The rural landscape in India is witnessing a transformative shift, with an increasing population actively participating in both commercial agriculture and diverse non-agricultural enterprises. Fuelled by digital access, a surge in entrepreneurial ventures has also emerged in rural areas, generating employment and propelling economic growth, increasing income, aspirations, and commensurate consumption. Projections indicate that by 2030, India’s rural per capita consumption is expected to soar 4.3 times, outpacing the 3.5 times growth projected for urban areas. This trend marks a promising development as it signifies the potential for a wider range of products and services in the Indian rural markets.
The rural pie is being eyed by almost all product/service distribution companies. Given its vast potential, one would expect these companies to have already established a substantial presence in this market. However, the reality is different, and this is where the narrative gets intriguing and interesting.
Consider the following scenario: even the giants in FMCG distribution have managed to penetrate only 40%-50 % of the market. The significant portions of untouched geography by these large corporations, despite the immense growth potential, highlight the lack of a viable mechanism to ensure availability at all pertinent retail outlets. It’s evident that mere demand isn’t sufficient; the control and cost economics required to establish and sustain service levels at these retail points must be feasible.
The sustenance worry
The tried and tested mechanisms like frequent order taking & servicing, which define the service levels, haven’t been very promising. Characterised by dispersed spread and the absence of dense retail clusters, rural retail distribution often requires a large physical sales force and cost-intensive logistics to maintain reasonable service levels. The latter is limited by the size of orders per outlet coupled with the time taken to fetch orders and service them. Finding a trained sales force to service these markets and managing them can also be another challenge. This may not seem very significant, but it often derails initiatives for rural expansion. To safeguard sales, companies usually attempt to establish a ‘safe’ range by leveraging existing distribution infrastructure such as wholesalers or semi-wholesalers. However, this strategy often encounters compromises due to persistent concerns regarding control over distribution. When utilising these borrowed networks, maintaining market hygiene conditions, including pricing and ensuring timely deliveries, often proves challenging. As a result, many companies only tap into a fraction of their potential market, and even when they do, their reach tends to be sporadic.
Some large distribution companies are undertaking pilot projects to expand their direct reach into rural markets and are achieving some degree of success. However, for small or medium-sized players, such initiatives present significant challenges due to limited budgets and squeezed margin structures. The economic viability required to sustain the distribution infrastructure, coupled with the bandwidth needed to effectively control it, hampers their ability to engage in direct distribution in rural areas. Consequently, despite persistent efforts to broaden their reach and make the complete product portfolio accessible to rural customers, sustaining operations in these markets remains a formidable challenge for most companies, even after decades of operation.
As a consequence, one can typically observe the following challenges in the tail distribution or rural market of any consumer product company:
- A substantial gap between retailers’ universe in a given geography and the number of retail points that are serviced.
- A stagnant or shrinking number of active retailers (retailers who buy at least once in a month) over time
- Stagnation in the total range sold (secondary).
- Trained field force availability and attrition
Zero risk framework ahead
As urban markets become saturated, companies face the imperative of addressing entrenched challenges to expand into rural markets. However, this endeavor necessitates a departure from conventional approaches. Companies must innovate their go-to-market strategies and devise a new sales model. Embracing evolving technology and digitalization, and adapting them to meet specific requirements, can pave the way for this new approach.
To draw up such a model that can work for rural markets, it would be good to re-examine what are the fundamental requirements or wishes of major consumer product distribution companies. Most companies would agree that they would ideally like to have the following:
- KYR – Know Your Retailer: Ready and continuously updated contact details of retailers in a geography
- Access to the distribution network: A mechanism to engage directly with retailers (not through indirect distribution as is the current practice, which is believed to be the cause for significant leakages in reach and range) to gather orders from these retailers.
- Visibility: Visibility of the distribution process all the way up to retailers so that the company can take required action when needed. (Most companies currently have no visibility of how distributors service their market)
- Communication Channel: The ability to target initiatives and customise conversations to individual retailers. This can ensure continuous long-term demand generation through micro-level initiatives for growth in market share.
- Control: A way to control costs as well as service levels
The only way to achieve this wish list without addition to the sales team is if the capacity of the existing team somehow expands by several times to work on these! It sounds improbable, right? After all, companies are already struggling for sales capacity to service existing markets!
Interestingly, such a risk-free/high-yield model is very much possible. Here’s how:
- Separate actual sales activity from transactions
If we redefine the REAL sales function as nothing but ‘securing new outlets and adding range with existing retailers’, then the sales team can be freed from all the other support activities. If you think about it, all the transactional order-taking processes can be more efficiently done by utilising technology-enabled tele-calling through an order management centre. This ‘Phygital’ model can reach out to 150-200 retailers, significantly increasing the serviced outlets without expanding the team. This can also ensure that the company has access to the pulse of what’s happening in retail.
- Sales team to focus 100% on sales
The capacity of the field force freed up from taking orders can now be used for real sales activities. This means the field force can transform into brand ambassadors (to continuously map and secure new outlets and add range with existing retailers) and problem solvers (take up targeted marketing activities/address individual retailer problems as they arise). ML and AI-based tools can be leveraged on the retailer data for route-wise insights and task assignments, enhancing service quality by the sales team.
- Enable consistent demand generation
While the above two steps can seamlessly sop up existing demand in the market, it is not enough for continuous growth in market share. For this, firms have to develop innovative loyalty programs involving key influencers such as retailers, plumbers, architects, etc.; this can help boost sales and differentiate the company from competitors. Technology can be leveraged to enable this engagement as well.
- Implementing the model without increasing cost per sale – Full service outsourcing
The above steps may increase fixed costs for a company since they involve setting up tele-calling and other infrastructure required, at least in the short run. So, the way to Implement this model without increasing cost per sale is to outsource it to a Sales-as-a-Service provider who can do all this and already has a ready infrastructure in place that companies can use to plug and play.
In this case, the advantage is that the service provider delivers:
- Ready on-ground, trained sales executives so market expansion can happen simultaneously in many hitherto untouched geographies without adding to the company’s cost or control issues
- Retailer databases without the company having to invest in mapping the concerned geographies
- The tele-calling set-up, comprehensive software suites, dedicated apps, and complete support (including retail finance) are required to undertake market expansion activities and demand generation activities in a chosen region/market.
This means that:
- There is no additional capital expenditure for the firm
- There is no interruption/disruption to any ongoing sales operations in other areas.
- There is access to the service provider’s know-how about effective strategies for sales growth.
- Minimal bandwidth is required from top management to oversee this expansion activity.
Reality byte to refer
The transformative power of this solution to unlock risk-free market expansion has been tested at an FMEG company that implemented it in 11 Talukas of rural Maharashtra. They achieved a 569% rise in outlets ordering on a monthly basis and a 302% surge in overall sales from the region. Clearly, in a rapidly evolving consumer goods industry, where easier-to-serve markets saturate, rethinking rural retailing is the key to increasing market share and achieving sustained growth.
Kiran Kothekar, Director and Co-Founder, Vector Consulting Group
