Indias $9.

6 Billion Rural Jewellery Market

Solitaire International, India

Design and style innovators and jewellery brands thought their target markets were confined to urban pockets in largely rural India. It turns out they were wrong! The rural Indian market is huge, as wealthy in parts as its urban counterpart and most importantly just as design and style conscious. A number of jewellery brands now actively target this huge and still largely untapped market, reports Shanoo Bijlani.

Urban India has been the engine that has driven the growth of consumption in the country. Brands and premium goods have all first been embraced by the city-dwelling Indian before they or toned-down versions percolated into the countryside. Not any more. The great Indian urban-rural divide is gradually narrowing at least among the top and middle segments of the rural and semi urban areas. The rural rich are now displaying buying behaviour akin to the most downtown of city Indians. Thanks to the rapid growth of rural income in some segments at least the Indian consumer goods marketer has a huge and exciting new target to aim at. A look at the figures reveals the scope of this new growth. Urban consumers constitute 40 per cent of the total Indian population who are still the primary sales and growth drivers but it is the other significant 60 per cent of the population some 750 million in all living in 160 million households in semi-urban and rural areas who today account for more than half of Indias consumption. Rural India is no longer dependant on agricultural income. Thirty-five per cent or 60 million of Indias middle class live in villages, drawing incomes of between Rs.200,000 ($4,573) and Rs.1,000,000 ($22,800) per annum. The number of middle income households, defined as those earning between Rs.45,000 and Rs.215,000 ($1,027 and $4,900) per annum, in rural India is around 27 million, while the number in urban India is just a shade more at 29 million. Moreover, rural per capita income has grown at exactly the same rate as in urban India for the past 10 years. The percentage of people living below poverty line has reduced from 36 per cent in 2003-04 to 22 per cent in 2006-07. Every year, the gap between the urban and rural market is narrowing. In 1973, rural India spent 72.9 per cent of their earnings on food, and only 27.1 per cent on non food items. In 2005, they spent 55 per cent on food and 45 per cent on non food items. Thanks to the government initiatives, literacy levels are improving. Other factors like increasing incomes from non-agricultural avenues like hotels and tourism and the IT industry, media penetration through satellite television, the influence of Hindi films, declining poverty and last, but not least, increased loan facilities have led to higher aspirations and an increase in rural consumption. To quote from Rama Bijapurkars book We Are Like That Only, Rural India is not poor nor is it totally agriculturally dependent. Rural India represents 50 per cent of Indias GDP (but 70 per cent of its people) and Even ascetics are connected today

50 per cent of rural GDP is non-agricultural: it comes from the self employed in all kinds of services. Indian consumers are very value conscious. They may be poor but they are not backward. Theyre not overwhelmed by western brands... Consumer India is large, it is mostly poor, and it is getting richer and less poor Rural India and Jewellery Given this situation, the Indian jewellery industry is beginning to shift its hitherto urban focus to make the most of rural Indias market potential. The World Gold Council (WGC) estimates that the Indian jewellery market is worth around Rs.70,000 crore ($16 billion). The urban jewellery market is valued at Rs. 28,000 crore ($6.4 billion), while the rural and semi-urban market is valued Rs.42,000 crore ($9.6 billion). Dissecting the rural figures further, the family and regional players here corner a Rs.14,200 crore ($3.24 billion) portion of the market, the share of branded jewellery is a minuscule Rs.3,000 crore ($686 million), while the small and fragmented players corner a whopping Rs.30,800 crore ($7 billion). The jewellery industry has realised that clearly, the last segment is large and significant in terms of generating a high volume market, and if properly catered to, the industry can upgrade this buyer, which in turn, can change the complexion of the Indian jewellery industry. In five years time, the rural jewellery market could grow to Rs.50,000 crore ($11.4 billion) at todays gold prices, estimates L. Natarajan, vice president of GoldPlus, a jewellery division of Titan. GoldPlus sells gold jewellery only in semiurban and rural areas, unlike its sister concern Tanishq, which has an urban focus. Barring the small presence of the branded jewellery segment, which is organized, the majority of the rural and semi-urban jewellery market is unorganized, fragmented, and dominated by individual and family jewellers. Poor shopping experience, a A GoldPlus outlet in a small Tamil Nadu town lack of transparency and a lack of designs, are some factors that have hampered the growth of jewellery industry. Of late, there has been a raft of organised players pushing into the rural market. Along with GoldPlus, Gitanjali, Adora, Ciemme, Kisna to name a few, have all launched rural marketing initiatives. Big players though they are, their entry into rural India has been characterised by an unsure, testing-the-waters approach, mainly because initially, none was sure there really was money to be made in this market. Some offered 18-karat hallmarked diamond jewellery to a market that was traditionally oriented towards high-purity gold jewellery. Some tried branded gold jewellery. All of them together brought about an explosion in the range of designs and price points for the rural consumer along with assured buybacks and other incentive schemes. An Eye-Opening Experience For us, targeting these new consumers was a revelation as we only had published research to rely on, remarks Natarajan. We did some market research of our own, trying to understand the type of jewellery the rural consumer wanted. The study was an eye opener according to Natarajan. We found that customers had plenty of expectations. They wanted high gold purity, and longed for firms that could deliver quality products, discounts,

