Wholesale Model of Rural Distribution in FMCG: A Quantitative Study of Factors

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WHOLESALE MODEL OF RURAL DISTRIBUTION IN FMCG: A QUANTITATIVE

STUDY OF FACTORS
Article · August 2012
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Aug 2012/ Volume 2/Issue 8/Article No-4/1347-1353 ISSN: 2249-7196
INTERNATIONAL JOURNAL OF MANAGEMENT

RESEARCH AND REVIEW
WHOLESALE MODEL OF RURAL DISTRIBUTION IN FMCG: A

QUANTITATIVE STUDY OF FACTORS
*1 2
Dev Narayan Sarkar , Dr Gagan Pareek
1
General Manager – Sales, PepsiCo
2
Heritage Institute of Technology, Kolkata (W.B)
ABSTRACT
This paper reviews the efficacy of wholesale channel in distribution of FMCG products in Rural
India and provides a situational framework for using wholesale channel in rural distribution.
Literature available on rural distribution models is sparse and this paper aims to advance that
body of knowledge from a practitioner’s point of view. Rural markets are very important for
FMCG companies today owing to the increasing development of consumerism in the bottom of
the pyramid. Rural markets are characterized by the 4 challenges (4A’s) of rural marketing
which correspond to the 4P’s of marketing. This paper deals with the rural marketing challenge
of Availability with special focus on a major rural marketing FMCG. The challenge of
Availability corresponds to the fourth P of “Place”. Ex post facto qualitative as well as
quantitative techniques have been used in this research work.
Keywords: Rural Marketing, distribution, wholesale, wholesaler, feeder wholesaler.
INTRODUCTION
Close to 68.8 % (833 Million spread over 6.38 lakh villages) of India Lives in Villages (Census,
2011) and Marketing Organizations are making a beeline to reach into rural markets. Reaching
villages pertains to the ‘P’ named ‘Place’ in the 4P’s of Marketing & the ‘A’ named
Availability in the 4 A’s denoting the Challenges in Rural Marketing (Kashyap, 2005). Bhave
and Markale (2008) wrote in their conference paper that the rural markets will expand to Rs
16,70,000 crores by the year 2015 & to Rs 26,48,000 crores by the year 2025 (up from 9,68,000
crore in 2005) which amounts to a 5.1% compounded annual growth rate.
But it is proving to be an unusually difficult job owing to various developmental & socio-
economic factors. Choice of a model for rural distribution is a Strategic Decision since the
repercussions of a right or wrong choice will stay with the Marketing organization for years
at end & any attempt to change the model of distribution will require a sizable financial
outlay. Even the best marketing organization today is still searching for better methods to
convey their goods & services to the rural retailer and/or the rural customer.
Wholesale is one such model of rural distribution which is in the considerations set. In
FMCG parlance, a wholesaler procures goods in bulk quantities at good discounts from an
authorized company distributor or any other wholesaler and sells it in smaller quantities to
other wholesalers or retailers. Wholesalers keep a small margin but make money out of
high turnovers.
*Corresponding Author www.ijmrr.com 1347
Rural Marketing does not exist as a proper academic or research discipline in the Western
World. Though books & articles on Rural Marketing exist in India, they are mostly focused on
the Brand management aspects in Rural Marketing. The Academic books sometimes have a
chapter or a few pages on rural distribution methods but there are hardly any scholarly articles
on rural distribution. Since there is so little material on rural distribution & this paper aims to
develop scholarly material on rural distribution and more specifically on the efficacy of feeder
wholesale channel for rural distribution of FMCG products in India.
RURAL MARKETING
Rural Marketing does not exist as a proper academic or research discipline in the Western
World. Very few research papers exist on rural distribution and there is a need to study the
efficacy of feeder wholesalers in rural distribution. Since there is no existing research paper
on Rural Wholesale distribution, this research aims to fill that gap in academic knowledge.
Marketing Tools Marketing Challenge
Product Acceptability
Price Affordability
Place Availability
Promotion Awareness
Figure 1: Rural Marketing Tools Vs Marketing Challenges

The scope of consumer goods distribution in Rural is best represented by Figure 2
describing the Domain of Rural Marketing (Jha, 1988).
To
Rural Urban
Unorganized Sector Agricultural Marketing,

Rural (Farm & Non- Artisan Products,
Farm) Cottage Industry
From
Consumer Goods
Not in the Realm of
Urban Distribution (Scope
Rural Marketing
of this paper)
Source: Jha (1988)

