Retailing Channel Enhancement Strategies

Adopted by FMCG Companies

in South Indian Rural Markets

V Ramanathan*

In the last two decades, the developed and developing nations have seen their economies
change from being a manufacturing-led to a service-led, in terms of wealth creation,
employment and investment. From the day, when our country opened the doors of our
economy to the process of liberalization, privatization, and globalization, the manufacturers
as well as the distributors of both domestic and global markets have started to herald their
products in our rural destination. The increase in the number of south Indians working in
rural environment, the exposure of products through the media, frequent trips abroad made
by the rural educated youth, and the level of increasing literacy in south Indian rural public,
have all created a brand consciousness among south Indian rural customers. They equate
brand with quality, prestige, and status. At present, the penetration of Fast Moving Consumer
Goods (FMCGs) in rural markets has delineated the new marketing strategies to promote their
branded items available in all rural outlets. So, they have started to adopt channel
enhancement strategies in south Indian rural markets, where availability determines the
volumes and market share. The word ‘retailing’ has its origins in the French verb ‘retailer’,
which means to cut up, and refers to one of the fundamental retailing activities, which is to
buy in larger quantities and sell them in smaller quantities.

Introduction
Retailing is the activity of selling goods and services to a final consumer for
his/her own use. It is concerned with getting goods in their finished state into
the hands of customers who are prepared to pay for the pleasure of eating,
wearing, or experiencing particular product-items. Retailing is all about
distribution of goods and services.

The word “retailing” has its origins in the French verb “retailer” which means
to cut up, and refers to one of the fundamental retailing activities, which is to
buy in larger quantities and sell them in smaller quantities.

Retailers form the link between the manufacturers, wholesalers, agents, and
the customers. They are the persons who keep in touch with the customers and
get an opportunity to understand their needs and preferences.

* Lecturer, Department of Management Studies, Sri Chandrasekharendra Saraswathi Maha Vidyalaya, Enathur,
Kanchipuram, India. E-mail: ram2005_mba@yahoo.co.in

© 2007 The Icfai University Press. All Rights Reserved. Resrved.

64 The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007
The Retail Industry’s Contribution to the Economy
Moving away from the role of retailing in the marketing activity of an individual
producer, retailing activity can also be viewed as a significant contributor to the
economy in general.1 In the last two decades, the developed and developing
nations have seen their economies change from being a manufacturing-led to a
service-led in terms of wealth creation, employment, and investment. Around
one-third of consumer expenditure takes place through retail outlets, and retail
industry employs one in nine workers2.

The retail price index is frequently referred to as an economy indicator. It is

a measure on a ‘basket of products’ across all retail sectors and compares prices
over a period of time in order to reveal the changes in the cost of households
with typical purchase needs.

The Impact of Globalization in Retailing Industry

The increase in regionalism or in the tendency towards economic cooperation
between countries within regions, particularly in the form of free trade areas, is
increasing the internationalization opportunities for Fast Moving Consumer
Goods (FMCG) in retailing market. A free trade area is an area whose member
countries agree to have a free movement of goods among themselves without
the imposition of tariffs or quotas.

From the day, when India opened the doors of her economy to the process
of liberalization, privatization and globalization, the manufacturers as well as
the distributors of both domestic and global markets have started to herald
their products more in the rural destinations. The product categories, which
are familiarly known as FMCG, seek to clinch the south Indian rural market and
especially to penetrate the untapped potential of the rural market.

If one goes through the recent histories of our economy, one can find the
leverage of our relaxed trade and industrial policies inducing the manufacturers,
marketers, traders from both domestic and host market to make a turn towards
the rural market.

Even though the South Indian Rural Market consists of consumers who are
mostly daily wage earners and dependents on monsoons, who spend their low
per capita disposable income, major FMCG players are gearing up with their own
conventional and modern marketing strategies to lure these vagrant buyers.

Retailing Industry in India

In India, the retailing industry, which is an unorganized player, accounts for
92 percent of the industry’s turnover. The fragmented nature of the industry
1
Source: Principles of Retail Management by Rosemary Varley, Palgrave Macmillan publications.
2
Ibid.

