"Our partnership with Hul offers the rural entrepreneur a profitable firm model while operating i-Shakti kiosks. Also, low cost delivery and customized products will ensue in higher advantage through enhanced economic gains for the rural consumers."
~ Mr. Nachiket More
The Food Pyramid
Executive Director, Wholesale Banking Group
Icici
"There's thinkable, inherent in rural markets. That's where the growth will come from."
~ Sharat Dhall, Hindustan Lever's director of new ventures and marketing services
Sankaramma, the leader of the local Kanaka Durga self-help Group (Shg) belongs to K. Thimmapuram village's Muddaner Mandal in the Kadapa district of Andhra Pradesh. The hamlet has 350 households with a total people of 1200. Sankaramma's 5 hectares of agricultural land was not adequate for six member family due to severe drought in the region. She started a firm in April 2003 with the Hindustan Unilever Ltd. By 2005, she had a quarterly monthly turnover of Rs.10,000 per month. Initially she sold door to door, but thereafter the customers started visiting her home for products. She sees task Shakti as a mean for the intriguing futures of her children. task Shakti also enabled her to provide mid-day meals at the primary school in her village. Today, Sankaramma has come to be a key amelioration outline in her village.
Usha Sarvatai, a mother of 2, traveled 32 km daily to work. Her husband's revenue was not adequate for the two children and their old parents. But the long length and the odd timings of the job forced Usha to quit the job. Then she got a call from the Government dept. To attend a meeting, convened by task Shakti. Usha became a Shakti Amma and started a new venture. In a short span the good relationships she industrialized with the villagers helped her do good business. She says, "I am happy fulfilling my family's requirements and people give me a lot of respect today." And she is now very eager to grow her firm in the years to come.
The list does not end here. Hindustan Lever Ltd., a subsidiary of Unilever is counting on thousands of women like Sankaramma and Usha Sarvatai to sell its products to the rural consumers it couldn't reach before. By 2005, nearby 13,000 poor women were selling the company's products in 50,000 villages in India's 12 states and contributed for 15% of the company's rural sales in those states . The women typically earned between and per month , often doubling their household revenue which was used to educate their children. Overall, nearby 30% of Hindustan Lever's revenue came from the rural markets in India
Started in the late 2000, task Shakti had enabled Hindustan Lever to access 80,000 of India's 638,000 villages . Hindustan Lever's director of new ventures proudly expressed, "At the end of the day, we're in business. But if by doing firm we can do something positive, it's a great win-win model." Hindustan Lever was not the only firm recognizing the vast marketing inherent in rural India. With the saturation of urban market, the fellowships started reengineering their businesses and products to target rural consumers who are poor but are rich in aspirations fueled by the media and other forces.
Unilever in India: firm and Growth
Unilever was the world's largest Fast intriguing buyer Goods (Fmcg) firm with a worldwide revenue of billion in 2005 . It's Indian subsidiary, the Hindustan Unilever dinky (Hul) was the country's largest Fmcg firm with combined volumes of about 4 million tonnes and revenues near about .43 billion . Hul's major brands included Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall's etc. These were manufactured over 40 factories over the country .
In 1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing firm . Thereafter the Lever Brothers India dinky and United Traders dinky were established in 1933 and 1935 respectively. In November 1956, these three fellowships merged and form Hul. Unilever's share in Hul was 51.55% in 2005 and the remaining of the shareholding was distributed among about 380,000 individual shareholders and financial institutions. A foray of acquisitions followed thereafter . In 1984, the Brooke Bond joined the Unilever fold. Lipton was acquired in 1972 and Ponds in 1986 . Hul was following a growth strategy of diversification all the time in line with Indian opinions and aspirations.
The economic and political amelioration in the 1990s had marked an inflexion in Hul's and the Group's growth curve. Economic liberalization permitted the firm to observe every singular stock and opportunity segment, without any constraints on output capacity. On the other hand, deregulation allowed alliances, mergers and acquisitions. In 1993, Hul merged with the Tata Oil Mills firm (Tomco) 1993 . In 1995, Hul formed a 50:50 joint investment with another Tata company, Lakme dinky .
