Growing rural retail

As organised retail in rural India awaits the arrival of Reliance Retail, current majors like ITC, Godrej and DSCL are expanding their retail operations by setting up more stores, entering new states and offering newer product categories. A shift from selling agri-inputs will help these stores target the non-farming segments. It is a little known fact that, while 25% of the rural population is not engaged in agriculture, it earns 50% of the rural income.

When organised retail first made its presence felt in rural India, it wasn’t a pure retailing operation targeting the rural masses. Companies like DSCL and Godrej who had significant agri-business interests, set them up to meet the needs of farmers in a store’s catchments area. A typical agri-input store would have a catchment area of around 100 villages spread over 20-25 kms. Says Ashik Hamid, associate director, Technopak, “These stores are one-stop shops meant to meet the occupational needs of farmers by providing agri-inputs and fertilisers”. These stores, like DSCL’s Hariyali Kisan Bazaar, ITC’s Choupal Saagar etc. tend to be located in small towns that function as procurement hubs where the farmers come to sell their produce. Their earnings are tapped then and there, by getting them to combine their visit with shopping. These stores tend to target farmers with all sizes of holdings, “We build our offerings for everyone, from the farmer owning 20 acres to the one owning 200”, says Rajesh Gupta, business head, Hariyali Kisan Bazaar, “It wouldn’t be done any other way as there is a similarity on the application side, everyone needs the same inputs.”

While organised retail centred on these stores, unorganised retail revolves around the local village shop and the haat. Shops are usually present in villages with a population of more than 500 people. They stock more product categories than what similar urban shops would, but there isn’t much variety offered within a category. Haats are weekly mobile supermarkets that are spread over 2-3 acres of land, with more than 300 stalls, selling anything from animal feed to local medicines.

Where unorganised retail disappoints is in that the goods sold are often spurious and there is no guarantee of quality for many of the goods being sold be it agri-inputs, FMCG etc. The typical shop is cluttered and congested with limited variety and few national brands. Many of the goods are sold at prices higher than the maximum retail price with shopkeepers giving goods shortages, transportation costs etc. as rationale What these stores ended up doing, according to Pradeep Kashyap, the director of MART, is make shopping for the rural consumer a ‘hellish’ experience. This despite the fact that the rural market represents a considerable business opportunity. Technopak estimates that the size of the Indian retail market is at present around USD 300 billion with the rural-urban split in the ratio 55 – 45. The rural market consumes about 53% of FMCG, and 59% of durables in India. Organised rural retail, in recognition of this and other factors, started offering other product categories and services. The earlier focus on agri-inputs helped as it created an entry point into other categories as well. Explains Hamid, “Once the customers began to buy these agricultural inputs and services, they develop trust in the process and become natural customers for the other products too.”

So what are the chances of success with this shift? Not many of these stores were profitable to begin with, according to an industry expert. While many of them may claim on paper to be so, once the property and infrastructure investments are included, not many of them generate the kind of footfalls to be really profitable. For example, at a retail store one dayonly 5 people walked in before 1 pm.

One practical problem they have had to face is the shortage of manpower. Runaway rates are high with employees from urban areas leaving their jobs after being stationed in these rural stores. The long-term solution to this could be the training of unemployed educated rural youth to man these stores.

These stores also have an image problem in that some of them are perceived to be expensive. “The stores are so urban in their ambience, that rural people find it intimidating,” says an expert. Their advertising imagery doesn’t make it easier. A billboard outside one of these retail stores, for example, had a happy urban family dressed in Western clothes. This may have meant to be aspirational in nature but wouldn’t really appeal to a rural audience.

What this shift ultimately represents, though, is the recognition of the potential of the rural market and a change in the perception of rural retail. It also represents these stores becoming less a part of their parent companies’ agri-business and more an independent, market-driven operation.