Home / Politics / A rural retailer’s green shoots

Karan Vir comes calling the agronomist—or agricultural specialist—at the Hariyali Kisaan Bazaar store with a yellowing paddy plant (plucked out from his field), its roots covered in sand, in a small plastic bag.

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It doesn’t take the specialist long to discover the problem. He advises Vir to add sulphur to the soil to counter excess salt being generated by the use of groundwater for irrigation. The 34-year-old farmer buys a 15kg bag of the chemical, but his attention is now captured by a shiny black Hero bicycle kept on display along with hundreds of other grocery and lifestyle products.

On average, 300 villagers such as Vir, daily visit the Hariyali store in this village, about 35km east of Karnal, an agricultural town in Haryana. Most visit to seek advice on agricultural problems and buy farm products. And about 30% of them end up buying other products. Some buy sugar. Some buy shirts. The store manager says sales are up 40% compared with last year.

In demand: (top and above) The Hariyali store in Ladwa. On average, 300 villagers visit the store daily. Ramesh Pathania / Mint

While sales have shrunk over the last one year or so for almost all the so-called modern retail chains in urban areas on the back of an economic slowdown that affected consumer spending, rural India has witnessed swelling sales of everything from mobile phones to motorcycles.

Hariyali currently operates a network of 300 stores in eight states and plans to increase the number of outlets to 500 over the next two years.

That number is significant because of the corresponding numbers for modern retail chains in urban India. The country’s largest discount-store operator, Subhiksha Trading Services Ltd, shuttered its nationwide network of 1,600 stores amid severe cash crunch. The country’s largest listed retailer Pantaloon Retail (India) Ltd has seen its same-store sales at home segment retailing decline over the last six months and chains run by Aditya Birla Retail Ltd, Reliance Retail Ltd, Spencer’s Retail Ltd have shrunk as the companies closed stores and trimmed their expansion plans.

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A booming market

A thriving agricultural economy and high food prices—resulting in farmers earning more for their produce—helped the rural economy thrive even as that in large cities and towns slowed.

Rural families spent around 63% of their expenditure on food 15 years ago; this proportion declined to 53% in 2005-06, according to the National Sample Survey Organisation. Companies cite anecdotal evidence to claim that this proportion has declined further in the three years since.

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S. Sivakumar, chief executive of agri business for conglomerate ITC Ltd, which runs Choupal Sagar stores and e-Choupal kiosks in at least 6,000 villages, says rural retailing has seen an average growth of 25-30% a year for the past three years and it has maintained its “secular trend" this year as well. Compared with that, modern retailers in urban areas grew between 15% and 17% in the year ended March, down from 35% a year ago, according to Retailers Association of India, an industry body.

To be sure, if this year’s monsoon fails—it was around 30% below normal as of 15 July— things could be different next year, but as things stand, rural India is a beacon of hope for marketeers. And neither sentiment nor finances have been affected in India’s vast hinterland like they have been in most large cities on account of stock market bubbles and real estate crashes.

“There was no speculative activity in rural India," says Pradeep Kashyap, chief executive of MART, a rural consultancy group that advises various companies such as Colgate-Palmolive and Coca-Cola. “Nobody (in rural India) speculates in real estate because you construct a house only for your own use and similarly nobody would invest in speculative instruments as stocks as they only invest in postal savings. Therefore, their wealth is not eroded."

And the government has done its bit, spending around Rs66,000 crore over the last three years through the National Rural Employment Guarantee Scheme and another Rs62,000 crore last year through a farm loan waiver programme.

A July report by the Indian arm of Australian investment bank Macquarie Group said “the last 12 months have been the year of the rural consumer. While same store-sales (sales at stores that existed a year ago) growth and demand for high-end discretionary goods came under pressure, rural consumption growth was resilient. A good monsoon in 2008 and pump priming by the government helped demand for low ticket items, helping staples companies deliver 15-20% top line growth."

A survey by MART to assess the impact of the economic slowdown on rural areas also found that most sectors (barring handicraft and exports) showed positive growth.

The result: a number of modern retailers that service in the countryside have been able to reap the benefits of a booming rural economy.

Home to around 70% of the country’s population of a little over a billion, rural India accounts for almost 40% of the country’s overall Rs14,490 crore-in-sales retail market. The country’s largest two-wheeler manufacturer Hero Honda Motors Ltd sells 40% of its motorcycles in rural India.

Those numbers may explain why India’s largest listed retailer early last year, Pantaloon Retail acquired a chain of rural stores from Godrej Agrovet Ltd. It is repositioning its Aadhaar outlets as “rural malls" with additional focus on fashion and electronics. Pantaloon plans to increase the reach of Aadhaar to 100 villages by March from 62 currently.

Apart from a thriving market, Hariyali’s success is built on two other factors—common to almost all rural retailers.

The first is real estate costs.

Kashyap of MART says rural retailers have been able to stay profitable because of low real estate costs in villages, although they do end up paying more in transporting products to villages. Raj Kumar Goel, the head of Triveni Khushali Bazaar, that runs about 42 rural stores in Uttar Pradesh and Uttarakhand, says the cost of real estate in rural areas is usually one-tenth of what it is in large towns and cities.

The second is the advice that is freely dispensed at Hariyali outlets.

For years, representatives from DCM Shriram Consolidated Ltd (DSCL), the company of which Hariyali is a division, had advised farmers on different agricultural techniques even as they sold fertilizers that the New Delhi-based firm made and still does. Then, the company’s warehouses started stocking grocery items. These evolved into Hariyali rural outlets in 2005.

At the Hariyali store at Ladwa, the agronomist advises farmers on crop rotation, the amount of fertilizers used for different crops, the weather, crop prices in mandi (wholesale market) the among various other issues. The agronomy services is the “biggest pull" to bring villagers to Hariyali stores, managing director of DSCL, Vikram Shriram said.

And the trust thus generated, Shriram added, “actually creates a stickiness and creates reason for the farmers to come back to Hariyali."

DSCL is in business such as chemicals, power, fertilizers, sugar, cement and rural retail. The company ended the year to March with a revenue of Rs3,534.11 crore, up 35.71% from the year to March 2008. Its profit after tax for the year was Rs122.61 crore as compared with a loss of Rs1.31 crore the previous year. Hariyali contributed Rs420 crore to the firm’s revenue, up almost 90% from the Rs221 crore it did in the year to March 2008. However, it made a loss of Rs64.5 crore at the operating level, compared with an operating loss of Rs29.6 crore the previous year. DSCL said in a statement that while revenue from the business increased on account of new stores—the firm added 140 stores in eight states in the 12 months to March—and more sales from existing outlets and an increased product portfolio, the negative earnings “are in line with the business plan as the current focus remains on growth, both in terms of operations and turnover."

In the first quarter of 2009-10 (the three months ended June), DSCL returned a profit of Rs21 crore on revenue of Rs898 crore. The revenue and profit were 13% and 337% higher than the corresponding numbers for 2008-09. In an interview with television channel CNBC-TV18, chairman and senior managing director DSCL Ajay Shriram said that Hariyali’s revenue in the first quarter was around 25% higher than the corresponding number in 2008-09, and that his company would, as previously stated, eventually look to spin off the rural retail business into a separate company.


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