12.3, Ashish Gupta

SAJMMR Volume 1, Issue 3 (December, 2011) ISSN 2249-877X
South Asian Academic Research Journals

http://www.saarj.com
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Publ i shed by: South Asi an Academi c Research Journal s
SAJMMR:
S o u t h A s i a n J o u r n a l o f
M a r k e t i n g & M a n a g e m e n t
R e s e a r c h
RURAL RETAIL REVOLUTION: THE RISE OF RURAL MARKET

ASHISH GUPTA*

*Research Scholar, School of management Studies,
Motilal Nehru National Institute of Technology, Allahabad, India.

ABSTRACT

The future lies with those companies who see the poor as their customers."
C. K. Prahalad
Strategic Guru

Rural India is characterized by low per capita income, low productivity, low literacy
and low rate of industrialization along with absence of basic amenities. The
unprivileged class is set back by a lack of educational opportunities that could
empower them to confidently pursue economic progress and overcome the
debilitating effects of low literacy and rigid social hierarchies. The Indian rural
retail opportunity is currently estimated to be in excess of Rs. 1400 billion
(approximately US$34 billion). The figure is likely to touch Rs. 1800 billion
(approximately US$ 43 billion) in 2010 and go up to Rs. 2400 billion (approximately
US$ 58 billion) by 2015, according to CII - YES BANK Study on the Rural Retail
Sector
15
. Indias rural markets are growing at double the rate of urban markets. The
retail revolution is going to act as a catalyst. So, the new concept that is hitting the
market today is the "Rural Retailing".

KEYWORDS: Rural India, Rural retail, rural market, Retail revolution, Kirana
stores.
______________________________________________________________________________

INTRODUCTION
1. THE RETAIL REVOLUTION
In this land of 15 million retailers, most of them owning small mom and pop outlets, we also
have a modern retail flourishing like never before. The rural revolution is driven by rising
purchasing power, changing consumption patterns, increased access to information and

