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Prof. Rajiv Vohra
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 Rural Scenario In India

 Rural Market Myths
 Examples of Corporate Initiatives in Rural Retailing
 Impediments
 Regulations and Policies for Rural Retail
 Challenges
 u

 Rural India needs a lot of investment in land and water resources ²

estimated about Rs 200,000 crore to Rs 300,000 crore just to
transform India¶s rainfed areas
 ³Tata Steel bought Corus for $12 billion, that¶s about Rs 60,000
crore. It would need five Corus to transform India¶s rain-fed area
over a ten-year period,´
Deep Joshi retired from the rural development NGO Professional Assistance for Development Action (PRADAN)

 The estimated discretionary retail consumption in 2009 will be about

US$436 billion (about Rs 18 lakh crore) out of the US$$720 billion
(about Rs 31 lakh crore) of private consumption. Of this, about 45
per cent (US$196 billion or about Rs 850,000 crore) is urban, and
the balance is rural. By 2013, both rural and urban retail markets
could be as much as US$290-300 billion each.
Arvind Singhal, KSA Technopak
 | ||



 omogeneous mass.
´ 29 languages spoken by 1 Million plus people.
´ 122 languages spoken by ten thousand plus people.
´ State wise variation
 Literacy Rate: Kerala 90%, Bihar 44%
 BPL Families: Punjab 6%, Orissa 48%
 Southern Indian interlands prefer Quartz watches where as Northern ones
prefer Mechanical Watches
 Bullock carts in Western UP are smaller and driven by a single bull, and
people there prefer speaking industani, where as Bullock Carts in Eastern
UP are bigger, driven by two bulls and people prefer speaking Bhojpuri.
 Low disposable income.
´ Number of Middle Class  Rural 27.4 M, Urban 29.5 M (Annual
Income 45000 to 215000) NCAER Report 2002
 Individuals decide about preferences.
 | |u!

 Vast Untapped Potential

 Increasing Income and Purchasing Power
´ National Rural Employment Guarantee Scheme
´ igh support prices for key crops
 Improved Accessibility
 Increased Competition in Urban Markets
 | |!


 Rural India accounts for roughly 70% of the population. Almost
6,27,000 villages are home to 790 million Indians today.
 At present 85% of the organized retailing takes place in India¶s urban
areas. But the good thing is that the retail focus has already shifted to
the rural areas. The Indian rural market with its vast size and demand
base offers great opportunities to marketers. Two-thirds of country¶s
consumers live in rural areas and almost half of the national income is
generated here.
 15% of rural population lives in 20,000 large ³non urban´ areas with
population more than 5,000 people. 63% of rural population lives in
villages of 1000 to 5000 people. Remaining 3, 90,000 villages have
fewer than 1000 people accounting for 22% of the population.
 128 million households, the rural population is nearly three times the
urban. The rural market accounts for close to 70 per cent of toilet-
soap users and 38 per cent of all two-wheeler purchased. The rural
market accounts for half the total market for TV sets, fans, pressure
cookers, bicycles, washing soap, blades, tea, salt and toothpowder,
What is more, the rural market for FMCG products is growing much
faster than the urban counterpart.
 | |!



 According to NCAER Study, there are as many ³Middle Income and

above income households´ in the rural areas as there are in urban
areas.
 There are almost twice as many ³Lower Middle Income´ households
in rural areas as in Urban Areas .
 Number of Pucca ouses increased from 22% to 41%.
 Number of Kuccha ouses decreased from 41% to 23%.
 Percentage of BPL families declined from 46% to 27%
 Rural literacy increased from 36% to 59%
 40% villages have been connected by road, and another 30% are
expected to be connected in the next 10 years.
 More than 90% villages are electrified but only 44% rural homes
have electricity connection.
 Rural tele-density has increased by 300% in the last ten years.
 | |!


 K V Kamath ex MD & CEO if ICICI Bank (India¶s Second Largest
bank) has identified rural markets as one of the key drivers of
revenue growth. The rural market provide opportunity as banks are
yet to serve a large part of the market. As much as 58% of rural
households do not have a bank account and only 21% have access
to credit from a formal source.
SEC Matrix²India (Rural)
Socioeconomic Class-wise
Distribution of ouseholds (%)
  
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 Affluent/Very Rich:
´ ouseholds owning personal car/jeep and other products
 The Well Off:
´ ouseholds owning any/all of these ± AC, Motorcycles, scooters,
washing machines, refrigerator, CTV, with other consumer durables but
not car/jeep.
 The Climbers:
´ ouseholds owning any/all of these ± mopeds, mixer grinders, sewing
machines, audio equipment, B&W TV but not other things mentioned in
the first two categories.
 The Aspirant:
´ ouseholds owning bicycle, electric fans, electric iron.
 The Destitute:
´ All others
 | |  |!

