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Unnati Stores

Situational Analysis

Progressive Corporation (PC) initiated Unnati to increase the productivity of farmers, as increased incomes will lead to increase of rural household’s purchasing power. PC relied on the concept of trust and relationship- building to promote Unnati as brand. Their first store at Patti allowed the farmers to order soil tests and on the basis of he results obtained, fertilizers were advised to the farmers. Further, it was demonstrated that by using the methods advised by Unnati yield turned out to be much higher than the normal. Their store at Taran Taran was partitioned into two floors with one being used to sell agri products and other for non - agri products. The store used multiple promotional activities for agri products like field visits, expert meetings etc and like redemption scheme, lucky draw, scratch card etc for non- agri products . They used mother- daughter model as its supply chain model, wherein there were stores called hubs that served larger catchment areas and there were smaller stores called spokes which served much smaller catchment areas. The Taran Taran store acted as hub while store at Patti was it’s spoke. PC had setup distribution centers to take care of needs of both hub and spoke but in case of emergency even a hub can serve a spoke. Unnati had developed in- house IT package to optimize hub and spoke model but it hadn’t been rolled out properly and store level records were still recorded manually. The major competitors were Haryali Kissan Bazaar (DCM Sriram Consolidated Limited), Chaupal Sagar (ITC Limited), Godrej Adhar, and Tata Kisan Sansar. Haryali Kissan Bazaar focused on agri products alone and relied on self - serve model to sell their products. Cha upal Sagar on other hand was supposed to serve as a high quality, low- cost channel for rural India. ITC offered a wide range of both agri and non- agri products along with other facilities like restaurants, ATMs, fuel pumps etc. Godrej Adhar had a very good distribution network due to its parent organization and also followed a hub and spoke model. Tata Kisan Sagar dealt in agri- products only.

Problem Statement

PC wants to open 1200 Unnati stores by 2012 and achieve operational break- even quickly by increasing store traffic as well as average purchase per customer.

Options

Split - up of agri and non- agri products

Distribution Strategies : Status quo, improved hub and spoke

Economical Strategies : Cut back on non- agri sections which have very low footfall and low sales volumes, provide credit facilities through credit agencies

Promotional Strategies: Cross agri and non- agri products promotional schemes

Evaluation Criteria

Margin s

Fixed cost

Evaluation of Options

Though agri products have lower margin approx. 10% in comparison to about 20% for non- agri products, the main focus should be on agri products as it connects with company’ s vision to better rural households and will allow the company in future to tap into resulting higher incomes with their non- agri produc ts. The fixed cost for consumer durables like Refrigerators, TVs etc. is high while sales are seasonal and will vary from region to region depending on economic status of that particular region. Margins from hub and spoke model can be increased if optimized distribution takes place using IT system to track stocks. As far as the fixed cost of distribution channels are concerned it’s because of hub’s larger area and staff and can be brought down if some of the sections from non - agri products are let go. Addit ionally number of spokes per hub can be increased over time to penetrate a region more deeply. Consumer durables margin can be brought into the picture if a credit agency provides credit to loyal customers. But the fixed price as discussed above will go up because of larger area and staff requirements. To increase the overall margins we need the consumers engaging for agri products to engage for non- agri products as well and this can be achieved if such promotional activities are used wherein agri product customers get some redemption or discount on non- agri products . This will have no effect on fixed cost.

Recommendations

Consumer durables should be part of the offered products at stores only if it has been found through data available that people have the required purchasing power either with or without credit facilities. As the Unnati network grows, they should switch to IT controlled transaction system as this will result in more optimized distribution. Cross - promotional offers should exist to synergistically increase the footfall in agri and non- agri product sections. Also the local regional considerations should be kept in mind while deciding on promotional offers, to better connect with the customer.

Action Plan

They distribution of hubs and spokes be properly decided using surveys similar to ones given in Exhibit 9. Over next 3 years 800 stores could be started with next 400 (mostly as spokes) coming up in another 3 years. This will help us in achieving the break- even in faster way. The IT system, which took backseat, should be revived and immediate implementation should be started. Also the above recommendation of providing credit facility could be worked out by using a partner agency that could provide credit on special schemes to rural population.