NEW HORIZONS OF RETAIL LOCATION IN RURAL SECTOR

*Prof. J.P. Pathak **Prof. Manish dwivedi

Introduction Retailing is the vibrant part of our changing society and a major source of employment. It is closely tied to the changing moods of consumer and new ways of doing business, spurred on by the impressive developments in technology and management. Retailing consists of all activities involved in selling goods and services to consumers for their personal, family, or household use. It covers sales of goods ranging from automobiles to apparel and food products, and services ranging from hair cutting to air travel and computer education. Sales of goods to intermediaries who result to retailers or sales to manufacturers are not considered a retail activity. Importantly, retail sector in India is highly fragmented with organized retail contributing to only 2 per cent of the total retail sales. The retail industry in India is largely unorganized and predominantly consists of small, independent, owner-managed shops. Retailing is India's largest industry in terms of contribution to GDP and constitutes 13 per cent of the GDP. There are around 5 million retail outlets in India. There are also an uncounted number of low cost kiosks (Tea stalls, snacks centres, barber shops etc.) and pushcarts or mobile vendor's. Total retail sales area in India was estimated at 328 million sq. metre in 2001, with an average selling space of 29.4 sq. metre per outlet. In India, the per capita retailing space is about 2 sq. ft., which is quite low in comparison to the developed countries. Out of total retail outlets 64.33 per cent retail outlets are situated in rural areas while during 1978-1996, retail outlets grew by 118.29 per cent. It was found more pronouncing in case of urban India (210.34 per cent) as compared to rural India (89.20 per cent). In all, there are more than 3.8 million retail outlets in rural India, averaging 5.8 shops per village. Besides, there are about 47000 haats and 25000 fairs (periodic markets) which serve the purpose of consumers interaction with sellers, sociocultural interface and commercial purpose. Moreover, a large number of mobile traders visit remote areas for selling of consumer goods and services.

*Astt. Professor, IMRT Business School, Lucknow. **Astt. Professor, Imrt Business School, Lucknow.

Mobile traders are generally belong to communities of Bisatis, Banjara and others who are offered high rate of profit margins by the distributors and thus, they generally sell duplicate, imitated and low quality products in rural areas. The origins of retail are as old as trade itself. Barter was the oldest form of trade. For centuries, most merchandise was sold in marketplaces or by peddlers. Medieval markets were dependent on local sources for supplies of perishable foods because journeys were far too slow to allow for long distance transportation. However, customers did travel considerable distances for specialty items. Retailing is an integral part of the value chain in an organization. It is a function that provides the last mile connectivity between an organization and its customers. In many parts of the world, retailers have emerged as one of the most potent forces in influencing the performance of the value chain. Retailing is undergoing unprecedented change in developing economies. In India, this change is very perceptible. Fuelled by the growth in consumer income and changes in their spending patterns, the retail industry is growing at a rapid pace. The economic liberalization of the country has not only facilitated the entry of international retailers but also provided Indian retailers the opportunity to adopt the best practices and formats of some of these successful international retailers. This is a phenomenon that is being witnessed in all parts of Asia. The retail industry is divided into organised and unorganised sectors. Organised retailing refers to businesses employing more than 10 persons and includes the corporate-backed hypermarkets and retail chains. The organised sector accounts for just 2 per cent of the trade and employs just five lakh persons. Unorganised retailing refers to the traditional formats of low-cost retailing such as the local kirana shops, ownermanned general stores, paan/beedi shops, convenience stores, handcart and pavement vendors, etc, and employs over four crore persons. Obviously, Indias retail sector is highly fragmented, with about 11 million outlets operating in the country and only 4 per cent of them being larger than 500 square feet in size. Its greatest contribution is that it is labour-intensive. Compare this with an employment of just 0.9 million in the US, yet doing a business more than 13 times of the Indian retail market size. The Kirana The kirana practices customer relationship management (CRM) diligently. The shopkeeper knows about the customers families, their purchase history, and their needs. Consumer familiarity runs down from generation to generation. There is no major dissatisfaction with these stores. They are open longer hours, stock most of

