RURAL MARKET

Salvation In A Sachet
Rural marketing sounds great, but some 320 million Indians reside in villages that most marketers find
impossible and unviable to penetrate. Now, a clutch of brands is attempting to go where none has gone
before.er.
By T.V. Mahalingam

Nandurbar, like most of India, lives in its villages. A

predominantly tribal district in north Maharashtra, Nandurbar
has a population of 13 lakh, more than 11 lakh of which lives in
small, far-flung villages. Nearly half of them cannot read or
write. Simply put, Nandurbar is as rural as it can get. The
district's central town, however, does not reflect this
backwardness. Motorola RAZR and Nokia Nseries phones
blare Himesh Reshammiya polyphonic ringtones. Pepsi and
Coke compete with domestic brands like Taaza and Aam Ras.
A hoarding proclaims the lethal power of Good Knight coils, not A one-stop shop: Godrej
mats, on mosquitoes. Aadhar runs 31 centres in the
country that service 15-25
villages each. At these outlets,
It's a different story in Nandurbar's 500-odd villages. One of
farmers can get their soil tested,
them is Horapalli. The apology of a road that connects
pick up fertilisers and also buy
Nandurbar to Horapalli quickly transforms into a steep muddy
groceries
road. Locals say the road is being built since 1967. When you
finally get to Horappalli village, after walking a couple of kilometers (most vehicles give up), you
realise there are just two very small shops which stock limited supplies. Loose sugar, tea and
biscuits are big sellers. Most packaged products are local brands like Crown coconut oil. The
shops, which cater to 1,700 people, together have a turnover of Rs 5,000 a month. That's almost
Rs 2 spent per person per month. A pack of Parle-G costs Rs 5 at Horapalli-a rupee more than
what it costs at Akkalkuwa-the nearest tehsil, 45 km away.

CASE STUDY: TANGADAPALLI/ANDHRA PRADESH

HOME IS WHERE THE WAREHOUSE IS
HLL ensures the "red soap" villagers want is Lifebuoy.
VILLAGE: Tangadapalli
POPULATION: 3,000
AVERAGE MONTHLY HOUSEHOLD INCOME: Rs 3,000

About 70 km to the east of Hyderabad, in the Nalgonda

district of Andhra Pradesh, lies Tangadapalli village. Some of
its small bylanes are coated with cattle dung. Among the
3,000-odd inhabitants of the village is 27-year-old
Mangamma whose house doubles up as a warehouse.
Racks of creams, soaps and detergents decorate the house. Brand conscious: Mangamma
The reason-Mangamma is among the 30,000 'Shakti earns Rs 1,500 per month
entrepreneurs' in the country who stock and sell Hindustan selling HLL products
Lever Limited's (HLL) products door-to-door. The wife of the village postmaster, Mangamma
sells HLL products worth Rs 12,000-15,000 and earns around Rs 1,500 per month.

Like Mangamma, 30,000 women across tiny villages in rural India sell HLL products as part of
HLL's Project Shakti-the FMCG giant's rural distribution initiative, which targets small villages
with populations of less than 2,000 people. HLL hopes to have 50,000 such women
entrepreneurs by the end of December 2007-a giant leap from just 650 in 2002.

At Tangadapalli, most villagers are daily wage labourers. The average income per household is
around Rs 3,000 and savings are minimal. Despite that, Mangamma finds that people are
'brand conscious'. Villagers no longer ask for 'that red soap' but for Lifebuoy. And women
prefer the Rs 5 sachet of Fair and Lovely and occasionally even splurge on a Rs 20 Pears
soap.
 One such buyer is 23-year-old Konduru Balamani. Her husband is a lorry driver and earns
about Rs 3,000 (and not all of this is shared). At times, she chips in with her daily wages. Food
adds up to her biggest household expense. "We have meat once a week,'' she says, as if to
emphasise the good times. And yes, she does pick up Fair and Lovely packets too. And at
times, she even opts for a single strand of 16 Clinic-plus shampoo sachets for Rs 16. On an
average, she spends around Rs 500 a month on medical expenses, mostly on her two kids.

