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Rural Marketing Observations at Pargaon Khandala in Maharashtra

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UNDERSTANDING RURAL DISTRIBUTION

A study about the sales and distribution network in rural India

SALES AND DISTRIBUTION
4th October, 2009

Group BH
Aseem Rastogi – 32235 Stuti Sinha – 32296 Aditi Uppal – 32301 Pratik Kamble – 32303 Sakshi Arora – 32304 Saurabh Ghosh - 32305

Understanding Rural Distribution 2009

TABLE OF CONTENTS
EXECUTIVE SUMMARY

3 4 5 8

INTRODUCTION

INTERVIEWS CONDUCTED

VISIT TO KIRANA STORES

PRODUCT AVAILABILITY AT KIRANA STORES

9 13 14

ROLE OF MEDIA AND OPINION LEADERS

CONCLUSION

2

Understanding Rural Distribution 2009 EXECUTIVE SUMMARY:
The rural population in India is large and accounts for about 75% of the total population, which accounts for about 700 million people. Rural markets obviously also generate a great part of the country's income. Rural markets are growing more rapidly than urban markets. In fact for many products, the rural market accounts for almost as much as 70% of the national demand. Some of the important features or characteristics of Rural Marketing in India Economy are being listed below OPPORTUNITIES
• • • • • •

Employment in rural areas is getting better which has increased the disposable income for the average rural household. This leads to demand of products The demand burst in the rural market is also attributed to the fact that it has not been exploited and there is a lot of untapped potential in it These markets are large and also very diverse and therefore the opportunities are varied and many Larger population => Larger consumer base => Maximum Opportunity
Additionally, the rural economy has not been impacted by the global economic slowdown, according to a recent study by the Rural Marketing Association of India (RMAI) According to a McKinsey survey conducted in 2007, the rural India market would grow almost four times from its existing size in 2007, which was estimated at US$ 577 billion

CHALLENGES • The social status of the rural regions is precarious as the income level and literacy is extremely low along with the range of traditional values and superstitious beliefs that have always been a major impediment in the progression of this sector.

3

Understanding Rural Distribution 2009 INTRODUCTION
Rural consumers spend around 15% of their income, on fast moving consumer goods (FMCG). The rural market accounted for a huge 60% share of the total FMCG market in India. The FMCG sector also saw an almost 20% growth. Most FMCG companies are now working on increasing their distribution in smaller towns and focussing on marketing and operations programme for semi-urban and rural markets. The study for the rural distribution network was conducted at Paragaon, Khandala district of Maharashtra. The village is situated at a distance of around 4 hours from the Pune interstate bus terminus. The village has good connectivity and has direct bus services from Pune. Upon arrival, the group was segregated into two and the tasks allotted to each group were as follows. The first group went to interview the • Sarpanch • Police Patil • School Teacher and the • Priest The second group went to the local shops and establishments to find out more information regarding product categories like hair oil, shampoos, salt, battery cells, light bulbs and Maggie noodles. Information about the brands available, number of SKU’s (stock keeping units) in each brand, quantity of product available, distribution channels used by the companies, method of replenishment of stocks, pricing, margins extended to grocer, extension of credit to customer, seasonality in demand, point of sales promotion and advertising was studied in detail along with the study of penetration levels of print, television and other media habits

4

Understanding Rural Distribution 2009 INTERVIEWS CONDUCTED
Lady Sarpanch Name: Mrs. Chitra Narain Gurao She has been the sarpanch for the Pargaon, Khandala constituency for the last four years. Being born and brought up in Pargaon itself, she enjoys tremendous support from the people. The same was proved when we asked many people in the village, their views about their sarpanch. On enquiring about the problems the village faced, she told about the water scarcity problem and that electricity is there for just eleven hours each day. Male Sarpanch Name: Mr. Banudar Sivadeo He has been the vice sarpanch for the Pargaon, Khandala constituency for the last five years and has been an important member of the Panchayat for the last ten years. The main issues it deals with are related to road, drainage, electricity and water management. He complained about the lack of schools in the village. The major crops grown are sugarcane, bajra, jowar and onions. He informed us that the population of this constituency is 3000 and the major landmark here is Chaweshwar Mandir. Priest Name: Mr. Gaurav Narayan Vittal He is the priest of the Pargaon, Khandala consitituency. He informed us that the majority of the people in the village are Hindus. A poll called Lokmath is conducted to select the sarpanch. The main hospital is in Satara. He told us that the families in the village were pretty much aware about different products like soaps (Dettol, Lifebuoy, Lux), Cadbury’s, Maggi, Lays tomato, detergents (Nirma, Rin, Wheel), Dove shampoo, Vatika and Karup Hair oil and also Nokia mobiles. People mostly buy dettol because it smells better and they think its healthier. There are no branded milk products. Only milk products from Gwala are sold here. Rin is the most sought after detergent because it cleans more. Even though all the TV Channels are available for as low as Rs 100, only two of them – ETV Marathi and Star Maga are frequently watched. Peanut oil is used for cooking purposes. Most of the villagers are vegetarian and follow a use and try policy for all products. First a small pack (sachet) is bought and only after it is used, a big pack is bought. Credit is allowed in shops in the village. Bank of Baroda and SBI have their branches here.

