Check out Keith Dunn: Chapter 6.2.4 Defining the product hierarchy

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I want you to take a look at: Keith Dunn: Chapter 6.2.4 Defining the product hierarchy 

RELIANCE RETAIL BRINGS IN TESCO TALENT

Report has it that Reliance Retail has appointed Gwyn Sundagul from Tesco Thailand as its new CEO for the Reliance Value retail format. The 47 yr old Gwyn is currently the Marketing Director with Tesco, Thailand. Four other senior executives from Tesco, Thailand are also expected to quit Tesco and join Reliance Retail.
Reliance retail faces major problems today , very similar to the type that Tesco faced in Thailand when they started operations. It is expected that Gwyn Sundagul with his experience in setting Tesco in the the right direction will be able to do the same to Reliance.
Consequent to this appointment, major changes are expected in the existing management structure with Raghu Pillai expected to focus more business development and bringing in more global alliances.
Some facts about Reliance Retail
Presence : 14 states and 86 cities and 1000 stores
Turnover of Reliance Retail + Reliance Fresh (Last Fiscal) : 2400 crores
Loss ( Last Fiscal) : Rs 260 crores

PER CAPITA EXPENDITURE IN INDIA

The per capita expenditure by an average Indian in urban India is Rs 1312 whereas in rural India it is only Rs 695.00 . These figures were revealed by the National Sample Survey organisation ( A Government of India undertaking). An interesting revelation is that while the urban Indian spends 39% of his expenditure on food, in rural India the spend is as high as 52%.

The disposable income therefore available for the rural Indian is a much lower Rs 332 or 48% for his spend on non food items. In comparative terms, the rural Indian spends almost the same amount on medicine as his urban counterpart. On education, whereas the urban Indian spends a high Rs 92 or 7% of his expenditure, the rural Indian spends only Rs 22 or 3% of his total per capita expenditure.

CARREFOUR'S INDIA PLANS

According to unconfirmed reports, local real estate giant Parsvnath Developers has said it is likely to form a venture with Carrefour soon, regarding retail operations in India. The group did not specify more details of the deal, adding, "We will announce a tie-up once we sign the documents".
 Earlier this year, the Future Group announced it is looking into a partnership with Carrefour, regarding back-end operations. Carrefour has not commented on either report.

Parsvnath also announced it will open 10 retail stores this year and develop 21 commercial projects as part of its plan to enter the retail sector on its own. Parsvnath said it plans to open 75 hypermarkets and boutiques in five years.

FMCG MARKET IN INDIA - SOME FACTS

FMCG market in India and prospects in rural India.
FMCG Sector Market Size today Rs 1,10,000 crores.
FMCG Market Size in the next 5 years ( by 2014) will be  Rs 1,85,000 crores
Products such as soaps, hair oil and biscuits have reported good sales in rural India.
Godrej Comsumer Products has reported a 40% growth in rural sector ( April-Sept09).
25% sales of Marico comes from rural India .
Rural and Semi-urban India accounts for 50% of Dabur India’s domestic sales

VISHAL UP FOR SALE !

The Debt-ridden Vishal Retail is up for sale. As part of the Corporate Debt Restructuring Plan, the retailer's bankers have set a precondition of a strategic investor to be brought in by Vishal.
The current promoter, Mr Ram Chandra Agarwal holds 62% stake in the company. . The market cap is around 150 crores.
Vishal has been going through troubled times since the last one year. In an effort to consolidate, 20 stores were shut down in the last 6 months and currently Vishal has 170 stores over 110 cities with an employee strength of 8500. Over 60% of Vishal's revenues come from Lifestyle products - apparel and footwear while food takes up 25% and the rest from household and consumer electronic products.
There are 13 main lenders to the retailer with SBI leading the group with an exposure of 175 crores. Other big lenders are HDFC, UCO, LIC, HSBC etc.
It is believed that Vishal is in talks with 2 potential investors including a prominent retailer. The process of restructuring may see the exit of Mr Ram Agarwal completely from Vishal Retail.

TOP BUSINESS SCHOOLS OF INDIA

The Top Ten B-Schools in India according the Business India Survey

1. Indian Institute of Management Ahmedabad , Ahmedabad
2. Indian Institute of Management Bangalore , Bangalore
3. Indian Institute of Management Calcutta , Kolkata
4. Indian School of Business, Hydrabad
5. XLRI Jamshedpur , Jamshedpur
6. Indian Institute of Management Lucknow Lucknow
7. Management Development Institute Gurgaon
8. S.P. Jain Institute of Management & Research Mumbai
9. Institute of Management Technology Ghaziabad
10.Jamnalal Bajaj Institute of Management Studies, Mumbai

Starting average salaries range from Rs 7.8Lacs ( Institute of Management Technology) to Rs 18 Lacs ( Indian School of Business.
Source : Business India

RURAL INDIA BUYING FRENZY

Dhanteras day saw a buying frenzy in rural India. This came after almost 2 months of austerity and poor sentiments. Everything from Fridges, Televisions, appliances and kitchen items were lapped up by consumers.and shops remained open till late at night.

Besides the local ' Kirana Stores' organised retail too saw crowds thronging the retail outlets. In value terms, Consumer Durables were the major items that were picked up by consumers. In terms of numbers, it was kitchen utensils and other kitchen items that were much in demand.

It is estimated that organised retail saw a growth around 20% over the same day last year.

DHANTERAS SHOPPING

The festival is Dhanteras which falls 2 days before Diwali is of special significance to retailers in India. This day is particularly auspicious for consumers to buy some items for the home and kitchen. The world 'Dhan signifies wealth and hence on this particular day , it is regarded as auspicious for women to buy some gold and utensils.

Retailers in India see sales peeking on this day when the average daily sales goes up ten fold. This is particularly so in the case of kitchen items, consumer durables and any household goods of steel.. Retailers specially stock up goods for Dhanteras and look forward to heavy sales.

There also are legends associated with Dhanteras, the most well known being that of Sanundramanthan, the name given to the churning of the ocean by gods and demons for getting amrit or nectar from the ocean. The result of the churning was the arrival of Dhanavantri, the physician of the Gods alongwith the jar of elexir. Since then the day came to be celebrated as the day of Dhanteras.

Retailers - Happy Selling

INNERWEAR MARKET IN INDIA

Some facts of the Lingerie market in India that could be of immense interest to retailers.

Innerwear Market Size ( in value ) : Rs 9500 crores
Size of the Apparel Market in India : Rs 128,380 crores
Women's Inner Wear : Rs 6,200 crores ( This is almost double the size of mens innerwear ).

35 to 45% of innerwear is branded.

With changing lifestyles, the market has shown 8% growth in value terms in 2008. The most discerning and demanding consumers are in the age group of 25 to 45.

STOCK SHRINKAGE

One problem that all retailers around the world face is Stock Shrinkage - loss of goods from employee theft, shop lifting and vendor fraud. In India, the problem is particularly acute with shrinkage accounting for 3.1% of total sales . This amounts to a colossal amount of $2.5 Billion ( Rs 122.5 Billion) per year ( source : The Global Theft Barometer 2008)
A huge 45 to 50 % of this stock shrinkage is on account of Employee theft, 30 to 35% is due to shoplifting by consumers and the balance being attributed to vendor fraud/administrative lapses etc.

Globally , the average figure for shrinkage is 1.34% of sales. India however has an abnormally high 3.1% of sales. Compare this to 1.48% of The United States and 1.3% of UK.

Some common measures taken by retailers are CC TV monitoring, frisking of employees etc. These however do not seem to be enough and major retailers in India have now come together to combat the menace of Shrinkage particularly employee theft. These include Reliance Retail, Future Group, Spencers and Aditya Birla retail who will share notes on employees found guilty of theft. The current practice is to dismiss employees caught stealing who however do not face problems getting employed by any other retailer as there is almost no system of cross reference from previous employers. The plan is to circulate a blacklist of defaulting employees to prevent them to be employed by others.
Hopefully this will bring down shrinkage to some extent.