Expenses on health are high in the village (some suffer because of the fluoride present in
groundwater). A visit to N. Yadagiri, a local registered medical practitioner (RMP), shows that
people end up with average monthly medical expenses in the region of around Rs 500. It is not,
therefore, surprising that Mangamma's ambition is to make her son a doctor. It is also not
without good reason that she is focussed on saving her entire earnings of close to Rs 1,500 per
month. She, incidentally, also has a bank account and seeing her, others may follow suit!

-E. Kumar Sharma

Horapalli illustrates two things. One, the limited spending power in the smaller villages of rural
India-Horapalli is full of marginal farmers or landless labourers. Two, people in interior India, for
whom a rupee matters the most, are forced to spend that extra rupee on buying quality branded
products. "The further away the villages are from city centres, the higher is the cost of quality
branded products," says Pradeep Kashyap, Team Leader of rural marketing and research agency
mart India. Rural retailers have to incur higher costs to get these products to the market, often by
travelling to towns in their own vehicles.

Unviable Markets

India's rural population, at 742 million-larger than the population of the EU and the US put
together-lives in six lakh-plus villages. A lakh of these hold 50 per cent of the rural population and
60 per cent of its total wealth. Clearly, the fortune for marketers
may be at the bottom of the pyramid but-with due apologies to
C.K. Prahalad-the wealth in rural India, as Kashyap points out,
is at the top of the pyramid and not at the bottom. The upshot?
Roughly 320 million of the population residing in five lakh
villages are not target customers for marketers, simply because
it isn't viable to cater to them. Most of these villages, like
Horapalli, have a population of less than 2,000, and every
marketer's mojo -'critical mass'-is tough to attain. As Ali Harris,
Britannia's Brand Manager for Tiger Biscuits, says: "If I go to a
shop in Mumbai, I will sell Rs 5,000 worth of stock and my cost Sachet success: Affordability is
to reach that outlet is next to nothing. If I need to reach an the key word here
interior village, I would have to hire a van from the nearest town, and then probably sell Rs 50
worth of stock in the village." The other reason for brands not being able to penetrate the rural
boondocks has got to do with the sheer physical effort involved. According to a nationwide survey
conducted by consultants McKinsey & Co, of 593 rural districts, 248 are "deprived" and lack basic
infrastructure like all-weather roads. Adil Zainulbhai, Managing Director, McKinsey & Co, says:
"Almost half of India's rural population does not have access to good roads and decent
infrastructure."

CASE STUDY: MAADIKERI/KARNATAKA

FROM MOBILE TO MARKET
The roads are bad, but not connectivity!
 VILLAGE: Maadikeri
POPULATION: 1,200
AVERAGE MONTHLY HOUSEHOLD INCOME: Rs 3,000

Until six months ago, 65-year- old Y.C. Anjappa, a marginal

silk farmer in the small village of Maadikeri in southern
Karnataka, used to spend Rs 20 every week to visit the local
market to obtain the rates there. This routine got much more
comfortable when he signed on for a Reliance Limited
Mobility handset in late 2006. Since then, he has had to pay Getting connected: Mobiles
just 90 paise to call and get the latest information from the mean farmers don’t have to
market in the town of Chintamani, 5 km away. travel to get information

Every morning, local salesmen from Reliance outlets in Chintamani head out into the hinterland
to pitch for business from farmers and other rural folk, parking their vehicles in the central
village square and hawking their service to anyone who is interested in listening. This approach
has clearly paid dividends for the company, which has garnered some 100 new subscribers in
Maadikeri alone, including the likes of Anjappa, who waited for three years or more to be
allotted a landline from state-owned carrier BSNL. Despite being a rustic village of 1,500,
dependent on the local dairy (which set a record recently with a Rs 5 lakh monthly collection)
and a fledgling sericulture industry, villagers seem acutely aware of the latest and best brands
in the market. For instance, in consumer goods, Johnson & Johnson baby powder, Pepsodent
toothpaste and ITC Foods' brands top the list, while villagers trade notes on their latest Nokia
CDMA handsets (GSM or wireline connectivity is virtually non-existent here).

