Ajita Shashidhar May 1, 2017
ITC has set up a dedicated 'rurban' sales and distribution team focused on towns and villages with a population of less than 100,000. It has identified 600 districts in the country, with villages whose population is less than 3,000, and is readying a fleet of 1,200 vans to service them. "We've also added 2.6 million rural outlets in the last few months," says B. Sumant, President (FMCG), ITC.
Godrej Consumer Products has strengthened the 'One Rural' initiative it began a year ago, when it integrated its countrywide rural sales and marketing functions into one unit to acquire a better understanding of the rural consumer's tastes, preferences and media consumption habits. It has increased its rural sales force by 15 per cent in the last two months, as also the number of its rural stockists. It has set up the Pragati Wholesale Feeder Programme, under which 15,000 rural wholesalers work closely with the stockists. "We will directly service 65,000 villages, while the feeder programme will serve the rest," says Sunil Kataria, Business Head (India and SAARC), Godrej Consumer Products.
Dabur India makes it a point to promote its products at weekly village haats (markets). It has launched smaller packs - lower unit packs (LUPs) in marketing parlance - of its oral care (Dabur Red Paste, Meswak, Babool, etc.) and hair care (Dabur Amla Hair Oil, Dabur Amla Brahmi Hair Oil) products, specifically for rural markets. It has been organising street plays in villages and small towns where brand messages are woven into the dialogues the actors utter, as well as village-level beauty contests under its Fem brand of products. "We'll be giving a renewed push to our rural strategy by restarting our rural distribution enhancement initiative and introducing new products and packs for rural markets," says Sunil Duggal, CEO, Dabur India.
It is not just the FMCG companies - auto majors are just as gung-ho. Maruti Suzuki India Ltd (MSIL) has deepened its rural penetration from 90,000 villages to 130,000, and increased its rural sales force from 10,000 in 2015/16, to 11,500, with the bulk of the recruitments being made in the last two months. Hyundai Motor India has started a separate rural sales vertical to increase the contribution of this segment from the current 20-23 per cent. "We've begun an initiative called 'Caravan Hyundai', in which a caravan loaded with Hyundai cars travels through small towns and villages, offering special deals," says Rakesh Srivastava, Senior Vice President (Marketing and Sales), Hyundai. Hero MotoCorp, the country's largest two-wheeler manufacturer, with a third of its sales in rural areas, has increased test driving opportunities in rural markets. A number of auto companies, including Maruti, Hero and Honda, have begun offering after-sales service at their mini-sales outlets in rural markets, which they did not earlier. Mahindra & Mahindra's automotive division is strengthening its reach in 3.5 lakh villages. "Currently, we have over 2,600 touch points. The sales force has been enhanced three-fold in upcountry. Their capabilities are also being strengthened," says, Veejay Ram Nakra, Senior Vice President, Sales & Marketing, Automotive Division, Mahindra & Mahindra.
The reason for the increased rural interest is obvious - rains were good last year, and kharif and rabi harvests bountiful, with the same expected this year as well. The government's increased allocation for rural development, rural roads, rural housing and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) in this year's Budget (see Betting on Bharat) has also contributed. "While MGNREGA is a safety net programme meant for periods when jobs are scarce, more durable job creation happens when roads are being constructed or affordable houses being built," says D.K. Joshi, Chief Economist at ratings agency Crisil. "The government's focus on rural infrastructure will create employment and step up consumption." Ramesh Iyer, Managing Director of rural consumer finance company Mahindra Finance, expects the current financial year to be very different from the recent past. "Every state is getting into roads, irrigation and bridges as the government's focus is on developing rural infrastructure," he says. "Even if the coming monsoon is average, we will see the emergence of a booming rural India."
The current corporate enthusiasm for Bharat is in stark contrast to a few months ago when, travelling through rural markets, Business Today found a sharp dip in rural consumption. Three years of poor monsoons had taken their toll. Though ITC, for example, has a robust rural distribution network, its presence in rural markets had become half-hearted, with many of its popular food and personal care brands - Bingo, Sunfeast and Bounce - missing from shop shelves. ITC's FMCG head Sumant had then candidly admitted that the company's focus was on urban India since that was where the bulk of sales were taking place.
'Premiumisation' was then the buzzword, with companies vying with one another to launch 'premium' products which sell predominantly in big cities. Godrej, for instance, launched premium shampoos, hand-washes and roll-on mosquito repellents. Though it had a strong base in rural India with products like Godrej No.1 soap and Goodknight mosquito repellent, the company made little effort to strengthen it. It was the same with companies like Hero MotoCorp and MSIL, with the latter launching high-end brands such as Vitara, Brezza and Baleno through 2015 and 2016.