LESS FESTIVAL SPENDING IN RURAL INDIA

There are clear indications that the farmer in rural India does not have the same kind of income that he had last year to spend on the festive occasion of Dhantheras and Diwali. The sentiment is highly visible amongst farmers. In a survey in Central India amongst farmers, most of them have indicated a shortfall of almost 30% in yield due the drought conditions in the early part of the Kharif season. This was further aggravated by unseasonal rains in the last few days which has not only delayed harvesting of crops but has also resulted in loss of crops.
Large farmers ( holding of above 25 acres) do not expect to spend less this Diwali , however small and medium farmers are certainly spending less this season. The greatest impact has been on the small farmer.
The heavy buying of consumer durables and other household products that happens during Dhantheras will also be subdued this year. In rural India, many consumers buy for the wedding season which follows Diwali during Dhantheras. However this year due to the delayed harvest and consequent delay in encashment of crops, this will be pushed back and buying will happen only in November and that too on a subdued note.
Retailers need to take note of this changed scenario.

ADHAR PLANS 200 OUTLETS IN RURAL INDIA

Adhar , formerly Godrej Adhar, now a joint venture of Future Group and Godrej Agrovet is going aggressive in rural markets with plans to expand to 200 outlets pan India from its existing 70 outlets. The retail chain plans to leverage the strength of the Godrej Brand with retail expertise of Future Group. The chain has also restructured its format and changed the look and feel of its outlets. The outlets now sport ' The world of Godrej ' section and ' Big Bazaar Best Deals ' section.. About 10 existing outlets have already been transformed to the new outlet and the balance are expected to be converted by the end of this year.
With this expansion of outlets, the retail scene in rural India is certainly hotting up and established players like Haryali can foresee some excitement in the otherwise dull rural retail sector.

11 THINGS WAL-MART HAS BANNED by ETHAN TREX

Saw this interesting article by Ethan Trex on Wal-Mart through Digg on Mental Floss and would like to share it with all my readers.

11 THINGS WAL-MART HAS BANNED by ETHAN TREX

Retail giant Wal-Mart is the world’s largest public company, and whether or not you’re a fan of shopping at the House that Sam Walton Built, you’ve got to admit that the store stocks just about everything. But not quite, though. There are a number of things that Wal-Mart has banned from its stores at some point. Let’s take a look at a few of them.
1. Barbie’s Pregnant Pal
In 2002 Wal-Mart cleared its shelves of Barbie’s pregnant friend, Midge. The doll, which featured a removable stomach complete with deliverable baby, was part of Mattel’s “Happy Family” set that also included her husband and son. However, customers complained about seeing pregnancy enter into Barbie’s universe, and Wal-Mart pulled all of the Happy Family sets from its stores.
2. This underwear
That’s right: panties that say, “Who needs credit cards…” on the front and “When you have Santa” on the rear. The undergarments started showing up in Wal-Mart’s juniors departments in December 2007 and quickly started an Internet firestorm over the perceived message of using Kris Kringle as a sugar daddy. While the same joke would be fairly harmless on, say, a t-shirt, many women felt that its placement on underwear added a sinister sexual undertone aimed at adolescent girls. In response to the public outcry, Wal-Mart pulled the offending underthings from its shelves.
3. Confederate-Themed Barbecue Sauce
You may remember the raucous debate about whether the Confederate flag should be flown over the South Carolina State House in 2000, but you probably didn’t know the battle spilled over into Wal-Mart’s grocery aisles. At the time, 90 Southern Wal-Marts were marketing a mustard-based sauce created by Maurice Bessinger, an outspoken advocate of flying the Rebel flag over the State House and owner of eight Piggie Park restaurants.
During the flag debate, Bessinger replaced all American flags at his eateries with Confederate flags, a move that Wal-Mart saw as objectionable and needlessly provocative, so the company yanked his sauces from its stores. (Don’t feel too bad for Bessinger, though; it took nothing less than a 1976 Supreme Court intervention to force him to serve African Americans in his restaurants.)
4. A Shirt That Read “Someday a Woman Will Be President”
In 1995 a Miami-area Wal-Mart pulled this shirt from its racks after consumer complaints. The shirt, which featured the character Margaret from Dennis the Menace, ran afoul of “the company’s family values,” so it went back to the stock rooms. Eventually more reasonable, non-Stone-Age heads prevailed, and the shirt made it back onto the shelves after three months in limbo.
5. Workplace Romance
In November 2005, German courts ruled that Wal-Mart could not ban all workplace romance at its German stores. The retailer had unsuccessfully tried to force all employees to sign off on a 28-page code of ethics that included prohibitions on “lustful glances and ambiguous jokes” and “sexually meaningful communication of any type.”
6. An Al Snow Action Figure
In 1999 Wal-Mart put the brakes on selling an action figure featuring WWE hardcore wrestler Al Snow. Snow’s wrestling gimmick at the time involved walking to the ring while carrying and talking to a mannequin head. Naturally, his action figure came with the head as an accessory, but two professors at Georgia’s Kennesaw State University saw the inclusion of the head as a problem. They told the press that by selling the action figure society was “normalizing violent treatment of women. We are telling little boys that this is acceptable behavior.” (Please, parents: don’t ever give your sons the impression that carrying and talking to part of a mannequin is acceptable.) Following this high-profile outcry, Wal-Mart quit stocking the Al Snow action figure.
7. Megan Fox
The Wal-Mart in the starlet’s hometown supposedly banned her for life following a teenage shoplifting bust. A 2008 report on contactmusic.com alleged that Fox got the heave-ho after being caught swiping a $7 tube of lip gloss during a rebellious shoplifting spree, which earned her the lifetime ban.
8. Lad Mags
If you’re a frisky 17-year-old looking for the latest Maxim, Stuff, or FHM, don’t head to Wal-Mart. Since 2003 the store has banned the so-called “lad mags” due to their racy photo spreads and bawdy editorial content.
It’s actually not all the uncommon for Wal-Mart to give a single issue of a magazine an ax, too. In the past, the store has refused to stock issues of Sports Illustrated’s swimsuit edition and a 2001 issue of InStyle that featured an artistic nude shot of Kate Hudson.
9. Music
Wal-Mart has long declined to stock any music bearing a parental advisory warning for explicit lyrical content, but the company’s fastidiousness with regards to music doesn’t stop there. When the store carried Nirvana’s album In Utero, it changed the song title “Rape Me” to the less offensive (and less coherent) “Waif Me.” Similarly, the store declined to carry Prince’s 1988 album Lovesexy because of a fairly tame cover that featured a nude photo of the artist.
10. Superbad DVDs
When the comedy Superbad hit store shelves in 2007, it came with a little extra: a replica of the fake Hawaii driver’s license used by the self-dubbed “McLovin’.” Most movie fans would simply see this freebie as a little reminder of one of the movie’s funniest scenes, but Hawaiian authorities simply felt it was a fake ID. Honolulu mayor Mufi Hannemann requested that Wal-Mart pull the DVD from store shelves across the state, and the retailer quickly complied.
11. Cuban Pajamas
Wal-Mart’s Canadian stores found themselves in a pickle in 1997. The Canadian subsidiary had begun selling Cuban-made pajamas at eight bucks a pop across our neighbor to the North, which enraged both the company’s home office and the U.S. Treasury Department.
The stores quickly pulled the offending PJ’s, which led to a second problem: this action may have violated a Canadian law that forbids abiding by the American embargo of Cuba. After the Ottawa government pointed out that Wal-Mart could face a million-dollar fine for pulling the sleepwear from its shelves, the Canadian Wal-Marts reversed the ban after one week. [Underwear & T-shirt images courtesy of Feministing.com.]