It's not just technology that's up for sale. Villagers are starting to buy other branded products
too. "We used to buy everything from the local weekly market and purchased unbranded goods
until very recently. That has changed dramatically following the easy availability of branded
biscuits and consumer products locally. We no longer have to visit Chintamani or travel even
further to buy them," says T.C Nagaraj, the secretary of the local milk dairy and a long-time
resident of the village. Instead, the local stores have moved from stocking an assortment of
home-made confectioneries to housing some well-known national and international brands.

Despite the difficulty in reaching villages such as Maadikeri (it's barely 100 km from Bangalore,
but the roads are rutted and it takes three hours to get there), companies seem undaunted as
they reach out to the furthest corners in search of elusive rural consumers. "We start work at 7
a.m. and don't return until late at night from some of these villages because of the demand that
exists there. Initially, they were sceptical, but a combination of BSNL's lethargy and our 30-
minute activation routine meant that we were signing up 50-100 subscribers every day," says
Sahad Ali Baig, a partner at Saha Infocomm, the local Reliance franchisee. In Maadikeri, locals
have begun to open accounts at the Canara Bank branch in Oojipura, 2 km away, and even
travel up to Chintamani to deposit some savings. "We earn around Rs. 3,000-5,000 a month
and can use some of our savings for mobile phones and other novelties," says one local.

-Rahul Sachitanand

Often, the quality of the roads is almost directly proportional to the quality and variety of products
available in rural India. In fact, according to market research agency Hansa Research, the
average shop in rural India stocks just about 29 brands from 14 FMCG (fast moving consumer
goods) categories. That can vary from 13 product categories and 27 brands in eastern India to
almost 16 products and 40 brands in Andhra Pradesh. A significant portion of these brands are
also locally-made labels, which may not be up to the mark in terms of quality. Interestingly, more
than 50 per cent of rural housewives purchase goods from outside their villages (in nearby towns)
as village shops often quote higher prices.

Smaller Packs, Greater Returns

There's doubtless potential that's yet to be unlocked in most of rural India, and marketers can do
so by finding more cost-effective ways to penetrate deeper even as they strive to make their
products more affordable. McKinsey & Co predicts that given the right investment in rural
infrastructure, the rural market may be worth $500-600 billion by 2020. Industry body
ASSOCHAM projects that growth in the FMCG segment is likely to be driven by increased
consumption in rural and semi-urban areas, and it is contribution from these regions that will
propel the industry to a market size of Rs 1,23,363 crore by 2012 from the present figure of Rs
70,000 crore.

CASE STUDY: MANCHER & RANJANI/MAHARASHTRA

GODREJ TURNS GROCER
Sickles or shampoos, they're all available here.
As you drive along the picturesque Mumbai-Pune
Expressway, Toyota, Skoda and the occasional Mercedes
cars zip past you to Pune. It's possible to check the cricket
score on your mobile throughout the journey. Once past
Pune, the occasional crater jolts sleepy passengers. As you
hit the Pune-Nashik highway, you enter desi territory. The
high-end cars are replaced by Maruti vans and Tata Indicas.
Tractors trundle alongside bullock carts brimming with
sugarcane stalks.
Well stocked: Aadhar outlets
As soon as you enter Mancher town after a four-hour drive have taken the supermarket
from Mumbai, the first impressive building you see is a concept to rural areas
Godrej Aadhar outlet. 'What's Godrej doing in a small town like this?' is a question that any city
slicker is bound to ask. Inside the two-storey outlet, two farmers, Vasant Ganpat Hole (60), and
Jijabai Shirolikar (55), are talking to an agriculture officer, who studies a withered plant stalk
that Ganpat Hole has got along with him and diagnoses that his potato crop suffers from "late
blight". The solution-a fungicide and a crop nutrient-both incidentally, Godrej products. The bill:
Rs 420-not chicken feed, but definitely worth a one-time buy for Ganpat Hole, who earns about
Rs 40,000 a year from his crops.

The Rs 1,000-crore Godrej Agrovet has 31 such Aadhar outlets in eight states across the
country. At outlets like the one in Mancher, farmers can not only shop for agri-inputs, but can
get their soil tested for Rs 50. In addition, branded products from LG televisions to gigantic
packets of biscuits are also on sale.