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communication technology, improving infrastructure and increased government initiatives to
boost the rural economy. The total number of rural households is expected to rise from 135
million in 2001-02 to 153 million in 2009-10 giving a tremendous push to the rural retail
opportunity. There is little room for conflict as evidenced from the fact that India presents a
unique case of consumption-driven economy: while the US reels under recession, where supply
clearly outstrips demand, India confronts inflation, where Industry and retailers are as yet unable
to provide what the consumer demands. Over the last few years Indian retail has witnessed rapid
transformation in many areas of the business by setting scalable and profitable retail models
across categories. Indian consumers are rapidly evolving and accepting modern retail formats.
New and indigenized formats such as departmental stores, hypermarkets, supermarkets, specialty
and convenience stores, and malls, multiplexes and fun zones are fast dotting the retail
landscape. However, there is huge potential embedded deeper to penetrate the rural market by
understanding the complex cross layers of the Rural India Consumer. The retailers find the rural
physical and geographical expanse daunting. It is really a nightmare for any marketer to address
the needs of 600,000 plus villages spread over a geographical area of over 3.2 million square
kilometers, and that too hardly connected by all weather roads.
OBJECTIVES OF THE STUDY
To understand the importance of rural retailing.
To understand the changes in rural consumption pattern.
To understand the challenges & opportunities in rural retailing and rural markets.
To study the initiatives taken by corporate houses for rural retail development.
To suggest some recommendations if any.
1.1 FEATURES OF RETAIL IN RURAL INDIA
India is basically a rural society as 2/3 rd of is population resides in villages which offers vast
market opportunities. The following are the main features of rural retail:
The rural retail market is dominated by Kirana stores, haats& melas.
It is culturally diverse & highly fragmented spread over more than 6 Lakh villages.
It mainly dependent on agriculture which generate seasonal income, mostly twice in a
year. Thus, purchasing powers of rural consumers are not uniform.
Generally, the standard of living of consumer is not very high and their outlook is very
conservative due to low penetration level of refrigerators, storage of food products.so,
rural consumers prefer purchasing in low volumes and their purchase frequency is high.
Inadequate infrastructure in terms of roads, warehouses, communication, consumer
finance etc.
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1.2 POTENTIAL OF RURAL RETAIL IN INDIA
Led by the rising purchase power, changing consumption pattern, increased access to
information & technology and improving infrastructure, rural retail market holds great potential
for retailers. Many corporate houses in india as well as foreign players are firming up concrete
plans to tap the rural retail market.
The following points reflect the growth potential of rural retail market in india:
Rural per capita consumption of FMCGs will catch up with the current urban levels by
2017. As per expert report, The FMCG sector in rural area grow 40 % in comparison to
25 % in urban market.
Right now, one out of six rural customers has access to organized retailing or distribution.
So, rural retailing has tremendous potential for growth.
A major part of Bottom of Pyramid consumer class resides in rural areas.
There is paradigm shift towards higher value consumption among rural consumers like
from tooth power towards tooth paste, from local brands towards national brands.
Though internet penetration in rural areas is very low, but concepts like m-cash by ICICI
bank provide an impetus to rural retailing as mobile telephony has made rapids into rural
market.
Rural areas account for half the total market for television, tooth powder, fans, pressure
cookers, washing soaps, tea, salt etc.
Currently, the presences of modern retail formats in rural areas are negligible. Rural retail market
at its nascent stage and it seems logical to take early mover advantage. The potential is immense,
but right now, investment in rural retail market is very low as is focus is to grab urban market.
2. INDIAN RURAL RETAIL SCENARIO: AN OVERVIEW
Retail, one of Indias largest industries, has emerged as one of the most dynamic and fast paced
industries with several players entering the market. Accounting for over 10% of the countrys
GDP and around 8% of the employment, retailing in India is gradually inching its way toward
becoming the next boom industry. It is on the threshold of a big revolution after the IT sector.
Although organized retail market is not so strong as of now, but it is expected to grow manifolds
by the year 2010. The sector contributes 10% of the GDP, and is estimated to show 20% annual
growth rate by the end of the decade. The current growth rate is estimated to be 8.5%, but
CRISIL report says that the retail market is most fragmented in the world and only 2% of the
entire retailing business is in the organized sector. There are about 300 new malls, 1500
supermarkets and 325 departmental stores being built in the cities very soon. The rural consumer
market, which grew 25 per cent in 2008, is expected to reach US$ 425 billion in 2010-11 with
720-790 million customers, according to a white paper prepared by CII-Technopak, in November
2009. The figures are expected to double the 2004-05 market size of US$ 220 billion. The Union
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Budget for 2010-11 has hiked the allocation under the National Rural Employment Guarantee
Act (NREGA) to US$ 8.71 billion in 2010-11, giving a boost to the rural economy.
A Study on buying behavior of rural consumer indicates that the rural retailers influence 35% of
purchase decisions. . At present 85 % of the organised retailing takes place in Indias urban
areas. But the good thing is that the retail focus has already shifted to the rural areas. The Indian
rural market with its vast size and demand base offers great opportunities to marketers.
Technopak estimates that the size of the Indian retail market is at present around USD 300
billion with the rural-urban split in the ratio 55 45. The rural market consumes about 53% of
FMCG, and 59% of durables in India. Therefore sheer product availability can affect decision of
brand choice, volumes and market share. India offers a huge, sustainable and growing rural
market which can be tapped effectively through innovative distribution channels with retailing
being the most critical element of this strategy as it is the final touch point and the actual touch
point with the customer which can be the most critical influence in the buying process. For time
being all what retailers need is the requirement for stores in these towns for getting the right
merchandise mix in tune with the local community's requirements.