RETAIL ADS - LAUNCH OF THE FESTIVE SEASON

This week is seeing a flurry of promotional activity by all the retailers in the print media with focus on the coming festive season. Themes focus around

• Karva Chauth
• Diwali

The first to kick off this activity was Big Bazaar with a full page ad welcoming the festive season and the dominant offer - ' FREE 2 Kg SUGAR WITH PURCHASES' . Very appropriate offer for the season though the offer is valid only for 3 days. The retailer however has a no of other attractive offers spread over categories .
SHOPPERS STOP has 'Offers to express your Love this Karva Chauth' . The interesting black and white ad has offers for bags, watches , fragrances, cosmetics and jewellery - all targeted as gifts for women. Incidentally, Karva Chauth falls on the 7th of this month and this does offer an opportunity to all retailers to cash in on this occasion.
The GOLD SOUK mall in Gurgaon is the first mall to start its promotional activity with retailers in the mall participating in offers. A special is the 'Karva Chauth Festival from the 4th to 7th October.
HOME STOP has a 'Dream Diwali Offer' special free offers on purchases of particular values.
RELIANCE JEWELS has ' Celebrate the New' headline and has offers on diamond and gold jewellery making charges - upto 100% off.
RELIANCE DIGITAL has ' Sparkling Celebrations' with 3 main offers - Digital home celebrations, Digital computer celebrations and Digital telecom celebrations. Mark down prices and free offers are the dominant features.
WESTSIDE plans to take advantage of the festive season with it's 'Diwali Delight' theme. The articles on offer - free Diamond Pendant and a free Titan Watch.
HOME TOWN talks about Festive Homes and ' 30% Money Back + Exciting Offers for your Home ' Product oriented ad with focus on the different offerings.
VISHAL MEGA MART with its full page ad talks about ' Deepawali ke Deep Jalagoe' and has lucky draws, free gifts and B1G1 offers.
MOM & ME , the Mahindra group retail venture for mothers to be and kids too is advertising its 'Festive Offers' with discounts upto 50%.

AUTO SALES ZOOM

The Consumer Confidence Index may have dropped in the month of September, but this certainly does not seem to be reflected in the auto sector as car sales reached record heights in the month. The festive season along with more bonuses and increasing job confidence seems to have driven this frenzy of buying. Another important factor has been the availability of cheaper finance. The month of September saw an impressive 1.60 lac units being sold against 1.32 lac units sold in Sep 08. This is an impressive 21% growth in a sluggish environment.
Even the traditionally inauspicious period of Sharad did not effect sales with consumers continuing their spending binge.
With this conflicting consumer behavior, it would be interesting to see how sales pick up across other categories during the month of October - the most important festive season for all retailers.

LOW CONSUMER SPENDING IN SEPTEMBER

Consumer confidence seems to have dipped lower in the month of September . With worries on inflation, state of the economy, inadequate monsoon and job security, consumers have switched to savings mode rather than spending mode. In September, the CNBC-TV18 Boston Analytics Consumer Confidence Index dropped by 1%. compared to August.
With increased propensity to save by consumers, the savings component of the Index showed a rise. The study revealed that the upcoming festive season does not seem to have propelled spending either which continues to remain extremely weak. Of the respondents interviewed, only 20% were willing to buy consumer durables this year as against 60% last year.
Industry players however maintain that though September was a slow month, things are picking up and trends after the period of Sharads show a 25 - 30% growth. Mr V Ramachandran, Director Marketing maintains that the outlook is positive.
The 1st week of October should give an indication of how the season would shape up.

NILKAMAL TO INCREASE STORES THREE FOLD

News from the Nilkamal stable is that they plan to increase their stores to 65 from the current 15 stores by 2013. Nilkamal stores branded @home are currently located in the major metros. The plan is to expand to Tier II and Tier III towns in North and East India.
One of the largest players in the moulded furniture market, Nilkamal is planning to invest Rs 140 crores in this activity.

LIFESTYLE PLANS TO DOUBLE TURNOVER

Lifestyle International , the Indian arm of the Dubai based Landmark group plans to double its turnover from the current 1400 crores to 3000 crores in 2 and a half years.
The Landmark Group - a Rs 16,800 crore retail conglomerate plans to invest Rs 1000 crores in India to expand its activity in India. The main emphasis would be on Lifestyle and Home Centre. This was stated by Mr Kabir Lumba , Executive Director in an interview recently.
The current turnover of the group in India is Rs 1400 crores with Rs 1000 crores coming from Lifestyle and Home Centre.
Besides the 3 formats of Lifestyle, Home Centre and Max Retail, the company has no plans to introduce any other format. However they are planning to enter Tier II towns like Kanpur and Nagpur in 2011-12 with a change in price positioning.

RURAL RETAIL DOWNTURN

Indications and news from rural India are that all is not well over there. There are strong signs of a slowing down in that market. Organised retailers in rural India are facing an all round slowing of sales and the pick up in sales that happens during this festive season is just not there.
So far it had seemed that the rural markets were insulated from the downtrend that had gripped the rest of India . It now seems that the impact of a late and weak monsoon is having its effect in these markets. The consumer electronics markets too have seen a slowing down in the months of June to August. This has picked up - but only slightly.
In large parts of India, the periods of Navratras and Diwali see a huge upswing in sales . Whereas this is missing till now, the next few days would be a good indicator of the direction that the markets would take.
Retailers therefore need to be careful in their buying plans as they could land up with large unsold inventories at the end of the season.

CONSUMER DURABLES GROWTH RATES

The consumer durables market in India is showing very aggressive and promising growth. The following table gives the projected growth rates in 2009.
It must also be kept in mind that the period October to January normally shows a 3 times growth in sales over the previous quarter. The festival season coupled with the marriage season that falls during this period gives this spurt in sales.

IS BIYANI HIVING OFF BIG BAZAAR

Reports say that Kishore Biyani is looking to hive off his hypermarket Big Bazaar chain of outlets. This is part of his ambitious restructuring and growth plans as this would enable release of locked value. Biyani's plans to make his group into a 25,000 crores group.
The group is looking at various options to raise funds as it is planning to add 18 million sq feet of retail space across its different formats by the year 2015. Currently there are 116 Big Bazaar hypermarkets across the country with total retail area of 4 million square feet and markets over 1.6 lac products.
The current turnover of the group is Rs 10,000 crores. It is planning to achieve a target of 13,000 crores by 2010.

CONSUMER DURABLES PENETRATION

Some important data on penetration of consumer durables in rural and urban markets in India :
TVs : 76 % urban penetration against 36% rural penetration
Refrigerators : 32% urban and 5% rural penetration
Washing Machines : Only 1% rural penetration
Air Conditioners : Urban penetration of 3% and rural less than 1%
In the process of increased penetration, it is evident that rural market consumers require brands. It is brands and the heavy marketing activity that is possible by these brands that would increase penetration. The rural markets are growing and major increases can be expected.

CONSUMER DURABLES MARKET

With the onset of the Festive Season, there will now be a big spurt of demand for the entire range of consumer durables consisting of white goods (Refrigerators and Washing Machines) , Kitchen appliances and Consumer Electronics consisting of audio video equipment. Stocking by all major retailers as well as smaller individual outlets would already have started in earnest in anticipation of the season and it is not uncommon for manufacturers not being able to cope up with the demand. Prudent retailers therefore stock before the season. . Normally the market increases almost 3 fold during this time. ALL BUYERS THEREFORE SHOULD ENSURE THAT THEIR BUYING FOR THE SEASON IS COMPLETE AT LEAST A MONTH BEFORE DIWALI.

The consumer durable market in India is a dynamic and fast growing market. With disposable incomes increasing, there is an increasing demand for these products. The market size in India is today estimated to be around Rs 25000 crores, The chart below gives a graphic representation of the market size of different segments of this industry.

SMALL IS BIG

Small packs of FMCG products priced between Rs 2 and ten are doing roaring business. These are expected to contribute to 35 to 40% of total sales. Industry specialist say that consumers are going in for these smaller packs because of the inflationary pressures that exist this year. All major FMCG companies are focusing on small unit pack sizes from where they expect the volumes. In this environment, price points play an extremely important role . Both the big players - HUL and ITC are focusing on the Rs 10 price point products and their advertising campaigns too are targeted to customers with these products in mind.