 The above diagram depicts the population of Rural India divided on

the basis of household incomes. Strivers and seekers constitute the
middle class. The diagram depicts how the increase in household
income will lead to increased consumption by various levels of
consumers in the pyramid.
 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.
 | |  |!

 By 2015 the aspirer class of household will be the largest group at

47% of rural population or 80 million 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 the population
(seekers) will account for roughly one-third of the rural consumption.
 The shift in rural population from one segment to another will shift
rapidly. ence it will be important for the retailer to keep a track of
this and change the merchandise mix in the store accordingly.
 | |  |!

 Rural India will see the consumption growth on per household basis.
It will grow at a compounded annual growth rate of 5.1% during next
two decades and will reach today¶s urban level till 2017. This also
depicts the change in consumption basket of rural consumers over a
period of time. This means that rural retailers will have to constantly
work on their merchandise mix with the increasing purchasing power
of the rural households.
 According to MGI forecast Rural market will nearly triple till 2025
creating a vast potential of $577bn. With the increase in income
rural population will spend increasingly on other products then
spending on food.
 Average annual household incomes will increase at a rate of 3.6% in
next two decades will lead to shift of significant number of
households from the deprived to the aspirer income bracket.
   

 Lack of literacy and awareness

 Low per capita income
 Wide geographic spread.
 Gaps in road and Telecommunications connectivity.
 Lack of reliable electricity and water supply
 Limited Distribution network for example cold storage.
 Competition from local players
 | |  |!

 It is essential to understand that there is a vital difference between

the behaviour of an urban customer and a rural customer. In towns
and cities, people by and large get paid a fixed amount every month.
So, they can plan their expenses. Farmers, in contrast, get money
twice a year when they harvest their crops. (In some parts, they
manage to squeeze in a short third crop between the kharif and rabi
seasons.) But their expenditure is spread right through the year. So,
the moment there is even an indication that yields may be down,
they begin to cut back on expenditure.
 Jagdeep Kapoor, the managing director of Samsika Marketing
consultants, has advised his customers ² he has about 90 of them
² not to look at the rural markets as one large block; they should,
instead, segment it further on the basis of their psychographics,
behaviour, demography and geography. Like there is no one urban
market, says he, there is no one rural market.
 

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 Many houses in the rural area are not electrified.
´ Affects the ability of the rural consumer to use electrical products.
´ Increases the demand for batteries.
 The non availability of piped running water affects both the durables
and non-durable markets
´ Automatic Washing Machines have no demand in such situations.
´ Washing Powders cannot be used if the clothes are washed in streams
or ponds.
 The availability of roads influences the purchase of motorized
vehicles
´ More than half the rural households own bicycles and mechanical wrist
watches
´ About 42% of rural households have radios or transistors.
 

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 Power Strapped Villages have lot of voltage fluctuations
´ People prefer those products that can withstand these voltage
fluctuations and don¶t mind paying extra.
 Life in rural areas is still governed by customs and traditions and
people do not easily adapt new practices.
´ Even rich and educated class of farmers does not wear jeans or
branded shoes. So it becomes very hard to convince them for
something new.
´ They are just not ready to try it out which is a main hurdle in selling
products to the rural people
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 One company which succeeded in selling the same product in
different markets, simply by changing the packaging, KMP Oils. In
Muslim dominated UP the company¶s hair oil is sold in green packs.
In Orissa, the same pack comes in purple as this colour is
considered auspicious.
 Texla cashed in on the popularity of the serial Mahabharata by
naming its sets Arjun & Yuvraj.
 Dabur distributes religious texts like anuman Chalisa and
Ramcharitmanas or calendars with religious themes along with its
Ayurvedic Products.
 Philips sells their products on account of size rather than sound in
the rural market. Consumers are willing to pay a higher price for
larger machines, on the assumption that big must be better. The
company now makes its rural models one and a half times larger
and louder than the ones for urban markets.
  u |