the goods required by the residents in a given area, provide credit and home delivery, and in many cases, supply products that they do not stock without any extra cost. Consequently, a large number of customers are not willing to pay a premium for the shopping experience promised by large format retailers. High Costs for the Organized Sector Traditional retailing has been established in India for some centuries. It has a low cost structure, is mostly owner operated, and has negligible real estate and labour costs and little or no taxes to pay. In contrast, players in the organized sector have high expenses to meet and yet have to keep prices low enough to be able to compete with the traditional sector. As a McKinsey report points out, Indian retailers operate on an extremely low cost base. The kiosk type of shops operate on the assumption of zero land and labour costs. For organized players, the lease alone can cost up to 610 per cent of sales as compared with just 35 per cent globally. Although manpower costs are lower at 56 per cent of sales as against 6 10 per cent globally, energy costs are high at 1.53 per cent against 11.5 per cent internationally, and so are the working capital costs. Capital expenses in retail business are high due to major renovations needed every 57 years. The rent control laws favour occupants, which limits the availability of downtown real estate. The retail industry in India is often hailed as one of the sunrise sectors. AT Kearney, the well-known international management consultancy, recently identified India as the second most attractive retail destination from among 30 emerging markets. This has made India the cynosure of many foreign eyes. With a contribution of 14 per cent to the national GDP and employing 7 per cent of the total workforce or 42 million (only agriculture employs more) in the country, the retail industry is definitely one of the pillars of the Indian economy. It is the largest component of the services sector. Table : 1. Journey of Organized Retail in India Growth Function First Phase Entry, Growth, Expansion, Top line focus Second Phase Range, Portfolio, Former options Third Phase End to end supply chain management, Backend Operation, Technology, Process M&A, Shakeout, Consolidation, High investment

Year 2000 2005 2008

2011 Fourth Phase Source : Ernst & Young

Retail scenario in 'Bharat' (Rural India)

There were 4.8 million retail outlets during 1995 in India. Of these 1.2 million outlets were located in urban areas while 3.6 million outlets (75 per cent) were located in rural areas of India. The latest estimates indicate that India has the largest number of retailers, about 12 million, though they are mostly small and located in rural areas and small towns. About 6 per cent India's employment opportunities are in the retail industry. The retail industry contributes around 10 per cent of GDP while its size is estimated to be 16,000 crore annually and is growing at 18-20 per cent per annum. Importantly, the super markets have started making their presence felt in large cities and metros. There are 3 lakh wholesalers and 4 lakh semi-wholesalers, scattered across the country. About three fourth retail outlets (shops) are serviced by wholesalers and semi-wholesalers. The haats and fairs (47,000 haats and 25,000 fairs) have emerged as 'mobile markets', with minimum investment and requiring little infrastructure, to be commercially tapped by marketers. During the decade of 1991-2001, retail outlets grew by over 5 per cent in the urban areas and more than 10 per cent in rural areas. The outlets are increasingly diversifying their business operation due to the increased availability of branded and packaged products. Interestingly, the shops are undergoing facelift, becoming consumerism in their approach. The retailers are seeking long credit periods from their distributors, wholesalers and financial institutions. They are providing services like free home delivery, shopping bags, telephonic supply, supply against credit etc. Moreover, they are trying to build retailers consumer relationship and making efforts to network financial institutions to consumer loans and advances. Significantly, wholesaler's segment is accounting about one fourth of total volume while three fourth business transactions is made through retail segment. The rural population is spread all over India in about 0.6 million villages. Rural market has been growing steady over the years and now is bigger than them the urban market for FMCG's (53 per cent of the total market). With an annual size in value terms, currently estimated at around Rs. 50,000 crore (Bajaj etal, 2005). There are more than 3.8 million retail outlets in rural India, averaging 5.8 shops per village. Importantly, there has been high rate of growth in rural retailing as compared to the growth rate of retailing in urban areas. The retailer is the key source of information for the entire range of entities from manufacturers, whole sellers, buyers etc. Retailers prefer to collect vital information like selection of products, brand, quantity etc. from and give importance to the advice of co-retailers. Therefore, selection of supplier

becomes crucial in the overall strategy of rural retailers. Retailers favour big suppliers in the trade centre. Reasonable pricing is preferred by most of the retailers. Accessing rural markets presents a challenge to the marketer as these markets are geographically spread out with a large number of retail outlets. The rural retail system is, therefore, the predominant mechanism to reach and service the rural consumers. This is achieved by a system of more than two million village shops. The tasks before the market are: to ensure that the product reaches the rural retail outlet; to motivate the retailer in rural markets to stock a product or a brand. This is important given the limited number of items on the rural retail shelf. It is also critical as higher dealer generation results in higher reach among consumer and, therefore, a higher market share (Velayudhan, 2002, p. 137). This can be done by understanding and handling various influences on distribution. Following are important influences on distribution to rural markets: Purchase behaviour of consumers; Characteristics of retailers; and Behaviour of the channel (Velayudhan, 2002, p. 138).