FESTIVAL PUBLICITY

A few days back I wrote that retailers are planning to unleash a publicity blitz in the coming festival season in expectation of a buoyant season.

The first retailer to kick off their festival advertising campaign is Big Bazaar with a full page ad in national dailies in Delhi.

The message ' WELCOME ! FESTIVE SEASON ! '

Focus is on attractive offers - Buy 2 get 1 Free on stainless steel utensils, Sandwich toaster for Rs 549, Pressure Cooker for Rs 399 and many more offers.

Expect some real action this season !!

KHUSHALI BAZAAR DOWNS SHUTTERS

According to informed sources, Triveni Retail Ventures, the retail arm of Triveni Engineering and Industries is shutting closing down all it's retail outlets . The company has  42 'Triveni Kushali Bazaar ' spread across 25 small towns and offers agri, consumer products and financial services.

Triveni has for some time been looking for a buyer for its retail venture but has not managed to find any as yet. The Triveni Group is a big player in sugar and engineering equipment and entered the retail sector in 2007 with 45 stores. It had planned to increase the no of stores to around 250 by mid 2010.

The other players in the retail sector in  rural and semi-urban India are DSCL's 'Haryali Kisaan Bazaar', 'Adhar' ( formerly Godrej Adhar but now a part of Future Group) and ITC's 'Choupal Saagar' .  Hariyali Kisaan Bazaar with over 300 outlets spread over nine states is the most aggressive and successful offering a range of agri products, consumer goods and apparel .

Are Carrefour and Future Group Hooking up ?

Lars Olofsson, the Global Chief Executive of the world's no 2 retailer - Carrefour was here in India recently on a hush-hush visit . He met with Mr Kishore Biyani of Future Group to discuss the possibility of a tie up between the 2 companies.

The discussions between the 2 companies focuses on a cash and carry model. The advantage for the Future Goup is the immense experience and expertise that Carrefour would bring while Carrefour would have the advantage of entering the Indian market with the biggest player in India as it's partner.

Both the leaders also visited Big Bazaar outlets in Delhi

Top Retailers of the World

This is a list of top retailers in the world with their ranking in world trade.

The biggest of course is Wal-mart with a turnover of US$ 410 billion which is larger than the domestic product of 39 countries of the world. In a sense Walmart almost qualifies as a country by itself

Figures in Brackets is the rank in world trade and the first no is rank as retailer.

1. (8)         Wal-Mart, US                                      2. (83)      CVS Caremark, US
3.(127)     Home Depot, US                                4. (137)    Target, US
5.(166)     Lowe's, US                                          6.(186)      Walgreen, US
7.(257)     Costco Wholesale, US                       8.(288)      PPR, France
9.(298)     Best Buy, US                                      10.(457)      Ebay, US
11.(459)   Staples, US                                        12.(469)     Marks & Spencer, UK
13.(477)   Aeon, Japan                                       14.(494)     Kohl's, US
15.(520)   Amazon.com, US                               16.(561)  H&M Hennes & Mauritz, Sweden
17.(597)   Kingfisher, UK                                    18.(640)   Gap, US
19.(655)   TJX Cos, US                                       20.(706)  Lotte Shopping, South Korea
21.(718)   Macy's, US                                          22.(728)  JC Penney, US
23.(739)   Sears Holdings, US                           24.(774)   Shinsegae, South Korea
25.(845)   Yamada Denki, Japan                       26.(880)   Isetan Mitsukoshi Holdings, Japan
27.(895)   Home Retail Group, UK                     28.(904)    AutoZone, US
29. (935)  Shoppers Drug Mart, Canada           30.(962)   Sherwin-Williams, US
31.(966)   Esprit Holdings, Hong Kong/China
32.(1002)    Bed Bath & Beyond, US         33. (1016)  Fast Retailing, Japan
34.(1039)    Falabella, Chile                                35.(1055)    Suning Appliance, China
36.(1058)    Cencosud, Chile                               37.(1095)    Next, UK
38.(1101)    GameStop, US                                 39.(1106)    Arcandor, Germany
40.(1165)    Grupo Elektra, Mexico                     41.(1208)    Nordstrom, US
42.(1232)    Rite Aid, US                                      43.(1271)    Ross Stores, US
44.(1307)    Liberty Media-Interactive, US
45.(1352)    Family Dollar Stores, US
46.(1362)    Daiei, Japan                                     47.(1364)   Canadian Tire, Canada
48.(1384)    Inchcape, UK                                    49.(1412)   Limited Brands, US
50.(1482)    DSG International, UK                     51.(1517)   Advance Auto Parts, US
52.(1557)    El Puerto de Liverpool, Mexico
53.(1601)    J Front Retailing, Japan                 54.(1603)   Dollar Tree, US
55.(1627)    Fastenal, US                                    56.(1671)   D'Ieteren, Belgium
57.(1676)   Takashimaya, Japan                        58.(1689)   AutoNation, US
59.(1714)   Office Depot, US                              60.(1734)  Carphone Warehouse, UK
61.(1817)   Penske Automotive Gp, US
62.(1845)   Soriana, Mexico                               63.(1888)  O'Reilly Automotive, US
64.(1902)   Pendragon, UK                                65.(1906)   BJ's Wholesale Club, US
66.(1925)   CarMax, US                                     67.(1998)   Kesa Electricals, UK

No Indian retailer finds a place amongst the top 2000 companies in terms of trade ranking,

RETAILERS PLAN HIGHER MARKETING SPEND FOR THE COMING FESTIVE SEASON

Retailers are all ready to unleash a promotional blitz in the forthcoming Festival season. It is expected that the Indian retail sector will up its marketing and promotional expenditure by at least 20 percent. Traditionally the period from October to January is peak season for all retailers. Sales move into top gear at the end of Sharaads and beginning of Navratras which start from the 18th of September this year.

Retailers normally spend about 40% of thier marketing budgets on advertising and the balance is spent on promotional schemes and special festival discounts.

With the revival of the monsoon and lifting of the stock markets, retailers are buoyant about the coming festive season and expect to do good business.

Bharti introduces Walmart's Private Labels

Bharti Stores in India have introduced 8 Walmart private labels. In a first, the world's largest supermarket chain have introduced their labels in stores not owned by them. Amongst the private labels being introduced are its top selling 'Great Value' food brand and 'George' clothing brands.
Private labels play a prominent role in the overall merchandise strategy of this $ 400 Billion ( Annual) chain. Walmart currently operates in 16 countries though a network of 7800 stores. It is estimated that the food private labels alone contribute to about 16% of the turnover.

Spencer's seeks Private Equity

Spencer's Retail, a part of the RPG group is looking for private investors to offload 10% stake. In a statement , Mr Sanjiv Goenka announced that the company was in negotiations with more than 1 private investor to offload 10% equity stake in the company. Spencer's retail expects to break-even in about 12 months and this move is aimed at raising funds for its cautious expansion plans. Spencer's have opened 5 new stores in the last 3 months and plans to add another 10 this fiscal. It would be recalled that Spencer's in the last year had gone on a major cost cutting exercise and shut down 100 enviable stores.. The company plans to invest 100 crores this fiscal to fund its expansion plans and expects to break even at the store level in 6 months.

ORGANISED RETAILERS COME TOGETHER TO CUT COSTS

ORGANISED RETAILERS JOIN UP
With increased competition, dwindling margins and a lethargic business environment, major retailers in India have come together to forge a coalition of sorts to leverage and share common resources. Top players like Future Group, Spencers Retail, Aditya Birla Retail and Reliance retail have come together to align their sourcing operations and share private labels, logistics, warehouses and hiring details on a transactional payment basis.

