Reply to comment about Rural Indian Consumer

In response to my recent post on Rural Consumers, Joost Bonsen of MIT commented.

Thanks much for your survey of the rural consumer landscape in India. I’m curious how what you’re observing either reinforces or differs from the Hart-Prahalad BOP thesis and the cases they give, such as Hindustan Lever, etc. Plus how much of the consumer goods sector is dominated by MNCs or affiliates versus homegrowns? And finally, what’s the rural analog to Walmart or the old Sears Roebuck catalog or other innovations in the distribution systems?

I got to thinking about what he had asked and decided to write up a separate post instead of replying as a comment. So here goes.

Joost

Let me answer the last two questions first. The largest retail operations in India are by definition homegrown. By law, foreign players in the retail space are not allowed to hold more than a 50% stake in Indian operations. The few foreign tie ups like Wal-Mart and Bharti Group have relegated Wal-Mart to being the backend to Bharti’s front end. UK’s Tesco has entered India at the wholesale level where there are less restrictions.

Kishore Biyani, the founder of Pantaloon, India’s top retail chain, has been putting up Big Bazaars which are multidepartment stores closely following the low cost model of Wal-Mart. Other Indian conglomerates are also entering this space like Reliance India with Reliance Fresh Stores and RPG with Spencers Hypermarts.

However most of the large format retail operations are in the major metros and secondary cities. Once you go past the tertiary cities retail consists of the neighborhood mom and pop stores.  Even in urban areas there is still a heavy prevalence of these mom and pop (kirana) stores.

The challenge is distribution and you will find Coca-Cola and other retail goods distributed to these far flung stores by bicycles, bullock cart or other means. In most remote villages, the store owner will have to make a trip to a wholesale distributor or “cash and carry” store to stock up his store.

Recently a few e-kiosks that have opened up in rural India such as Drishtee, TaraHaat, and United Villages. These efforts started as traditional e-kiosks where villagers could go to access the Internet and computer based services. Some of these have evolved to serve as delivery points for rural consumers for e-commerce orders. They provide:

  • Rural Entrepreneurs with a potential revenue stream by allowing them to set up and run these e-kiosks.
  • Rural Consumers with a range of services ranging from online education to agri-consultancy services.
  • Retailers with a channel for distribution for e-commerce orders placed thru the e-kiosk that are delivered for pick-up at the kiosk location.

Regarding the BOP model, there are a few good critiques of the Hart/Prahalad BOP thesis. Aneel Karnani, who is also from U of Michigan (where Prahalad was based), has written an insightful piece “Fortune at the Bottom of the Pyramid: A Mirage” that tries to point out some of the inconsistencies in the Prahalad cases. In addition Ashish Karamchandani, who leads Monitor Group’s India practice on Inclusive Markets, has recently written a great report on “Emerging Markets, Emerging Models” based on their work on exploring market opportunities at the bottom of the pyramid that also highlights what does and does not work in the BOP model.  Another good reference regarding distribution systems in rural India is “Socially Responsible Distribution: Distribution Strategies for Reaching the Bottom of the Pyramid” by Prof. Sushil Vachani of Boston University.

Unfortunately most of the examples I mentioned in my earlier blog post have focused on the rural sector as consumers and tap into their buying power instead of addressing the more fundamental issue of increasing rural income and employment. I believe the three key issues that need to be addressed if the rural sector is to grow are:

  • Rural Education: providing basic skills and baseline literacy will increase demand for more sophisticated products while also providing a sound base for income creating opportunities.
  • Rural Entrepreneurship and job creation. Encouraging the development of businesses and services beyond basic agricultural oriented ones. Examples like Vigyan Ashram’s rural technology program have fostered new business creation in rural Maharashtra by providing vocational training and business education.
  • Connectivity to external markets to expand the rural market and increase overall size of the pie. Organizations like eJeevika which connect available local talent to service remote markets provide a twofold advantage by retaining rural talent while enhancing rural income. Similar efforts through marketing cooperatives also provide access to larger markets for rural producers and a greater share of the profits

In the long run only such initiatives will provide the greatest opportunities for consumer growth in the rural sector.

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4 responses to “Reply to comment about Rural Indian Consumer

  1. Related article in the news

    http://www.mydigitalfc.com/jobs/wal-mart-steps-hiring-ahead-india-launch-131

    Wal-Mart, the world’s largest retailer, has stepped up hiring of retail executives as it prepares to launch its cash & carry operations in India over the next three to four weeks.

    Bharti-Walmart had announced that its self-service wholesale stores would be called “Best Price Modern Wholesale.” They will sell food and non-food products mainly to institutional clients such as hotels and restaurants.

  2. Increase in the purchasing power of the rural consumer does not necessarily translate into development of the rural sector. This would be a myopic view. You have rightly pointed out that growth and development in rural sector is possible and sustainable only when opportunities are given to the people to improve. In addition to the points you have mentioned, basic infrastructure such as roads, electricity, and water are also important.

  3. A few weeks ago, I had written a couple of blog posts on the Rural Indian Consumer. I had observed then that most of the examples have focused on the rural sector as consumers instead of addressing the more fundamental issue of increasing rural income and employment. I pointed out that one of the key issues that needed to be addressed if the rural sector was to grow was connectivity to external markets to expand the rural market and increase the overall size of the pie. This article comparing growth in rural China versus India is a good example of the potential for growth and the lack of focus in India.

    http://online.wsj.com/article/SB124720416075022041.html

  4. Interesting viewpoint of Economist Abhijit Banerjee, director, Abdul Latif Jameel Poverty Action Lab, MIT in his interview with Times of India

    http://timesofindia.indiatimes.com/Edit-Page/QA-There-needs-to-be-an-effective-social-nest-for-the-poor/articleshow/4769709.cms

    Some economists believe the poor represent huge untapped business potential. There is some truth to it. The poor are certainly interested in consumption goods, maybe too interested in some cases. The cellphone industry is an exception, but that apart, i haven’t really come across compelling examples of products designed for the poor. Marketers are yet to understand how to come up with cost-effective products to target the poor alone.

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