ITC RURAL INDIA

APMP 04 : South Extension Centre,New Delhi

Mayank Vivek

Dwivedi

Dutt Saxena Pandey

Kamal

Anupam Arun

Kumar Choudhary

Alpana

Q :WHAT IS NOTABLE ABOUT INDIAN CONTEXT

India is second most populated country in the world.

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Agriculture is the backbone of Indian economy. It contributes around 26% of the total GDP. Agriculture provides livelihood to about 65% of the labor force and accounts for 8.56% of India's exports. The fragmented farms are constraining the risk taking ability of Indian farmer locking him up into a vicious cycle of : Low risk taking ability, low investment, low productivity, weak market orientation, low value addition, low Margin, low risk taking ability. NGOs worked closely with government and private sector. Self-help groups transformed village women into empowered entrepreneurs. Good deal of incentives were offered to small firms. SMEs were given more tax breaks. 88% of rural population lived on less than $2/day. Distribution chains of big FMCG companies didnt extend beyond wholesalers located in small towns that had a population of 100,000. HUL started Project Shakti in 2001 to strengthen its rural presence. It was a great success. ITC launched e-chaupal in 2000 to leverage on its agri-commodity business. Farmers were benefitted

WHAT IS NOTABLE ABOUT INDIAN CONTEXT

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ITC echaupal:Its Impact/Results On the Rural India Wide reach: The project has come a long way since its inception, and is today recognized as
Indiaslargest Internet-based initiative, covering 1,300 choupals, linking 7,500 villages, and serving almost 1million farmers. e-choupal has also established its presence in other states, such as Uttar Pradesh,Andhra Pradesh, and Karnataka. ITC, which exports US$140 million worth of agricultural commodities, sourced US$15 million worth of commodities from e-choupals in 2001.

Convenience for farmers: Web-enabled, real-time data on crop prices gives farmers an accurate picture of the prices they can expect from ITC and from different mandis. This information enables them to become informed decision-makers and thereby sell their produce at a price that gives them a higher profit margin. With the participation of agricultural supplies companies in ecommerce, the farmers now can also conveniently order agricultural inputs

Employment for villagers: The intermediaries are not removed from the value chain. Instead, their roles are redefined to samayojaks (coordinators), who assist ITC in setting up new e-choupals.

After economic reforms , initiatives like e-chaupal has made farmers more informed and empowered in India

Q :OPPORTUNITIES AND CHALLENGES PRESENTED BY INDIAS RURAL MARKET Opportunities

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Low penetration level of FMCG products :The rural Indian population is large and its growth rate is also high. The FMCG sector in the urban areas Is becoming quite saturated (though it will continue to dominate in the next 8 10 years) while the penetration in the rural areas are only about 1%. The rural areas have and will continue to make up morethan 50% (153 million) of Indias total households and accounting for more than its current 66%contribution to total FMCG consumption Huge consumer Base:Indias 70% population lives in rural area. This implicates that Indias large consumer base is located in rural sector. So there is great potential for FMCG companies to set us and expand ,

Imminent Growth: Due to economic growth the purchasing capacity of consumer has grown immencely.The market has grown 3-4% per annum.The consumer of FMCG is increasing steadily and in particular the rural sector . Effective communication: A rural consumer is brand loyal and understands symbols better. The rural audience has matured enough to understand the communication developed for the urban markets, especially with reference to FMCG products. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements. Advertisements touching the emotions of the rural folks could drive a quantum jump in sales

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CHALLENGES:

Rural Consumer is different There is a vast difference in the lifestyles of the rural and urban consumers. The rural Indian consumer is economically, socially, and psycho graphically different from his urban counterpart. The kind of choices that an urban consumer makes is very different from the choices available to their rural counterparts. The behavior of rural consumer stems from fairly simple thought process in contrast to a much more complex one of urban counterpart.

Lack of market data to understand consumer behavior::

Urban Indians and those living in small towns have been the target consumers for big FMCG companies so far. Therefore, there has hardly been any research into the consumer behavior of the rural areas, whereas there is considerable amount of data on the urban consumers regarding things such as - who is the influencer, who is the buyer, how do they go and buy, how much money do they spend on their purchases, etc. Dispersed population in village: One of the greatest challenge is the spread of rural population in large areas of villages ,which puts a hurdle for marketers' in order to target, segment and positioning of their products. The population is dispersed to such an extent that 90% of population is concentrated in villages with population > 2000 . Influence of Retailers :Rural consumers trust and choices of Brand is limited ,so Retailers is a big influencer here. As consumer goes to the same nearby retailer for the purchase. This leads to strong trust between the two. Also the factor of rural consumer being less educated ,they perceive the value of goods by connecting it to the outcome. In such scenario Retailer has great influence in selection of brand, Supply Chain Management: Due to poor infrastructure and connectivity ,large % of villages are not connected and supplied the best of products and brands. Distribution becomes a big hurdle in such condition ,that is the reason why villages cant have all marketers products.

Q :EVALUATE ITCS STRATEGY

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ITC in Rural India

FOR THE RURAL MARKET.

