E-commerce Goes Rural
Goutam Das April 30, 2018
An Ashok Leyland Dost truck, loaded with refrigerators, washing machines and mobile phones, is briefly stopped by a procession of cows crossing a narrow lane to Mamandur village, 47 kilometres (km) from Vellore town. This sleepy hamlet farms mostly groundnuts. It has a primary school, two kirana stores, two temples, bright yellow, green, and pink houses. All of a sudden, it bustles.
Rekha Balaji, who lives in a house with no furniture, is delivered a Samsung Galaxy J2 smartphone. A second phone is delivered to Jayashri, Balaji's neighbour. Behind a Krishna temple, nearby, a Whirlpool refrigerator is delivered to Valarmathi Thangaraj who lives in a half constructed house. Her living room is empty barring a lamp and a fan. She cooks in open air; a wood fired oven is preparing lunch.
It is a village spectacle when their photos are clicked with the products delivered. Small crowds gather around. But what seems celebratory has a purpose.
The goods were delivered by Raja Mohammed, an affiliate of rural e-commerce company Inthree based in Chennai. Rural e-commerce firms are a new breed of marketing and distribution outfits that use technology to connect brands with villages. Brands and larger e-commerce companies find it tough to reach remote villages, or even generate demand in areas where there is no Internet. Rural e-commerce start-ups have stepped in with their own order management and logistics network. On one hand, they have tied up with the brands. On the other side, most have partnered local retailers such as the kiranas and medicine stores.
Their apps are loaded on phones, tablets, and desktops at these outlets. When customers walk in to buy grocery or medicines, they are shown the e-commerce app and prompted to buy. This model is sometimes referred to as "assisted commerce".
Balaji, Jayashri and Thangaraj all ordered through Inthree's app, called Boonbox, albeit with help. The company then sourced the ordered goods directly from original equipment manufacturers or brands, briefly parking them in a "mother" warehouse in Chennai. It subsequently reached affiliate Mohammed's 400 square feet depot in Vellore town. After the last mile delivery, Mohammed needs to send a photo proof back to Inthree.
Deliveries in villages, unlike cities or towns, are complicated affairs. Houses don't have addresses. "It is often something like 'Near to the Panchayat office' or 'Near the X temple'. There could be 14 houses near that temple. The product could also be for a 'Munima - there are many Munimas in a village. These are common names here," says Narayanan Hariharan, who heads sales and marketing for Inthree. Logistics, however, is just one of the challenges for rural e-commerce when it comes to deep rural, or villages with a population as low as 1,000 people. The volumes are lower and far between, which implies a company cannot afford a return, or a rejection of the product by the customer. The distance from the local hub to the village could be anywhere between 30-70 km. All this has necessitated innovation in both demand creation and fulfilment.
Traditionally, fast moving consumer goods (FMCG) and consumer product companies appointed distributors in bigger towns and expected them to reach out to surrounding villages or find retailers. This doesnt work too well for many consumer appliances because of their size and weight. A small village retailer has to invest in a bigger shop and inventory, a difficult ask.
"The consumer is expected to walk up to the retailer and buy which could be 20 km or higher. In the case of FMCG, the wholesaler network takes care of it. Logistically, it is easy for the retailer - he can come to the bigger town and buy from wholesale. This may not be possible in the case of say, refrigerators," says Kapil Agarwal, the former Vice President of Marketing at Whirlpool. "He can't come and buy it in bulk, load it on a truck and take to the village. He also doesnt know at what frequency the consumer will come and buy."
E-commerce has enabled that reach to become infinite. About five per cent of Whirlpool's sales are through e-commerce right now but that pie is growing very fast. With both Flipkart and Amazon, Whirlpool's growth is in excess of 100 per cent, Agarwal told this writer last year, while he was still at the company.
While Cash on Delivery (COD) revolutionised the way urban India shops online, the rural model is mostly a 'cash upfront' model. Pay up when you order, and wait for delivery. Some companies work on a combination of advance and cash on delivery. Rural e-commerce companies work on the marketplace concept; they don't hold inventories - the whole deal, from the warehouse of the brand to the rural e-commerce company's hub to the regional depot of the affiliate and finally the delivery to the village - may take more than a week at times. Villagers, however, are often willing to wait because they trust the local retailer. In any case, the nearest point to procure a bulky item, like Kapil Agarwal points out, is many miles away.
