Bharat goes shopping

The Big Bazaar outlet in Sangli, a town of about 400,000 people in Maharashtra known as the "turmeric city", had an unusual set of shoppers in November. A family came from neighbouring Miraj and ran up a bill of Rs 1.25 lakh, splurging on clothes, utensils, provisions and sundry purchases. It was the largest transaction ever at any small-town retail outlet run by Future Group, the owner of the Big Bazaar chain.

Damodar Mall, Director for Food Strategy at the group, calls it a validation of its plan "to keep pushing our footprint deeper into the hinterland". Of the 1,000 outlets that Future Group counts across all its retail formats, around 95 today are in Tier-III towns - agglomerations with a population of about a lakh.

Rural consumption and expenditure is exploding, a fact that is not being missed out by either the researchers or those who have plans for organised retail. At the very basic level, all-India sales of fast moving consumer goods, or FMCG, are tipped to touch $100 billion by 2025. That, as Prashant Singh, Vice President at consumer research firm The Nielsen Co., points out, is the size of Ukraine's economy. "And, in the next five years," he adds, "FMCG sales in rural markets alone will be as big as Tanzania's GDP."

Numbers - see Rural Roar - tell only part of the tale. The real story lies in social and consumption changes rolling over the hinterland. "Today, many consumers in rural India act and behave like their urban counterparts; in fact, their attitudes and aspirations break the mould of a stereotypical 'rural' consumer," observes Singh. They are turning out to be voracious consumers of packaged food, hair dyes and fairness creams, among other products.

In fact, the good news gets even better as these markets show a higher propensity to spend. According to data from the Mumbai-based Centre for Monitoring Indian Economy, or CMIE, while urban India spends half its income, the spending in the rural economy is 54 per cent.

To be sure, there is the effect of a smaller base at work here but consumption in the hinterland has been expanding at 12 per cent for the last six quarters; urban demand trails at seven per cent. The reasons are not hard to fathom - record government spending, infrastructure investments, and a never-before reach of telecom and media services.

Under the Pradhan Mantri Gram Sadak Yojana, a road-building project, about 32,000 habitations have been connected by constructing 85,405 km of roads, taking the road network into new areas. Along with better product recognition thanks to the wider reach of marketing that increases consumer-pull, better roads mean easier distribution for manufacturers.

Urban concentration, still
A natural corollary to this boom should be visible in modern retail's beaten track into rural India. But that is yet to be the case, with less than 1,200 such outlets all over India (see The Rural Footprint). This, say industry insiders, is because the immediate big opportunity is the underfed world of kiranas - Hindi for small, mom-andpop stores. Of an estimated 12 million such outlets, "the largest FMCG companies in India are able to serve less than 10 per cent directly," says Raj Jain, President at the Indian unit of Wal-Mart, the world's biggest retailer. The solution, suggests B. Sridhar, who heads the consumer products business at Marico, is for companies such as his to access rural pockets directly "by leveraging wholesale to increase access points for the brand".

This is why, according to Raghav Gupta, President of Technopak, "at this stage, the opportunity in organised retail lies in cash-and-carry formats (or the wholesale retail model)." The bulk of the action on the part of the retail heavyweights is concentrated in this space. Wal-Mart, which has a joint venture with Bharti, is already ratcheting up its presence. This model of retail obviously makes better business sense than blanketing small towns and villages with retail outlets that run head-on into competition with kirana stores. In fact, Wal-Mart estimates that there is a concentration of population and wealth in villages - about half of India's population lives in just one-sixth of its 600,000 villages. And, more importantly, this section accounts for 60 per cent of rural wealth.

"This means that an organised retailer can target 50 per cent of the rural population by reaching out to about 100,000 villages," says Jain. But the catch is that these are spread across a large country. The Bharti Wal-Mart venture is still at the stage of setting up its cash-and-carry stores near cities and around small towns, and is yet to make plans to penetrate deeper. Its rivals such as the Tata Group and Reliance Retail, too, have no ready plans on the front. "We are not ruling out rural, but there are no immediate plans as the back end has to be ready," says Bijou Kurien, President and Chief Executive of Lifestyle at Reliance Retail.

That may be a missed opportunity, reckons Pradeep Kashyap, a consultant specialising in rural Indian markets. "Typically, markets are set up around a catchment area that service a clutch of villages and serve at least 50,000 families. Also, rural consumers travel vast distances to stock up on their needs, hence an opportunity is actually vacant - and it needs to be filled," says the CEO of MART, earlier known as Marketing and Research Team. He challenges retailers to blindly open stores near haats, or village markets, where villagers come from afar to shop - betting on the success of these outlets on sheer convenience and availability of genuine products.

Kashyap may be right, going by the early success of those like Hariyali Kisaan, a rural retail chain with some scale. Hariyali Kisaan, part of the sugar-to-chemicals DCM Shriram Consolidated, has nearly 300 outlets spread across most of northern India and has now made inroads in Madhya Pradesh, Maharashtra and Andhra Pradesh as well. Chairman Ajay Shriram believes he has hit a sweet spot in the business. "We find that rural consumers want value-for-money and they need genuine products. The prevalence of fakes in these markets is very high," he says, explaining the core of Hariyali Kisaan's business proposition. He adds that the operation is yet to break even given the substantial investment needed in back end, logistics and the supply chain.

Future Group, which runs India's biggest organised retailing business through Pantaloon Retail, Big Bazaar, Food Bazaar, Central, Home Town and other formats, meanwhile, aims to straddle both the rich, urban markets and the thrifty, rural areas. Partly through the acquisition of Aadhar, a rural retail company formerly owned by Godrej, Future Group has even gone into towns with populations of 30,000 and below such as Ichalkaranji, Kota, Boondi, Deoghar, Sangli and Tinsukia, among others, across the country.

Also, it treats these towns differently, stocking, for instance, aluminium vessels in Muslimdominated communities or tapping the local trader and women self-help groups for food items to address local preferences and tastes. "We treat our catchment area like constituencies - just the way political parties do not ignore ethnic communities," says Future Group's Mall. The strategy seems to be working, going by its initial estimates. These Tier-III outlets are proving to be a hit with locals as also consumers from satellite villages who travel to assuage their aspirations.