FIG: PERCENTAGE OF ORGANIZED RETAIL ACROSS THE WORLD
Source: naukrihub.com
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Source: India Retail Report
India's largely rural population has also caught the eye of retailers looking for new areas of
growth .A slew of supermarket chains, including those of the Tata and ITC, are set to storm the
rural areas of the country as corporate realize the huge potential of the untapped market ITC
launched the country's first rural mall 'Chaupal Sagar', offering a diverse product range from
FMCG to electronic appliances to automobiles, attempting to provide farmers a one-stop
destination for all of their needs. Companies such as Godrej and DCM Shriram Consolidated are
launching `one-stop shops' for farmers and their communities. Godrej Agrovet, for instance, is
planning to set up 1,000 Aadhar stores across rural India by 2010.
The rural market is no longer a non-player in the retail game. It is now accounting for over one-
third of the market for most durable and non-durable products. Even manufacturers are
developing new products with the rural consumer in mind besides using village-oriented
marketing strategies for brand promotions. Whether it is Rani Mukherjee promoting the
chocolate Munch or master batsmen Sachin wowing village lads with a soft drink, both ad
makers as well as top company honchos know where to put their money and how. The rural
market is no longer of hypothetical empirical value but is well researched and reached by most
companies looking to tap India's vast and abundant bounty. Moreover lack of infrastructure and
logistics together with multiple tax rates, restrictions on goods movement, among others increase
inventories and, therefore, costs. Due to lack of scale and diversity in buying behavior, marketers
are also forced to not only create multilayered distribution networks but also develop new
packaging and price points. However increasing penetration of TV, rebirth of radio, through FM,
availability of broadband internet, fast spread of mobile phones, and rural road development
programmes could in a short span of time may apart from improving infrastructure, bridge gaps
in behavioral patterns across the country. For a retailer it is essential to see in which segment it is
catering in the above division of villages. For example Shakti caters to villages with a population
of 500or above. Where in Eveready considers even the remotest of village as its target customer.
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It operates through more than thousand company-owned vans and has over 4,000 distributors to
directly providing service to 6, 00,000 retail outlets.
The trends that are driving the growth of the retail sector in India are:
Low share of organized retailing
Falling real estate prices
Increase in disposable income and customer aspiration
Increase in expenditure for luxury items
India has topped AT Kearney's annual Global Retail Development Index (GRDI) for the third
consecutive year, maintaining its position as the most attractive market for retail investment. The
Indian retail market, which is the fifth largest retail destination globally, according to industry
estimates is estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010 and
US$ 637 billion by 2015. Simultaneously, organized retail which currently accounts for 4% of
the total market is likely to increase its share to 22% by 2010.The Q410 BMI India Retail Report
forecasts that total retail sales will grow from INR16.51trn (US$380.39bn) in 2010 to
INR26.02trn (US$679.32bn) by 2014
17
. Strong underlying economic growth, population
expansion, the increasing wealth of individuals and the rapid construction of organized retail
infrastructure are key factors behind the forecast growth. As well as an expanding middle and
upper class consumer base, there will also be opportunities in India's second and third-tier cities.
The greater availability of personal credit and a growing vehicle population providing improved
mobility also contribute to a trend towards annual retail sales growth of 12.3%. India's nominal
GDP is forecast at US$1.66trn in 2010. Average annual GDP growth of 8.0% is predicted by
BMI through to 2014. With the population expected to increase from 1.17bn in 2010 to 1.23bn
by 2014, GDP per capita is forecast to rise by more than 86% by the end of the forecast period,
reaching US$2,652
17
. Our forecast for consumer spending per capita is for an increase from
US$796 in 2010 to US$1,445 in 2014. The growth in the overall retail market will be driven
largely by the explosion in the organized retail market. Domestic retailers such as Reliance
Retail and Pantaloon Retail continue to invest heavily in increasing their store networks and
improving in-store offerings, and the impact they have on growth will be boosted by the arrival
of expansion-orientated multinationals. Brand Loyalty is very high among less affluent class.
Hence rural market is very critical for the companies. However, the size of rural retail is very
small with limited number of brands stocked at a point of time (generally the most sought after
brand).

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2.1 PHASES IN THE EVOLUTION OF RETAIL SECTOR
Weekly Markets, Village and Rural Melas
Source of entertainment and commercial exchange

Convenience stores, Mom-and-pop / Kirana shops
Neighborhood stores/convenience
Traditional and pervasive reach

PDS outlets, Khadi stores, Cooperatives
Government supported
Availability/low costs/distribution

Exclusive brand outlets, hypermarkets and supermarkets, department stores and shopping malls
Shopping experience/ efficiency
Modern formats/ international

2.2 DRIVERS OF RURAL RETAIL
Driven by changing lifestyles, strong income growth and favorable demographic patterns, Indian
retail is expanding at a rapid pace. The present-day retail sector in India is reflected in sprawling
shopping centers, multiplex- malls and huge complexes that offer shopping, entertainment and
food - all under one roof. The trends that are driving the growth of the retail sector in India may
be low share of organized retailing, falling real estate prices, increasing disposable income and
consumer aspiration and increasing expenditure for luxury. These key factors have been the
growth drivers of the organized retail sector in India, which now boast of retailing almost all the
luxuries of life - Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries,
Home & Office Products, Travel and Leisure and many more. With this, the retail sector in India
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is witnessing a revival as traditional markets make way for new formats such as departmental
stores, hypermarkets, supermarkets and specialty stores.

FIG.1: DEPICTS THE CHANGING DEMOGRAPHICS OF RURAL INDIA.
Source: MGI India consumer Demand model, v1.0
The above diagram depicts the population of Rural India divided on the basis of household
incomes. Strivers and seekers constitute the middle class. The diagram depicts how the increase
in household income will lead to increased consumption by various levels of consumers in the
pyramid.
In 2005: Number of Aspirers= (32*790/100) million= 252.8 million
In 2015: Number of Aspirers= (47*875/100) million= 411.2 million
That is roughly 158 million people will be added to the aspirers class.
In 2005: Number of Deprived= (65*790/100) million= 513.5 million
In 2015: Number of Deprived= (46*875/100) million= 402.5 million
This depicts that 111 million people will shift from below poverty line to the aspirers class.
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FIG.2: SHARE OF RURAL CONSUMPTION BY INCOME CLASS
Source: MGI India consumer Demand model, v1.0
By 2015 the aspirer class of household will be the largest group at 47% of rural population or 80
million households and will control 55% of the spending. In 2015, 47% of rural population
(aspirers) will account for 55% of the rural consumption. Wherein in 2025 one-fifth of the
population (seekers) will account for roughly one-third of the rural consumption. The shift in
rural population from one segment to another will shift rapidly. Hence it will be important for the
retailer to keep a track of this and change the merchandise mix in the store accordingly.