HOW DOES IT COMPARE

WITH

HULS STRATEGY

Imperial Tobacco Company (ITC), a FMCG major and along with Hindustan Unilever, one of the two leaders of FMCG market in India, was poised to expand rapidly in Rural India, in2007.Although, it already held a major advantage in rural India market, but with the influx of MNCs like WalMart, the scenario would rapidly change if steps were not taken to consolidate the market. Before, we analyze the rural markets and how both, ITC and HUL have built their strategy for the rural markets, we will look at some facts concerning India.

About 70% on Indians live in 638,000 villages. Out of these, 88% people had income of less than $2 per day.
Rural transportation and communication is limited. Concerned about poverty alleviation, government announced a rural jobs program to life 60 million people out of poverty In 2004, the rural voters voted out the incumbents as they felt that economic growth was disproportionate and benefited the urban areas. NGOs of various kinds provide assistance to the poor and the voiceless. India is emerging as a strong economic market, growth averaging 8.4% between2003 and 2006. FDI also rose to $8.3 billion during that time. Government of India restricted FDI. It allowed wholly owned FDI in export oriented trading companies. In 2006 it started granting approvals for 51% FII in retail sector with some constraints like the company should engage in single brand trading etc. Despite widespread poverty in rural areas, for some products rural demand exceeded urban demand. In 2005, 56% demand for Fast Moving Consumer Goods(FMCG).FMCG accounted for 80% of all Indian consumers spending. Business was mainly concentrated in the informal sector or unorganized sector comprising of small cottage farms and had many exemptions which were applicable to larger farms in organized sector. Retail sales were primarily concentrated in small, family owned stores. 2000 organized sector stepped in and had 3% of the market. Most of products bought by rural customers were manufactured, distributed and sold by the informal sector. Large companies distribution was limited to wholesaler

Q :EVALUATE ITCS STRATEGY 1/2

FOR THE RURAL MARKET.

HOW DOES IT COMPARE

WITH

HULS STRATEGY

HUL
HUL always believes in customer friendly products with major emphasis on low cost overall without compromising on the quality of the product.They are leveraging the capabilities and scale of the parent company and focusing on the value of execution.The entire product portfolio is also being tweaked to include premium offerings such as Ponds Age Miracle and dove shampoo in skin and hair care. ITC is focusing on delivering value at competitive prices. Its tremendous reach through extensive distribution chain has been a competitive advantage. Additionally, the company's e-choupal model for direct procurement is well known under which ITC partners with over 100,000 farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of rural pedigree is hard to beat Growth Drivers

ITC
The Company has been launching new products and brand extensions, with investments being made towards brand-building and increasing its market share. HUL is also streamlining its various business operations, in line with the One Unilever philosophy adopted by the Unilever group worldwide. Introduction of premium products and addition of new consumers via market expansion will be HULs growth drivers. ITCs backward integration to ensure that its products pass efficiently from the farms to consumers has helped it to cut down supply and procurement costs. ITCs non-cigarette FMCG business leverages the large distribution network the company has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of investments in its new sectors, will be instrumental in charting ITCs growth path.

Conclusion
HULs up-and-running business model is a treat for investors seeking exposure in the FMCG segment. The company has delivered in the past and has the potential to do better in future. In the small and medium term. ITCs growth story is still evolving. ITC is eyeing the pie which HUL and other FMCG players currently enjoy. Though risky, the companies business model will pay off in the long run. ITC has proved its expertise in the cigarettes, hotels, paper and agri-businesses. Investors who want to bank on its execution ability in FMCG can consider the stock with a long-term horizon.

Q :WHAT

DO YOU THINK OF

OF SAAGARS TO

100

BY

ITCS 2010

STRATEGY TO EXPAND THE NETWORK

ITC employees impart operational knowledge of computer and Internet to him so that he can perform his task efficiently and effectively.

Sanchalak works as the aggregator for the produce of small farmers which is to be sold to ITC and also aggregates the input orders of farmers to be directly placed with the manufacturers.

Q :WHAT

IS THE EFFECT ON STAKEHOLDERS AT THE

BOP

The people at the BOP may be served by falling back on the Bottom of the Pyramid (BOP) marketing strategies and the 4 As Availability, Affordability, Acceptability and Awareness. The BOP marketing strategies basically talk about aggregating the demand of consumers who have low individual purchasing power and are spread out. The basic commercial model for the bottom of the pyramid markets constitutes of four things namely, creating buying power, improving access tailoring local solutions and, shaping aspirations. The 4 As model is explained in the context of ITC:
Availability

Acceptabili ty

Affordabilit y

Awareness

Availability: The first A is about making the product reach the consumers and the biggest barrier was overcome when a system for trading came into existence through e-chaupal. Acceptability It includes issues needed to be addressed to improve the willingness to consume, distribute or sell a product. In order to ensure how the product or service could be made more acceptable to the rural consumers, Sanchalaks were appointed. These sanchalaks are chosen among the villagers and this helps

Q :WHAT IS THE EFFECT ON STAKEHOLDERS AT THE BOP

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Affordability :The product should be affordable to buy.The rural consumer is less educated so the products bringing in should be targeted .The points under consideration should be like :price point,labelling,size of SKU,color.For the rural consumer cost per use is more important than cost of the overall product. Awareness: It is all about promotions of the product.The promotions should be able to target villages with kind of language and approach.The best places to promote is through melas,haats and local plays.