The future of retail in India

 The future lies with those companies who see the poor as their customers.” -C. K. Prahalad

During my visit to my maternal grandparents in  a village named ‘Dumrama’ in Bihar in summers 2015, there was a sense of  development and better information flow which I happened to observe. Pushpa store in the neighborhood sent a message on WhatsApp to my grandmother telling her that the milk packets have arrived. This was a typical business information communicated which surprised me immensely. Yes, the technology flow is just spreading to remote areas and this transformational change in Indian rural market with its vast size and heterogeneous demand base is ready to offers great lucrative opportunities to marketers.

Market of today has changed the dynamics of the business giving it as a tough challenge for the organized retailers to extract the best opportunities.

It is a low-cost, last-mile connection to the consumer and his knowledge of servicing the Indian family is something unique to the kirana,” said Damodar Mall CEO of Reliance Retail which is why the humble, ubiquitous kirana will remain the first among equals in the retail ecosystem.                       

Source: KPMG, Indian Retail Next Growth Story, 2014: TechSci -2014

 Retailing is the set of business activities that adds value to the products and services sold to consumers for their use. Not all retailing is done in stores. The nonstore retailing include Internet sales of various different products. Retailers create value through following activities.

Trajectory path of Retail and FMCG in India

India’s retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015, driven by income growth, urbanization and attitudinal shifts. (The Boston Consulting Group) India is the world’s fifth-largest global destination in the retail space.

Source: Crisil Research Estimates -2014

The Fast Moving Consumer Goods (FMCG) sector in rural and semi-urban India is estimated to cross US$ 20 billion by 2018 and US$ 100 billion by 2025.  The rural FMCG market expanded at a CAGR of 13.2 per cent to US$ 100 billion during 2009–15 with upcoming plans of government investing in rural electrification.   

Source: AC Nielsen, TechSci Research, Dabur Reports 

Initiatives taken by companies

Retailers have devised different models to serve rural markets.

Source: Journal; South Asian Journal of Marketing & Management Research

 

MODELS OBJECTIVES
Hariyali Kisaan bazaar model by DSC  ·         A rural retailing initiative to provide single-point solution to the various needs of the ordinary Indian farmer·         The company trains continuously all the 7-8 members who manage each 3-4 acres of store

 

Aadhar model ·         Godrej Aadhar is the agri services cum retail initiative of Godrej Agrovet Ltd.·         It provides professional guidance to farmers with an objective

ü  To improve productivity

ü  Get Higher returns

ü  Improve cost benefit ratio

·         Various services are offered like crop finance, transfer of information related to weather, price, offers a number of other product categories like FMCG, apparels, footwear thereby giving complete set of goods to any rural household

Choupal sagar ·         Warehouse for storing the farm produce purchased by ITCthrough  e-choupal

·         Used to give information to farmers regarding external factors such as weather and prices

·         A platform to sell their produce , purchase necessary farm and household goods under the same roof

·         ITC will maintain IT network in rural India and train a local farmer to maintain e-choupal

 

Hindustan Unilever (Shakti)  ·         HUL, the largest consumer goods company has a large distribution network and opened up many self-help groups·         It is viewed as a powerful business proposition and women are keen participants in it

 

Key growth drivers for the consumer market

  • People migrating from agriculture to manufacturing(Rural Yuppie is moving out to work in nearby towns and cities)
  • Improved lifestyle, Raising Aspirations with increase in earning (disposable income)
  • Growing youth segment and working women population
  • Easier access to resources
  • Potential consumer segments -Middle Income Households

 

Source: MGI India, Consumer Demand Model

Source: Indian RetailI ndustry/overview/Us Census Bureau

 

 

Indian rural retail stores are in the form of haats and melas. The urban market (metropolitan cities, tier II, III cities) offers great opportunities to organized retailers but they are anticipated to saturate soon. Hence, most big retail companies are trying to enter the untapped rural market.