Small & fast
Call it start-up arrogance. Pop the question to founders: How many rural e-commerce companies are in business today? The answer is surprisingly homogeneous.
"We are the only focussed company".
What constitutes 'rural' is nuanced. Dissecting the pie is a bit of a wild goose chase. Hardly anyone has an industry estimate, not even the players dabbling into it. Satish Meena, analyst with Forrester Research, says the India e-tailing market totalled $16 billion (`1.04 lakh crore) in 2016, rising to $20 billion (`1.3 lakh crore) in 2017. The only segmentation he can offer is a 40-60 split - 40 per cent of the gross merchandise value (GMV) is generated in metros while 60 per cent comes from non-metros.
StoreKing, one of the largest rural e-commerce players has 55,000 retail outlets where customers can access its app. It operates in 10 states. Its website prompts one to look at a pyramid that is sketched, "How big is rural India?" Large e-commerce players today address 16 per cent of India or about 423 cities and towns, the sketch says. But there is a middle India with 4,738 towns and a bottom with 600,000 villages. 850 million live in the middle and bottom India.
That is StoreKing's playground and that of every other rural e-commerce company.
"India's retailing market is $650 billion, growing 13-14 per cent. Rural contributed about 57 per cent. Of this, I am covering $2 billion," says Sridhar Gundaiah, Co-Founder and CEO, StoreKing. Gundaiah, of course, is speaking about what his current stores can potentially generate over time, not what the industry can. The company is six years old now with 75,000 transactions a day. It generated revenues of `350 crore in 2016/17. Its topline more than tripled to `1,200 crore in the year ending March 2018. The company expects to clock revenues of `2,500 crore in the current financial year.
StoreKing's run is proof that the market for rural e-commerce, although nascent today, holds promise for tomorrow. These companies have also become vehicles for larger e-commerce companies to piggyback on. Amazon India, for instance, partners StoreKing and a host of others such as Vakrangee, a publicly listed company. Vakrangee goes by the Reserve Bank of India's (RBI) classification of rural. The RBI mapped India's six lakh villages according to the service area of each bank. The idea was to have at least one fixed point banking outlet catering to 1,000-1,500 households, called Sub Service Area (SSA). Vakrangee today runs 26,000 stores in SSA areas across 16 states. Right now, Amazon is available in more than 10,000 of its outlets.
Most of the rural e-commerce start-ups have been growing fast, despite the shocks of demonetisation and, now, the lingering impact of the Goods and Services Tax (GST). In October 2016, Connect India, started by Sridhar L.R., a logistics industry veteran, handled close to 0.8 million shipments a month. "We wanted to ramp up to one lakh shipments a day starting March 2017. Then came demonetisation," he says, during a meeting in Delhi. Shipments dropped to 0.2 million. He downsized his workforce to 200 people from 600. Volumes have subsequently recovered to a million by December 2017 and to 1.2 million shipments in March 2018. The firm ended 2017/18 with revenues of `23 crore and expects to grow 100 per cent this year.
Yet another rural e-commerce company, eHaat, promoted by a large sugar business based out of Uttar Pradesh, clocks 1,400 transactions a day at present. The company's CEO Rahul Mehta says its turnover has grown at a rapid clip. It expects to close 2017/18 with revenues of `40 crore and double turnover in 2018/19 with the company's operations kicking off in Karnataka and Odisha, besides Uttar Pradesh.
Inthree closed 2016/17 with a turnover of `50 crore. It more than doubled the topline in the year ending March 2018 to `118 crore. Inthree isn't interested in being a vehicle for larger e-commerce firms. Thus far, it has partnered brands directly.
