RETAIL Rural

Bha`at Goes Shopping

The rapid income expansion in small towns and villages is pushing retailers to tap opportunities away from the big cities.
BY SHAMNI PANDE
he Big Bazaar outlet in Sangli, a town of about 400,000 people in Maharashtra known as the turmeric city, had an unusual set of shoppers in November. A family came from neighbouring Miraj and ran up a bill of `1.25 lakh, splurging on clothes, utensils, provisions and sundry purchases. It was the largest transaction ever at any small-town retail outlet run by Future Group, the owner of the Big Bazaar chain. Damodar Mall, Director for Food Strategy at the group, calls it a validation of its plan to keep pushing our footprint deeper into the hinterland. Of the 1,000 outlets that Future Group counts across all its retail formats, around 95 today are in TierIII towns agglomerations with a population of about a lakh. Rural consumption and expenditure is exploding, a fact that is not being missed out by either the researchers or those who have plans for organised retail. At the very basic level, all-India sales of fast moving consumer goods, or FMCG, are tipped to touch $100 billion by 2025. That, as Prashant Singh, Vice President at consumer research firm The Nielsen Co., points out, is the size of Ukraines economy. And, in the next five years, he adds, FMCG sales in rural markets alone will be as big as Tanzanias GDP. Numbers see Rural Roar tell only part of the tale. The real story lies in social and consumption changes rolling over the

The West End Mall in Moradabad in Uttar Pradesh

48 BUSINESS TODAY December 26 2010

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December 26 2010 BUSINESS TODAY 49

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RETAIL Rural
products business at Marico, is for companies such as his hinterland. Today, many consumers in to access rural pockets directly by leveraging wholesale rural India act and behave like their to increase access points for the brand. urban counterparts; in fact, their This is why, according to Raghav Gupta, President of attitudes and aspirations break the Technopak, at this stage, the opportunity in organised mould of a stereotypical rural consumer, retail lies in cash-and-carry formats (or the wholesale observes Singh. They are turning out to be retail model). The bulk of the action on the part of the voracious consumers of packaged food, hair retail heavyweights is concentrated in this space. Waldyes and fairness creams, among other products. Mart, which has a joint venture with Bharti, is already In fact, the good news gets even better as ratcheting up its presence. This model of retail obvithese markets show a higher propensity to spend. ously makes better business sense than blanketing small According to data from the Mumbai-based Centre towns and villages with retail outlets that run head-on for Monitoring Indian Economy, or CMIE, while urban into competition with kirana stores. In fact, Wal-Mart India spends half its income, the spending in the rural economy is 54 per cent. estimates that there is a To be sure, there is the concentration of populaeffect of a smaller base at tion and wealth in villagwork here but consumpes about half of Indias tion in the hinterland has population lives in just been expanding at 12 per one-sixth of its 600,000 Rural India currently Rural India will grow cent for the last six quarvillages. And, more accounts for 55% of by $90 billion in the ters; urban demand trails importantly, this section the total retail market next five years at seven per cent. accounts for 60 per cent GDP $1,370 bn $2,070 bn* The reasons are not of rural wealth. hard to fathom record This means that an government spending, organised retailer can Private $795 bn $1,200 bn Consumption infrastructure investtarget 50 per cent of the ments, and a never-before rural population by reach of telecom and reaching out to about Retail $435 bn $640 bn media services. 100,000 villages, says Under the Pradhan Jain. But the catch is that Mantri Gram Sadak these are spread across a Rural $240 bn $327 bn Yojana, a road-building large country. The Bharti Organised Negligible <5% project, about 32,000 Wal-Mart venture is still Retail habitations have been at the stage of setting up connected by constructits cash-and-carry stores Urban $195 bn $310 bn ing 85,405 km of roads, near cities and around Organised $21 bn $66 bn taking the road network small towns, and is yet to Retail into new areas. Along make plans to penetrate *At current prices at a real growth of 8.5% Source: Technopak Analysis with better product recdeeper. Its rivals such ognition thanks to the as the Tata Group and wider reach of marketing that increases consumer-pull, Reliance Retail, too, have no ready plans on the front. better roads mean easier distribution for manufacturers. We are not ruling out rural, but there are no immediate plans as the back end has to be ready, says Bijou Kurien, President and Chief Executive of Lifestyle at Urban Concentration, Still Reliance Retail. A natural corollary to this boom should be visible in That may be a missed opportunity, reckons Pradeep modern retails beaten track into rural India. But that is Kashyap, a consultant specialising in rural Indian maryet to be the case, with less than 1,200 such outlets all kets. Typically, markets are set up around a catchment over India (see The Rural Footprint). This, say industry area that service a clutch of villages insiders, is because the immediate big opportunity is the and serve at least 50,000 families. underfed world of kiranas Hindi for small, mom-andAlso, rural consumers travel vast pop stores. Of an estimated 12 million such outlets, the distances to stock up on their needs, largest FMCG companies in India are able to serve less hence an opportunity is actually than 10 per cent directly, says Raj Jain, President at the vacant and it needs to be filled, Indian unit of Wal-Mart, the worlds biggest retailer. The says the CEO of MART, earlier known solution, suggests B. Sridhar, who heads the consumer

RURAL ROAR

50 BUSINESS TODAY December 26 2010

RETAIL Rural

B H A S K A R PA U L

Future Groups Damodar Mall

as Marketing and Research Team. He challenges retailers to blindly open stores near haats, or village markets, where villagers come from afar to shop betting on the success of these outlets on sheer convenience and availability of genuine products. Kashyap may be right, going by the early success of those like Hariyali Kisaan, a rural retail chain with some scale. Hariyali Kisaan, part of the sugar-to-chemicals DCM Shriram Consolidated, has nearly 300 outlets spread across most of northern India and has now made inroads in Madhya Pradesh, Maharashtra and Andhra Pradesh as well. Chairman Ajay Shriram believes he has hit a sweet spot in the business. We find that rural consumers want value-for-money and they need genuine products. The prevalence of fakes in these markets is very high, he says, explaining the core of Hariyali Kisaans business proposition. He adds that the operation is yet to break even given the substantial investment needed in back end, logistics and the supply chain. Future Group, which runs Indias biggest organ-

ised retailing business through Pantaloon Retail, Big Bazaar, Food Bazaar, Central, Home Town and other formats, meanwhile, aims to straddle both the rich, urban markets and the thrifty, rural areas. Partly through the acquisition of Aadhar, a rural retail company formerly owned by Godrej, Future Group has even gone into towns with populations of 30,000 and below such as Ichalkaranji, Kota, Boondi, Deoghar, Sangli and Tinsukia, among others, across the country. Also, it treats these towns differently, stocking, for instance, aluminium vessels in Muslimdominated communities or tapping the local trader and women self-help groups for food items to address local preferences and tastes. We treat our catchment area like constituencies just the way political parties do not ignore ethnic communities, says Future Groups Mall. The strategy seems to be working, going by its initial estimates. These Tier-III outlets are proving to be a hit with locals as also consumers from satellite villages who travel to assuage their aspirations.

The opportunity in organised retail lies in cash-and-carry formats (or the wholesale retail model). The bulk of the action on part of the retail heavyweights is concentrated in this space.
52 BUSINESS TODAY December 26 2010

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