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Retailers look at villages to bring in the money

Retailers look at villages to bring in the money
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First Published: Sat, Mar 17 2007. 01 03 AM IST
Updated: Sat, Mar 17 2007. 01 03 AM IST
It’s retailing with a difference. As farmers shop for fertilizers and seeds, their wives pick up China-made cosmetics and soft toys for their children. And everything is transported back home in the trusted tractor. This is an everyday scene at the 60 Haryali Bazaar stores—most are located in villages across six states—owned by Delhi-based DCM Shriram.
For years, the company’s employees would sit in rural warehouses and tell farmers how to improve their yields by using seeds and fertilizers, both products by DCM Shriram makes; some of the farmers grew sugar cane, which DCM Shriram crushes to produce sugar.
Today, the same warehouses are stores, and they stock everything from mobile phones to motor cycles. “There were all sorts of requests and the farmers asked us to keep something for their families, their kids,” said managing director of DCM Shriram Vikram Shriram, who plans to increase the number of stores to 200 by the end of next year.
Rising incomes and aspirations in rural India are encouraging companies to invest in building retail chains in the hinterland. Pantaloon Retail (India) Ltd, the country’s largest retailer, plans to invest Rs50 crore in three wholesale megastores in rural areas in Uttar Pradesh and West Bengal, part of a testing-the-water exercise before it embarks on a larger rural initiative.
ITC Ltd runs Internet kiosks in thousands of villages where farmers get real-time information on the weather and crop prices as well as agricultural expertise to boost their yield and incomes; it already uses these, called e-choupals, to sell some of the products it makes, including food items, as well as products made by other firms.
Godrej Agrovet, in the animal feed and poultry business, is expanding its chain of 33 stores in rural areas that sell groceries, agricultural inputs, consumer durables, medicines, and crop insurance.
The interest in rural retail comes at a time when large business houses such as Reliance Industries, Bharti Enterprises, the Aditya Birla Group and Bombay Dyeing have launched, or are launching, retail chains in urban areas.
None of these companies has, as yet, announced any plans for rural India, which has almost 70% of the Indian population.
Rural India, comprising more than six lakh villages, accounts for almost 55% or $165 billion (Rs7.26 lakh crore) of the country’s $300 billion retail market, according to a recent retail survey, but is mostly untouched by modern retailing.
Pantaloon plans to open hundreds of wholesale stores in rural areas in the coming years. It already runs 150 departmental stores and supermarkets in 32 cities. “We believe the aspirations of rural consumers are similar to that of urban consumers,” said Damodhar Mal, who is spearheading Pantaloon’s foray into new ventures.
Unlike Pantaloon, most other companies entering the rural retail business did so, at least initially, for other reasons. ITC’s e-choupals were part of an effort by the company’s agri-biz division to engage with farmers.
Godrej Agrovet entered the business through an experimental foray in 2003 that focused only on agri-inputs. The firms discovered that consumers in rural areas wanted more. “A lot of people belonging to the second generation (in rural India) are getting white-collar jobs in nearby towns,” said Anurag Gupta, country head for Ogilvy Action, a unit of advertising and marketing agency Ogilvy Group. “This has resulted in a definite growth in the prosperity level in rural India.”
“Today we meet other aspirational consumer requirements (of rural consumers) as well,” said R.S. Vijan, executive vice-president of Godrej Agrovet. Godrej plans to spend up to Rs1,000 crore to open about a thousand stores in the next three-five years, and expects the business to generate revenues of Rs3,000-5,000 crore by then.
A large part of the investment by such firms will also help set up a modern supply chain, a concept almost unknown in rural India. Mal said companies have always wanted to reach consumers in rural areas but were constrained by a weak supply chain.
Mal also said the Pantaloon outlets in rural areas would be planned differently. He explained that they would have large spaces devoted to grain, oil, sugar, tobacco, bicycles, tin boxes and used clothes.
Shriram of DCM Shriram said the rural retailing segment would be one of the biggest revenue earners for the company in the next three years. It’s tied up with Bharat Petroleum to have gas stations next to the some of its stores and with ICICI Bank for ATMs in rural India. DCM Shriram has no plans to enter the organized retail business in urban areas. “In any case, there is enough action happening in urban areas,” said Shriram.
The government’s decision to allow the entry of single brand foreign retailers into the country, and allow foreign firms to operate in the back-end of large-scale retail operations—in areas such as cash and carry, logistics, and supply chain management—is encouraging a clutch of foreign retailers to look at the Indian market.
Wal-Mart Stores Inc., for instance, is in the process of inking a deal with Bharti Enterprises to help it manage its retail back-end. The decision to allow foreign retailers access, in some form, to the country’s market, and the entry of big business houses haven’t gone down well with some political parties, including CPI(M), an ally of the ruling United Progressive Alliance government, that believes this will hurt small retailers.
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First Published: Sat, Mar 17 2007. 01 03 AM IST
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