Mr. Kishore Biyani, MD of Future Group however has emphasized that the competition at the front end would remain as before. It is only the back end operations that would be shared. He added that their infrastructure and resources were designed to be shared with others.

Retailers expect to improve operating margins by 2 to 3 % by sharing their back end resources.

The idea of a coalition emerged after a series of meetings in Mumbai between Mr. Kishore Biyani, Mr. Raghu Pillai – CEO , Reliance Retail, Mr. Sanjiv Goenka – Vice Chairman, RPG Enterprises and Mr. Thomas Verghese – CEO, Aditya Birla Group.

Hariyali Kisaan Bazaar to become seperate Entity

DCM Shriram Consolidated ltd, parent company of Haryali Kisaan Bazaar is planning to hive off the company as an independent entity. The retail arm of Hariyali Kisaan Bazaar is currently a Rs 400 crore plus business with a little over 300 stores spread across 8 states.. This move is expected within a year’s time with the purpose of picking up capital from the market to fund its expansion plans. The retail arm is expected to grow to 500 stores within the next 2 years and revenue to 750 crores.

In a statement by Mr. Ajay Shrram, Chairman cum Senior Managing Director of DSCL, the company is planning to invest Rs 200 to Rs 300 crores for expansion. He also informed that though the company is currently negative in profits , it was expected to turn positive in the next couple of years.

The company has shown impressive growth – from 70 stores in 2007 to 160 stores in 2008 to 302 stores in 2009 . The offering at these stores include agri products, food and FMCG, lifestyle products which include apparel and footwear, home linen, consumer durables and other household products. . HKB operates in 2 formats – the larger Centre which is on a plot size of 2 to 4 acres and has facilities of petrol pump, warehousing , output collection and the HKB Stores. HKB Centres are located in rural areas on highways connecting two towns. The other smaller format – HKB Stores is located in market places of small towns and is spread over areas of 2000 to 4000 sqft... HKB has currently 82 centers and 220 stores.

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Retail Ads - The week that was

Retailers this week highlighted the following occasions

1. Festival of Raksha Bandhan
2. Independence Day
3. Anniversary
4. Close of Sales

The predominant theme however was Raksha Bhandan which falls on the 5th of August. The most appropriate ad in copy and offering is Shopper's stop which has the headline talking of ' Gift your sister '. The ad goes on to highlight relevant products for gifting.

Vishal Mega Mart also has Raksha Bandan as the theme emphasizing on the Bandhan element. The offering however has no relevance to the festival and none of the products highlighted could be used as a gift for a sister.

Big Bazaar too focuses on Raksha Bandhan , but the theme remains 'Savings' as the ad talks of gifts from savings from ration purchases. Any relevance ??

With Independence Day just 2 weeks away, Croma is using the occasion to promote their offering by linking them to independence and announcing a special 'Independence Sale'E-Zone celebrates it's anniversary with special offersPantaloon's closes it's sale

Third Eyesight - Articles and whitepapers - Durables Retailing :: Chain Gains

This article on Durables Retailing is based on an article by Aarti Kapoor that appeared in the Business World and has been reproduced from Third Eyesight. The link is given below.

Third Eyesight - Articles and whitepapers - Durables Retailing :: Chain Gains

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DURABLES RETAILING
Chain gains

Durables retailers are dreaming bigger than ever before. Will they go the American way or the European? AARTI KOTHARI explores.

Large showrooms like Viveks allow for a proper display of high-end products

Modernism dismissed mythology. Environment and health hazards pulled the plug on firecrackers. Double-income families dumped diyas and rangolis. Only one thing remained constant. Diwali shopping. And this in itself has become a ritual.

First scout around the city and find the dealers. Then compare different models across different dealerships. Finally, locate the best deals. But if you live in Chennai, Bangalore or Mumbai, things are a lot easier.

Traditionally, the South has been the vanguard of organised retail in the country, now being matched by the West, namely Mumbai. Not surprisingly, in the Rs 20,000-crore consumer durables industry, these three cities represent most of the 5 per cent share of organised retail. The large players within these regions are expanding, experimenting and imagining the future. Watching from the sidelines are some 40,000 durables dealers - a majority of whom operate single outlet dealerships - across the country waiting for signs of success.

The top nine retailers in the country are set to expand their number of outlets from 148 today to over 500 by 2006-07, and revenues from Rs 850 crore to over Rs 2,600 crore in the same period. Ironically, the industry is still at a crossroads; it needs to decide the way ahead. In the US, the all-products-under-one-roof stores like Wal-Mart are more favoured, while in Europe exclusive durables-only chains like Dixons are the norm.

While nowhere close to Dixons in size, Chennai-based Vasanth & Company; Sony Mony Electronics, PlugIn Sales and Sumaria Appliances in Mumbai; and Bangalore's Pai International and Girias have adopted the durables-only chain format. Then there are Vijay Sales and Kohinoor Televideos in Mumbai and Chennai's Viveks- all gung-ho about their shop-in-mall forays.
But there are no strict loyalties. Nor is that possible at the moment. Being leaders, these players need to consolidate first for organised retail to take off in durables. The next five years will see mergers and acquisitions, expansion in geographical coverage, and eventually pan-India players. Only after that has happened will different formats like malls and hypermarkets become a serious consideration. Those who have set shop in malls are looking at those stores on a four to five year perspective and not as significant contributors to their sales immediately.

Why the rush? Largely because the current retail revolution in FMCGs and fashion has whet their appetite for scale and experimentation. Take a look at the newest entrant, PlugIn Sales. Though it started operations only in July 2003, it already has 23 multi-brand outlets in Maharashtra. Says Nitish Tipnis, CEO, PlugIn: "We want to give our customer the same hospitality hotels render. That 35 per cent of our customers have come back to us is proof that we have arrived." The business model is similar (though smaller) to Hong Kong's biggest player, Fortress, which has 40 showrooms of a maximum of 2,500 sq ft each, with the exception of a single 50,000 sq ft anchor store. With its Pune operations doing better than Mumbai and several established players in Mumbai already, the company has decided to keep a foothold in Mumbai while focusing on the rest of Maharashtra.

Higher scale, higher costs

With size comes power. And higher costs. Durables companies are finding this out as they negotiate with the new durables retail chains.
Cost rides on scale, as the cost structure of retail chains goes up with advertisements, air conditioning, staff and high-end real estate. All these could add up to 8-9 per cent of the selling price for bigger dealers - and they expect the companies to share a bit of it.
"There's a far greater amount of price negotiations that takes place," says a marketing head with a durables company.
However, all this investment also means more power. The bigger players are growing faster. "Earlier, if 80 per cent of my sales came from smaller dealers, and 20 per cent from bigger dealers, today 40 per cent of my sales is coming from bigger dealers. So, on a higher proportion of sales we are incurring a higher cost,'' says a marketing head of Mumbai-based company. But companies also don't mind spending more on bigger dealers, as the extra spends are made up by higher volumes. "The absolute cost could be higher, but the per unit cost might not be higher, as the expenses are spread over larger volumes," says Salil Kapoor, head of marketing, LG Electronics.
Smaller shops are typically owner-run, have lower real estate costs, don't do much advertising and keep a smaller product range. Companies have to support bigger dealers by giving a higher margin, or through merchandising support, which can be 1-2 per cent of the sales value. Yet there is no sudden change: costs have been going up for awhile and marketers have built this cost into their sales structure.
Corporates are also getting into it. Eureka Forbes is creating a chain of Home Stores, while Raymond has promoted PlugIn. Experts feel all this would lead to consolidation of retail in the next two to three years.

To keep pace with the market, a traditional retailer like Viveks has reinvented itself. After corporatising its operations in 1995, Viveks acquired Jainsons, the third largest chain in Chennai in 1999, and subsquently, another small chain called Premier. Today it is the largest durables dealer in the country and the only chain with three brands in its kitty. It has 46 outlets across Karnataka and Tamil Nadu, and plans to reach 100 showrooms by 2008. Together with its closest competitor, Vasanth, it accounts for Rs 400 crore out of the total durables market of Rs 1,500 crore in Chennai, while the remaining Rs 1,100 crore is split between 400 small retailers.

