Chennai: The Murugappa group took a gamble when it opened two modern stores in rural Andhra Pradesh five years ago to sell fertilizers, crop protection and speciality nutrients to farmers.
Farmers typically buy their agricultural requirements from conventional small stores similar to the neighbourhood kirana outlets that allow them little flexibility in customizing their purchases.
Murugappa’s stores offered more than fertilizers, minerals, seeds and related products. Its in-house experts provided farmers advice on the right use of pesticides and cropping practices, as well as soil testing, crop diagnosis and technical training in agriculture.
A year later, in 2008, Coromandel International Ltd, the fertilizers subsidiary of the $4.4 billion group, opened 20 more Mana Gromor stores in Andhra Pradesh’s villages and now has 700 stores across the state.
The stores earned the Secunderabad-based fertilizer company a revenue of Rs.1,000 crore in 2011-12, about one-tenth of its Rs.9,823 crore turnover that year, and the network is now poised to break even.
“After five long years, this year we (the Mana Gromor business) will make profits,” said A. Vellayan, executive chairman, Murugappa group, without disclosing more details. The group runs the rural stores as a special business unit under Coromandel International.
Rural stores selling fertilizers and nutrients require large capital and take longer to turn profitable than those in the cities. Rural stores also face challenges in terms of frequent and long power disruptions, weak communication infrastructure and difficulties in hiring qualified staff, Vellayan said.
Delhi-based DCM Shriram’s Hariyali Kissan Bazaar (HKB) stores, launched in 2002, were pioneers in the field. In Uttar Pradesh, the rural markets suffer from poor trade practices and often spurious products are sold in the conventional stores selling fertilizers, which contributed to organized retail formats such as HKB gaining the acceptance and loyalty of farmers, said Saroj Mohanta, an ethnographer specializing in rural consumer life, aspirations and behaviour at MART, a two-decade old rural consulting firm.
HKB did well initially and launched 400 stores that sold fertilizers and seeds and even tractor parts and diesel. But trouble began when the company decided to adopt a mall concept for its retail stores and ventured into non-agricultural products such as consumer goods and durables, hoping to attract entire families to its stores.
The company eventually had to shut several stores, and is now restructuring its rural retail business. A spokesperson declined to comment on the profitability of the stores, only saying, “We are implementing a restructuring and rationalization plan for Hariyali Kissan Bazaar and, hence, we will not be able to respond to any specific queries.”
Vellayan indicated another potential business avenue for the group’s rural venture in terms of supply chain and logistics, following the government’s recent decision to allow greater foreign investment in retail as this will have more supermarkets and other outlets in the cities approaching farmers for their produce.
“Farmers have asked us why we don’t provide farm output services by cleaning and packing the farm produce like chillies and pulses and handle logistics,” said Vellayan, adding, “Yes, there is a huge requirement on the supply chain from rural areas to build the retail network, and to leverage them can have a lot of potential—for us, it means cross-sell possibilities...but it is still early days.”
Mohanta points out that the group still has to iron out some hurdles at its rural stores. One is credit; farmers tend to request credit from the conventional stores they frequent for at least a portion of their purchases, but none of the organized retail outlets can offer credit, says Mohanta.