Figure 2: Classification of Rural Marketing
Copyright © 2012 Published by IJMRR. All rights reserved 1348

Distribution of FMCG in rural markets through the wholesale channel falls in the realm of
Urban to Rural marketing as shown in the diagram above.
WHOLESALE CHANNEL WITH RESPECT TO RURAL
Rural distribution through wholesale channel is popular in case of smaller FMCG

companies which cannot afford to have a dedicated distribution channel owing to lower
number of company personnel or owing to lower levels of commitment to stay for the long
term. It is also used by companies which have only a couple of brands or products which
makes other mechanisms unviable e.g. Rasna (Powdered drink) is sold through only
wholesale channel to rural markets. Urban wholesalers are based in larger urban towns
(greater than 1 lakh population towns) where rural retailers go to make purchases. Feeder
wholesalers are based in feeder towns (10 thousand to 1 lakh population) which are based
nearer to villages. Feeder town wholesalers are considered very important for FMCG
distribution into rural markets. Many smaller FMCG’s are highly dependent on rural
wholesale distribution for their rural penetration.
Many larger FMCG companies also take the wholesale route to rural markets for some of
their products or use feeder wholesalers to reach deeper into rural areas which are still
beyond their direct reach. Larger FMCG companies may have products or divisions which
have lesser sales and the wholesale route is more viable than building the usual direct
distribution into rural areas though a hub and spoke network of superstockists and
substockists.
Factory CFA Distributor
Rural Feeder Urban

Wholesaler Wholesale
Consumer Rural Retailer
Figure 3: Rural Wholesale Distribution Model

S1 S2
A2
S1 S1
S4 S3
S2 S2
Whole
A1 saler A43
S3 S1 S2 S3
S4 S4
A4
S4 S3
A1-A4: Semi-Wholesale outlets
Figure 4: Rural Wholesale B2B (Source: Adapted from Kulkarni (2010) & Ramkishen
(2009))
As per Lariviere (2011), retailers in Indian villages with a population of less than 10,000 people
usually have to leave their immediate areas to procure 81% of their stock. More than 50% of
rural markets are still beyond reach of direct distribution mechanisms and are routed through
wholesalers, especially the ones located in nearby feeder markets. A wholesaler is principally a
galla kirana (food grain) merchant, who sustains the belief that business is speculative rather
than distributive in character (Kashyap, 2005). He tends to support a brand during periods of
boom and withdraws support during periods of slump. Some more reasons for the speculative
character and dormant role of wholesalers are (Kashyap, 2005):
 For ages, the Indian rural markets have been a sellers market which needed no active
sales approach

 Companies laid more stress on urban markets which were more lucrative
A serious rural marketer will ideally not like to depend upon the uncertain loyalties of
wholesalers. They would like to draw up and implement direct distribution plans to reach
rural outlets and village consumers. Such direct distribution will, in turn, adversely affect
the fortunes of wholesalers (Kumar, 2009).
Companies like Asian Paints, ICI Paints and Nerolac Paints still follows a wholesale route to
rural penetration. The biggest disadvantage which these companies face is that wholesalers
determine which brand they want to supply to rural hinterlands and resultantly the wholesaler
squeezes each company for a very high magnitude of schemes and discounts.
Another factor which causes the prevalence of wholesale distribution into rural markets is
the physical space occupied by a particular product as a ratio of its value. If a product
occupies lesser physical space like Perfetti candies (Perfetti Van Melle), there will be a
primacy of wholesale distribution owing to convenience of carrying back stocks for the
rural retailer – Perfetti gets 60% of rural sales through wholesalers despite having an
established rural hub and spoke model. An opposite case is that of Bingo Snacks (a product
of ITC) which sells space-consuming products of comparatively lower value – this has
resulted in lower than 20% contribution of wholesale to its total rural sales.
Evolutionary contribution of wholesale channel: All distribution has evolved from the
wholesale channel. When a wholesaler becomes large, has the right attitude towards
business, is strategically located, starts providing credit and is not averse to delivering
goods to his customer points, he evolves into a distributor and some FMCG appoints him as
a spoke. If the wholesaler is located in a large feeder town or a district headquarter and does
B2B business in supplying to other wholesalers in villages (who eventually sell to rural
retailers), then that party can also evolve into a Hub (Superstockist) and get appointed as
such. Though distributors have evolved in this fashion in the 1980’s and 1990’s, the last
decade also witnessed direct appointment of non-wholesalers as distributors (both urban
stockists and rural superstockists/hubs).
MATERIALS AND METHODS
The Sampling design used is Multi Stage Sampling in order to obtain the right balance
between Cost considerations and the requirement of correct Frame validity. A Multi Stage
Sampling is considered the modality of choice in case of big enquiries extending to a
considerably large geographical area, say, the entire country.
Stage I: Judgemental Sampling Stage II: Stratified Random

used to select a state (West Sampling used to select
Bengal) Villages
Stage III: Quota Sampling to

select Rural Outlets in the
Villages
Figure 5: Sampling Design

Each Strata (District) is proportionately represented to ensure a statistically valid sample.

