What's more, ITC has started to monetise its e-Choupal network, which has 20 million rural consumers according

to ITC estimates (the market-led model reaches 4 million farmers, each of whom on an average is part of a five-member household). The company is leveraging this captive base - few marketers can boast of such a sizeable one - by offering the platform to 160 companies who want to tap rural markets; it is also offering newer services like private healthcare and rural headhunting. The network has also become a big rural sales and distribution channel for ITC. The company has started to sell its FMCG products in rural India through e-Choupal. "e-Choupal is helping ITC build a strong relationship with the rural populace, which is one of the biggest growth drivers for the FMCG industry," says Anand Mour, senior FMCG analyst at Ambit Capital. e-Choupal enables ITC to source commodities at a much lower cost than competitors. This is because it buys directly from farmers, which eliminates intermediates and multiple handling, thereby reducing transaction costs. Direct sourcing from farmers has enabled ITC to preserve the identity of the commodity. This, Sivakumar says, has allowed ITC to create differentiated premium products like Aashirvaad multi-grain atta.

ITC officials point out that such benefits give the company room to manage product pricing; and this has enabled it to gain market share. A case in point: while almost all FMCG companies increased prices more than five times in the last 15 months, ITC increased prices just twice. The e-Choupal network comprises 24 Choupal Saagars (rural hypermarts), which are owned by ITC, and 70 warehousing hubs outsourced through service providers. Choupal Pradarshan Khets act as demonstration and selling points for agriculture companies; and companies sell their products and service through Choupal Haats. ITC typically organises 60,000 Pradharhan Khets and 6,000 Choupal Haats in a year. Today, more than 160 companies ride on the e-Choupal network including Bayer, BASF, State Bank of India, Bharat Petroleum, Nokia, TVS Motors, Maruti Suzuki India, Tata Motors and Monster.com. Although ITC is investing in its FMCG portfolio, analysts tracking the company say it is going slow on creating physical infrastructure for e-Choupal. "Firstly, ITC is already present in key states for raw material procurement; and, secondly, the e-Choupal model is a high-cost structure," said an analyst with a top brokerage firm requesting anonymity. ITC set up its last Choupal Sagaar in 2008. The company, however, attributes the slowdown in expansion to poor agri-reforms. "Rural infrastructure costs money, but that is factored into the eChoupal business model and the return expectations. Slowing down in expansion is primarily due to the slowing down in agri-reforms after 2007," says Sivakumar. He adds that a few clauses in the APMC Act, Essential Commodities Act and Forward Contracts (Regulation) Act put sourcing restrictions on companies.

ITC readies model for brand e-Choupal evolution

TNN Dec 7, 2011, 12.45pm IST

Tags: ITC| e-choupal| Agriculture Produce Marketing Committee

HYDERABAD: ITC is refreshing the storyboard for e-Choupal . The decade-old initiative, one of the largest Internet-based interventions in rural India that helps farmers with better income for their produce, wants to innovate its business model as the rapidly improving wireless communication makes individual farmers more savvy with price discovery mechanisms. Now operating in 40,000 villages across 16 states, e-Choupal created an urban-rural transaction highway for agri commodities, credit, insurance , consumer goods and even four-wheelers . ITC is strategizing its next evolution. So what is next? THE diversified conglomerate , valued at over $30 billion in stock market, is building rural manpower skills, a sort of youth employment exchange; advisory business in agri commodities ; community driven eco-tourism projects and is even exploring a model for selling fresh fruits and vegetables in the cities. Some of these could emerge as the anchor business with a few rider businesses for support. What's got ITC geared into putting e-Choupal through a process of constant innovation is a key learning that business models need to be least vulnerable to market distortions created by government action. e-Choupal's expansion was frozen after the government , in its bid to fight inflation , rolled back certain reforms in APMC ( Agriculture Produce Marketing Committee ) Act and Essential Commodities Act. Although e-Choupal further deepened its network within existing villages of operations, ITC decided against making fresh investments to expand the model to newer villages. It had a target of reaching 100,000 villages. The cigarette-to-hotels conglomerate is now striving to ensure brand 'Choupal' is well leveraged and meets certain basic goals as it continues to evolve. "There are two aspects to our vision for e-Choupal . One, it is a platform that connects rural India to the rest of the world. It's a two-way transaction flowwhether you are sourcing agricultural commodities , or connecting employable youth to marketsbetween rural and urban. The second dimension is it is focused on delivering a triple bottomline outcome," S Sivakumar , chief executive, agri business, ITC, told TOI. e-Choupal originated with the idea of making Indian agriculture globally competitive and self sufficient. The idea was to put more money into the hands of farmers with efficient price discovery mechanism and cost reduction in the sourcing process. This, in turn, helped the company create value-added products like Aashirvaad atta. Several studies have shown that the price dispersions that existed between mandis shrank wherever e-Choupal was set up. But today, price discovery is not the sole preserve of ITC in an inter-connected world bursting with information. ITC is sieving through several ideas which will ensure that Choupal remains relevant with the changing times. This is when ITC decided to get into the agri advisory business. It then studied the possibility of agricultural extensions and explored rural employment projects. "It should be a business which touches a large number of people. Another business is ecotourism. But how many villages lend themselves for this kind of activity. It's a potential business option for a later date. One characteristic is that the business model should create sufficient revenues to pay for the cost of infrastructure that is laid to build that business," said Sivakumar. However, with rural markets and consumption patterns themselves undergoing a change, how relevant will e-Coupal be? "That's the kind of evolution we are talking about. From agriculture

commodities to rural youth getting employed , it is a continuum which is evolving. The idea is to be relevant to the market place, to fill certain institutional voids. As infrastructure improves and institutions come into place, such voids will not be there. These will morph into something else. When connectivity becomes good, the kind of transaction we are conducting is different from what we did 10 years ago. So we disengage from that activity and move into newer activities. Interestingly , there are emerging economies in the global context and emerging rural markets will leapfrog. Thus at any point the number of experiments we conduct need to scale up. Each is relevant for a particular kind of market situation. It has to evolve and that's how we are designing the business model ," said Sivakumar. When ITC started piloting Choupal Fresh in Hyderabad a year ago, it was a model to deliver fresh fruits and vegetables to consumers and institutions based on demand, mitigating chances of value reduction for the farmer or surplus or shortage situation leading to price volatility. The model ITC created is based on demand forecasting. Whatever is produced, gets consumed. It has worked well in Hyderabad. Will it be scaled up to other cities as well? ITC will take a call on this next year.