A few companies have venture firms interested. StoreKing raised $20 million (`120 crore) in two rounds, from Axiata Digital and Mangrove Capital. Early stage fund Aavishkaar pumped `60 crore into Connect India while Inthree, recently, closed a $4 million (`26 crore) series A round. It had earlier raised more than a million dollars from Indian Angel Network and Keiretsu Forum. Venture firms have probably sniffed the wind that drives consumption in villages. Remittances from family members working in cities play a part - India is the top remittance recipient in the world at $69 billion (`4.5 lakh crore) in 2017, the World Bank reported.
Rural consumption appears to be on the rebound as well, in semi-urban and rural parts. Two consecutive years of good monsoons and the consequent bumper crop has put more money in the hands of rural consumers which has resulted in a 22 per cent growth in tractor sales in fiscal 2018 at 711,400 units. Similarly, motorcycle sales, which is also dependent on rural sales, grew 13.69 per cent during the fiscal to 12.6 million units, the highest rate of growth in seven years. Utility vehicles that are often used for public transport in the hinterlands of the country also rode the wave to grow by 21 per cent. "In the last fiscal, demand in rural India has really propped up the automobile industry. In passenger vehicles, the top 20 cities that contribute about 50 percent of the sales have shown slow growth in the last three-four years but the rural growth story will continue to support the industry in FY 2019," says Vishnu Mathur, Director General, Society of Indian Automobile Manufacturers (SIAM).
Villages, meanwhile, are transitioning from the joint family structure to more nuclear households. This leads to higher consumption as well.
Sridhar Gundaiah of StoreKing is from the village of Hanchipura, about 100 km from Bangalore. He has 30 cousins, of whom 12 lived in one house. "When my grandmother passed away, my uncle and aunts started getting separated. Now, they are nuclear families," he says. "Every single house is replicating everything they need multiple number of times, be it refrigerators, fans, or televisions."
Pull, not push
A camel cart, loaded with cement, makes its way down a narrow road in the village of Talwana, in Rajasthan's Alwar district. The village has 440 households and about 2,000 live here. It is sundown. Villagers return from work. They stop by a tea stall on this road. A few step into a 200 square feet Vakrangee centre nestled between kiranas and hardware stores. Apart from e-commerce, Vakrangee provides e-governance, banking, and insurance services. A senior lady with a wrinkled face walks in along with a boy, six years old, to check on her Aadhaar card. Her attention swiftly drifts to a large poster on the wall inside. "Buy on Amazon", written in Hindi, has select pictures. That of a CD of the film Lagaan, a shampoo, a frying pan, a t-shirt, a diaper, a bag, shoes, a watch, a mixer and grinder, a teddy bear, and a mobile phone. The frying pan interests her. Pradeep Jangir, who works at the store, obliges. She is shown images after images on a computer screen.
Down south, in the village of Kora, about 12 kilometres from Karnataka's Tumkur town, a small shop sells pens, batteries, Airtel and Idea data plans. It also doubled up as a photo copying and Internet browsing centre. Recently, a rural e-commerce start-up from Bangalore, RubanBridge, tapped Vinay C.G., who started the store. "I have been with the company for three months now. I have sold seven bikes, one tractor, many mobile phones," Vinay tells this writer. He earns around `3,500 through commissions and test drives - yes, RubanBridge pays their affiliates, called 'entrepreneurs' at the company, a fee if they can mobilise people to take test rides for two wheelers from Bajaj and TVS. Distributors of these brands partner the company.
How do Vinay and Pradeep generate demand for their companies? Both are locals, so people in the neighbourhood trust them. Both of them are also more educated than most villagers and become, sort of, consultants. Pradeep Jangir, for instance, has worked in BPOs in Gurgaon and studied aeronautics maintenance - he is yet to clear all the exams. Vinay was working with a robotics company in Peenya, near Bangalore. After his contract wasn't renewed, he tried his hand at government jobs. When that didn't click either, he set up a shop.
The collaterals pumped by the companies, of course, help. A pamphlet stuck on Vinay's shop (and distributed) has his name and photo printed. A tagline says: "I'm going to help you with prosperity and abundance in your home". Yet another line promises that Vinay "would come to the door step and help choose what you want". He would also help in providing "test drives for two wheelers and four wheelers".