Eg if District X has 100 villages (as per Census) and WB has 1000 villages; then if we want
a sample of 50 villages, we will randomly select 5 villages from District X.
An abridged version of the questionnaire used has been appended as Appendix 1. The
factors have been correlated with the satisfaction measure to arrive at the important factors
which determine if an exclusive wholesale model is the best method for rural distribution of
a given FMCG product.
Districts in West Total Villages No of Rural
Bengal >3K Population No of Villages Retailers
Bankura 96 1 10
Barddhaman 363 3 30
Birbhum 165 1 10
Dinajpur 189 2 20
Darjiling 101 1 10
Haora 264 2 20
Hugli 280 2 20
Jalpaiguri 343 3 30
Koch Bihar 211 2 20
Maldah 292 2 20
Medinipur 443 4 40
Murshidabad 530 4 40
Nadia 413 3 30
N24 Parganas 445 4 40
Puruliya 90 1 10
S 24 Parganas 674 6 60
Grand Total 4899 40 400
Figure 6: Retailers surveyed (Stratified Random Sampling)
HYPOTHESES TO BE TESTED
Hypothesis 1: Wholesale channel can be used if number of SKU’s (stock keeping units) is
low.
Hypothesis 2: Wholesale channel can be used if credit to retailers is not required.
Hypothesis 3: Wholesale channel can be used when product is experimental or not
established.
RESULTS AND DISCUSSION
These hypotheses required a test of hypothesis between the two variables of rural retailer
satisfaction from wholesale model and the corresponding parameter. A cross-tabulation
with a Pearson Chi-square test, contingency coefficient value and lambda value was
requested from the computer SPSS Statistics Desktop 20.0 package. These tables generated
through SPSS are displayed in next 2 pages and analyzed.

Hypothesis 1: Satisfaction with Wholesaler * Wholesale HS SKU

bought Crosstab
% within Satisfaction With Wholesaler
Wholesale HS SKU bought Total
Greater than 8 4 to 8 2 to 3 1
Very Satisfied 4.9% 95.1% 100.0%
Satisfied 1.6% 98.4% 100.0%
Satisfaction With
Neutral 2.4% 97.6% 100.0%
Wholesaler
Unsatisfied 97.8% 2.2% 100.0%
Very Dissatisfied 94.1% 5.9% 100.0%
Total 10.7% 20.7% 20.0% 48.7% 100.0%
Chi-Square Tests
Value df Asymp. Sig. (2-sided)
a
Pearson Chi-Square 1237.174 12 .000
Likelihood Ratio 1005.695 12 .000
Linear-by-Linear Association 413.214 1 .000
N of Valid Cases 450
a. 1 cells (5.0%) have expected count less than 5. The minimum expected count is 4.37.
Directional Measures
Value Asymp. Approx. Approx.
a
Std. Error Tb Sig.
Symmetric .873 .018 20.315 .000
Satisfaction With
Lambda Wholesaler Dependent .809 .024 19.858 .000
Wholesale HS SKU
Nominal by .948 .015 20.655 .000
bought Dependent
Nominal
c
Satisfaction With .738 .026 .000
Goodman and Wholesaler Dependent
Kruskal tau c
Wholesale HS SKU .923 .021 .000
bought Dependent
a. Not assuming the null hypothesis.
b. Using the asymptotic standard error assuming the null hypothesis.
c. Based on chi-square approximation
Symmetric Measures
Value Approx. Sig.
Contingency
Nominal by Nominal Coefficient .856 .000
Explanation: From the Chi-square test output table, we can see that a significance level of
0.000 (Pearson’s) has been achieved. This means that Chi-square test is showing a
significant association between the two variables at 100% confidence level (100 – 0.00).
Thus we can conclude that the satisfaction of a retailer from rural wholesale model and the
number of SKU’s are significantly associated with each other. From the obtained
Contingency Coefficient of 0.856, it is inferred that the association between the dependent
and independent variables is significant since 0.856 is nearer to 1 than to 0. Also from the
lambda asymmetric (with “Wholesale HS SKU bought Dependent”) value of 0.948, we can
conclude that there is a 94.8% reduction in predicting the satisfaction of a retailer when we
know the manpower intensity i.e. a significant predictability. Overall, the cross-tabulation
visually shows that in a Wholesale rural distribution model, a retailer is satisfied only when
number of SKU’s is low.
Hypothesis 2: Satisfaction with Wholesaler * Wholesale HS Credit from Supplier
Crosstab
Wholesale HS Credit From Total
Supplier
Always Often Rarely never
Very Satisfied 9.8% 90.2% 100.0%
Satisfied 7.1% 92.9% 100.0%
Satisfaction With
Neutral 18.8% 81.2% 100.0%
Wholesaler
Unsatisfied 5.6% 94.4% 100.0%
Total 10.9% 24.0% 19.1% 46.0% 100.0%
Chi-Square Tests
a