affordability, an excellent shopping experience, certification, and variety in designs. The GoldPlus survey also probed the reasons for the rural buyers preference for high-purity gold. The results confirmed the fact that gold was used as an investment vehicle particularly long-term, as it was passed on to daughters at weddings (in south India 100 sovereigns or 800 grams is the minimum requirement to be gifted to a bride) often mortgaged to tide over financial crises and seen as a traditional necessity.

Indias $9.6 Billion Rural Jewellery Market

Sensing a robust market in these areas, the firm established a Rs.50 crore ($11.4 million) jewellery manufacturing plant situated in Hosur, Tamil Nadu. The company started making and outsourcing gold jewellery. The challenge then was to generate profits through the scale of operations, which required a large amount of working capital. It was also important to have good, active vendor partners. We screened many hopefuls, educating them about the manufacturing processes and hallmarking standards, explains Natarajan. The company also motivated them by offering rewards for conformance. Additionally, the company trained around 3,000 karigars (artisans) to impress upon them the need for maintaining gold purity and quality. We targeted the lower middle- and the middle income group and began to upgrade them gradually, says Natarajan. In 2005, GoldPlus opened two showrooms, one in Erode, Tamil Nadu, and the other in Ratlam, Madhya Pradesh. Today it has 27 showrooms in six states. GoldPlus is today the largest jewellery chain in Tamil Nadu and its average sticker price is gradually increasing. When we started, the average price used to be around Rs.12,000 ($274); today it has moved up to Rs.18,000 ($411), says Sharad R., the head of retail and marketing.

Reports suggest that southern India consumes 40 per cent of all jewellery sold in the country. Thus having a base in the south made sense. We did our learning in a high-traffic market and were able to build up a nice platform before moving on to other parts of the country, says Natarajan. First-Mover Advantage If the south was a gold mine for GoldPlus, the Hari Krishna Group trained its sights on Mumbai, Gujarat and Maharashtra. Since 2005, the firm has been selling Kisna, branded 18-karat diamond jewellery in these regions through 1,091 jewellery retail outlets. Kisna is sold in a wide price range from 4,900 ($112) to Rs.250,000 ($5,716), and the brand introduces new designs every four months to cater to its design-conscious customers.

At the India International Jewellery Show (IIJS) in August, they picked up orders from 3,416 retailers from other states as well Madhya Pradesh, Chattisgarh, Bihar and Jharkhand. These retailers were keen to stock Kisna in their stores, says Ghanshyam Dholakia, a partner of the Hari Krishna group. The field is open for innovative and smart players. We are now asking ourselves, why didnt we tap these markets earlier? Look at the growth potential! There are over 15,000 jewellers in the three areas where Kisna is currently sold. And we have tapped only 7.27 per cent of them so far! According to Dholakia, the rural consumer is very smart and knowledgeable and insists on certificates.