A 45-minute drive from Mancher takes you to a small but prosperous village called Ranjani.
Some 2,000 people live in this fertile, agrarian village with 350 households. Nearly 250 houses
have television sets and most houses have telephone connections. But your mobile connection
dies out as soon as you enter the village. It is in this village that Godrej set up its first-ever
Aadhar centre. It's a much smaller one compared to the one in Mancher. Farmers buy sickles
for Rs 69 or biscuits or shampoo sachets from the groceries section. "Earlier, we had to go all
the way to Narayangaon, which is 14 km away, to pick up groceries," says M.G. Ranjanikar
(67), who buys groceries worth Rs 500 every month.

A mile away, an annual event is in progress. Farmers whoop and scream egging their bulls as
they charge down a dusty 400-metre track. About 25,000 farmers from villages across the
district have gathered to witness the race. Nearly 500 bulls participate-many have been
purchased just for this occasion and some cost up to Rs 70,000. That's an indication of the
purchasing power that some of these farmers have. What's more, the bulls are insured. Any
farmer whose bull is maimed in the race is compensated up to Rs 50,000 on the spot.

-T.V. Mahalingam

Those figures are also not lost on some of the country's biggest marketers of FMCG products,
consumer durables and telecom services, to name three of the categories that are most relevant
to rural India. The success of companies like HLL, Parle, CavinKare, Britannia, LG, ITC, Godrej
and telecom service providers (not to mention local brands like Ghari detergent) in tapping the
rural markets is validation that a market exists in rural India. HLL, for instance, flagged off Project
Shakti primarily to reach out to the villages its conventional network can't. Today, Shakti goes into
100,000 villages, and the company is targeting half-a-million villages by 2010.

Shampoos and packaged biscuits are two great examples of rural India's hunger for branded
products. In 2000, shampoo penetration in rural India was a meagre 13.3 per cent. Today, a third
of the rural population uses shampoo. Sachets at affordable price points are being pushed by
companies like HLL and CavinKare in the rural market. Says CavinKare Managing Director C.K.
Ranganathan: "We have adopted special packaging for the rural market. The price starts at 50
paise for a sachet of shampoo to Rs 5 for a fairness cream (for a week's usage). But most
products are designed for one- off use." CavinKare is growing at 25 per cent in rural areas
compared to 15 per cent in urban centres. Today, 86 per cent of all shampoo sales in the rural
markets happen through sachets, according to data from Hansa research. In urban areas, that
figure is 69 per cent.

A Tale of Two Rural Indias

It's not that rural India is just a market for biscuits and shampoo sachets. Experts like Kashyap
believe that the rural durables market has great potential-provided companies find a way of
tapping it. "In the next five years, I expect nearly 70 million rural households to have television
sets, mobile connections and two-wheelers compared to 48 million households in urban India," he
says. It's a trend that companies like LG have seen and have profited from. "Rural consumers are
increasingly opting for colour TVs over black & white ones, the entry-level models are slowly but
steadily changing from 14'' to the 20"-plus range. The rough price range for these sets is about Rs
5,000- plus for rural markets and Rs 7,500-plus for b & c class cities," says Girish Rao, Vice
President (Marketing and Sales), LG Electronics India. LG targeted its Sampoorna range of
television sets at the rural customer and today 35 per cent of sales come from its 'rural offices'.

CASE STUDY: AMBEDKAR NAGAR & HANUMANT DARGA/TAMIL NADU

FRIDGE, WHAT'S THAT?
But healthy groundnut oil and insurance aren't strangers.
VILLAGE: Ambedkar Nagar & Hanumant Darga
POPULATION: 800 & 500
AVERAGE MONTHLY HOUSEHOLD INCOME: Rs 3,000-
4,000

Singaperumalkoil, a sec c town as media planners might call

it, is an hour's drive from Chennai. About 2 km away from
this temple town, which gets regular tourist traffic, is a small
village called Ambedkar Nagar. Visitors to Ambedkar Nagar,
a couple of years ago, would have seen farmers tilling rice Nothing big here: Branded
fields and cattle grazing languidly. However, over the last products come in small sizes in
four years, most of the villagers have sold their land to Kiliamma's village
Mahindra City (first private SEZ in the country). The villagers now make their living by doing
odd jobs-from doing construction work to working as security personnel in the SEZ. The
average monthly household income in the village is Rs 3,000-4,000.

