile traders in haats/vans Periodic market
Retailers/Vans/Barefoot agents
(Shakti dealers)/Cooperative Large and small
5
societies/ Government agencies villages
(Fair price shops)

Rural Marketing, 3/Ed Pradeep Kashyap

 Channel Dynamics
• Most growth seen in smaller towns and larger villages

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• Rising incomes and rising consumerism

• Lower penetration levels offer great opportunities

• Need for designing cost effective distribution model to

overcome the challenges and take advantage of the
opportunities

Rural Marketing, 3/Ed Pradeep Kashyap 6

 Rural Channel Members

• Supplement company depots

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CFAs • With investment in stocks and without
investment in stocks

Redistribution • Critical link covering 30% of the rural retailers

•
stockists Located at district headquarters

• Principally a food grain merchant

• Believes more in speculation rather than
Wholesalers distribution
• Most wholesalers are also large retailers

Retail • Permanent outlets

•
outlets Mobile traders

Rural Marketing, 3/Ed Pradeep Kashyap

 The Rural Retail Environment
Percentag Percentage Percentage Number of
Village
e of Total of of retail Outlets per

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Population
Villages Population Outlets Village
Represents 17% of
villages, 54% of > 5,000 3 22 14 28
rural population
2,001 –
and 60% of rural 14 32 32 16
wealth
5,000
1,001
Hardly any shops in 22 25 33 9
- ,2000
60% of the villages
< 1,000 61 21 21 2

TOTAL 100 100 100 6

Source: Census of India 2001, and “Rural Retailing in India 2008”, Rural
Marketing Association of India

80% of durables and 70% of clothes and footwear are purchased from small
towns in the 20,000 to 100,000 population, numbering 1,900
Rural Marketing, 3/Ed Pradeep Kashyap
 The Rural Retail Spread
• Rural retailing accounts for INR 1.9 trillion with about 7.8
million retail shops

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• Number of retail outlets in rural have more than doubled in
the last decade
• Average monthly turnover of rural outlets is INR 12,000
• 60% of the villagers prefer buying from haats due to wider
choice and lower prices
• Companies need to appoint distributors up to the 10,000 to
20,000 population
• Distributors should have the reach to cover villages with
population of 2,000+

Rural Marketing, 3/Ed Pradeep Kashyap

 Retail Premises
Year
•Average size of retail outlets Size
(in sq. ft) 1999–2000 2008
has increased to 140 sq. ft

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•Rural shops normally an Up to 100 71 53

extension of the house in which 10-250 25 37

the family lives > 250 4 10

•Retailing is part-time activity Source: AC Nielsen Shop Census 1999-200, RMAI 2008

due to fewer customers

Shops
•Number of infrastructural Type of Shop
(in per cent)
constraints Chemist 4
•Low maintenance costs offset General Stores 13
Grocery Stores 62
the high transportation and
Paan plus 21
travel costs partially
Total 100
Source: Nielsen MAT 2009, Presentation by Partha Rakshit
at RMAI workshop 20-21 January 2010

Rural Marketing, 3/Ed Pradeep Kashyap

 The Rural Retail Shelf
Product Category Shops (in per cent)

Food Articles 75
• Rural shops with first two

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Tobacco products 69 product categories present
Cosmetics/toiletries 68 in almost all villages.
Groceries 53

Stationery 39 • Cosmetics, stationery,

Electricals 31 electricals and chemists
Fruits and Vegetables 14 more visible near highways.
Clothes/Footwear 6

Construction Material 4
• Shopping for items which
Agri-inputs 4
are bought on special
Durables 3
occasions done in nearby
Kitchen Appliances 2

Source: RMAI Rural Retail Report 2008

town or city due to variety.

Rural Marketing, 3/Ed Pradeep Kashyap

 The Rural Retail Shelf
Penetration (in
Product Stocked
%)
• Relatively new and urban

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Cigarettes 62

Packaged biscuits 58
oriented products now available
Shampoos 56
in rural
Washing powder 55

Tea 52 • Main problem is ratio for brands

Confectionery 48 rather than product categories
Toilet soaps 47 Rural Urban
Blades/razors 46
Product
19 27
Ready to eat snacks 45 Categories
Toothpaste 44 Brands 42 92
Chocolates 40 • Marketers need to develop
Pens 34
display and storage systems for
Source: RMAI Rural Retail Report 2008
rural

Rural Marketing, 3/Ed Pradeep Kashyap

 Stock Turnover and Rural Retail
Habits
• Average value of stocks in interior villages one-third of

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feeder villages

• Off-take of packaged foodstuffs and tobacco products higher

in interior villages with toiletries more in feeder villages

• Tendency to shop in nearby towns high within a 25-km

radius or in villages close to the highway

• Marketers need to ensure product availability at the right

places

Rural Marketing, 3/Ed Pradeep Kashyap

 Modern Retail in Rural Areas

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ITC Choupal Sagar

Tata Kisan Sansar

Godrej Aadhaar

3A Bazaar

Rural Marketing, 3/Ed Pradeep Kashyap

 ITC Choupal Saagar
• First rural mall with shopping area of 7,000 square feet opened

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in 2004

• Located within “tractor-able” distance of 30 e-Choupals

• Also serve as procurement centres

• Product categories cover almost all consumer, consumer

durables and agri-inputs

• Customer profile is farmers with large and medium land

holdings

• 24 outlets at present; plan to expand to 700 by 2013

Rural Marketing, 3/Ed Pradeep Kashyap
 Tata Kisan Sansar
• Started in 1998 as Tata Kisan Kendra (renamed TKS in 2002)

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• One-stop farmer solution shop

• 600 farm resource centres catering to 3.5 million farmers over

22,000 villages.