Thanks to the media and movies, the rural consumer is also getting design savvy. Western designs are popular and this Diwali, Dholakia predicts that their solitaire range ranging upwards from 0.25 carats, priced between Rs.15,000 ($343) and Rs.100,000 ($2,286) will do exceptionally well. However, the fastest moving price points for Kisna jewellery in the rural areas are between Rs.10,000 ($228) and Rs. 30,000 ($686). For now, the brand is keen on expanding its footprint in the western and northern regions. On the other hand, Ciemme Jewels has targeted the so-called Tier-3 and Tier-4 cities in Gujarat, the north-east, central and north India since 2003. Deepak Raval, the firms general manager, says the Ciemme brand today is retailed through 250 outlets and 70 per cent of them are situated in semi-urban and rural areas. The firm is currently looking for franchisee showrooms in Mangalore, Karnataka. By 2010 we want to expand our reach to 500 stores, says Raval. It was very difficult at first, Raval notes. Selling branded diamond jewellery was tough. Most of the retailers we approached offered to stock our jewellery, but wanted sell it as their own product and not use our label. It took us a while to impress upon them how to sell a branded product. Ciemme uses only VVS diamonds up to I2 clarity and E-G colours. They offer 80 per cent buyback on the sticker price and deduct only 10 per cent if the product is exchanged. Raval adds, To cater to the superstitious buyer who prefers to keep the diamond jewellery for a week or more to check if the stones prove favourable or not, we offer to take back the jewellery at 100 per cent if it is returned within a month. Ciemme caters to rural tastes and brings out limited edition designs. Their customers are traditional but want something tweaked to suit their sensibilities. Minor alterations that look trendy are acceptable. If in the northern rural areas, the brands white gold and coloured gemstones are making inroads, the southern customers demand quality diamonds set in their jewellery. Raval feels that the design element trickles down from the urban areas to the rural in no time, thanks to the influence of Hindi films. Buyers copy what film heroines wear. Long chandeliers, which came into vogue in urban areas only recently, are already hot in rural areas. Rural areas are hooked up to global

influences

The brands 18-karat diamond- and coloured stone jewellery ranges from Rs.999 ($22) to Rs.1,000,000 ($22,867), and the popular price points that sell well in the rural and semi urban areas are Rs.15,000 ($343) to Rs.35,000 ($800).

The company issues certificates and arranges additional lab certifications if the consumer wants them. The brand has registered a 100 per cent growth in volumes every year since its inception. Natarajan feels that rural markets are traditionally dominated by yellow gold, with only 10- to 15 per cent favouring coloured stones like rubies and emeralds, and only 4- to 5 per cent preferring diamond jewellery. But a deeper analysis of these markets shows that the share of gemstones and diamonds will gradually increase in the months and years to come. Raval says that today about 10 per cent of the rural and semi-urban population has warmed up to buying diamond jewellery. Five years down the line, he thinks, at least 50 per cent of this population will seek diamonds. Lessons Learnt So where is the rural market heading? The rural market will equal the urban market soon, says Natarajan. The rural customer is changing and so, the rural retail scene is evolving at a rapid pace.

Natarajan says, We thought they are price sensitive, but we have been proved wrong. They are as design conscious as any urban customer and want design variety every six months. They are also willing to pay a premium for differentiated design. However, the wedding market, which accounts for 60 per cent of total sales, continues to be dominated by traditional jewellery. The rural consumer is drawn to stylish jewellery, but style as such is perceived differently by rural customers.
Kisna

Rural India offers the jewellery industry a huge opportunity. But Natarajan cautions, You have to keep pace with the change. You have to adapt quickly or lose your customer. One constant is gold. Gold is a commodity dear to all Indian women, irrespective of income group. Only the quantum of gold bought varies with differences in income and savings. The growth of our business will depend on how efficiently we catch the consumer traffic from the villages, which today travels all the way to the nearby Tier 1 or Tier II towns to buy jewellery. Ghanshyam Dholakia Partner, Hari Krishna Group As Dholakia points out, The field is vast, and open for all the organized players. Five years from now, only brands will sell. Those who offer quality, certification and service will rule and reap the rewards. The turf is teeming with opportunities.