The firm had also made a string of mergers, acquisitions and alliances in the Foods and Beverages sector. Some of these were the acquisition of Kothari normal Foods (1992), Kissan (1993), Dollops Icecream firm from Cadbury India (1993), modern Foods (2002), Cooked Shrimp and Pasteurised Crabmeat firm of the Amalgam Group of fellowships (2003) .
With 12.2% of the world people residing in the villages of India, the country's rural Fmcg market had a huge inherent . The Indian Fmcg sector was the fourth largest sector in the economy with a market size of .1 billion . The sector was thinkable, to grow by over 60% by 2010. In 2005-2006 the urban India accounted for 66% of total Fmcg consumption, with rural India accounting for the remaining 34% . However, rural India accounted for more than 40% consumption in major Fmcg categories such as personal care, fabric care, and hot beverages . The Bid Fmcg fellowships such as Hll, Nirma and Itc joined the foray to tap the huge potential.
In the 1990s, a local Indian firm, Nirma Ltd. Started providing detergents to the rural poor at the lowest cost. The firm had created a firm law with a new stock formulation, low-cost manufacturing, wide distribution channel, special containers and value pricing. After a decade, Nirma became one of the largest branded detergent makers with a 38% market share and 121% return on its capital employed .
In 2002, Itc set up a network of internet-based kiosks, e-choupals, to help the farmers in their procurement process. The initiative began with the soya growers in Madhya Pradesh and then expanded to cotton, tobacco, shrimp etc. Beginning with six e-choupals in June 2000, Itc's Internet-based, rural initiative had connected 6,000 Indian villages with nearby 1,200 e-choupals by 2002. The setting up of each e-choupal entails an investment of Rs 1-3 lakh .The objectives behind e-choupals was to allow singular place procurement and buy point, allowing farmers to sell their products directly to Itc on the basis of updated current prices prevailing in the market. This eliminated middlemen and thus helped Itc to cut its costs.
In 2007, nearby 34% of the Fmcg products sales came from rural areas . The number of households that used Fmcg products in rural India had grown from 13.6 crore in 2004 to 14.3 crore in 2007 . This growth was achieved on an average 1.8% year-on-year growth in the number of households, which use at least one Fmcg product. However, the growth in penetration level for the entire Fmcg products was not same. Agreeing to one study by a market investigate firm Imrb, the monthly consumption of detergents and toilet soaps remained largely stagnant with a 92% penetration, but that of liquid shampoos grew from 68% in 2004 to 83% in 2007 . These figures revealed a shift towards higher-value products among the rural market, from toothpowder to toothpaste or from unbranded to branded products. Agreeing to the senior task director of Imrb International, Manoj K Menon, "One of the most indispensable changes, includes growing preference towards branded products. For example, in the food and beverages segment, penetration of branded atta has gone up year-on-year by 8 per cent and branded salt by 3 per cent. The penetration of unbranded atta has decreased by 1 per cent and salt by 3 per cent."
The Hll Marketing Effort: Transition to Rural Market
Hul's competitive advantage generated from three sources. First it's strong well established brands, second, its local manufacturing capacity and provide chain and third its vast sales and distribution system. It was soon felt that Hul's sales and distribution law which had protected it from competitors would be soon replicated by its rivals and to contend its edge, the firm had to growth its reach beyond the urban markets. So far the operations of Hul included more than 2,000 suppliers and associates. The distribution network, consisted of 4,000 stockists, exterior 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers .
Typically, the goods produced in each of the Hul's 40 factories were sent to a depot with the help of a carrying and forwarding agent (Cfa). The firm had its depot in every state of the country. The Cfa was a third party and got servicing fee for stock and delivery of the products. In each town, there was a redistribution stockist (Rs) who took the goods from the Cfa and sell them to retail outlets. By the late 1990s, the Hul management realized safe bet problems with the existing sales model. First, the model was not viable for small towns with small people and small business. Hul found it high-priced to appoint one stockist exclusively for each town. Secondly, the retail revolution in the country changes the pattern the customers shop. Large retail self aid shops were established. In the response of these problems, Hul redesigned its sales and distribution channel and the new law was known as 'diamond model' in the company. At the top end of the diamond, there were the self aid retail stores which constituted 10% of the total Fmcg market. The middle, fatter part of the brilliant represented the profit-center based sales team. In the lowest of the pyramid was the rural marketing and distribution which accounted for 20% of the firm .