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3. OPPORTUNITIES IN RURAL RETAILING
The Indian rural market with its vast size and demand base offers great opportunities to
marketers. Two-thirds of countries consumers live in rural areas and almost half of the national
income is generated here. It is only natural that rural markets form an important part of the total
market of India. Our nation is classified in around 450 districts, and approximately 630000
villages, which can be sorted in different parameters such as literacy levels, accessibility, income
levels, penetration, distances from nearest towns, etc. 70 % of India's population lives in 627000
villages in rural areas
24
.
According to the NCAER study, there are almost twice as many 'lower middle income'
households in rural areas as in the urban areas.
At the highest income level there are 2.3 million urban households as against 1.6 million
households in rural areas.
In urban India, the same is expected to grow from 46 million to 59 million. Thus, the
absolute size of rural India is expected to be double that of urban India.
As organized retail in rural India awaits the arrival of Reliance Retail, current majors like ITC,
Godrej and DSCL are expanding their retail operations by setting up more stores, entering new
states and offering newer product categories. A shift from selling agri- inputs will help these
stores target the non-farming segments. It is a little known fact that, while 25% of the rural
population is not engaged in agriculture, it earns 50% of the rural income. When organized retail
first made its presence felt in rural India, it wasnt a pure retailing operation targeting the rural
masses. Companies like DSCL and Godrej who had significant agri-business interests, set them
up to meet the needs of farmers in a stores catchments area. A typical agri-input store would
have a catchment area of around 100 villages spread over 20-25 kms. These stores are one-stop
shops meant to meet the occupational needs of farmers by providing agri-inputs and fertilizers.
These stores, like DSCLs Hariyali Kisan Bazaar, ITCs Choupal Saagar etc. tend to be located
in small towns that function as procurement hubs where the farmers come to sell their produce.
Their earnings are tapped then and there, by getting them to combine their visit with shopping.
These stores tend to target farmers with all sizes of holdings, while organized retail centered on
these stores, unorganized retail revolves around the local village shop and the haat. Shops are
usually present in villages with a population of more than 500 people. They stock more product
categories than what similar urban shops would, but there isnt much variety offered within a
category. Haats are weekly mobile supermarkets that are spread over 2-3 acres of land, with
more than 300 stalls, selling anything from animal feed to local medicines. "Rising rural
incomes, healthy agriculture growth, boost in demand, rising consumerism across India, better
penetration of FMCG products in the rural market are contributing to high growth and rapid
expansion of the FMCG industry in rural India," Traditionally, for the auto industry, the rural
market has been largely restricted to tractors and two-wheelers, though the penetration of
scooters and motorcycles in villages is only 10 percent, as compared to 25 percent in urban areas.
Any marketer worth his salt knows that in the wild blue yonder of rural India lies a huge market
for many products and brands. He will know that it accounts for over 50 per cent of the goods
consumed in the country. For two-wheelers, colour TVs and fridges rural areas account for 30
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per cent or more of the market. However, thats at a broad, macro level; an acknowledgement of
a vast markets existence.
3.1 RETAIL AS AN EMPLOYMENT GENERATOR
The retail sector can generate huge employment opportunities, and can lead to job-led Economic
growth. In most major economies, services form the largest sector for creating employment. US
alone have over 12% of its employable workforce engaged in the retail sector. The retail sector
in India employs nearly 21 million people, accounting for roughly 6.7% of the total employment
(CII-technopak, 2009). However, employment in organized retailing is still very low, because of
the small share of organized retail business in the total Indian retail trade. The share of organized
retailing in India, at around 2%, is abysmally low, compared to 80% in the USA, 40% in
Thailand, or 20% in China, thus leaving the huge market potential largely untapped. A modern
retail/retail services sector has the potential of creating over 2 million new (direct) jobs within
the next 6 years in the country (assuming only 8-10% share of organized retailing), according to
Arvind Singhal, CMD, KSA Technopak, Retail can create as many new jobs as the BPO/IT
sector in India. A strong retail front-end can also provide the necessary fillip to agriculture &
food processing, handicrafts, and small & medium manufacturing enterprises, creating millions
of new jobs indirectly. Through its strong linkages with sectors like tourism and hospitality,
retail has the potential of creating jobs in these sectors also. Though the Planning Commission
has identified retail as a prospective employment generator, in order to strengthen the multiplier
effect of the growth in organized retailing upon the overall employment situation, a pro-active
governmental support mechanism needs to evolve for nurturing the sector. Issues like FDI in
retail, allocation of government-controlled land on more favorable terms, strong political and
bureaucratic leadership, etc., need to be addressed adequately.
4. RURAL RETAILING AND ITS CHALLENGES
Some of the challenges faced by marketers and retailers in rural India are low per capita income,
dependence on the monsoons for purchases, difficulties in communication and high distribution
costs. Marketers are addressing these issues through the 4A's of Availability,
Affordability,Acceptability, Awareness and coming up with innovative campaigns to
address the rural segment. Understanding of rural customers and their needs is what will make
the rural foray retailers successful.
The main difficulties faced by the retailers in rural markets are:
Large and scattered market.
Major income from agriculture.
Low standard of living
Traditional outlook.
Diverse socio economic backwardness.
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Lack of proper physical communication and infrastructure facilities.
Many languages and dialects.
Dispersed Markets.
Low per capita Income.
Low levels of Literacy.
Prevalence of spurious brands and seasonal demand.
Most of the modern retail opportunities are in the urban areas and the rural retail potential has
remained untapped. While there is a large potential in rural areas, fragmentation and cost of
market access are real deterrents. No doubt that rural retailing is gradually gaining grounds with
the explorations by the corporate like ITCs Choupal Sagar (rural hypermarket), HLLs Shakthi
and Mahamaza. However, the pace at which the retail sector has been expanding in rural areas
should have been much faster. The higher purchasing power in rural and semi-urban areas has
significantly modified peoples lifestyle; for e.g. the sachet phenomenon is a thought to reach to
the bottom of the pyramid. Lot of people in rural India are just not willing to buy a whole bottle
of shampoo, but that doesnt mean they wont buy it. Thus, the key is in slicing the relevant
customer segments and developing appropriate formats. If the specific needs of
consumers are recognized, there would be a considerable market expansion, which would divert
a part of retail business to rural areas and help in reducing rural-urban imbalance. In addition to
these problems the number people below poverty line has not decreased in any manner. Vast
numbers of rural people tend to be highly superstitious, are tradition bound, believe in old
customs, traditions, habits, taboos and practices. Initial costs to penetrate into these markets
will be very high. Increasing costs of land in the rural areas also add to retailers problems.
Pace of expansion by competitors, High operating costs, supply chain problems, low margin on
agri inputs and low purchasing power of the customers will further add to the
challenges faced by the retailers. A huge and distinct rural market has emerged in the country.
One needed to distinguish between a developed rural market and a developing rural market
and adopt new strategies with an aspiring middle class in the scene. Inadequate data and poor
infrastructure are still impediments on the way. The rural diversity, in terms of language and
culture, among the States add to the challenges. The rural population has become very conscious
of the value of money and cannot be taken for granted any more. Everything sold in metros
cannot be sold in rural markets anymore.
The biggest challenge in rural retailing is to ensure products are available across the 638,000
villages, which are spread out over three million sq km in India. The problem is
further compounded by the geographical immensity of reaching the 12 million-strong
kirana (neighborhood mom-and-pop) stores in the country. Most of these stores are
small, and consumer goods companies have to reach out to them in villages only through a
channel of distributors and wholesalers, adding to the costs of distribution. At the same time,
these small retailers cannot be ignored about 90 percent of them are in towns that have no
more than a million people and some are in areas that have less than 100,000 people. Companies
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are left with no choice but to start building a strong distribution system and adapting to
innovative means of transportation to combat bad roads and poor connectivity. This challenge
affects the pace of replenishments of sold goods as the supply system is too fragmented and
increases inventory holding costs for retailers. Some companies had set up area offices which in
turn manage smaller rural offices. Due to lack of reliable infrastructure for logistics and since the
supply chain is just developing in the country, fast moving consumer goods companies have to
plan their products in advance. So the supply pipeline becomes long and loaded. More often
companies have to redesign their products and rework on their pricing strategy to succeed in the
rural markets smaller pack sizes, product variants and perception of affordability are key to
target rural markets. Examples include shampoo in sachets and dry food in smaller packaging.
Using the media, which has deeper penetration in rural areas, goes a long way in building
awareness and driving acceptance for products. The channels include the state-run
broadcaster Doordarshan, radio channels, local language advertising, cinema, outdoor
media such as posters, banners and wall writing and tapping all forms of local entertainment.
The availability of more economical technology applications specific to rural markets will also
help organize the fragmented retail formats.
4.1 ITC'S E-CHOUPAL INITIATIVE: A LEAD TOWARD RURAL RETAIL
Another innovator in rural distribution -- the $3.6 billion, Calcutta-based tobacco-to-hotels
conglomerate ITC -- has also been trying to build a platform that others can use. At a recent
seminar on rural marketing, ITC chairman Y.C. Deveshwar outlined plans to create a trust that
could work as an agency through which companies -- both private and public -- could market
goods and services to Indian farmers. The trust route would hopefully make other companies
more willing to sign up with their offerings. ITC has the right credentials to launch this trust.
Like Hindustan Lever's project Shakti, its eChoupal venture has been the subject of several case
studies.ITC's foray into an enhanced distribution network came from the recognition that the
existing agri-produce distribution channels were inefficient.
The company exports various agricultural products -- soybean, rice and wheat, to name a few. It
needs to source them from farmers."In 2000, ITC embarked on an initiative to deploy technology
to reengineer the procurement of soybeans from rural India," says S.Sivakumar, CEO of ITC's
agri-business division. "Kiosks -- called eChoupal -- consisting of a personal computer with
Internet access were set up at the villages." He explains that soybean farmers could access this
kiosk for information on prices, but had the choice to sell their produce either at the local market
or directly to ITC at their hub locations. A hub location services a cluster of eChoupal. By
purchasing directly from the farmer, ITC significantly improved the efficiency of the channel
and created value for both the farmer and itself. "While the eChoupal network was initiated to
facilitate more efficient and effective procurement, the connectivity -- both physical and
informational -- between the farmer and the market that it facilitated has allowed ITC to use it
for distribution of goods and services from the market to the farmer," says Sivakumar. It has thus
evolved into a business platform.

