A new frontier

T Seshu Kumar, ITC explores the trends, scope and growth prospects of rural retailing in India and gives a brief run down on the do’s and dont’s of such ventures

ABB GRAIN TO EXPLORE INDIAN MARKETS
The rural market in India is beginning to emerge as an important consumption area. The rural consumer is now more aware and is open to experimenting with new products. The rural market in the case of key product categories such as FMCG and consumer durables is larger than the urban market in terms of its sales value. The rural middle class has also been steadily growing. The middle to high income households in rural India are now 17 per cent of the total rural population and are growing at 7 per cent. However, rural retailing as a segment is yet to develop in totality in India.
The total size of the rural market for FMCG products is Rs 41,550 crore as compared to Rs 37,130 crore in urban India. The rural market share for consumer durables market is 59 per cent of the total market. An analysis of the rural market shares for about 35 FMCG and consumer durables product shows that the rural market share is higher in about 20 of them. While in the service industry, in 2001-2002, LIC sold about 55 per cent of its policies in rural India. Similarly, out of 2 million BSNL mobile connections, 50 per cent are in rural India. The billing per mobile in small towns in Andhra Pradesh is higher than in Hyderabad. In the same way, the 24 million Kisan Credit Cards (KCC) issued in the rural markets exceed the 18 million mark issued in the urban market, while similarly Rs 64,000 crore was disbursed under KCC. Likewise, out of 20 million rediffmail signups 60 per cent are from smaller towns.
Though rural retailing has a huge potential, it is importance for retailers to analyse the market, understand the local tastes and preferences and so on. Thus, before starting a rural venture, retailers must consider the following:

Merchandising mix
Merchandise requirements of a rural customer are far too different from that of an urban customer. Thus, making generalisations or extrapolation of preferences and habits based on urban experiences may not prove to be a success. For example, a sensible generalisation would be to assume that ethnic clothing would sell higher than modern clothing. When ITC conducted its research before setting up their rural venture, they found that though ethnic clothing sells well in the rural markets, there is a hidden desire for modern clothing. This is because of the aspirational levels of a rural consumer is high. As they wish to dress up like an urban customer. Similarly an urban merchandiser might be wrong in assuming that all lower end products of urban stores would sell well in rural stores. While it is true that the rural customers are more price conscious, but they are as much or more quality conscious as well, when compared to the urban consumers. For example, in ITC’s Choupal Sagar it is observed that flat colour television sets sell more than semi-flat sets and 21 inch sets sell more than 14 inch colour television sets. Therefore, it is imperative for retailers to understand their consumers’ requirements and create a right merchandise mix. To build a successful rural retail venture, retailer’s must meet the rural consumers’ needs than try and match the urban mix to rural needs.

Rural mindset within the organisation
It is important for the rural retailing team to have an adequate understanding and experience in rural areas. As this would help to strategise policies in terms of people and products. In rural retail outlets, local staff would prove to be a better choice, as they would be in a better position to understand the customer’s needs, preferences and tastes.

Lower sales per store
The population density of rural areas is quite low as compared to the urban areas. This coupled with lower purchasing power of the people results in much lower sales per store. Hence it is essential for new entrants to accordingly plan their store overheads. In addition, they should also work out a strategy for a more number of stores in order to realise the overall business objectives.

Plan for surprises
The rural customers are culturally very rich. They are also very diverse in their eating, clothing and entertainment habits. Thus, retailers need to enter the rural retail markets with an open mind and be ready to adapt to the local market needs and preferences.

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