COPING WITH DEMONETISATION
The demonetisation decision of November 8 last year struck rural India a cruel blow, but it was not a crippling one. Haribhau Gaikwad, 30, a farmer in Nandgaon village, 70 km from Nashik, Maharashtra, reaped a good paddy harvest. But thanks to demonetisation, it sold at a much lower price than the previous year, when the crop had been poor. His friend, grape farmer Banshi Pageri, in the same village, had a bumper grape crop, but again it sold for less than half its price the previous year. How did they cope? Gaekwad postponed the buying of farm-levelling equipment he had been planning. Instead of buying four bags of fertiliser for his next crop as he usually did, Pageri made do with only one.
But despite demonetisation, Gaekwad did buy the LED TV he had been planning ever since his existing 15-year-old TV conked out some time earlier. "People continued to buy as per their needs, though most of them took credit for extended periods," says Manohar Gaika, who runs a kirana store in the same village. The same was the experience of Sheikh Mohammud Mohsin in faraway Kherai village in South Bengal. Many customers also offloaded on him heaps of coins they had collected over the years while making purchases. "I had coins worthRs1 lakh, which the banks refused to accept," he says. He still hasRs70,000 in coins having been able to part with the rest as notes began to circulate again.
"There has been a surge in the opening of bank accounts," says Manoj Kulkarni, Branch Manager at ICICI Bank's Ghoti branch in Igatpuri district, Maharashtra. "The number of account holders using digital payment platforms such as NEFT and RTGS to transfer money has also gone up significantly." By and large, the ill effects of demonetisation have ebbed in the villages and all is normal again. "I could see a return of positive sentiment by December last year as the rabi crop was good," says Ramesh Iyer, MD, Mahindra Finance. "The effects of demonetisation are largely behind us." In Madhya Pradesh, however, some of it lingers with mandis still paying farmers by cheque - often post-dated - instead of cash as before. Meherban Singh, resident of the feeder town of Ghatta Billod, 50 kms from Indore, says that not only did his crop fetch himRs2,200 per quintal this year as opposed toRs2,800 last year, but the mandis also gave him post-dated cheques. Similarly, Satish Chouhan, a Hero MotoCorp dealer, says that while he usually sold 100 bikes a month, he struggled to sell barely 50 in the period between November and January.
Just as the rural market was recovering following last year's abundant monsoon, it was hit by demonetisation. Rural India's economy is largely cash-driven, and with 85 per cent of existing notes taken out of circulation, sales came to a grinding halt. But there has been a gradual recovery since. "There was a drop in bookings in November last year, immediately after the demonetisation decision, but rural sales have grown 15 per cent since then," says R.S. Kalsi, Executive Director, MSIL. "Our ground sales teams worked closely with local banks to educate customers about digital payments and things are back to normal now." Hero MotoCorp has been setting up point-of-sale (POS) machines at all its retail centres. "We are also partnering with consumer finance companies to devise affordable financing schemes," says Ashok Bhasin, Head (Sales, Marketing and Customer Care), Hero MotoCorp.
While temporary hurdles may arise, rural car sales are bound to keep rising. "As roads develop, people will graduate from two-wheelers to four-wheelers," says Iyer of Mahindra Finance. He would like automakers to focus not just on sale of new vehicles, but also create a reliable network to sell second-hand ones. "Aspiration levels of rural consumers are as high as those of their urban counterparts, but their affordability levels are lower," he adds. "If more organised players enter the second-hand car market, certify such cars with a warranty of one year or more, this segment's sales will start picking up."
"The mood is still cautious because of demonetisation, but consumption will surely happen," says Balram Yadav, MD of agri-business major, Godrej Agrovet. "Even if the monsoon is average this year, I expect the rural economy to grow 12-14 per cent. Some even claim demonetisation was a blessing in disguise, as it provided insights into rural society that marketers lacked earlier. "Demonetisation has busted several myths about rural markets," says Iyer. "You think that in rural areas, electronic payments will not work as customers will never accept them. This is a myth you never examine but simply believe. Then a situation like the one caused by demonetisation arises and you are forced to emphasise digital and you find to your surprise that it works with customers." He claims 20 per cent of his customers - especially the younger ones - have switched to digital payments.
