The Prospects And Challenges Of Rural Retailing In India

Abstract

Retail and Rural have almost become the buzz word for corporate world and marketers in India. Rural India has become the land of opportunities of marketers due to its vast outlook and changing scenario. India’s retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015, driven by income growth, urbanisation and attitudinal shifts. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at 20 per cent per annum and traditional trade at 10%. Nearly 67% of the population lives in rural India and there retail requirements are mostly fulfilled by unorganized retail shops. This paper is a attempt to explore the vast prospects and challenges ahead for retail industry to grow and flourish in rural India.

Introduction

Rural retail has different environment from urban environment. On demand side, we have moderate purchasing power, irregular consumption and high variability of needs. The village economy is dependent mostly on agricultural activities which is itself is low margin enterprise. Other enterprises include dairying, fishing, horticulture, floriculture, artisan-work, pottery, handicraft, masonry and carpentry, metal work etc. Their income is circulatory in nature and it is meagerly linked with external economy. The linkage with urban and national economy is much to be desired. This results into a limited purchasing power of a villager. In terms of consumption they are conservative. Demand is price sensitive. The consumption pattern is irregular as the need emergence is situational. The motivation for consumption is not marked by any fancifulness; as a result the village folk is not extravagant. At the same time they are not willing to spend much time in the purchasing activities. As the retail environment is becoming tougher and more competitive and consumers are growing more sophisticated, retailers make every effort to draw new customers to their stores and to encourage existing customers to keep patronizing their stores. The supply of goods from the retailer in rural setup has to match the demand environment. The retailer has limited capital and space for the business. The access to loan and its repayment is not easy. At the same time the available space for storage of various kinds of articles and the selling activities faces poor scalability. The retailer sells a mix of items from different commodity groups at different prices. Within a given commodity group also there are varying prices. The selling prices are governed by:

1. Need of an article
2. Purchasing power of the buyer
3. Motivation to purchase

Risk in retailing puts sustained profit under question mark. This situation crops up because of the business uncertainties in the rural environment which shows following syndrome:

1. Variability of demand
2. Resource constraint
3. Bull Whip Effect
4. Low margin of profit

Justification for this model: In the most ideal situation the retailer should be able to sell all the items at remunerative prices in order to beat the profit risk. But he is not able to do so as he does not have a clarity on the types of items, selling price and the quantities of the item which finally results into minimal risk. He needs a tool which can provide visibility into following issues:

1. What kind of goods he should sell in the forthcoming cycle of business
2. How much should be the quantities of goods to be sold
3. What will be the profit level at the end of the business cycle
4. How to account for fixed and variable costs while planning for profit

Features of retail in rural India

India is basically a rural society as 2/3 rd of is population resides in villages which offers vast market opportunities. The following are the main features of rural retail:

1. The rural retail market is dominated by Kirana stores, haats& melas.
2. It is culturally diverse & highly fragmented – spread over more than 6 Lakh villages.
3. It mainly dependent on agriculture which generate seasonal income, mostly twice in a year. Thus, purchasing powers of rural consumers are not uniform.
4. Generally, the standard of living of consumer is not very high and their outlook is very conservative due to low penetration level of refrigerators, storage of food products.so, rural consumers prefer purchasing in low volumes and their purchase frequency is high.
5. Inadequate infrastructure in terms of roads, warehouses, communication, consumer finance etc.

Rural retailing and its challenges

Some of the challenges faced by marketers and retailers in rural India are low per capita income, dependence on the monsoons for purchases, difficulties in communication and high distribution costs. Marketers are addressing these issues through the 4A's of Availability, Affordability, Acceptability, Awareness and coming up with innovative campaigns to address the rural segment. Understanding of rural customers and their needs is what will make the rural foray retailers successful.

Distribution and Retailing in Rural India

For decades, distribution in rural areas remained a herculean task because of its geography and sparse population. Lack of connectivity with rural areas, inadequate communication systems, bad state of roads (in few cases), high distribution cost to serve the interiors of villages, etc., deterred the companies from entering rural areas. The deficiency in infrastructural facilities made the physical distribution of goods a costly affair for marketers. Direct delivery of goods even to the top 1% of villages costed twice as much as servicing urban markets.18 Even in the final phase of distribution, i.e., retailing, companies sold their products through ‘haats’, ‘melas’, kirana shops and other unorganised forms of retailing.

Kirana shops usually existed in rural areas with a population of more than 500. These stores often have a limited variety of products and hence sell them at high prices. The article Growing Rural Retail cited, “The typical shop is cluttered and congested with limited variety and few national brands. Many of the goods are sold at prices higher than the maximum retail price with shopkeepers giving goods shortages, transportation costs etc., as rationale. What these stores ended up doing, according to Pradeep Kashyap, the director of MART, is make shopping for the rural consumer a ‘hellish’ experience.” But, the number of unorganised retail stores in rural India is high in number. According to the study conducted by Rural Marketing Agencies Association of India (RMAAI) and Francis Kanoi Marketing Research (2008), the total number of rural retail outlets in India is estimated at 4.1 million.

Conclusion

Current Government is financially empowering village Panchayats for development of their respective villages which will help in systematic and planned development of villages which in turn will help in increasing purchasing power in the hand of villagers and will also help companies to focus and tap more into rural markets. Due to this huge potential in Rural India major business houses are planning to set up retail outlets in rural markets and establish a new chain of opportunities. But careful planning and analysis is required of rural markets to succeed in it, one cannot implement any policy there as because it is quite different from urban market, companies have to be quite vigilant when operating in rural India but this is for shore that rural retail in India is the future for many business houses to operate and will always remain a mouth watering market for a long period of time.

References

• DESIA, S. S. (2013). Rural Retail Innovations in India : New Dimensions in Marketing. International Journal of Multidisciplinary and Current Reserach 
• Anderson, D. R., Sweeney, D. J., Wil iams, T. A., Camm, J. D., & Martin, R. K. (2005). An introduction to man agement science : Quantitative ap proaches to decision making. Mason, OH : South - Western Cengage Learning
• Aithal Rajesh K., “Structure of Distribution in Rural Areas: Empirical Evidence from Villages in Karnataka and Gujarat”, https://www.irma.ac.in/researchandpublication/rp_detail.php?rp_id=404, August 2nd 2007
• “Growing rural retail”, http://www.financialexpress.com/news/growing-rural-retail/184875/0, November 25th 2006
• Mr PUNNET BANSAL, M. V. (2013). Rural Retailing in India - A Changing Paradigm. International Journal of Advanced Research in Computer Science and Software Engineering