Pushing e-commerce in rural areas is never really a push. Demand is generated through subtle nudges. Vinay, for instance, doesnt have a target to sell an X number of vehicles. And RubanBridge says it is more of a consumer experience company rather than a marketing company. That is an interesting distinction. "Push doesnt work in villages and has been the biggest failure in rural sales. In a marketing company, there are targets and we push brands. But I wanted to pull," says Madan Padaki, Co-founder of the company. "We flipped the question around and said 'what do you want'? None of our teams have any product targets. They have a target to meet customers."
Inthree's 'pull' marketing was palpable in Mamandur village when the phones were delivered. After the spectacle of the photo session, four young boys gathered to check out the devices delivered to Rekha Balaji and Jayashri. "They would now order whenever they have the money," marketing chief Narayanan quips, and smiles. Inthree also employs other tact to generate demand. The company partners with the influential. This could be institutions, or individuals. "We use cooperative societies as the point of sale to reach out to customers. It could be someone in the cooperative society or a self help group leader. We give them a smartphone or a tablet and load our app," Narayanan says. One influencer it taps is the village post master. "In rural India, branch post masters are contractual employees. Their job timing is between 9.30-1.30. After that, they help us. They know the customers by name. They act as very strong influencers."
When StoreKing launched Amazon in Yemmiganur, a small town in Andhra Pradesh, they used a 'band baja' - a procession of drummers who went around public places holding an Amazon placard; posters were put up in frequently visited sites such as temples; stilt walkers, dressed in blue jackets, red and yellow hats, walked around its stores, attracting eyeballs.
Math behind the cream
"Can you believe it?" Gundaiah asks, as he takes this writer for a visit to one of his stores in rural Bangalore. "We used to sell 800-1000 pieces of Olay anti-ageing cream (some variants are priced over `700) in rural areas every day." Other cream brands have subsequently taken over and the overall number of creams sold has also dwindled to a few hundreds a day as customers started buying more mobile phones now. His conclusion: India has access to money. Distribution was the bugbear. A bigger point is aspiration. Because of Direct to Home television, villages see the same advertisements as cities. Now they are procuring what they aspire for.
Distribution is a problem even at local kirana stores that stock mostly grocery. When rural e-commerce companies sell grocery, they do better than kiranas because of the use of analytics. "Kiranas only stock what they feel is necessary, not what the consumer needs. They don't have the data. They can't do analytics. When they partner us, we give the retailer the opportunity to sell every single variety of a shampoo, which you don't have to stock," Gundaiah says. Data is also helping Inthree curate catalogues differently for every state. Villagers in Tamil Nadu have grown up on dollops of freebies by the state government. Smaller TVs, fans, mixers and grinders are nearly present in every household. The company started selling 32-inch LEDs, refrigerators and washing machines. In Bengal, however, the company moved aspirational cookware such as induction cook tops and rice cookers.
Data crunching at Shopclues suggested that people in the disposable income bracket of `3-7 lakh prefer selection more than pricing. They probably don't have the money to spend on new smart phones but can buy refurbished ones, which are cheaper by 30-70 per cent. "Phones get returned for battery problems or screen defects. Our partners refurbish the phone and we audit and sell it online," Nitin Kochhar, a former Senior Vice President at Shopclues told this writer. He recently moved out of the company. For many of the rural e-commerce players, phones are over 50 per cent of the basket in terms of volume.
In rural Uttar Pradesh, households are buying more utilitarian products. Currently, about 40 per cent of eHaat's sales are in solar products and durables. "We see batteries for home use, for commercial use, for tractors. Solar products in UP move a lot primarily because of power outages," CEO Rahul Mehta says. The company has now introduced FMCG and agri products. Much of the villages eHaat caters to are in the sugarcane belt. A good crop spurs consumption.
However, rural consumption being skewed towards harvest seasons could be on its last legs. The availability of easy finance will even out spending across the year, optimists hope. Indeed, some e-commerce companies are working towards facilitating loans for their local affiliates. All this would make rural e-commerce companies a stronger force, a channel no consumer facing brand can do without.