Vijay Sales has been around as long as Viveks, but has a slightly different tack. It has a turnover of Rs 150 crore from just nine showrooms in Mumbai. This is because - unlike Viveks' average showroom size of 2,500 sq ft - three of its nine outlets span over 20,000 sq ft each, while the others are between 5,000-12,000 sq ft. "In most cases, around 10-30 per cent of a manufacturer's sales in Mumbai comes through us. In four years we'll expand to Pune, Nasik and Nagpur, among other cities, and then maybe outside Maharashtra," says Nilesh Gupta, managing partner, Vijay Sales. It accounts for half of the city's high-end products sales.

There is another rung of players (turnover less than Rs 100 crore) like Kohinoor, Sony Mony and Sumaria in Mumbai and Girias and Pai International in Bangalore which are nowhere near the top three in size, yet enjoy strong customer loyalty. What makes them noteworthy are their ambitious plans for expansion. Sumaria has scaled up from one to six showrooms in the last three years and will open another four in the next six months. Sales have been growing 25 per cent year-on-year. Says owner Prem Shah: "It's a no go but to expand. Unless you buy in bulk you can't survive today. My purchases have increased four times in the last three years." At Sony Mony, growth has been sporadic. Having started with a 1,000- sq ft showroom in 1986, it took 14 years till the second branch in Borivali (5,000 sq ft) came up. However, in May this year, it leap-frogged to a 22,000 sq ft showroom spanning three floors in Ville Parle. Says Ramesh Shah, managing director: "We'll open five more showrooms (5,000-10,000 sq ft) in Mumbai by 2007, then move on to other metros. Delhi is definitely our first choice."

In Bangalore, Girias is the third largest player operating in both Karnataka and Tamil Nadu. It plans to add eight more outlets to its existing nine by 2009. Says Navin Giria, director of Girias: "This might seem slow, but all our properties are self-owned." Its close competitor, Pai International, differentiates itself through customer service and relationship building. "The products are all the same. We may even charge Rs 100-200 more than competition, but our customers keep coming back to us because we offer them superior service," remarks Pai's general manager Suraj Nayak. With seven showrooms across the city spanning 2,500-25,000 sq ft, he has plans to enter a mall to boost Pai's brand image. But not immediately. He'd rather wait and watch how his competitor Viveks fares.
Strangely, unlike in FMCG and lifestyle products, malls have been ignored by durables. Retail consultant Devangshu Dutta says: "Real estate is the single biggest stumbling block. Margins in the industry don't lend themselves to being in malls. While in other markets like the US and Europe, rental costs could comprise 1-6 per cent of sales, in India the figure can be as high as 12 per cent. However, malls will be the biggest push for organised retail in the next 4-5 years. Rentals will have to come down."

Those who've ventured into malls have had mixed experiences. PlugIn's 1,000 sq ft. shop-in-a-shop with Arcus in Phoenix Mills is going to break-even much after its earlier timeline of one-year. Says Tipnis: "Our customer feedback shows that durable purchases are still a neighbourhood activity for ease of repairs and servicing. But Arcus is a home store, so it makes sense to have durables there too. We're looking at it on a three to five year perspective, and since our investment is low, we're going to keep this space." Prem Shah tried it with Sumaria, but says it wasn't a success because mall shopping means impulsive decisions for lower-cost goods.
But Viveks believes malls are here to stay. Says B.K. Vijay, associate V-P (CRM), Viveks: "Malls are promising if you don't go overboard on investments. The products moving out of there are from select high-end categories, so no point stocking up like any other outlet. Customers want a known brand. A new one would not really take off immediately." Viveks is in two malls in Bangalore - Forum and Central - and at the Spencer Superstore in Spencer Plaza, Chennai, each spreading over 1,000-3,000 sq ft.

But these are all small scale attempts. Competitors are holding their breath for the verdict on Vijay Sales' 23,000 sq ft one-floor space at 'The Hub' in Goregaon, Mumbai. Says Ramesh Shah: "We didn't want to miss the bus, so we took a gamble. The choice was: small or big? We decided to go the whole hog since there's no market on the expressway between Bandra and Borivali. So, if it works, we get the first-mover advantage." The weekends see 70,000-80,000 footfalls. The strategy is to offer 'best deals' in the lower-end products, as malls are about impulsive buying. Shah is hoping to break-even on all investments in three years and on operating costs in 1.5 yrs. The goal is to get 15 per cent of Vijay Sales' total turnover from this showroom in the next six months.
It will still be some time before we can gauge the success of malls in this industry. For now, B.A. Kodandaraman, chairman, Viveks, says: "Studying the West shows us only one way ahead.... All these companies (Dixons in the UK, Wal-Mart in the US and Kingfisher in Europe) had a humble start of one brand, one store, but today they have a minimum of a dozen brand names under which they operate their 100 to 4,000 stores in multiple countries and multiple continents."

- Aarti Kothari, BusinessWorld

100 Croma Stores by 2011

Infinity Retail plans Expansion

The Tata owned Croma Stores plan to have over 100 outlets by 2011. Expansion will be mainly in tier 2 and tier 3 towns. There are currently 32 Croma stores spread over Delhi, Mumbai, Pune, Hydrabad and other cities, The company plans to invest Rs 50 crores on its expansion plans. On an average , the company invests Rs 1.80 crores in a small format store and Rs 3.00 crores on a large format store. This is a 100% subsidiary of Tata Sons. Croma stores sell electronic goods and have over 200 brands.

Rural India Prospects

This informative article on rural India appeared in Knowledge@wharton ( Link given below). This is of interest to everyone involved in rural India

Why Companies See Bright Prospects in Rural India
Published: June 18, 2009 in India Knowledge@Wharton

In late May, when India's GDP numbers were released, many were happily surprised. In the fourth quarter of the fiscal year (January-March 2009), the economy grew 5.8% against expectations of less than 5%. For the year, growth was 6.7%, less than the 9% recorded in 2007-2008, but still very respectable during a global downturn. Multinational banks and brokerage houses rushed back to their spreadsheets to raise their growth forecasts for 2009-2010.

But why were the estimates so pessimistic in the first place? A possible explanation is that most analysts work in cities, and their views are colored by what is happening around them and in the corporate world. That picture has been bleak: During the last quarter of 2008-2009, manufacturing shrank 1.4%. In contrast, agriculture grew 2.7%. The feel-good factor in urban India is returning only now with a new, stable government and a sharp jump in the Bombay Stock Exchange Sensitive Index (Sensex).

In the villages and small towns, it has been a very different picture. "The rural market is insulated from the global meltdown," says Harish Bijoor, CEO of brand and business strategy consultants Harish Bijoor Consults. "The rural part of our economy has been untouched by credit cards and mortgages as known in the West."

"The slowdown experienced by India on account of the IT (information technology), real estate, financial services and automobile sectors was an urban phenomenon," says Ajay Gupta, founder and CEO of ruralnaukri.com, which focuses on jobs in the rural sector. (See "ruralnaukri.com's Ajay Gupta: 'Rural Jobs Can Provide Momentum to the Wheel of the Economy'"). "However, the negative impact of all this on urban India has been more than offset by encouraging performance in rural areas. The rural economy has provided a cushion. Overall sentiment in the country was different from other parts of the world where each household had at least one person with a pink slip."

"Several factors have led to an increase in rural purchasing power," says Pankaj Gupta, practice head, consumer & retail, Tata Strategic Management Group. "The increase in procurement prices [the government sets the minimum support price -- MSP -- for many farm products] has contributed to a rise in rural demand. A series of good harvests on the back of several good monsoons boosted rural employment in agricultural and allied activities. Government schemes like NREGS [National Rural Employment Guarantee Scheme, which guarantees 100 days of employment to one member of every rural household] reduced rural underemployment and raised wages. Also, farmers benefited from loan waivers [introduced in the last Union Budget]. The increase in rural purchasing power is reflected in rural growth across a number of categories. For example, in the financial year 2009 [April-March], FMCG [fast moving consumer goods] rural volume growth is estimated to be 5% to 12% higher than urban growth across a number of categories."