Purchase Behaviour of Consumer: Is greatly influenced by rural retailer who helps create brand knowledge in rural folk, and enjoys 'shop-loyalty' (rather than 'brand loyalty') of rural consumer. In rural areas of central part of the country, 'Vyavahar' (largely implying 'relationship' in social dealings) is a great influencing factor. 'Vyavahar' helps them developing long-lasting relationships. It is this 'Vyavahar' that the rural retailer enjoys, builds and strengthens. The companies must tap this aspect of social behaviour for rural mrketing. Gillettee for example, is already tapping it. See, for instance, Ghosh and Krishnaswamy (1997). Characteristics of Retailers: Rural markets are geographically widespread, involving high distribution costs and low volumes, working as a deterrent for entry of products in rural markets. Retail premises, are mostly rented, and retailing is often part-time occupation. Retail Shelf, stock few standard categories compared to those in urban areas.

Stock turnover is low-posing a challenge of how to ensure that a product or brand is on the shelf.

Behaviour of the Channel (Retailer): Credit facilities to customer : (by the rural retailer) is common, often on essential items. Pricing : Some retailers often over charge, not posing on discounts to customers. There is also deliberate undercutting of price. Reasons for stocking (product/brand) : Either demand, or wholesaler's push. Information and influence sources : The wholesalers and retailers are both information sources, and influence on each other. Purchase source : Since visits of distributors' agents to interior village retailers is very few, the rural retailers travel down to feeder towns for supplies. Channel credit : Village retailers avail credit facilities offered by distributors in feeder markets. Channel promotion : Retailers in feeder markets avail more discount as compared to retailers in interior villages, for they prefer not to stock more. Promotion by the retailer : While rural retailers have great influence on buyer in order to promote sale, the retailers are also influenced by the commission and credit received so as to do such a promotion. Retailer characteristics, retailer behaviour, together with purchase behaviour of the consumer, have all a leading role to play in making distribution channel decisions in rural areas, especially in India. These decisions will ensure that product reaches the rural retail outlets, and will motivate the retailer in rural markets to stock products or brands. Consumer Durables Retailing In Villages: Durables retail outlets have been there, for long, in villages which happen to be budding towns and those which are so located as to be the commercial hub for surrounding villages. A census of retail outlets in year 2000 identified some 1,451 such villages across the country with 16,548 outlets. However, for no durables were the sales from such outlets adding upto even 5 per cent of the total sales. For example, for fans,

for which 53 per cent of the residential segments' sales are from rural areas, only 4.7 per cent came from the 7,208 rural outlets. For colour television sets, rural areas account for 26 per cent of the total sales but only 4.4 per cent happened through the 2,244 outlets in rural areas (Xavier S & Swaminathan, 2003, p. 52). Serious rural durables retailing is largely unviable. He lacks space to stock and costs would be higher for him forcing him to sell at higher price, electricity is largely not there in rural areas. "Despite, the claim that practically all villages in India are electrified, several studies have shown that hardly a third of rural households have electricity connections" (Shukla and Brahmanker, 2003, p. 64). Today, in many villages, there will be people who will tell you the price differentials for a CTV or a refrigerator in the nearest town, inthe nearest class-I city and the nearest big city. They visit those places anyway. That is not all. Many of the rural buyers, like the idea of seeing the hundreds of options in city shops, visiting several shops, checking the prices and finally making the choice. Back home, the fascinating models they saw, the bargaining they did and the incredible deal that they got, is the talk of the village. How tame will the whole affair be, if he were to buy from the retailer next door, one of the few sets that everyone in the village has seen (Xavier S. and Swaminathan, 2003, p. 52-54). It is hard to see major changes in the rural retailing situation for durables over the next five years. Rural distribution may continue to remain in urban India. However, it is a long way from villages to major cities. If we can satisfy the rural customer's needs, in a smaller city or a larger town, close by, instead of in the bigger city, that would still mean that we are getting closer and closer to the rural customer (Xavier S. and Swaminathan, 2003, p. 56).