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The e Choupal infrastructure consists of:
A kiosk with Internet access in the house of a trained farmer, called a Sanchalak. This
kiosk is within walking distance of target farmers.
A warehousing hub managed by the former middleman, called a Samyojak. This is within
a tractor-driveable distance of target farmers. (The former middlemen were given a role
to avoid resistance to the project. They joined because they could see that their traditional
business was in jeopardy.)
A collaborative network of companies orchestrated by ITC with a pan-India presence.
This is, of course, a simplified structure. And there has been a stream of new initiatives. For
instance, in August 2004, ITC introduced the Choupal Sagar, a rural retail outlet at the hub. The
first was set up at Sehore in Madhya Pradesh. "This 7,000 sq. ft. mall sells consumer goods as
well as agri-products," says Sivakumar. The benefits to the farmer are obvious. And ITC itself
gains. Apart from the more efficient channel, there is money to be made from the reverse flow.
In 2005-06, ITC generated $23 million selling chemicals and fertilisers. That may not sound like
much, but it's early yet. In a recent move, ITC has set up its first urban outlet, the other end of the
eChoupal chain, to retail fresh fruit and vegetables.
What about other companies? Does it make sense for them to climb on the bandwagon?
Sivakumar gives the example of PI Industries, which has increased its market share in Madhya
Pradesh from 12.3% in 2003 to 33% in 2005 after partnering with ITC to sell through the
eChoupal."The eChoupal project is already benefiting more than 3.5 million farmers," says
Sivakumar. "Over the next decade, the eChoupal network will cover more than 100,000 villages,
representing one-sixth of rural India, and create more than 10 million e-farmers."