A Short-lived Renaissance?

Some academics agree with these upbeat views of a rural resurgence. "Policy measures like the waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have really put cheer into the rural economy," says Devi Singh, director of the Indian institute of Management Lucknow (IIML). "The Bharat Nirman program with an outlay of US$34.84 billion for improving rural infrastructure is another step that has helped the rural economy. To some extent, the growth of organized retail can also be held responsible for the rural economy's growth, as this has ensured that farmers get a better price for agricultural produce. The MSP set by the government has been rising further, fuelling rural growth by putting more money into the hands of the rural population."

Singh adds a caveat, however. "While the statement that the Indian economy has been saved from the slowdown due to rural growth is true to a certain extent, this is not the only factor," he says. "India's growth has been fuelled more by domestic demand than exports. Also Indian spending and saving habits differ from other parts of the world. Indians by their very nature always save for their future and this holds them in good stead during times of crisis. The Indian buyer is more finance conscious than his global peer. The Indian banking system, due to the so-called non-reforms, is actually more resilient and the level of delinquencies is far lower than in other parts of the world."

Some observers are skeptical about the durability of rural demand. "There is a worrying groundswell of optimism that rural consumers will come to the rescue of an Indian economy which is in the midst of a sharp slowdown. This optimism may be misplaced," suggest consumer behavior expert Rama Bijapurkar and Rajesh Shukla, a senior fellow at the National Council for Applied Economic Research. Writing in business daily Mint, they continue: "Hearing phrases such as 'rural renaissance' or 'rural India to the rescue' makes us nervous. Such talk bears overtones of the 'Great Indian Middle Class' story of the 1990s, where we declared victory at least a decade before we should have." Their question: How sustainable, stable and volatility-free is the growth in income and consumption?

Bijapurkar and Shukla note that "periodically, India has seen a consumption spurt because of a one-time burst of a combination of events. This recent spurt seems no different. Over the past four years, the monsoon has been good; the support prices for crops have grown at 10% to 15% CAGR [compounded annual growth rate] in 2005-2008 compared with 2.5% to 4% in 2002-2005. In addition to a healthy flow of farm credit, there has been a one-time loan write-off of US$13.9 billion as well as a sizeable cash outlay from the NREGS. This doesn't show intrinsic growth in rural India: This growth is, instead, owing to a combination of acts of God and acts of government. What we must never do is make the same mistake with rural India that Western multinationals make with India as a whole -- assume that it will evolve the same way with a 10-year lag. The rural Indian market and consumer call for sophisticated new marketing strategies and paradigms, not a transplant of old ideas."

What Rural Means

Even as this debate continues, the term "rural" is being re-defined. "'Rural' is difficult to define any more," says Bijoor of Bijoor Consults. "Typically, from an Indian census point of view, rural has been defined with a 'deprivation' orientation, rural being a landmass without access to continuous electricity, water, the stock market. There has been a correction in this view, however. Marketers today define rural as people living a different lifestyle as opposed to that of those who have settled in the bigger cities and towns. Rural is defined as pastoral in nature and as a mass of people who relate their income closely to the lands they till or use to raise their cattle and livestock. I, personally, define rural differently. I believe rural is a mindset. Those who possess it are rural and those who do not are urban. To that extent, in Bangalore city, just off the old airport road, are a whole set of people who live by farming on their lands. If you visit their homes, their lifestyles are totally rural. Similarly, there are people who live in villages, who have access to the best of it all. These are urban folk. Rural is not a geography; it is a mindset."

"Definitions for rural India abound while the most convenient remains, 'anything that is not urban'," says Gupta of ruralnaukri.com. Singh of IIML adds: "Rural India comprises all places that are not urban." This definition by exclusion for what is the much larger part of the country has its roots in the government's own approach. "The Census of India defines urban India," says Gupta of TSMG. "Urban India constitutes places with a population of more than 5,000, a population density above 400 per square kilometer, all statutory towns, that is, all places with a municipal corporation, municipal board, cantonment board, notified area council, etc. and with 75% of the male working population engaged in non-agricultural employment. All non-urban is rural."

Such definitions leave marketers cold. "The traditional definition of rural may be of little use to marketers in terms of providing consumer insights," says S. Ramesh Kumar, professor of marketing at the Indian Institute of Management, Bangalore (IIMB). "Given the diversity of culture and lifestyle/aspirational changes that are taking place across non-metro consumers, the non-metro areas need to be segmented into tiers of varying urban orientation using psychographic and lifestyle analysis along with demographics. The digital 1 or 0 type of urban and rural definitions is unlikely to yield consumer behavior nuances. For example, district headquarters [towns] in Tamil Nadu are likely to be significantly different from those in Karnataka or Maharashtra."

Many others agree that census-style definitions are no longer enough. "My understanding of rural India is a less developed countryside where the infrastructure is primitive, houses are of mud or brick but rarely painted well, the primary source of livelihood is agriculture, employment opportunities in the organized sector are negligible, eating choices are restricted to home-cooked, simple food, schools are far away, health facilities are rudimentary and -- importantly -- the youth, while energetic and ambitious, are to be seen playing cards the whole day," says Gupta of ruralnaukri.com.

"We recognize rural India by certain characteristics," says B.N. Garudachar, general manager, corporate communication and investor relations at Voltas, a Tata group company in air-conditioning and engineering services. "These are: low population numbers, low median income, poor infrastructure [roads, electricity, communications], and agrarian rather than industrial activity. Such rural areas are within the sphere of influence of neighboring cities and metros. This influence determines their aspiration levels and their viability as markets."

Massive Market

View it as you may, few people dispute that the rural market is massive. According to Singh, 12.2% of the world's consumers live in India. "Rural households form 72% of the total households. This puts the rural market at roughly 720 million customers." Gupta of TSMG extrapolates the Census 2001 numbers and comes up with an estimate of 790 million. "Total income in rural India (about 43% of total national income) is expected to increase from around US$220 billion in 2004-2005 to US$425 billion by 2010-2011, a CAGR of 12%," he says.

Bijoor explains that this is entirely disposable income unlike what it would be in urban India. "If a farmer in rural Holenarsipura earns US$1, all of it is his to dispose off as he pleases. The same income in the hands of an urban person, who is possibly a tech worker, is actually not US$1 of disposable income. It is most likely 67 cents; the rest goes as tax. The farm economy, with zero-tax on farm income, creates far more disposable income. Buying power in the hands of the rural rich is higher than the buying power of the urban rich."

Gupta of ruralnaukri.com provides some telling statistics. "The purchasing power of rural India is more than half for fast moving consumer goods [US$17 billion]," he says. "The durables and automobile sectors contribute US$2.5 billion each, and agri-inputs (including tractors) about US$1 billion. Some 42 million rural households [use] banking services against 27 million urban households. There are 41 million Kisan credit cardholders [credit cards issued to farmers for purchase of agricultural goods] against some 22 million card users in urban markets. Be it automobile, telecom, insurance, retail, real estate or banking, the future drivers of growth are rural. No marketer can afford to ignore the possibilities of rural India."

Bijoor adds some growth numbers. "Our rural folk have bought a lot more of FMCG; this part of the market has grown at a robust rate of 23% [last year]," he says. "As durables shrink in urban India, the rural market is witnessing a 15% growth rate. Some 60% of the durables market lies in rural India. Telecom in rural India is growing at 31%." It depends on the product, of course. "Just the sheer population numbers don't mean very much from a marketing point of view," says Garudachar of Voltas.