'Haats' : 'Haats' are periodic (weekly) markets, offering very useful

mechanism of reaching the interior rural markets. They have the capacity to reach a very large number of potential consumers. Kashyap (1998) estimated that there are 47,000 'haats' held periodically in rural India. According to another estimate Haats (village Bazaars) operate once a week or more often in a total of 41,888 villages (Business Standard - The Strategist, Tue., 27 April 1999, p. 2). Rural folk assemble at a particular 'place', atleast once a week to buy or sell, which is called a 'haat'. Large haats are held at large 'places' whereas smaller ones at

small places. The goods sold in these places vary from agricultural and forest produce, various village handicrafts, to anything having potential of being sold or purchased. In these 'haats space is rented out by paying nominal taxes for the stall. Part-Time Traders: Part-time traders comprise of producer-sellers and collector-sellers that operate in 'Haats'. Producer-Sellers: They produce earthenware, bamboo ware, brooms, ropes, etc., for domestic use, besides growing vegetables, fruits, etc., for sale, quite often on barter basis. However, there is often absence of standardisation of weights and measures. Collector-Sellers: They collect leaves (of various kinds), firewood, grass for fodder, etc., for sales, again often on barter basis. Here again there is an absence of standardisation of weights and measures.

Full-time Trader: Full-time traders in these 'Haats' comprise of three classes: the selling-traders, the buying-traders, and service-providers. Selling-Traders: are those that sell goods (a) frequently required (such as general provision goods etc.), or (b) less frequently required (such as utensils, clothes, footwear, etc.). They can be further subdivided depending on size, viz. (a) small sellingtrders, and (b) big selling-traders. Buying-Traders: They buy from the haat in order to sell somewhere else or at some other time. They deal in fruits, vegetables, lac, mahua, etc. Service-Providers: They are engaged in services, including being cycle mechanics, barbers, blacksmiths, carpenters, sweet meat sellers, tea stall owners etc. [Source : Velayudhan, 2002, pp. 158.] However, traditional markets such as haats may prove crucial commercial places in rural areas. These markets require a little bit of investment and infrastructure and provide enormous opportunities for marketing of products and services to the rural consumer. Even the traditional markets (haats) attract millions of people across the regions, states and nations. Retail Location The Indian retail marketplace has been experiencing an excessive supply of retail space against increased demand for the same. Shopping developers are presently facing a center retail environment characterised by an

overabundance of retail space for declining number of shoppers in retailers to occupy retail units (Carlson, 1991). One of the key decisions facing retail consumer is where to shop in turn for retailer where to locate with emergence of multiple retail centers in specific community area. However, the choice decision is becoming more complicated for retailers given the increasing number and variety of rural retail centers, now spanning strip shopping centers, planned shopping centers, factory outlets centers, home shopping, and the internet (Kirkup and Rafiq, 1999). Therefore, there is a scope to understand the significance of rural retail location. Retail success is attributed to three factors location, location, location (Ghosh, 1990). Location of the store premises and its impact on customer drawing power is considered most important determinant of retail success. Competent location result in high sales revenue, increased market share, high profits, and a poor location become

a financial liability (Ghosh, 1990). Stonebraker and Leong (1994) stress that the decisions to locate a facility should be consistent with the long-term strategic direction of the retail entity (Porter 1990). The stores location is perhaps the single most important decision a retailer has to make. Retailers' selection of store location at both macro- and micro level is an integral part of the specific marketing strategy of any retailing organisation, as total cost of occupation form a significant proportion of the outgoing of a retail business. Kimes and Fitzsimmon (1990) argued good location result in high sales revenue, increased market share, high profits, a poor location become a financial liability. Once the location decision is made and retail outlet is opened, management will find it a financial burden to relocate the store (Achabal, Goor and Mahajan, 1982). A good location is vital for a stores success. It is through the location of an outlet that the product or service is made available to customers. Good locations allow ready access and attract large numbers of customers. Further, the proliferation of retail outlets with nearly identical product offerings means that even slightly difference in location can have significant impact on market share and profitability. Most important, since the location decision represents a long-term fixed investment, the disadvantages of a poor location are extremely difficult to overcome. In India, with the emergence of large retail chains, some small retailers would also need to have a re-look at their location decision. A tiny village grocery store located on a street and doing a good business may suddenly face problems if a large supermarket opens up across the street. The reasons for locating a store in a village vary with the type of community. Factors for Rural Retail Location Decision A rural retailer has to take the location decision on the following three aspects:123Selection of a Village/Talluka/Block. Type of location within a village. Identification of specific site. Rural retailer can also exploit the potential of newly emerge markets in rural area shown in following Table :Table Newly Emerged Markets In Rural India Particular Panchayats Strength