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5. RURAL MARKET PLAYERS
When organized retail first made its presence felt in rural India, it wasnt a pure retailing
operation targeting the rural masses. Companies like DSCL and Godrej who had significant agri-
business interests, set them up to meet the needs of farmers in a stores catchments area. These
stores are one-stop shops meant to meet the occupational needs of farmers by providing agri-
inputs and fertilizers. The various retailers who have ventured in rural retailing are discussed as
under:
1. HARIYALI KISAAN BAZAAR
DSCL backed by years of experience in the agribusiness, has implemented a one of a kind rural
retailing initiative, the Hariyali Kisaan Bazaar rural departmental stores, to provide single-point
solution to the diverse needs of the contemporary Indian farmer. Each store covers an area of 3-4
acres and is managed by a team of 7-8 people whom the Company trains continuously. The total
number of Hariyali outlets stood at 101 as of 30th Sep, 2007, which DSCL plans to expand to
250-300 outlets by the end of FY 2008-09. Hariyali Kisaan Bazaar offers the rural household all
farming and consumer products and related services along with financial services under one roof.
These include wide choice and multi-brands of agri-inputs, FMCG, consumer durables, apparels,
footwear, toys, general merchandise, insurance etc. The outlets also provide the farmer, the
expert advice of agronomists and the technological support in shifting from subsistence farming
to technology led commercial farming.