Retailing Channel Enhancement Strategies Adopted by FMCG Companies 65

in South Indian Rural Markets
deprives customers of the benefits of the organized retail industry, such as
stabilized pricing, wide range of selection, and comfortable shopping. Many new
players, domestic as well as international, are entering the Indian retail industry.

It was only in the late 1990s that FMCG companies organized heavy retailing
in India. Till 1990, a few of the organized retailing industry were controlled by
the manufactured-owned retail stores. With the liberalization of Indian economy
in 1990, FMCGs entered the Indian retailing industry. Encouraged by the response
among consumers to branded retail stores, Indian entrepreneurs have set up
large stores, shopping malls, and multiplexes.

South Indian Rural Market

The south Indian rural market is an area of darkness to the Indian entrepreneurs.
It is the market where communication is poor and the population poorer because
their operations are small-scale and inadequate, therefore inefficient. Yet, the
south Indian rural market represents the largest prospective and promising
market in India, which encompasses over 67 percent of population. Its primary
activities are agriculture, animal husbandry, fisheries, and forestry which account
for half of the national income. Rural assets also amount to more than 43 percent
of the country’s tangible wealth.

According to the data published by the National Sample Survey (NSS), the
wealth distribution in the south Indian rural market is uneven and the top 16
percent farmers’ landholdings account for 37 percent of the cultivated area, and
the top 10 percent of the rural population accounts for 42 percent of expenditure
on consumer goods.3 However, with the increasing spread of the rural income,
consumer goods are expected to make substantial penetration into the lower
income strata by the normal percolation effect.

Penetration of FMCGs in South Indian Rural Markets

The increase in the number of south Indians working in rural environment, the
exposure of products on the media, frequent trips abroad made by the rural
educated youths, and the level of increasing literacy in South Indian rural public,
have all created a brand consciousness among south Indian rural customers. They
equate brands with quality, prestige, and status. The brands which hitherto
occupied a place in the minds of south Indian rural customers have started to
disappear, and the quality brands from FMCGs have slowly started to attract the
south Indian rural customers. Hence, the south Indian rural market retailers
should strive to maintain the superior quality products and enhance the brand
image of their FMCGs to retain the rural customers’ confidence and win
their loyalty.
3
Data gathered from NSS survey.

66 The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007
Rural Retail Distribution
As sellers of merchandise to the final consumer, manufacturers are dependent
on the supply of it in order to provide a high level of service to their customers.
In rural markets the small retailers do not have the resources to get heavily
involved in supply chain management, nor will it be cost-effective for them to do
so. In addition, the opportunities for them to collaborate with suppliers are
severely limited. However, they still need to make decisions regarding logistics
arrangements on a small scale. In a competitive and saturated retail market,
customers are intolerant of stock-out. Therefore, small retailers must manage
their stock to the best of their ability even in rural markets. Periodic review is
a simple but an effective stock control system appropriate for small- and
medium-sized rural retailers, where items sold have a relatively predictable
demand pattern.

Reasons for Targeting South Indian Rural Markets by FMCGs

The FMCGs have identified the south Indian rural markets as having tremendous
potential for retailing as well as brand building; that in turn has persuaded them
to adopt impugned proliferated marketing, selling, and retailing strategies.

Conventionally, the south Indian rural consumers prefer to buy products from
available retailers. Retailers’ proximity to one’s living area influenced the buying
of customers over brand considerations. Most of the time rural retailers are
unable to update their inventory due to financial constraints and lack of interest
in brand promotions.

Now the penetration of FMCGs in rural markets has thrown up new marketing
strategies to promote the branded items available in all rural outlets.