Villages (Village Panchayats) Representatives Block Development (Kshetra Panchayats) Representatives Distt (Jilla Panchayats) Representatives SHG's Number (Million) Members (million) NGo's (Civil Societies) (Million) Employees (Million) Haat (Periodical) Fairs Village Shops (Million) Mobile Traders (Lakh) Regulated Market Fertiliser Sale Points (2002) Fair Price Shops (2003) All Marketing Societies (1996-97) Members Milk Societies (1996-97) Members Consumer Societies (1996-97) Members Women Cooperative Societies (1996-97) Members Source: India At A Glance, 2004,

221754 2449739 5488 129871 602 12671

1.0 17.0 1.2 20 47000 25000 3.69 4.0 3000 282776 474109 8422 5034416 84407 9798036 28275 14696484 8708 897153

Rural consumers visited above places with higher frequency. So the corporates/retailer may establish there retail stores on these places. Corporate those were entering in rural retailing; they establish their store mostly on highways for efficient supply chain. For example: ITC's 'Chaupal Sagar', 'Godrej Aadhar', 'Hariyali Kisan Bazaar' etc. However, our research shows retailer should establish their stores

mainly two locations for exploiting vast rural market potential i.e. 1. 2. In newly emerged markets. In the places of Haats (Periodic Markets). Haats are another peculiar type of market found in India. Which is established at particular day in a week (Previously we discussed potential of Haats in rural India). Conclusion Location is the most important intergradient for any business that relies on customers. It is also one of the most difficult to plan for completely. Location is about positioning, targeting market, image, pricing strategy and access. For the large chain multiplies it can be move about Government planning, sustainable development, property acquisition and political decision. Saturated home markets, fierce competition and restrictive legislation have pushed major retailers into he globalization mode. The international retail players are planning to enter in vast fragmented market. Where the saying goes "KOS KOS PAR BADLE BAANI CHAR KOS PAR BADLE PAANI". It means every four miles water change and a miles change dialects. So the retailers should be establishing their retail location considering socio-cultural value of rural consumers. References : Bajaj, C. etal., Retail Management, Oxford University Press, Delhi, 2005. Davies, R. (1973). Evaluation of retail store attributes and sales performance, European Journal of Marketing. 7. 89-102. Ghosh,A. (1990), Hierarchical models of store choice, International Journal of Retailing. 4. 39-52. Green, H. L. and Applebaum, W. (1966). AIDC Journal. 11. 33-54. Haig, R. M. (1926). Quartely Journal of Economics. 40. 179-208. Houstan, F. S. (1984). Journal of Retailing. 60. 124-136. Images Retail Kashyap, Pradeep, Revolution In Waiting, Praxis, Business Line, July, 2003. Kirkup, M. H. (1999). Journal of Marketing Practice: Applied Marketing Science. 5. 119-133. Porter, M. E. (1991). Strategic Management Journal. 12. 95-117. Retail News, Ernst and Young LLP, Spring 2006.

Shajahan, S., Emerging Influence Of E-Commerce In Retail Business In India, Indian Management, Oct., 2000. Shukla, R.K. And Brahmankar, S.D., Consumer Markets: At The Cross Roads, Praxis Business Line, July, 2003. Singh, A.K. And S.P. Pandey, Rural Marketing: Indian Perspective, New Age International (P) Ltd., Delhi (2005). Thite, N., Collaborative Commerce - The New Trend In Retailing, Marketing Master Mind, April, 2004. Velayudhan, S.K., Rural Marketing: Targeting The Non-Urban Consumer, Response Books, Delhi, 2002. Xavier, F. And Swaminathan, V., Durables To Door Steps, Praxis, Business Line, July, 2003.