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.