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 ICICI Bank segmented the rural markets using the socio economic
classification to develop a separate marketing strategy for each of
the segments. It identified four categories of consumers according to
the ownership of property and education.
´ R1: Farm equipment loans & insurance, savings accounts, high value
policies, mutual funds and IPOs
´ R2: Working capital loans, crop loans, farmer saving accounts, personal
accident, health insurance and weather insurance.
´ R3: Crop loans, commodity financing, farmer saving accounts, personal
accident, health insurance and weather insurance.
´ R4: Micro finance, jewel loans, health insurance and weather
insurance.
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 A number of successful brands in rural markets have branded
names or symbols with numbers or animals. These include 555
soap, Bandar Chaap Dhant Manjan, Gemini Tea (Elephant) Sheru
(Tiger) Bidi. The symbol helps associate the product features with
the brand of tea. The symbols that make the consumer feel and
think about features that are relevant for the product are critical for
brand building in the rural markets.
 Companies like Nestle and GlaxoSmithkline Consumer ealthcare
(GSK) are now taking a different route and launching products
specifically for rural markets. GSK (maker of orlicks), for instance,
has launched Asha ± a low-cost variant (40 per cent cheaper than
orlicks) for rural markets only. Asha is priced at Rs 85 for a 500-
gram pouch pack ± close to half the price of the original. Nestle, too,
recently launched Rs 2 and Rs 4 products ± Maggi Masala-ae-Magic
and Maggi Rasile Chow, products which will be first marketed in
areas with low purchasing power. Maggie Rasile Chow has been
developed especially for the rural/ semi urban markets to provide
low-cost, light meal fortified with iron. Masala-ae-Magic is a taste
enhancer containing iron, iodine and vitamin A.
 Companies like Nestle and GlaxoSmithkline Consumer
ealthcare (GSK) are now taking a different route and
launching products specifically for rural markets. GSK
(maker of orlicks), for instance, has launched Asha ± a
low-cost variant (40 per cent cheaper than orlicks) for
rural markets only. Asha is priced at Rs 85 for a 500-
gram pouch pack ± close to half the price of the original.
Nestle, too, recently launched Rs 2 and Rs 4 products ±
Maggi Masala-ae-Magic and Maggi Rasile Chow,
products which will be first marketed in areas with low
purchasing power. Maggie Rasile Chow has been
developed especially for the rural/ semi urban markets to
provide low-cost, light meal fortified with iron. Masala-ae-
Magic is a taste enhancer containing iron, iodine and
vitamin A.
 !
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| |!  | 
 Pratap Roy if Godrej traveled to Islampur a remote village in
Maharashtra, by his company van. After the usual hoopla - music,
announcement of free gifts ± the van made its way to the few shops
in the village. There was a surprise in store for him, every
shopkeeper wanted to lay his hands on all the bottles of hair dyes
available. Roy discovered that the farmers who bought from the
shops did not want the dyes for themselves. They were using it to
colour their cattle to make them look younger and healthier.
 The VP of Amrutanjan, Eshwar Das during his visit to the rural
market observed a customer walk into a small store and ask for one
Rupee of Amrutanjan. e noted to his surprise that the retailer took
a scoop from the Amrutanjan pain balm bottle and transferred to a
small leaf and handed it over to the customer. The company
developed a small round tin pack inserted in a small transparent
plastic pouch to prevent leakage.
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 Oscar TV competed effectively in the rural markets against the
leading TV brands. It competes in the rural markets by providing no
frill value for money products. It derives 40% of its sales from semi
urban and rural sectors through a 14´ battery operated model in
Eastern Up & Bihar. UL found that retailers in villages were cutting
its large 100 gm Lifebouy into smaller pieces and selling these. So it
introduced a smaller 75gm pack. It also introduced Wheel detergent
in a 100 gm Pack.
 |
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 The advertisements of Babool toothpaste (showing a young man in
different situations dancing to a catchy jingle, Navaratna oil
(featuring Govinda & Rambha), Samsung Colour TV (sparks coming
out from the TV) and Asian Paints (Sunil Babu!). The massage
understanding in the urban markets were 100% whereas in rural
markets its varied between 30% to 60%
 The problem with Babool Ad
´ Too quick to understand
´ Confusion with a tooth powder
´ Is it a shaving cream
´ No one will dance simply for a tooth paste
´ What is a dog doing in a tooth paste ad.
´ Characters are not actually recommending the toothpaste
´ The jingle was catchy, but I cannot relate to the person.
 |
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 Navratna Oil Ad
´ The audience in Tamil Nadu could not recognize Govinda while the UP
audience did not recognize Rambha.
´ In both the places audience were surprised that a character with a
headache can dance so vigorously.
 Implications for Marketers
´ Rural consumers do not understand clever, gimmicky, quick (fast
paced), suggestive and hi tech films
´ Use of unrelated symbols, characters and icons confuse and distance
them.
´ They want a clear connection between the problem and solution offered
by a brand.
 |
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 DSCL backed by years of experience in the agribusiness, has
implemented a one of a kind rural retailing initiative, the ariyali
Kisaan Bazaar rural departmental stores, to provide single-point
solution to the diverse needs of the contemporary Indian farmer.
 Each store covers an area of 3-4 acres and is managed by a team
of 7-8 people whom the Company trains continuously. The total
number of ariyali outlets stood at 101 as of 30th Sep, 2007, which
DSCL plans to expand to 250-300 outlets by the end of FY 2008-09.
 ariyali 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, the expert advice of agronomists and the
technological support in shifting from subsistence farming to
technology led commercial farming.
 The company also launched credit services during its second
quarter 2007-08, in association with DFC bank, providing loans for
various purposes. The company also stepped up its bulk
procurement activity and trading activity under review to include
various grains (maize, wheat), pulses (chana), oilseeds (mustard),
menthe oil, coriander etc.
 |

