Rural India promises growth for retail

There may be a slowdown in urban retail, but `Bharat' is still shining for retailers. The next phase of growth is expected to come from rural markets with rural India accounting for almost half of the domestic retail market, which is valued over $300 billion.

Rural India is set to witness an economic boom, with per capita income having grown by 50% over the last 10 years, mainly on account of rising commodity prices andimproved productivity. Development of basic infrastructure, generation of employment guarantee schemes, better information services and access to funding are also bringing prosperity to rural households.

"Overall there is a huge market which is waiting to be served, ready to splurge, willing to explore new products and services, and retailers can tap on their wallets," said Ramesh Srinivas, national industry director (consumer markets), KPMG India.

In rural markets, consumers are practical and price sensitive. Even though consumers at the bottom of the pyramid do not seem to have predictable income (which affects purchasing dynamics), the rural market proved to be surprisingly loyal. So if companies get it right they could really reap the rewards, experts added.

This is particularly true as changes in the rural economy such as people moving from agriculture into manufacturing, which pays better, are likely to lead to a economic boom.

In order to earn brand loyalty in the rural market, product design will need to go beyond ideas like smaller sizes (such as single use sachets) to create genuinely new products that appeal to this segment.

"This requires a deep understanding of the market and an appetite for innovation, posing a challenge for both consumer products companies and retailers as there is still lack of shared understanding about the ever-changing Indian market and types of consumers that make it", says Pinakiranjan Mishra, leader retail and consumer products, E&Y India.

Also, with most of the retail markets in cities getting saturated, rural markets offer a sea of opportunity for retailers.

Retailers have devised different models to serve rural markets. For instance, ITC promoted `choupal sagar' has a hub-and-spoke model involving farmers. "Themodel offers a rural shopping mall where they can sell their commodities and can buy almost anything including garments, cosmetics, electronics and even tractors," says a KPMG report.

Other examples include Pantaloon Godrej's joint venture (Aadhar), Reliance Retail (Fresh & Fresh Plus), Hindustan Unilever (Shakti), DCM (Hariyali Kisaan Bazaar) and Mahindra & Mahindra (Shublabh).