There has been an overall growth of the Indian economy which has increased the purchasing power of the people in rural areas opening development opportunities for the companies to expand their presence. According to the third annual edition of Accenture Research, “Masters of Rural Markets: rural consumers are particularly aspirational, striving to purchase branded, high quality products and rural segment is catching up by the estimates of Nielsen research

Some of the people belonging to the working age group of the rural communities are migrating from agriculture sector to manufacturing sector. Two recent reports show that the social sector scheme ”MGNREGA” had a causal impact in improving lives, especially for women and children. A survey titled ‘MGNREGA: A catalyst for rural transformation led by Indian Human Development Survey (IHDS) says

  • Poverty has declined by about 32%
  • Wages have improved, so has financial Inclusion. In 2004-05, only 9% women had bank accounts, now 49% have them
  • Participation of women is increasing in employing opportunities provided by MGNREGA
  • 93% of the women now seek health services but only a marginal improvement in terms of empowerment

Per capita GDP in India has grown at a compound annual growth rate (CAGR) of 6.2 per cent in its rural regions, since 2000. The rural segment is growing at a healthy pace of 8-10 per cent per annum and is expected to add US$ 100 billion in consumption demand by 2017.

McKinsey Global Institute predicts that by 2025, annual real income per household in rural India will move to 3.6 per cent from 2.8 per cent depicting the changing scenario in rural areas with respect to income and occupational pattern.

A communication program is to be designed to achieve a variety of objectives for the retailer, such as building a brand image of the retailer in the customers mind, increasing sales and store traffic, providing information about the retailer’s location and offering and announcing special activities.

New Development – Annapurna Bhandar Yojana’

Consumer aspirations are rising and they want to try new products. One can sell a lot more through fair price shops, says Biyani explaining the potential inherent in the Annapurna Bhandar Yojana.

On August 21, 2015 Rajasthan State Food and Civil Supplies Corporation and Future Consumer Enterprise Ltd. (FCEL), a Future Group company signed an agreement to exclusively operate 5,000 fair price shops under PDS as a first step to start Annapurna Bhandar Yojana’ for providing multi-brand products of daily consumption at fair price shops to upgrade all the ration shops into one store, as an example of a new era of public private partnership in the public distribution system. The Future Group will make available 146 items in 48 categories at the selected Annapurna Bhandars at discounted prices. The company has to mandatorily stock products of multiple brands instead of only procuring their own products.

New Development – Online Retailing

The big e-tailers like Amazon, Reliance Retail are wooing kirana stores. They want kiranas to serve as delivery points for products purchased on its site. Amazon has also listed few of the kiranas as sellers on its portal.

The objectives of exploring this local neighborhood shops partnerships are:

Ø  To reach customers better

Ø  To simplify last-mile distribution as kirana stores are the closest channel to consumers also want

Ø  To boost B2B segment such that the kirana stores source merchandise from the retailers to maintain quality

Benefits to Kirana stores is the fresh business that large retailers and online stores can feed them. They are able to earn better margins and live better life.

#Comments:” Vipul Parekh, co-founder of Big-Basket.com”

Challenges Ahead

  • Communicating to rural customers about the new FDI rules and advantages of a one stop shopping center
  • Threat to all unorganized small retailers who sell things to earn their livelihood
  • Not all of the suppliers can be brought into the value chain. This will negatively affect their earnings
  • Real estate-concerns in acquiring land in rural and semi-urban areas

References

Retail Management: By, Lewy Weitze Pandit

KPMG survey: Retail, the next big story

Indian Retail industry/overview/Us Census Bureau   

MGI India, Consumer Demand Model 

South Asian Journal of Marketing & Management Research       

Crisil Research Estimates -2014

AC Nielsen, TechSci Research, Dabur Reports                                         :

 

https://www.dnb.co.in/IndianRetailIndustry/overview.asp

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The future of retail in India

by Chiti Shree time to read: 7 min
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