A small shop run by a 58-year-old widow, M. Kiliamma, sells soaps, ghutkas, shampoos,
pickles, curry masalas, toothpastes, a few vegetables and other items of daily use. A slightly
larger shop near the panchayat office stores rice, groceries and branded products like mineral
water, Coke and Pepsi. But the predominant packaging for branded goods is the daily
'takeaway pricing'-anywhere from 50 paise to Rs 5.

Kiliamma's son Veerabhadran works as a security staff in Infosys (located in Mahindra City,
virtually in their backyard.) He prefers to do whatever shopping he has to do in the city. "Even
the watches that are sold here are of poor quality,'' he points out, though these are available
from Rs 100 onwards. Major expenses revolve around groceries-rice, vegetables and oil. The
 remaining goes into cosmetics.

Branded purchases are restricted to ghutkas, soaps, black and white TVs, the occasional
motorbike or moped, and cell phones with Reliance CDMA connections. Not all homes have
cell phones or motorbikes. Nobody has a fridge. Even the soaps are largely local brands like
Urvasi. Thanks to heavy regional television advertising, kitchen products like Rani curry masala
and Achi curry masala are much sought after.

-Nitya Varadarajan

If anything, the explosive growth of telecom is an indication of the market for costlier products in
rural India. Even in a village like Horapalli, the sarpanch, who is a marginal farmer, has a basic
model cell phone. It is another issue that whenever he wants to use it, he climbs on top of the
biggest rock in his village to "catch the signal". In prosperous agrarian belts of states like Punjab,
Tamil Nadu, Karnataka, Maharashtra and parts of Uttar Pradesh, farmers can afford to buy
Motorola phones. It is to tap markets like these that global cellular phone giants like Motorola
have forged alliances with rural retailers like ITC's eChoupal, DCM group's Hariyali Kisaan Bazaar
and Godrej's Aadhaar outlets. And the response has surprised Motorola. "We thought that
cheaper phones would sell. We were pleasantly surprised to find that it was the mid-tier and top
tier phones that were in demand in rural areas... ones with fm capability and high memory," says
Sudhir Agarwal, Director (Sales) for mobile devices at Motorola India. He adds that though most
of these places do not have fm radio stations, they have community radio, which they use these
phones to tune into. Telecom service providers like Airtel and Idea are not only pushing cheap
post-paid cards but are also tying up with handset manufacturers like Motorola to make inroads
into the rural market.

The Big Rural Shops

The problem with rural markets, as with internet connectivity, is

the last mile. It is this last mile that outlets like Godrej Aadhar
and Hariyali Kisaan Bazaar are trying to plug. At a Godrej
Aadhar outlet, farmers can get their soil tested for Rs 50 or pick
up fertilisers or soil nutrients, in addition to buying groceries.
Basically, outlets like Aadhar and Hariyali Kisaan Bazaar are
Signalling change: Telecom
the equivalent of supermarkets in rural India-a one-stop shop
networks are reaching more
for farmers.
villages

"Our 31 Aadhar centres in India service 15-25 villages each. We want to take this number up to
1,000 centres in five years to service 20,000 villages," says C.K. Vaidya, MD, Godrej Agrovet,
which clocked revenues of about Rs 1,000 crore last year, 75-80 per cent of which were from
selling compound animal feed to rural India. Similarly, each Hariyali Kisaan Bazaar outlet caters
to 50,000-70,000 acres of agricultural land and reaches out to 15,000 farmers. There are 33 such
stores all over India.

Such initiatives-in tandem with government investment in rural infrastructure-can go some way in
catalysing prosperity in the country's interiors. With increasing media penetration, quality and
choices are things that rural India is increasingly becoming aware of. "The same electronic media
and channels reach all parts of the country and so, everyone aspires for the same things. They
are aware of what is available-they might want to compromise only if they cannot afford it," says
Vaidya. Spending power in India's smallest villages is no doubt limited but the sheer number of
people living there makes them difficult for marketers to ignore. They may be difficult to penetrate
too, but cost-effective intervention-not just in terms of reaching out but also in terms of product
offerings-is the need of the day.
-additional reporting by Shivani Lath, Rahul Sachitanand, E. Kumar Sharma, Pallavi Srivastava
and Nitya Varadarajan