FMCG firms tap e-governance infra to reach remote villages
Companies leverage infrastructure set up by other firms as part of e-governance push to grow rural distribution
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New Delhi: Arabinda Giri, 29, hates Tuesdays. It’s the day he has to travel 25km to Diamond Harbour from his home in Uttar Haradhanpur village in 24 South Parganas district of West Bengal to buy household essentials and pay electricity bills for his family and neighbours. Once a month, he also has to go to Kolkata, 145km from his village, to buy stuff that are not available at the nearest market.
For fast-moving consumer goods (FMCG) firms, Giri is the sort of consumer they have been trying to reach. He represents 67% of Indians who live in the 638,000 villages the sellers of personal care and household products are chasing.
Now, a bunch of packaged goods firms, such as ITC Ltd and Dettol-maker Reckitt-Benckiser (India) Ltd, are working on a strategy to leverage a part of the infrastructure that a few other non-FMCG firms have built as part of the central government’s e-governance initiative in the last decade.
Last month, biscuit-to-shampoo maker ITC started a pilot with Kolkata-based Sahaj e-Village Ltd, a venture of the Kolkata-based infrastructure financing firm Srei Infrastructure Finance Ltd, to reach villages with a population as low as 1,000 in three states. Depending on its success, ITC will extend the initiative to 25 states and six Union territories.
“We continuously explore and evaluate possibilities to expand our rural distribution for FMCG products. An exploratory pilot is being evaluated with Sahaj,” said B. Sumant, president, FMCG (designate), ITC Ltd.
In this model, Srei will leverage its network of Sahaj centres at gram panchayats—so far selling financial products and other government schemes to villagers—to sell packaged goods. “The one-man Sahaj centres at the gram panchayats will act as point of ordering and delivery for village consumers. The typical time for delivery is about a day,” said Santosh Dash, chief executive, Sahaj.
Piggybacking on such initiatives will help consumer goods lower distribution cost as they do not have to set up a supply chain. In this model, Dash said, Sahaj centres will be directly connected to the back-ends of the partnering firms (such as ITC and Reckitt) to determine the closest possible point of sourcing of the product. The firms send the products to the block-level centres of Sahaj, which then delivers it to the Sahaj centre located at the panchayat level.
“Logistics is crowd-sourced. We leverage daily public transports, or people with two-wheelers who travel between these places on a regular basis. So, the cost of logistics is low,” said Dash. In the model, there is no minimum order size. “Even if someone wants a pack of biscuit that would cost as low as Rs.5, we facilitate that.”
There is no additional cost for firms in this business model. “It’s the retailers’ margin that gets shared. We already have set up an infrastructure which we are trying to leverage. With retailing of packaged consumer products, the people at Sahaj centres also get a chance to earn more,” added Dash.
By March 2018, Sahaj will have 110,000 centres in 25 states and six Union territories. Till February, Sahaj had 39,087 centres, up from 26,627 a year ago. The firm has so far invested about Rs.300 crore in establishing the network, and hopes to turn profitable by the end of the current fiscal, said Dash.
According to Rajeev Khandelwal, sales director, Reckitt-Benckiser India, the firm gets about 30% of sales from rural areas. Besides different external channels, Khandelwal said the firm has set up its own sub-distributors directly in villages as against the earlier practice of selling items in these markets through a wholesale distributor. “We have increased our reach to 8,000 villages directly by end of this quarter. Rural is our fastest growing channel,” he added.
Besides, Dash said the firm has also tied up with Godfrey Phillips India Ltd and Reliance Retail. Of the estimated 9 million retail stores in India, ITC products reach 4.3 million. ITC’s rival and the country’s largest packaged goods firm by sales Hindustan Unilever Ltd (HUL) reaches about 6.3 million outlets.
“It’s a good way to reach them (rural consumer). There’s no additional cost involved in supply chain, and increases ITC’s retail reach. But ITC needs to figure out the products meant for the target consumer. Premium or semi-premium won’t work. You need value products for consumers in these markets. However, this may actually help ITC in developing a new market without much investments and the company may be able to leverage later,” said Sachin Bobade, analyst with HDFC Securities Ltd.
This is not the first time ITC is trying to enhance rural reach. “ITC has been a pioneer in rural distribution through its e-Choupal network. The key differentiator for ITC when it comes to the rural business strategy is its extensive distribution reach, relentless focus on innovation, superior technological interventions and a basket of consumer products that meet the aspirations and needs of rural India,” said ITC’s Sumant.
ITC has been focusing on the packaged foods and consumer goods segment to cut its dependence on cigarettes to reach Rs.1 trillion in total revenue by 2030. For the year ended 31 March 2015, the company’s revenue from packaged food products stood at Rs.6,411.27 crore, overtaking HUL’s revenue from the food business ( at Rs.5,522 crore).
ITC’s gross revenue was at Rs.49,964.82 crore.