• Hub as resource centre to cater to needs of TKS outlets

• Each resource centre supports primarily 20 to 25 TKS franchisee

outlets

• Product categories cover agri-inputs and consumer goods

• Recently added are financial services, IT-enabled market

information and lifestyle products

Rural Marketing, 3/Ed Pradeep Kashyap

 Godrej Aadhaar
• Started by Godrej Agrovet

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• Future group and Godrej entered into JV in 2008 to increase
penetration of insurance, micro-finance
• Product categories cover consumer goods, consumer durables
agri-inputs and animal feeds
• At present 66 Aadhaar outlets catering to 50.000 farmers spread
across 2,000 villages of Punjab, Haryana, Maharashtra and
Gujarat
• Plan to set up 1,000 stores in the next five years
• Tie-ups already with Eicher Motors and HDFC Bank
• In negotiations with Apollo Hospitals and BPCL outlets

Rural Marketing, 3/Ed Pradeep Kashyap

 3A Bazaar
• First mobile retailing venture using five vans in J.P. Nagar

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• Each van is visited by 150 to 200 customers with a daily sale
of INR 15,000 to INR 20,000

• Company targets lower middle-class families

• Plans to add 20 more vans and also open stores

Rural Marketing, 3/Ed Pradeep Kashyap

 Channel Behaviour in Rural
Areas
• Sourcing of stocks and purchasing cycle
Normally from wholesalers and distributor agents. Visits to

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feeder towns twice or thrice a week
• Stocking behaviour and seasonality
Moves around the harvesting and sowing seasons

• Credit pattern
Ranging from 15 to 20% to as high as 60 to 70%

• Transfer of capital from store to farm

• Pricing by the channel some times even higher than MRP
because of additional costs
• Channel promotion not effective in interior villages but
effective in feeder villages.

Rural Marketing, 3/Ed Pradeep Kashyap

 Retailer Consumer Dynamics
• Consumer loyalty to retailer is very high in rural

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• Retailers reluctant to stock new items

• Need for retailer training

• Retailer loyalty is greater than brand loyalty in rural

• Marketers need to develop rural-centric models

Rural Marketing, 3/Ed Pradeep Kashyap

 FMCG Distribution Models in Rural
Markets: DM1

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Rural Marketing, 3/Ed Pradeep Kashyap
 FMCG Distribution Models in Rural
Markets: DM2

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Rural Marketing, 3/Ed Pradeep Kashyap
 Rural-centric Distribution
Models
• Haats/shandies

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• Modern distribution models

• Vans

• The public distribution system

• Cooperative societies

• Petrol pumps and extension counters

• Non-government organizations

• Rural mobile traders

Rural Marketing, 3/Ed Pradeep Kashyap

 Haats

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• High degree of corporate presence in haats
• Haat sellers make weekly purchases from wholesalers or retailers
• Lower prices, better choices are the main triggers for sales

Rural Marketing, 3/Ed Pradeep Kashyap

 Modern Distribution Models
The SHG Model

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• Self-help group of 10 to 15 women who come together to
form a mutual thrift group
• Matching loans from rural banks to set up income-
generating enterprises
• Project Shakti by HUL

The Youth Entrepreneurship Model

• Huge force with proper orientation and training
• Colgate Disha
• HUL Shaktimaans

Rural Marketing, 3/Ed Pradeep Kashyap

 Vans
• Coverage of stockist area through vans loaded with stocks

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• Vans used for distribution and promotion

• Very expensive

• Eveready uses model most successfully through 1,000 vans

covering 44 warehouses and 4,000 distributors

Rural Marketing, 3/Ed Pradeep Kashyap

 The Public Distribution System
• A system of distribution of essential goods through a

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network of fair price shops

• Network of 476,000 shops of which 380,000 are in rural

areas

• One FPS caters to 1000 population in rural areas

• Huge infrastructure base which can be used for distribution

of consumer products by marketers

Rural Marketing, 3/Ed Pradeep Kashyap

 Cooperative Societies
• 500,000 cooperatives spread over the country

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• Cooperatives account for 34% of fertilizers sold in the
country

• 4,398 primary marketing societies and 2,933 large

multipurpose primary marketing services

• Warana Bazar and Farmers’ Services Cooperative Societies

function like mini-supermarkets

Rural Marketing, 3/Ed Pradeep Kashyap

 Others
Petrol Pumps and Extension Counters

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• 12,000 petrol pumps of which 60% on highways close to
villages
• Also sell consumables like food products and toiletries
• IOC Kisan Seva Kendra

Non-government Organizations
• 3.3 million NGOS operating largely in rural
• Tata Tea Gaon Chalo

Rural Mobile Traders

• Traders travelling to interiors to sell their wares
• Concentrate mainly on local brands and lack credibility

Rural Marketing, 3/Ed Pradeep Kashyap

 Rural Logistics

The Hub and Spoke Model Syndicated Distribution

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• All traffic moves along spokes • Normally for non-competing
connected to the hub at the products
centre. • Sharing of distribution costs.
• Stockists are appointed in major • Problems arise when markets
towns and feeder towns for two companies are
• Stockists operate their own different or payment terms
delivery vans. are different.
• Retailers grow to stockist level • Salesperson of one company
over a period of time does not push the other
• Also called satellite company products
distribution system

Rural Marketing, 3/Ed Pradeep Kashyap

 Rural Marketing Case
Colgate Disha
1. Why do you think the youth entrepreneur was chosen as

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a channel partner? Who else could have been chosen in
their place. Why?

2. What were the key success factors of project DISHA?

3. Do you think this model is sustainable and scalable? Can

it be replicated by other players? Give arguments to
support your choice.

4. Which product categories and players can replicate this

model for rural distribution? Why?

Rural Marketing, 3/Ed Pradeep Kashyap