As per the latest HLL annual report, 70% of India's population lives in 627,000 villages, creating a huge market for FMCG companies. India's two largest companies have already set shops for their rural patrons. Let's have a look at their business models.
ITC: The company commands about 70% of India's Rs 120 bn domestic cigarette market (value terms). Out of the top 10 brands in India, 6 belong to ITC. The growing awareness on harmful effects of tobacco as well as the government's punitive tax policy forced ITC to move towards de-risking its revenue profile. Consequently, it merged the paperboards subsidiary with itself and invested in growing the hospitality, retailing, packaged foods and IT businesses. The ITC group has emerged as the second biggest luxury hotel chain after Indian Hotels. In packaged foods, its product range includes ready to eat (Kitchens of India), staples (Aashirvaad Atta and Salt), confectionery (Mint-O and Candyman) and biscuits. ITC entered into garment retailing and has 42 Wills Lifestyle stores. Other initiatives include greeting cards (20% market share), safety matches and incense sticks.
HLL: HLL is India's largest FMCG company with a dominant presence in almost all consumer categories. The company's turnover at Rs 100 bn is over one third of the total branded / organized FMCG business in India. HLL's brand equity remains unrivalled in India. However, in the last couple of years, HLL has embarked on a major restructuring exercise focusing on improvement in quality of earnings, pruning brand portfolio and securing a viable future for its non-core businesses through JVs, or spin-offs. The effects of the initiatives had begun to show in the form of better margins. But 2004 saw competition in its key business of soaps and detergents (44% of revenues) taking a huge toll on margins. This trend continues in CY05 as well.
Some interesting facts
A chunk of India's villages have sparse populations, and over two-thirds of the villages are not easily accessible due to poor infrastructure. Also, a portion of farm incomes is lost owing to systemic faults. This makes penetrating rural India an expensive and daunting proposition. But things are changing. With the NCAER estimating that consuming class will touch nearly 50% by 2007-08, much of this growth will come in the rural hinterland. With infrastructure push continuing along the length and breadth of the country, rural India seems the place to be, especially for the FMCG majors.
What is E-Choupal?
Started in June 2000, E-Choupal, is a web based initiative of ITC's International Business Division, that offers the Farmers of India all the information, products and services they need to enhance farm productivity, improve farm-gate price realisation and cut transaction costs. Farmers can access latest local and global information on weather, scientific farming practices as well as market prices at the village itself through this web portal - all in Hindi. Choupal also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep. Given the literacy and infrastructure constraints at village level, this model is designed to provide physical service support through a Choupal Sanchalak - himself a lead farmer - who acts as the interface between computer terminal and the farmers. Full contents of this site are therefore made available to the registered sanchalaks only. The computers are solar powered with VSAT connections.
The company's initiative is divided into 3 segments - Soya Choupal, Aqua Choupal (Shrimp) and Planters net for coffee growers. Today, there are over 5,000 choupals spread across 29,000 villages adding 30 new villages per day and reaching over 3 million farmers. ITC has also entered into collaboration with over 35 companies to sell seeds, pesticides, fertilizers, farm equipment, consumer product goods (Godrej), finance and insurance.
The company plans to expand this initiative to 100,000 villages and reach over 10 m farmers by 2010 and source a wider range of products like spices, cotton and vegetables. Also, plans to market a wider variety of goods and services like health education, entertainment and e-governance are in the offing. (Source: ITC annual report and website). Infact, in an interview to a leading magazine, the ITC chairman has opined that by 2010, ITC hopes to have transactions worth US$ 2.5 bn through this network.
Shakti is HLL's rural initiative, which targets small villages with population of 2,000 people or less. It empowers underprivileged rural women by providing income-generating opportunities, health and hygiene education through the Shakti Vani programme, and creating access to relevant information through the iShakti community portal. Shakti is an effort in creating livelihoods for rural women, organised in Self-Help Groups (SHGs), and improving living standards in rural India.
Shakti already has about 13,000 women entrepreneurs in its fold. In addition, it involves health and hygiene programmes, which help to improve the standard of living of the rural community. Shakti's ambit already covers about 15 million rural population. Plans are also being drawn up to bring in partners involved in agriculture, health, insurance and education to catalyze overall rural development.
Started in 2001, Shakti has already been extended to about 50,000 villages in 12 states - Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan, Maharashtra and West Bengal.
Shakti Vani is a social communication programme. Women, trained in health and hygiene issues, address village communities through meetings at schools, village baithaks, SHG meetings and other social forums. Shakti Vani has covered 10,000 villages in Madhya Pradesh, Chattisgarh and Karnataka.
IShakti, the Internet-based rural information service, has been launched in Andhra Pradesh. It has been developed to provide information and services to meet rural needs in medical health and hygiene, agriculture, animal husbandry, education, vocational training and employment and women's empowerment. (Source: HLL website and annual report)
Its clear that both the companies have a different strategy although their target audience is the same and is aimed at improving rural lifestyle. Other majors like Tata, Mahindra, Bharti and Reliance have also joined the bandwagon to grab a share of the rural pie. Only time will tell whether this initiative will turn profitable for corporate India or not. Rural India has yet to catch demand pace. But one thing is sure, rural India is on the hearts and minds of India Inc. and the companies with best networks will benefit from this in the long run.