a b
Std. Error T Sig.
Symmetric .751 .026 17.499 .000
Satisfaction With
Wholesaler .693 .030 15.926 .000
Lambda Dependent
Wholesale HS Credit
From Supplier .815 .025 18.803 .000
Nominal by
Dependent
Nominal
Satisfaction With
c
Wholesaler .589 .031 .000
Goodman and Dependent
Kruskal tau Wholesale HS Credit
c
From Supplier .743 .030 .000
Dependent
Symmetric Measures
Value Approx. Sig.
Contingency
credit requirement of rural retailers are significantly associated with each other. From the
obtained Contingency Coefficient of 0.826, it is inferred that the association between the
dependent and independent variables is significant since 0.826 is nearer to 1 than to 0. Also
from the lambda asymmetric (with “HS Credit from Supplier Dependent”) value of 0.815,
we can conclude that there is an 81.5% reduction in predicting the satisfaction of a retailer
when we know the manpower intensity i.e. a significant predictability. Overall, the cross-
tabulation visually shows that in a Wholesale rural distribution model, a retailer is satisfied
only in products where the credit requirement for the product of the company is nearly zero.

Hypothesis 3: Satisfaction with Wholesaler * Wholesale HS Buy Newly Introduced

Product
Crosstab
Wholesale HS Buy Newly Total
Introduced Product
Always Often Rarely Never
Very Satisfied 87.8% 12.2% 100.0%
Satisfied 2.7% 97.3% 100.0%
Satisfaction With
Neutral 78.8% 21.2% 100.0%
Wholesaler
Unsatisfied 90.0% 10.0% 100.0%
Total 9.1% 55.6% 24.2% 11.1% 100.0%
Chi-Square Tests
a
a b
Std. Error T Sig.
Symmetric .655 .030 14.690 .000
Satisfaction With
.573 .031 14.523 .000
Wholesaler Dependent
Lambda
Wholesale HS Buy
Nominal Newly Introduced .765 .031 14.523 .000
by Product Dependent
Nominal c
Satisfaction With .477 .027 .000
Goodman Wholesaler Dependent
and Kruskal Wholesale HS Buy
c
tau Newly Introduced .713 .031 .000
Product Dependent
Symmetric Measures
Value Approx. Sig.

Contingency
newness of the product are significantly associated with each other. From the obtained
Contingency Coefficient of 0.822, it is inferred that the association between the dependent
and independent variables is significant since 0.822 is nearer to 1 than to 0. Also from the
lambda asymmetric (with “Newly Introduced Product Dependent”) value of 0.765, we can
conclude that there is a 76.5% reduction in predicting the satisfaction of a retailer when we
know the manpower intensity i.e. a significant predictability. Overall, the cross-tabulation
visually shows that in a Wholesale rural distribution model, a retailer is satisfied only with
new and non-established products.
OBSERVATIONS & CONCLUSIONS
As we saw from the preceding discussions, the exclusively wholesale route to rural
penetration can be used in cases where the number of SKU’s to be sold is low (1-4), the
credit requirement of rural retailers is low and the product is new or still not established. If
these criterions are not fulfilled, the FMCG Company may want to explore other methods
of rural distribution and use wholesale model only to augment the distribution rather than as
the only method or distribution. Moreover, the marketer has to keep in mind that
wholesalers are a fickle-minded lot and consistency of distribution through this channel will
always remain a mirage for any single company.
REFERENCES
Bhave SW, Markale A. Definitional Issues of Rural & Rural Marketing Environment,
Conference on Marketing to Rural Consumers, Indian Institute of Management, Kozhikode,
3rd, 4th, 5th April, 2008.
Census of India. Office of the Registrar General & Census Commissioner, India, New Delhi.
2011.
Jha M. Rural Marketing: Some Conceptual Issues. Economic & Political Weekly 1988;23
(9): M-8-16.
Kashyap P, Raut S. The Rural Marketing Book, 1E, Dreamtech Press, New Delhi. 2005.
Kulkarni MV. Rural and Agricultural Marketing, Everest Publishing House, Pune, 2010.
Kumar CR. Rural Marketing, 1E, A.P.H. Publishing Corporation, New Delhi, 2009.