 Godrej Aadhaar is the agri services cum retail initiative of Godrej

Agrovet Ltd. It is a complete solution provider for the Indian farmers
and provides professional guidance with an objective to improve
productivity, higher returns and improved cost benefit ratio. The
services offered are crop advisory services, soil & water testing
services; buy back of output, crop finance, supply of agri inputs and
animal feeds, transfer of information (weather, price, and demand
supply), door delivery of products etc. While, the venture begun by
offering agri solutions to the farmers, based on their feedback, it has
over the last few months diversified into offering a number of other
product categories like ± durables, FMCG, apparels, footwear etc,
thus catering to the complete requirement of the rural household ± A
one stop shop for Rural India. A number of corporate are already in
the process of partnering Aadhaar for various projects for furthering
the initiative.
 GAVL also opened its second petro format Aadhaar Express in
Kashti, Maharashtra. GAVL revamped its Warden Road ³Nature¶s
Basket´ outlet by positioning it as ³Authentic World Food´. This store
has introduced new product categories like wine, cheese, cold-cuts,
processed foods in addition to its existing portfolio of fresh fruits,
vegetables & herbs and specialty foods.
 |!

 



 UL launched Project Shakti in the year 2001, in keeping with the
purpose of integrating business interests with national interests
 The model was piloted in Nalgonda district of Andhra Pradesh in 50
villages in the year 2000. The Government of Andhra Pradesh took
the pioneering step of supporting the initiative by enabling linkages
with the network of DWACRA Groups of rural women set up for their
development and self-employment. Most SG women view Project
Shakti as a powerful business proposition and are keen participants
in it. It has since been extended to in Andhra Pradesh, Bihar,
Chattisgarh, Gujarat, aryana, Jharkhand, Karnataka, Madhya
Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar
Pradesh and West Bengal with the total strength of over 39,880
Shakti Entrepreneurs.
 Under the project, UL offers a range of mass-market products to
the SGs, which are relevant to rural customers. UL is investing
significantly in resources that work with the women on the field and
provide them with on-the-job training and support. This is a key
factor in ensuring the stabilization of their fledgling businesses.
 |!

 



 UL imparts the necessary training to these groups on the basics of

enterprise management, which the women need to manage their
enterprises. For the SG women, this translates into a much-
needed, sustainable income contributing towards better living and
prosperity. Armed with micro-credit, women from SGs become
direct-to-home distributors in rural markets.
 A typical Shakti entrepreneur conducts a steady business which
gives her an income in excess of Rs.1,000 per month on a
sustainable basis. As most of these women live below the poverty
line, and hail from extremely small villages (with populations of less
than 2000), this earning is very significant, and almost twice the
amount of their previous household income. For most of these
families, Project Shakti is enabling families to live with dignity, with
real freedom.
 In addition to money, there is a marked change in the woman's
status within the household, with a much greater say in decision-
making. This results in better health and hygiene, education of the
children, especially the girl child, and an overall betterment in living
standards.
 |!