As a result, Mahindra Finance intends to use data analytics in a big way in future to create specialised products for its customers. "We have realised it is important to segment customers by age unlike before when it was mainly by profession or location," he adds. "A 54-year-old farmer may still want to repay using cash, but a 30-year-old is ready to use electronic means." The company is training its sales staff to handle different sets of people in different ways. "Earlier, our people were trained to understand a customer's earning potential," he says. "If it did not seem he could repay his loan, we would take legal recourse or seize the collateral provided. Now we ask our people to conduct deeper reference checks, find out about the borrower's habits and other engagements, in all of which analytics comes in handy." Analytics can also help to determine whether a defaulter is wilful or circumstantial and shape the company's response to him accordingly.
Sri Swami Samarth Electronics is the name of a consumer durables store in Ghoti village of Igatpuri district, Maharashtra. A year ago, most of the TVs and refrigerators it sold bore local brand names such as 'Hilton' and 'Melbon', priced 25-30 per cent lower than the well-known brands available in cities. Unseasonal rains had destroyed agricultural produce and business sentiment was at rock-bottom. "There were no buyers for the bigger, more expensive brands," says Satyen Suryavanshi, the store owner. Today, those local brands are no longer seen in the store. "We now have Bajaj Finance offering loans to customers, but it does not finance local brands," he adds. "So I've stopped selling them. Customers are willing to buy big brands even if they are more expensive."
The big brands are taking full advantage of this sentiment. Whirlpool India, for example, already has products designed for the rural market, such as the 180-litre capacity refrigerator and the six-kg washing machine (those meant for urban areas are larger) which are not only cheaper but also need to be serviced less. "The government's rural thrust makes it an opportune time for the company to step up investment in products for rural India," says Kapil Agarwal, Vice President (Marketing), Whirlpool India. "We're now focusing on towns with population of between 100,000 and 500,000, as many rural consumers travel to these markets for a better range of products to choose from."
Mobile handset and consumer durables manufacturer Intex Technologies sells over 70 per cent of its mobiles in Tier II and Tier III towns. To further penetrate small markets, it has started operating mobile vans since January this year, which travel down to the tehsil level, and is looking at retailing through rural post offices and kirana stores. "We're in the process of tying up with companies which work directly with farmers," says Gurbinder Sodhi, Head (Organised Retail, Enterprise and Operator Business), Intex. "The government has launched schemes for seed sale through mobiles and we plan to target this as well."
Though Eveready Industries already has one million rural outlets to sell its flashlights, it has also invested in 1,000 vans to travel to even smaller markets. It is also planning to sell LED lights in rural and semi urban localities, starting with areas of 10,000-20,000 population, before venturing into smaller villages. "With LED bulb prices having dropped from `600 to `100, acceptance levels are going up even in small markets," says Amritanshu Khaitan, Managing Director, Eveready. Maharaja Whiteline - known for its ceiling fans, mixer-grinders and more - has been beefing up its rural distribution network over the past three years. "We improved distribution in district level towns," say Sunil Wadhwa, CEO & Country Head, Groupe SEB, which owns Maharaja Whiteline. Demonetisation hit the company badly, but the improved rural network provided a safety net. "We lost 40 per cent sales in our modern retail outlets, while rural sales grew 15 per cent," he adds. "We encouraged our rural dealers to accept old notes, which really helped sales."
Rural India houses 70 per cent of India's population, but only 10 per cent of consumer durables produced are sold there, thanks to relatively low purchasing power, lack of continuous electric supply, finance company reluctance to provide loans for relatively cheap products and brands themselves failing to create rural-friendly products. But all that may change with the consumption revival of recent times alongside the government's promise of 'electricity for all' by 2018. The bigger brands are also likely to benefit from the implementation of the uniform Goods and Services Tax (GST). "GST will make life more difficult for local brands, raising their cost of production sharply," says Sunil Vachani, Chairman, Dixon Technologies, a contract manufacturer of consumer durables for leading brands.
Brands visible on the shelves at the non-descript Mauli Kirana Store in Nandgaon village, near Nashik, Maharashtra, include Huggies diapers, Godrej Creme Hair Colour and ITC's Dark Fantasy (with liquid chocolate filling and priced at `30 a packet). "With the harvest having been good, people are asking for expensive products," says its owner, Manohar Gaika. "At the same time last year, all I sold was rice, pulses and sugar." At the other end of the country, in Mecheda village of south Bengal, proprietor Palash Patra has also begun stocking Dark Fantasy. "It has started replacing rasgullas as a dessert," he says. Vachani of Dixon maintains there has been a spurt in rural demand for 43-inch flat screen TVs. "Most rural households are joint families," he says. "There is lot of community viewing and, therefore, larger TVs work better in rural markets." The heightened cost of buying a TV set is of little consequence - many rural households can now afford it.