Retailing Channel Enhancement Strategies Adopted by FMCGs

• FMCGs began to rely on heavy promotional budget through suitable
promotional mix campaigns;

• The emergence of satellite channels—as a source of promotional

advertisements—in rural markets has made the FMCGs prefer mass
media advertisements. According to a recent survey conducted by the
Cham ber of Com m erce and Industry–South India, the non-food
categories such as toilet soaps, washing powders and liquids, tooth
pastes, and detergents are heavily promoted by the producers of FMCG’s
in the rural market;

• The FMCG promoters now realize that copartnership retailing strategies

can help penetrate the south Indian rural markets. Through these
strategies, the FMCG promoters identify the prospective retailers from

Retailing Channel Enhancement Strategies Adopted by FMCG Companies 67

in South Indian Rural Markets
 respective rural markets and educate them to promote the FMCGs in the
rural markets through proper training tools;

• Most of the promoters of FMCGs are insisting the rural retailers to design
their outlets, which attract the rural consumers to buy from their
assortments;

• The retailers in south Indian rural markets prefer to promote particular

brands available in their assortments which provide them a decent and
consistent profit margin. Therefore, all the FMCG promoters try to attract
the rural retailers by offering them a sizeable and lucrative margin;

• The promoters of FMCGs have started to patronize the long daydreams

of rural retailers, i.e., conducting sales contests for them, as is being
done for urban retailers, where the top selling retailers from rural
markets are identified and given awards (cash awards and incentives),
rewards (‘best retailer’ award), and special family package trips to
various places—both to domestic and foreign places of attraction;

• Producers of FMCGs have started redesigning the traditional distribution

channel systems adopted in south Indian rural markets. Normally, FMCGs
decline to offer exclusive dealership for rural retailers. Now they are
encouraging the rural retailers to go for exclusive dealerships for FMCG
products by way of offering good profit margin for their investment and
provide a reasonable credit support;

• Promoters of FMCGs are insisting that their direct marketing teams assist
the rural retailers to promote their respective brands. The direct
marketing teams of FMCG promoters jointly promote their products with
rural retailers and assist them to handle rural consumers effectively;

• The rural retail outlets have been stimulated to store fast moving brands
of different FMCG product categories;

• The rural retailers are educated to manage the cost of retailing their
products, and manage their inventories and the cost associated with it;

• Most of the promoters of FMCG believe in the importance of relationship

marketing, and the same is inculcated among the rural retailers
by educating them in the ways of managing the relationship with
rural consumers;

• Even though support has been extended by the FMCG manufacturers

and marketers to rural retailers to promote their products in rural
markets, many retailers detest going for mass retailing of FMCG items

68 The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007
 because of the financial burdens. For this reason FMCG promoters help
the rural retailers to get loan from rural infrastructure promotion banks.
FMCG promoters are extending their support in the form of giving
guarantees to rural retailers and recommending micro loans from various
rural banks to the retailers;

• Nowadays, the banks in rural areas are compelled to help rural retailers
in sanctioning both long-term and short-term loans for meeting the
retailer’s capital requirements and operating expenses;

• Of late, the FMCG promoters are keen to apply the new concept of
‘retailing entrepreneurship’ in rural south Indian markets, through
which they identify the educated unemployed youth in various rural
areas with the help of Entrepreneurship Development Program (EDP)
in coordination with rural NGOs and motivate the rural youth to actively
participate in the venture of retailing FMCGs in their geographical
locations; and

• Most of the FMCG promoters have entered into a tie-up with rural
Non-Governmental Organizations (NGOs) through a program called
Rural Entrepreneurship Development Program for identifying,
motivating, and training educated unemployed young retailers to
involve themselves in retailing of FMCG items.

Conclusion
Generating awareness pays dividends only when steps are taken to ensure
continuous availability of products. In the south Indian rural markets, availability
determines volumes and market share, because the consumer usually purchases
what is available at the outlet, influenced largely by retailers. Therefore, over
the decades, the producers of FMCGs have progressively strengthened their
distribution reach in the south Indian rural market. Direct rural distribution begins
with the coverage of villages adjacent to small towns. The company’s stockists
in these places are made to use their infrastructure to distribute products to
outlets in these villages.

To fully realize the potential and prospects in south Indian rural markets,
FM CGs require a ma trix of init iati ves, suc h as und erst andi ng
of customer behavior and tastes, providing moral support to rural retail outlets
(business partners), and ensuring the availability of goods at the doorstep of
consumers through retail outlets. Above all, it calls for innovation, perseverance,
and patience. 

Retailing Channel Enhancement Strategies Adopted by FMCG Companies 69

in South Indian Rural Markets
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70 The Icfaian Journal of Management Research, Vol. VI, No. 11, 2007