5

Understanding Rural Distribution 2009
School Teacher Name: Ms. Priyanka She is a teacher of computer sciences in the local college. Though she comes from the nearby village of Shirwal, she seemed to have a lot of knowledge about the local village and consumption habits of Pargaon Khandala. She told us that the families in the village were pretty much aware about different products and brands in the market. People love to experiment and buy whatever makes them feel good about themselves. Even though all the TV Channels are available for as low as Rs 100, only two of them – ETV Marathi and Star Maga are frequently watched. Peanut oil is used for cooking purposes. Most of the villagers are vegetarian and follow a use and try policy for all products. First a small pack (sachet) is bought and only after it is used, a big pack is bought. Credit is allowed in shops in the village. Bank of Baroda and SBI have their branches here. Police Patil Name: Mr. Sunil Pawar
We met the head constable Mr. Sunil Pawar on our visit to the police station. The constable was in conversation with another official when we entered his cabin. He enquired about our query first and asked us to sit and wait till he finished talking the official. We introduced ourselves as students of SIBM, Pune and that we were there as a part of an assignment to understand rural markets. Also, we asked if he could spare sometime and be willing to answer a few questions. We began by asking his name and designation. He introduced himself as the head constable of the station. His main duties were to listen to complaints and register them if they fall under their jurisdiction. After the case is registered, he is responsible for processing the case. He explained to us that they had full authority in case of a cognizable offense and for certain cases, they just took down the complaints and let the court handle further proceedings. Their police station was responsible for 50 villages around Pargaon Khandala. They had a police force of 60 officers responsible for the same area. The PI for the station was Officer Dhekne and that they fall under the jurisdiction of the Satara district. The most common cases lodged there were accidents which were mainly caused due to the new highway that passed their village. On an average 2-3 cases were lodged every month. Besides this, there were a few cases of fights and domestic violence.

6

Understanding Rural Distribution 2009
After the interview, constable Pawar took us around the station for a tour. He took us to the room where the ammunition was stored and then to the lock-up. We were allowed to click pictures except for the lock-up. Part of the lock-up was used as a storage area for old papers and an old moped. There were 2 rooms of approximately 100 sq ft. (one for men and one for women). The constable informed us that about 8-10 prisoners could be held in the room at any given time. The head constable was extremely polite and was proficient in reading and conversing in English apart from Hindi and Marathi. He was familiar with different areas of Pune. We were also informed that an officer from their station was recently involved in capturing a fugitive and was injured in the process. There was an article about the incident in the newspapers as well. We were unable to speak to the Police Inspector Dhekne as he was out for lunch. Visiting a police station in a village was very insightful and was a pleasant experience for us as students to have seen and met a police officer informally for an interview.

7

Understanding Rural Distribution 2009 VISIT TO THE KIRANA STORES
Following were the key observations in terms of FMCG: 1. There is a large availability of small size SKUs for all products. The reason for small size units are as follows • Daily or weekly wages system • Small investment preferred over large investment • Convenience For example:• • • • Head and Shoulders – 5ml (Rs. 1.5/-) and 7.5 ml (Rs. 3/-) Sunsilk - 7.5 ml (Rs. 1/-) Mobile phone top ups were available usage in small top-ups (10/-) Sachets of Parachute oil were seen for the first time

2. Toothpowder more popular than Toothpaste 3. There were VERY FEW local brands for all product categories and even those were just available in the local ‘haat’. Brand awareness is very high and people believe in buying select but GOOD products over local ones. Even shopkeepers advocate keeping original and good products because of the high demand 4. Local chips however are really popular 5. Pulses, grains and tea are sold loose 6. No POP or advertisements used at the shops because shopkeepers believe that it spoils the paint and walls of their establishment 7. Replenishment records are unavailable and it happens on a fortnightly basis or as and when products get exhausted 8. Company vans like that of HUL and ITC deliver products to the market. For all other brands, distributors make the product available in the villages or the shop owners carry back products from Pune

8

Understanding Rural Distribution 2009 PRODUCT AVAILABILITY AT KIRANA STORES
Store’s name – Om Sai Kirana Owner – Ms. Sharda Yadav Battery Cells

Hair Oil

Shampoos

Salt

Light Bulb

Maggie

Brands available No. of SKUs in each brand Qty of product available

Vatika, Parachute, Jasmine Almond drops, Navratna, Dabur amla, 2

vatika, clinic plus, sunsilk, lux, superia, Head & Shoulders, Pantene, Dove, Vivel, Annapurn All Clear a, 2 2

nippo 2 50

Phillips, Wipro 1 20 Wholesaler , Companys’ delivery vans, Pune market

maggi 2 20

How is replenishment done Margins extndd to grocer Does grocer extend credit to customer Seasonality in demand Point of sale promotion

3-4 strips 20 of each 50 Wholesal Wholesale Wholesaler er, r, , Company Companys Companys’ s’ delivery ’ delivery delivery vans, vans, Pune vans, Pune Pune market market market