Companies have quickly cottoned on to this trend. ITC has been pushing Dark Fantasy as never before in the rural reaches. "We expect to see good growth from May onwards, as by then the harvest season will be over," says Sumant of ITC. Godrej Consumer Products is promoting its newly launched mosquito repellent Good Knight Fabric Roll On, costing `75 a unit in 'rurban' areas, even as its standard mosquito repellent for these markets, Good Knight Fast Card, was priced at `10. "The rollout of higher-priced brands will be larger in these markets from now on as discretionary categories are expected to pick up," says Kataria of Godrej. Intex Technologies, which earns 55 per cent of its revenues from feature phones sold in rural locales, has begun aggressively marketing smartphones as well. "We give incentives to rural retailers who typically don't have access to organised consumer finance to devise easy instalment schemes for their customers buying smartphones," says Sodhi of Intex.
Parle Agro sold its popular drink Frooti mostly in tetra packs priced at `5 each in rural areas - which accounted for 32 per cent of total sales - but is now looking to market 650 ml PET bottles of Frooti there as well, each costing `25. "We expect increased consumption of juice," says Nadia Chauhan, Joint MD, Parle Agro. "Lots of local brands are already selling juice in PET bottles in these areas, so there is no reason for us to stay away." To market its drinking water brand Bailley in rural areas, Parle Agro has created a network of 50 franchise manufacturers across the country, each catering to a radius of 100 km. "This has helped bring down logistics costs," adds Chauhan. "Our water is focused on upcountry markets where branded drinking water does not reach."
But to make further rural inroads, companies may need to tweak strategies. For one, the heterogeneity of the rural market should be acknowledged. "It is high time companies begin to segregate the rural market in terms of population and economic levels, rather than looking at it as one whole," says Abheek Singhi, Partner (Consumer Practice), Boston Consulting Group. "The challenges and opportunities are different with each segment. One cannot afford to have a 'one size fits all' strategy in rural markets." More specialised products for rural markets are also needed. "There aren't enough products being created for rural India," says Alpana Parida, MD of brand strategy and design firm, DY Works. "There isn't enough innovation happening." She cites the examples of sachets of various products for rural areas, introduced decades ago with the reasoning that rural buyers could not afford to buy in large units. "Rural India comprises joint families which are used to sharing products," she says. "Brands need to work out low-cost, high-volume packs."
Warning NotesUnlike corporate houses, economists are somewhat wary about endorsing the rural resurgence story. "Consump- tion will pick up this year compared to the last, but it will not be firing on all cylinders," says Joshi of Crisil. The impact of demonetisation is likely to be greater, generally estimated. "Had demonetisation not happened, one could have expected a 7.5 per cent surge in private consumption, but it is now likely to be below 6.5 per cent." Before demonetisation, in the first half of 2016/17, private consumption was 7 per cent.
The rural friendly nature of the last Budget should also not be overestimated. "On the face of it, Budget allocation for rural India was 24 per cent higher this year than in the last, but actual number crunching shows the allocations aren't that high," says Pronab Sen, former Chief Statistician of India. "Much of the increased allocation is essentially through loans. But a large chunk of the rural population is not considered credit-worthy. Loans tend to be captured by a very small number of farmers. Banks don't like giving agricultural loans and give them mostly to large farmers."
Abhijit Sen, Professor of Economics at Jawaharlal Nehru University, too, questions whether the last Budget was indeed a major departure. "When the comparison is Budget estimate of last year to this year's, there is a large jump in rural allocation, but if the revised estimate of last year is compared to this year's allocation, there is not much increase," he says. In 2016/17, the allocation for rural development, for example, was Rs 87,765 crore and that for 2017/18, Rs 107,758 crore. But the revised estimate for 2016/17 is Rs 97,760 crore.
What actually needs to be seen is whether the government's initiatives actually help in drought-proofing the rural economy and making it less dependent on the monsoons. Despite 66 per cent of rural India not depending on agriculture for its livelihood, farm output has a dominant role in dictating rural sentiment. Khaitan of Eveready hopes that the rolling out of GST will bring down costs and hence spur demand. But that will be known only after GST is rolled out later in the year.
(inputs by chanchal chauhan, sumant banerji, dipak mondal, and anik basu)