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2. AADHAAR
Godrej Aadhaar is the agri services cum retail initiative of Godrej Agrovet Ltd. It is a complete
solution provider for the Indian farmers and provides professional guidance with an objective to
improve productivity, higher returns and improved cost benefit ratio. The services offered are
crop advisory services, soil & water testing services; buy back of output, crop finance, supply of
agri inputs and animal feeds, transfer of information (weather, price, and demand supply), door
delivery of products etc. Presently there are 49 Aadhaar Centers across the country in the States
of Maharashtra (Mancher, Alephata, Ranjini, Umbraj, Ozar Sangli, Dindori, Niphad, Shikrapur,
Ottur, and Akluj). GAVL also opened its second petro format Aadhaar Express in Kashti,
Maharashtra. GAVL revamped its Warden Road Natures Basket outlet by positioning it as
Authentic World Food. This store has introduced new product categories like wine, cheese,
cold-cuts, processed foods in addition to its existing portfolio of fresh fruits, vegetables & herbs
and specialty foods.
3. PROJECT SHAKTI
HUL launched Project Shakti in the year 2001, in keeping with the purpose of integrating
business interests with national interests The model was piloted in Nalgonda district of Andhra
Pradesh in 50 villages in the year 2000. The Government of Andhra Pradesh took the pioneering
step of supporting the initiative by enabling linkages with the network of DWACRA Groups of
rural women set up for their development and self-employment. Most SHG women view Project
Shakti as a powerful business proposition and are keen participants in it. It has since been
extended to in Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka,
Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West
Bengal with the total strength of over 39,880 Shakti Entrepreneurs. For most of these families,
Project Shakti is enabling families to live with dignity, with real freedom. The most powerful
aspect about this model is that it creates a win-win partnership between HUL and the consumers,
some of whom will depend on the organization for their livelihood, and builds a self-sustaining
cycle of growth for all. HUL envisions the creation of 1,00,000 Shakti Entrepreneurs covering
5,00,000 villages, and touching the lives of 600 million rural people by the year 2010. i-Shakti
- an IT-based rural information service has been developed to provide information and services
to meet rural needs in agriculture, education, vocational training, health and hygiene. i-Shakti
has been set up in 400 villages in Andhra Pradesh, and have been functional since August 2003.
Through i-Shakti kiosks, ICICI Bank and HUL will work together to provide a new delivery
channel for rural India, which offers a multitude of products and services to the rural customer.
4. E-CHOUPAL AND CHOUPAL SAGAR
ITCs e-Choupal is an example of how a commercial venture can provide a channel for
knowledge and opportunity, bringing global resources and practices to Indian villages as well as
higher incomes for farmers, and helping create the conditions for many other enterprises to cater
to the rural market. E-Choupal is an entirely new channel for procuring the purchase of the
farmers. Today they operate through 6,500 choupals in 9 states. In e-Chaupal they started with
two channels known as Sanchalak and Sanyojak. Sanchalak: Sanchalak is the person in whose
house the ITC sets up the e- Choupal. E-Choupal consists of a computer; linked to the Internet
- 50 -
via phone lines or, increasingly, by a VSAT connection. Each Sanchalak serves an average of
600 farmers in 10 surrounding villages within about a five kilometer radius. Samyojak:
Samyojak is the cooperating commission agents. They look for the logistical support and are
responsible for cash disbursement to the local farms for their produce. Chaupal Sagar: Following
the runaway success of its e-Choupals, the tobacco-to-hotels-to-foods major ITCs rural foray,
which kick-started a silent revolution amongst the harried soya farmers of MP in June 2000,
Chaupal Sagar are built near Samyojak, so that when farmers come to sell their produce to
samyojak and receive cash money then they can shop in Chaupal Sagars. Till now there are 19
Choupal Sagars. All of these stores are located in the rural areas of Madhya Pradesh, Uttar
Pradesh and Maharashtra.
5. KISAN SEVA KENDRA
Kisan Seva Kendra is a low cost business model by Indian Oil Corporation of a retail outlet
offering fuel and other non fuel value added services with penetration in rural markets generating
high returns. KSK a one stop center of service(seva) for the farmers at his doorstep making
available: PDiesel and Petrol with Q&QPSeeds, pesticides,fertilisers and other agri needs
PNutan stove, Hurricane lamps PDaily needs such as grocery, personal care PStationery for
children PTools, auto spares PLocation specific value additions Low investment ranging from Rs
6 to 9 lacs with a payback period of 3 to 4 years as said by Sandeep Sharma, Senior
Manager(Retail Sales) Indian Oil Corporation, Mumbai; in rural retail summit 2007. It currently
has approx. 100 operational stores.
SWOT ANALYSIS OF RURAL RETAIL MARKET
STRENGTHS
About 70% of India's population lives in 627000 villages in rural. Middle and higher
income households in rural India are expected to grow from 80 million to 111 million
by 2010.
In urban India, the same is expected to grow from 46 million to 59 million. Thus the
absolute size of rural India is expected to be double to that of urban India.
Young population.
WEAKNESS
Low literacy rates
Low standard of living
Traditional outlook
Prevalence of spurious brands and seasonal demand.