 



 The most powerful aspect about this model is that it creates a win-
win partnership between UL and the consumers, some of whom
will depend on the organization for their livelihood, and builds a self-
sustaining cycle of growth for all.
 UL envisions the creation of 1,00,000 Shakti Entrepreneurs
covering 5,00,000 villages, and touching the lives of 600 million rural
people by the year 2010.
 µi-Shakti¶ - an IT-based rural information service has been developed
to provide information and services to meet rural needs in
agriculture, education, vocational training, health and hygiene.
 µi-Shakti¶ has been set up in 400 villages in Andhra Pradesh, and
have been functional since August 2003.
 Through i-Shakti kiosks, ICICI Bank and UL will work together to
provide a new delivery channel for rural India, which offers a
multitude of products and services to the rural customer. In the first
phase, Life and General Insurance will be offered through this
channel. Other financial services including Investment products
(Equity, Mutual Funds, Bonds) ICICI Bank Pure Gold (gold coins),
Personal Credit, Rural Savings Accounts and Remittances will be
introduced subsequently.
 ! !  |

 ITC¶s e-Choupal is an example of how a commercial venture can

provide a channel for knowledge and opportunity, bringing global
resources and practices to Indian villages as well as higher incomes
for farmers, and helping create the conditions for many other
enterprises to cater to the rural market. E-Choupal is an entirely new
channel for procuring the purchase of the farmers. Today they
operate throough 6,500 choupals in 9 states. In e-Chaupal they
started with two channels known as Sanchalak and Sanyojak.
 : Sanchalak is the person in whose house the ITC sets
up the e- Choupal. E-Choupal consists of a computer; linked to the
Internet via phone lines or, increasingly, by a VSAT connection.
Each Sanchalak serves an average of 600 farmers in 10
surrounding villages within about a five kilometer radius.
 : Samyojak is the cooperating commission agents. They
look for the logistical support and are responsible for cash
disbursement to the local farms for their produce. They basically
facilitate the purchase of the products for ITC from farmers. They
take care of 40 Choupals and the average distance a farmer has to
travel to reach Samyojak to sell his produce is 25-35 kilometers.
   |

 Following the runaway success of its e-Choupals, the tobacco-to-

hotels-to-foods major ITC¶s rural foray, which kick-started a silent
revolution amongst the harried soya farmers of MP in June 2000,
the company has now moved on to the second phase. And the
result is Choupal Sagar, the first of which was unveiled at Sehore
near Bhopal in August 2004. A rural hypermarket or a rural mall,
Choupal Sagar provides multiple services under one roof, like
selling produces and buying quality products for farm and household
consumption. Chaupal Sagar are built near Samyojak, so that when
farmers come to sell their produce to samyojak and receive cash
money then they can shop in Chaupal Sagars. Till now there are 19
Choupal Sagars. All of these stores are located in the rural areas of
Madhya Pradesh, Uttar Pradesh and Maharashtra.

  
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 KSK a one stop center of service (seva) for the farmers at his
doorstep making available:
´ PDiesel and Petrol with Q&Q
´ PSeeds, pesticides,fertilisers and other agri needs
´ PNutan stove, urricane lamps
´ PDaily needs such as grocery, personal care
´ PStationery for children
´ PTools, auto spares
´ PLocation specific value additions
 Low investment ranging from Rs 6 to 9 lacs with a pay back period
of 3 to 4 years as said by Sandeep Sharma, Senior Manager(Retail
Sales) Indian Oil Corporation, Mumbai; in rural retail summit. It
currently has approx. 100 operational stores.
|  
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 APMC
 Essential commodity act: The fertilizer industry is centrally regulated
by the government through an administered pricing mechanism &
sales allocation under Essential Commodities Act (ECA). In
 the year 2002-03, the government announced a long term Pricing
policy for urea.
 Indian Land Acquisition Act 1894
 Urban Land (Ceiling and Regulation) ACT, 1976
 Agricultural Produce (Grading & Marking) ACT, 1937 (ACT No. 1 of
1937) (as amended up to 1986)
 Non Agricultural Use Clearance
 Under PN4/2006 100% FDI is allowed through the automatic route
in - Floriculture, orticulture, Development of Seeds, Animal
usbandry, Pisciculture, aqua-culture, cultivation of vegetables,,
mushrooms, under controlled conditions and services related to agro
and allied sectors
 Intra state agricultural land taxes vary, prompting the current finance
minister to moot for a common GST (Goods and services tax) which
would help in bringing all the various state taxes under a common
fold including the agricultural income taxes levied individually state
to state.
   

 Availability
´ Reaching the far flung villages. 627000 villages are spread over 3.2
Million sq. km.
 Affordability
´ Provision of lower price points.
 Acceptability
´ Gain acceptability for the products and services.
 Awareness
 


 

 65 remote area offices under the branch offices that empowered to
directly link orders.
 230 Service Stations.
 2600 Mobilsed authorised service personnel for villages having
residents below 10000.
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 Low priced TV for Rural Customers: Sampoorna & Cineplus
 
 

 First to come out with indi and Regional Language Instruction
Mode.
 First To Launch Gaming in TV.
| 
 Use of Mobile Vans, Exhibits and Road Shows


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