Lariviere M. Building a supply chain for rural India, Kellogg Insight, as accessed on April
7, 2011,
http://operationsroom.wordpress.com/2011/04/07/building-supply-chains-for-rural-india/
Ramkishen Y. New Perspectives in Rural & Agricultural Marketing, 2 E, Jaico Publishing
House, Mumbai, 2009.

APPENDIX 1: ABRIDGED VERSION OF QUESTIONNAIRE
(This is part of a larger questionnaire used for the survey. Important portions are
replicated here)
Q8. How satisfied are you with the wholesaler from whom you buy (rural retailer is
sure to buy PepsiCo stocks from wholesalers also):
Model of Distribution Wholesale

FMCG Descriptor of Channel (see writeup)
Rural Wholesale Distribution
>8□
How Many SKU’s (Types of brand-packs) of 4 to 8 □
PepsiCo do you buy from this channel 2 to 3 □
1 □
> Rs1000□
How much do you buy (Volume) Rs500-999□
(‘>’ means “Greater than” Rs100-499□
‘<’ means “Less than”) < Rs100□
Always □
Do you get discount from suppliers (Proxy Often □
for S&D Costs) Rarely □
Never □
Always □
Often □
Do you get Credit from supplier Rarely □
Never □
Always □
Do you buy newly introduced products from Often □
this channel (Proxy for Time Horizon) Rarely □
Never □
Always □
Often □
Do You get a proper Bill (Invoice) Rarely □
Never □
Always □
Can you contact supplier on phone for any Often □
emergency supply Rarely □
Never □
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See discussions, stats, and author profiles for this publication at: https://www.researchgate.

WHOLESALE MODEL OF RURAL DISTRIBUTION IN FMCG: A QUANTITATIVE

Article · August 2012

Dev Narayan Sarkar

Modeling the Behavior of Rural Independents in Developing economies View project

Agricultural Input Marketing View project

The user has requested enhancement of the downloaded file.

INTERNATIONAL JOURNAL OF MANAGEMENT

WHOLESALE MODEL OF RURAL DISTRIBUTION IN FMCG: A

Marketing Tools Marketing Challenge

Figure 1: Rural Marketing Tools Vs Marketing Challenges

Unorganized Sector Agricultural Marketing,

Source: Jha (1988)

Copyright © 2012 Published by IJMRR. All rights reserved 1348

Rural distribution through wholesale channel is popular in case of smaller FMCG

Factory CFA Distributor

Rural Feeder Urban

Consumer Rural Retailer

Figure 3: Rural Wholesale Distribution Model

Copyright © 2012 Published by IJMRR. All rights reserved 1349

A1-A4: Semi-Wholesale outlets

Stage I: Judgemental Sampling Stage II: Stratified Random

Stage III: Quota Sampling to

Figure 5: Sampling Design

Copyright © 2012 Published by IJMRR. All rights reserved 1351

Each Strata (District) is proportionately represented to ensure a statistically valid sample.

Copyright © 2012 Published by IJMRR. All rights reserved 1352

Hypothesis 1: Satisfaction with Wholesaler * Wholesale HS SKU

Copyright © 2012 Published by IJMRR. All rights reserved 1354

Copyright © 2012 Published by IJMRR. All rights reserved 1355

Hypothesis 3: Satisfaction with Wholesaler * Wholesale HS Buy Newly Introduced

Value Approx. Sig.

Copyright © 2012 Published by IJMRR. All rights reserved 1357

Copyright © 2012 Published by IJMRR. All rights reserved 1358

APPENDIX 1: ABRIDGED VERSION OF QUESTIONNAIRE

Model of Distribution Wholesale

Copyright © 2012 Published by IJMRR. All rights reserved 1359

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