- 51 -
Limited Distribution network for example cold storage.
Gaps in road and Telecommunications connectivity.
Lack of reliable electricity and water supply
OPPORTUNITIES
3 times more families lives in Rural India.
Rural India has a large consuming class with 41 per cent of India's middle-class and 58
per cent of the total disposable income.
Population-becoming brand conscious.
Exposure and increase in literacy rates will open market further.
THREATS
Shifting of young generation-rural to urban cities.
Entry of small time players Study on buying behavior of rural consumer indicates that
the rural retailers influences 35% of purchase occasions.
Vast majorities-rural people-tradition bound, fatalistic and believes in old customs,
traditions, habits, taboos and practices.
Competition from local players.
RECOMMENDATIONS AND CONCLUSION
Integration of rural initiatives into business model like ITC.
Corporate should supplement government efforts & resources (infrastructure
development, education system, storage).
Creating retail stores which should be rural in nature so that the rural masses identify
themselves with these stores.
Innovative & Exciting Initiatives such as Village BPO should be given impetus to tap the
talent in the rural India.
The business model for rural retail can be successful only when integration between the
profit and social motive is apparent. The social angle needs to be met for it to be
acceptable.
Selection of location of the store is very important. Selecting a store in the locality will
pay off than having it at the out skirts of the village.
- 52 -
Empowerment in terms of economic power, purchasing power, knowledge
and information dissemination is crucial for rural retail ventures to succeed.
The model should empower the rural consumer and at the same time take
advantage of this empowerment through creation of demand for its own products and
that of its partners.
The level of penetration except for certain products has been negligible so far. However,
so far as the rural share in consumer expendables like cooking oil, tea, electric bulbs,
hair oil, shampoo, toilet soap, toothpaste, washing cakes and washing powder is
concerned, their share on an average, is much higher than consumer durables.
Though the rural- urban differentials are not so pronounced in the case of durables, the
rural market penetration is low with respect to urban areas. However, in case of health beverages
and cosmetics like shampoos, nail polish and lipsticks, large gaps exist. Hence these products
provide substantial opportunity to enter the rural markets. Definitely there is lot of money in
rural India. But there are hindrances at the same time. The greatest hindrance is that the
rural market is still evolving and there is no set format to understand consumer
behavior. Lot of study is still to be conducted in order to understand the rural consumer.
REFERENCES
WEBSITES
1. www.ibef.org
2. www.echoupal.com
3. www.dscl.com
4. http://www.murugappa.com/companies/coromandel/subsidiaries.htm
5. www.indiaretailing.com
6. www.naukrihub.com
7. www.indiareports.com
8. www.imagesretail.com
9. www.coolavenues.com
10. http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4172
11. http://www.researchandmarkets.com/reports/541244/

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BOOKS
1. Bhupesh Bhandari: The reign of rural retail
2. Berman Barry and Evans Joel.R., Retail Management- A Strategic Approach- Ninth
Edition, PHI.
3. Cox, Roger and Brittain, Paul. Retailing-An Introduction- Fifth Edition, Pearson
Education.
4. Madaan: Rural retail in India (http://books.google.co.in/books)
REPORTS& ARTICLES
1. CII-Yes Bank Study, 2010
2. CRISIL report,2010
3. BMI India Retail Report,2010
4. CII-Technopak, November 2009
RESEARCH PAPERS & ARTICLES
1. Janet S. Ayres, F. Larry Leistritz and Kenneth E. Ston (1992): Rural Retail Business
Survival: Implications for Community Developers, Econpapers.
2. P.Ryan (Sept.2006): Indias growing consumer product & retail market, marubeni
research institute.
3. Siddhatharan Sundaram and Shrikant Kulkarni, AC-NIELSEN ORG-MARG Pvt. Ltd,
Retail digest.
4. Piyali Ghosh, Vibhuti Tripathi, and Anil Kumar (November 2009): Customer
expectations of store attributes: A study of organized retail outlets in India Journal of
Retail & Leisure Property Vol. 9, 1, 7587.
5. Soumen Banerjee (June 2010): Rural Marketing: Challenges in Distribution and
Channel Management. (http://www.coolavenues.com)
6. Ashish Kr. Shrivastava and saket ranjan praveer (July-sept.2009): organized retail in
FMCG segment: Rural market prospect. SCMS Journal of Indian management.
7. Baba gnanakumar (April 2008): Marketing to Rural consumer-Understanding and
tapping rural market potential, IIM-Kozhikode.

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SAJMMR Volume 1, Issue 3 (December, 2011) ISSN 2249-877X

South Asian Academic Research Journals

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