Across product categories, however, there seems to be a lot of action. Media -- particularly TV -- has been a great leveler. Even in small villages, people who have seen the urban lifestyle on television seem to want similar goods and services. Companies have realized this and are going all out to tap this latent demand.

Consider some examples:

The State Bank of India (SBI) has started a zero-balance bank account program for villagers. Called the SBI Tiny account, there are no physical branches or officials, just a paid volunteer who is equipped with a small box and a cellphone. The box enables biometric measurements (fingerprints), at the time of opening the account to confirm the account holder's identity. The cellphone enables communication with the zonal office to check on available balance. Payments under programs such as the NREGS and pensions are made directly to these accounts. The advantage for the villagers is that they can withdraw money from their accounts at any time of the day or night. (Withdrawals are never more than a few dollars.) SBI hopes to cover 100,000 villages by 2012. The bank has tied up with India Post for some services.

India Post, the public sector postal network, has its own plans. It has been hard hit in urban areas because of the more efficient (though more expensive) private sector courier services. Now it is looking at consolidating its hold on the rural areas. Project Arrow has been launched to IT-enable post offices in the hinterland. A pilot project involving 500 post offices -- the country has more than 150,000 -- has been kicked off. It will focus on banking, money remittance, and transmission and delivery of information.

Products for Rural Markets

Maruti Suzuki, India's leading automobile manufacturer, today sells 5% of its vehicles in the rural markets. The company expects this number to rise to 15% in the next two years. "This is not just our wish, but reflects market demand," says director (marketing & sales) Shuji Oishi.

In telecom, service providers are making a beeline for the villages. That's where the growth in what is now the world's fastest growing mobile market lies. According to industry estimates, 70% of all new subscribers will come from rural areas. (See NTT DoCoMo's Tata Deal: Why Global Telecom Firms Want to Dial India.)

Mobile device manufacturers are also tailoring their products to this market. Nokia had earlier launched a basic handset with a torch (large parts of rural India don't have electricity) and an alarm clock. (see How Did Nokia Succeed in the Indian Mobile Market, While Its Rivals Got Hung Up?) In December 2008, it went one step further with the launch of Nokia Life Tools. "Nokia Life Tools is a range of agriculture, education and entertainment services designed especially for the consumers in small towns and rural areas of emerging markets," says the company. "Aimed at providing timely and relevant information customized to the user's location and personal preferences directly on their mobile devices, Nokia Life Tools is the first step towards bridging the digital divide."

The mobile phone is a new-age product; gold jewelry is as old as the hills. Here, too, there has been a rural move. According to World Gold Council figures, 60% of India's US$15 billion annual consumption of gold and gold jewelry is from rural and semi-urban areas. The Tatas have launched a mass-market jewelry brand -- GoldPlus. The Tatas train unemployed youth and send them to the villages as brand ambassadors. The problem with gold in India is that it is often adulterated. In rural areas, gold jewelry is not for ornamentation; it is a safety net for emergency situations. Thus, the Tata seal of good housekeeping is taking the brand places. "GoldPlus is an interesting example of the brand addressing the non-metro jewelry culture with its ethnic touch with regard to its designs and retailing," says Ramesh Kumar of IIMB.

"There is substantial scope to create products that are oriented towards non-urban sectors," notes Kumar. "These can be in terms of functional appeal or cultural aspects or both. Chik shampoo created the jasmine variant [in tune with the culture of women using jasmine flowers to style their hair in a few parts of the country]. TVS mopeds created functional value in tune with the 'all purpose' vehicle culture existing in several parts of the non-metro areas. Philips is moving forward with the creation of gas stoves and lanterns that will be useful to such markets."

Singh of IIML talks about pricing successes: The Chik shampoo sachets sells for 2 cents, the Parle G Tikki biscuit packs at 4 cents and the Coca-Cola 200 ml glass bottle for 10 cents. Singh notes that successes in rural areas can be transplanted to urban areas also. "The shampoo in sachets created a new product segment," he says. "All shampoo manufacturers today retail in sachets, and the demand from urban India for this category is very strong."

The sachet is as much a packaging (product) strategy as a price strategy. But, asks Garudachar of Voltas, have companies done enough about the core product? The shampoo sachet is a case in point. "Villages in India have hard water," he says. "But the shampoo that you get in sachets sold in villages is the same that you get in towns. Manufacturers should have tailored the products to suit the environment."

It doesn't apply across the board, of course, particularly as manufacturers have moved away from the mindset that along with cutting price, you can cut quality. "Product re-engineering was an issue five years ago," says Bijoor. "I do not believe this is an issue at all today. The quality on offer needs to be the same all over. One company tried to pass off inferior quality tea leaves in rural markets and superior quality grades for urban markets under the same brandname. This fell flat."

But re-engineering is necessary in a different sense. According to Bijoor, "Companies are realizing that the urban and rural want is largely the same. However, the rural person is savvier and demands real value for money. To offer this, marketers are re-engineering products. Look at the auto segment. The urban man wants a car as does the rural man. Both have the same amount of money. The rural person, however, believes spending US$12,000 on a car is a sin. He wants it at US$3,000. The Nano is a solution. Every category needs to operate on the Nano paradigm. The needs are all the same, across rural and urban. The solutions have to be different."

Distribution and promotional channels also need to be different for rural markets. Companies are getting their act together here, too. Private sector companies like ITC have set up the IT-enabled eChoupal network, and Hindustan Unilever has project Shakti, under which women's self-help groups act as the last link of the retail chain. (See Marketing to Rural India: Making the Ends Meet.) As mentioned earlier, India Post wants to convert itself into a retail chain for a variety of products. Even fair-price shops, which form part of the government's rationing system, are trying to expand beyond supplying just basic foods like rice and wheat.

In the area of promotion, television has invaded rural India. TV reaches even very small villages through community sets. But advertising on national channels is wasteful if you are trying to target rural areas. Garudachar of Voltas says his company is trying to sell air conditioners to the rural rich. "Difficulties in penetration are due to the widespread and scattered nature of the territory," he says. "At one time, basic conservatism and diehard thrift would also have been factors, but exposure to TV has changed all that, and created aspirations where once there was resistance to change."

From Four P's to Four A's

Gupta of TSMG notes that the traditional four P's of marketing -- product, price, place and promotion, as outlined above -- have been replaced by a different framework for analysis. "A number of companies have worked on various elements of the marketing mix to improve the four A's -- affordability, awareness, availability and acceptability -- for rural markets," he says. "FMCG companies innovated on package sizes to introduce low price points. They have customized promotional strategies for rural markets using local language and talent. Some FMCG players continue to expand rural penetration [HUL's Project Shakti, Tata Tea's Gaon Chalo]. Coca-Cola's Parivartan program has trained more than 6,000 retailers to display and stock products. Dabur has created a training module ASTRA [advanced sales training for retail ascendance] in several regional languages. A number of auto companies have launched rural-specific campaigns."

Gupta of ruralnaukri.com offers more examples:

•Affordability -- Godrej introduced three brands of Cinthol, Fair Glow and Godrej (soap) in 50-gram packs, priced at 10 cents; Adidas and Reebok increased their sales by 50% in rural markets by reducing prices.

• Size and design changes -- Videocon introduced a washing machine without a drier for US$60; Philips launched a low-cost smokeless chulha (stove); DCM Shriram developed a low-cost water purifier especially for rural areas.

•Improving product acceptance -- LG Electronics developed a customized TV (cheap and capable of picking up low-intensity signals) for the rural markets and christened it Sampoorna. It sold 100,000 sets in the first year; Coca-Cola provided low-cost iceboxes as regular power outages meant families could not depend on refrigerators.

Perhaps the ultimate sign that rural India has arrived is in the allocation of talent. "In the old days, the weakest people in organizations, the ones without a star career path, held the reins of the rural marketing divisions," says Bijoor. "Today, things have changed. Sharper and sharper brains from within the organization are being diverted to rural strategy formulation." When the whiz kids go to villages, you know the cows have come home

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4386