Business Today

Rural to the rescue

Stagnant urban demand, collapse of export markets and relative rural prosperity are drawing companies to the countryside. Which means that the slowdown has not impacted the rural markets as much as their urban counterparts, reports Tejeesh N.S. Behl.

Tejeesh N.S. Behl | Print Edition: April 5, 2009

Suresh, a grocer from Behra village in Bihar’s West Champaran district, had to shut down his shop whenever stocks ran out: he had to restock from not one distributor but several, located in bigger villages nearby. Time lost, income forgone. Then he opted for a mobile phone connection through Airtel for Rs 1,200, which included a handset. Today, he sits in his shop and calls up his distributors to stock up. Of course, Suresh is also lucky that he has power back-up to recharge his handset—considering the perennial power cuts in his state. (Those without power back-up have to trudge 8 km every four days to Baisukhva village where a makeshift charging station, powered either by a diesel generator or truck batteries, allows users to charge their handsets for Rs 5 per shot.)

It’s probably this resilience that’s prompting companies such as Airtel, facing slower urban sales following the global financial meltdown, to make a dash for the hinterland despite the lack of basic infrastructure. “We started focussing on the rural markets about a year-and-a-half ago, and today 60 per cent of all our new consumers are from the rural areas,” says Sanjay Kapoor, Deputy CEO, Bharti Airtel. That means 1.68 million new rural customers a month. Airtel has been adding some 2.8 million subscribers every month since the past one year.

Does that mean a rural resurgence that could shore up India Inc.’s bottom line or at least partly make up for a sluggish urban India? “Rural demand has grown by 20 per cent in the last two quarters, with no downgrading of brands—if anything, people in rural areas have moved from unbranded to branded items,” points out Pradeep Kashyap, Founder & CEO of the rural marketing consultancy, MART. A case in point, he says, is the foray of products such as the malt-based drink Horlicks and Dove soap among the upmarket rural segment.

The unprecedented agricultural bull run with four consecutive years of positive growth has meant that the rural consumer is now well poised to aspire for the same products as his urban counterpart. “The slowdown has not impacted the rural markets as much as their urban counterparts simply because the upswing was also not felt here—with the result that the rural populace is playing catch up with the urban consumers and hence fuelling demand,” says Anil Jain, Managing Director, Jain Irrigation Systems, which supplies drip irrigation systems to farmers. That explains why companies are scrambling for a first-mover advantage. Airtel’s rival from the A.V. Birla Group, Idea Cellular, has made a beginning in the Maharashtra countryside.

“Every second new subscriber is from the rural area. Yes, part of our focus also has to do with the fact that growth in the number of urban subscribers has slowed down,” observes Pradeep Shrivastava, Chief Marketing Officer, Idea Cellular. In fact, many believe that telecom operators may have reached saturation point in urban areas, with penetration at 80 per cent. Compare that with a rural penetration level of 10-12 per cent and the rural rush is understandable. 
 Why rural is hot
  • Four consecutive years of positive growth in rural GDP has not just boosted sentiment but also spending power

  • Power play of NREGS, farm loan waiver and more than 40 per cent hike in support prices of crops over last two years

  • Higher percentage of disposable income in rural vis-a-vis urban areas due to negligible expenses on house rent and taxes

  • Corporate engagement is beginning to have a small but definitive impact on rural incomes

  • All this shows up in demand. Airtel's new subscriber base consists of 60 per cent rural additions
  • - Maruti's sales from rural markets has jumped from 3.5% in 2007-08 to 8.5% in 2008-09

Opportunities galore
But it’s not just low-input products and services that are permeating the heartland. Companies such as Maruti Suzuki and Hero Honda are also driving their brands and products deep into uncharted territories as four- and two-wheeler sales shrink elsewhere.

“Earlier, we had a lot of decentralised rural marketing efforts, which were largely dealer-driven. Now, they are more centralised. This includes a 500-strong sales force on the full-time rolls of our dealers to target rural sales specifically,” points out Anil Dua, Senior Vice President, Marketing, Sales and Customer Care, Hero Honda. The company, in end-2007, also launched a rural vertical Har Gaon, Har Aangan (Every village, every house). According to soft data, its share of rural sales has gone up from 38 per cent in 2007-08 to 40 per cent in 2008-09.

Maruti Suzuki’s foray into the heartland was a direct consequence of the slowdown. “We started it as a test case in 2007—driven by the slowdown, which impinged on the urban consumer’s propensity to opt for vehicular loans,” says Mayank Pareek, Executive Officer, Marketing & Sales, Maruti Suzuki. He says that in contrast to the urban market, where 80 per cent of the vehicle’s cost is financed, rural consumers pay cash for up to 60 per cent of the price tag. (A rural consumer does not share two big headaches of his urban counterpart—house loan EMI and transportation costs).

For the companies, the initial results have been encouraging. While Maruti Suzuki has seen the share of its rural sales jump from 3.5 per cent of the total in 2007-08 to 8.5 per cent in 2008-09, Bharti Airtel’s rural penetration has increased from 6 per cent in 2007-08 to 12.6 per cent, according to data available till February 2009. Airtel’s average revenue per user (ARPU) in the rural regions has increased from Rs 100 to Rs 150 in the same period.

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