Wholesal er,Pune market

Wholesaler , Companys’ delivery vans

1-2 Rs

10% Only to Only to Only to Only to loyal loyal loyal loyal customer customers customers customer s no No no No No No yes no

1-2 Rs

2 Rs

10%

8-10%

Only to Only to loyal loyal customers customers Yes No no no

9

Understanding Rural Distribution 2009
Store’s name – Dheeraj Mini Market Owner – Mr. Pravin Joshi Battery Cells Light Bulb

Hair Oil

Shampoos

Salt

Maggie

Brands available No. of SKUs in each brand Qty of product available Dist channels used by shop

vatika, clinic plus, sunsilk, lux, superia, Head & Shoulders, Vatika, Parachute, Jasmine Pantene, Dove, Almond drops, Navratna, Vivel, All Clear, Dabur amla,Bajaj, Ashwini Rejoice, Fiama Di Wills, Garnier hair oil, Clinic Plus

tata, Aasiwwaad, anna purna, Nirma Shuddh, No Praveen

No

maggi

2

3

2

No

No

6

50

50

30

No

No

30

How is replenishm ent done Margins extended to grocer Does grocer extend credit to customer Seasonality in demand Point of sale promo

Companys’ Companys’ delivery Companys’ delivery vans, delivery vans, vans, Pune market Pune market Pune market No

No

Compan ys’ delivery vans, Pune market

6%

7-8%

8-10%

No

No

8%

Only to known people No no

Only Only to known known people people No No No no

to No No No No No No

Only to known people No no

10

Understanding Rural Distribution 2009
Store’s name – H. M Doshi store Owner – Mr. Sharad Kumar Battery Cells

Hair Oil

Shampoos

Salt

Light Bulb

Maggie

Brands available No. of SKUs in each brand Qty of product available Dist channels used by shop

Vatika, Parachute, Jasmine Almond drops, Navratna, Dabur amla,Bajaj, Ashwini hair oil, Clinic Plus, Kio Karpin

vatika, clinic plus, sunsilk, lux, tata, superia, Head & Nirma Shuddh Shoulders, Nyle

Nippon

Phillips

maggi

2-4

2

2

3

1

6

25

40

20

30

30

35

Compan ys’ delivery vans, How is Companys’ Companys’ replenishm delivery vans, delivery vans, Pune market ent done Pune market Pune market 2Rs/Kg Lot of Damage Margins with no extended replace to grocer 8% 8% ment Does grocer extend credit to customer No No No Seasonalit y in demand No No No Point of sale promo no No no

Company s’ delivery vans, Pune market

Company s’ delivery vans, Pune market

Compan ys’ delivery vans, Pune market

10%

10%

8%

No

No

No

yes no

No No

No No

11

Understanding Rural Distribution 2009
Electrical goods shop People prefer 0 watt bulbs over CFLs.
CFL lamps Brands available Phillips No. of SKUs in each brand 2 Quantity of product available 20 Distribution channels used by shop How is replenishment done Margins extended Whether grocer extends credit to customer Seasonality in demand Point of sale promotion Pune market 2-5% Bulb Tubelight Batteries Everready, Nippon, Crown 3 20

Surya, Phillips, Osram, Vimal, Activ, Roshni Philips, surya 3 10 2 16

Pune market 2-5%

Pune market 2-5%

Pune market 2-5%

Known and credible Known and credible Known and Known and people people credible people credible people Yes, During NO NO NO Jowar cutting NO NO NO No

12

Understanding Rural Distribution 2009 ROLE OF MEDIA AND OPINION LEADERS
1. Level of brand awareness in the rural population is high 2. Branded products are preferred over the local brands 3. “Consumer Pull” works just as well and perhaps better in rural India than in urban India 4. Media reach is a strong reason for the penetration of daily consumer items like cosmetics, soaps and shampoos, mobile phones, etc. 5. Increasing awareness and knowledge on different products and brands accelerate the demand 6. Television influences the buying behaviour greatly 7. Role of Opinion leaders works in cases such as incense sticks, washing detergents etc, but for most items of personal consumption, the population depend on their per personal experiences and the advertisements they see on television 8. Educated youth of rural also influences the rural consumers

13

Understanding Rural Distribution 2009 CONCLUSION
This was a very different and exciting experience for the group. We’ve learnt a bit about how companies differ in their strategies on rural marketing vis – a – vis marketing in cities and metropolitans. Sachets of various products which don’t sell easily in the city were seen in bulk quantities in the rural areas. This of course was in sync with the relatively low purchasing power of rural population. The presence of several local brands of products, specially edibles also caught our eye. However, on the whole it was felt that high levels of brand awareness led to preference of the national brands over local brands. Sales offers were quite abundant in the village and they probably do well in the village because the value of the product is increased many fold by decrease in price rather than any additional beneficial feature in product. Sales for luxury products like face – wash and luxury brands of shampoo are steadily picking up. An A. C. Neilsen survey suggests that penetration of FMCG is still very low in rural markets as compared to urban markets where we’re almost reaching saturation. FMCG companies should capitalize on this potential to increase their revenues.

14…...

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