Almost three-fourth of the total 1.2 billion Indian people resided in the rural areas and majority of them had a very low per capita revenue (around 44% of that of urban India) . Urban market had reached the saturation point, thus changing focus on rural India. In comparison to just 5,161 towns in India there are 6,38,365 villages in India [Exhibit I]. Moreover, more than 70% of India's people lived in villages and made a big market for the Fmcg industry because of addition disposal incomes and awareness level.
Exhibit I
Distribution of Villages in India
Source: Kash Rangan, Sehgal Dalip et. Al., "Global Poverty: firm Approaches and Solutions", http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf
When Hll shifted to the rural India, it faced many problems. In discrepancy with a low per capita revenue comparative to the urban citizens, there were some areas with adequate money but their awareness level and consumerism was very low. Secondly, rural Fmcg examine was depended upon agricultural situation which was again depended upon monsoon. Transportation was also a major hindrance. Many of the rural areas were not connected by rail transport. The Kacha roads were unserviceable while the monsoon and interior villages get isolated. Also transportation, there was a qoute of distribution and Transportation facilities such as telephone, fax and internet. Moreover, the lives in rural areas were still governed by ethnicity and traditions and people did not naturally get used to new practices. For example, even rich and educated class of farmers does not wear jeans or branded shoes. The buying decisions in villages were slow and delayed. They wanted to give a trial and buy only after being satisfied. And, finally the poor illiterate villagers viewed perceive more prominent than formal schooling and they valued sales people who could provide practical solutions to their problems.
Hll approached the rural market with two criteria - the accessibility and viability [Exhibit Ii]. nearby 40% of the accessible rural market had high firm potential. To aid this segment, Hll appointed a tasteless stockist who was responsible for all outlets and all firm within his singular town. In the 25% of the accessible markets with low firm potential, Hll assigned a retail stokist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. This enables Hll to sway the retailers stocks and quantities sold through prestige prolongation and trade discounts. Hll launched this Indirect coverage (Idc) in 1960s.
To cater the needs of the inaccessible market with high firm inherent Hll initiated a Streamline initiative in 1997. Hll appointed rural distributors and Star Sellers. The star seeder purchased goods from rural distributors and distributed them to retailers in small villages using the local mean of transport. In this way nearby 35% of the inaccessible rural market came under the operate of Hll. But a still untapped market - the inaccessible but low firm inherent market was left outside. The size of this untapped market was estimated to be nearby 500,000 villages with a people over 500 million . At this stage, task Shakti was conceived.
Exhibit Ii
Hll's coming to Rural Market
Low firm Potential High firm Potential
Accessible Markets Indirect Coverage (25%) Direct Coverage (40%)
Inaccessible Markets Space for Shakti Streamline (35%)
Source: V. Kasturi Rangan Rohithari Rajan, "Unilever in India: Hindustan Lever's task Shakti--Marketing Fmcg to the Rural", http://www.caseplace.org/d.asp?d=244 - 27k
Project Shakti
Hll soon realized that although it was enjoying a greater penetration in the rural market when compared with its competitor such as Nirma and Itc, its direct reach was restricted to only 16% . The Fmcg giant was desperate to growth this share. Hul saw its dream fulfillment in the vast Indian rural market. The firm was already engaged in rural amelioration with the commence of the Integrated Rural amelioration Programme in 1976 in the Etah district of Uttar Pradesh. This schedule was in tandem with Hul's dairy operations and covered 500 villages in Etah. Subsequently, the firm introduced similar programs in adjacent villages. These activities generally aimed at training farmers, animal husbandry, generating alternative income, condition & hygiene and infrastructure development. The main issue in rural amelioration was to create income-generating prospects for the poor villagers. Such initiatives, connected with the company's core business, became victorious and sustainable and proved to be mutually useful to both the firm ant its rural customers. However, much remained to be done. task Shakti was conceived.
Following the pioneering work carried out by Grameen Bank of Bangladesh , Self Help Groups (Shgs) of rural women were formed by any institutions, Ngos and government bodies in villages over India. This group of usually 15 members contributed a small number of money to a tasteless pool and then offered a micro-credit to a member of the group to invest in a commonly popular ,favorite economic activity. Partnering with these Shgs, Hll started its task Shakti in Nalgonda district of Andhra Pradesh in 50 villages in the year 2000. The group side of the task Shakti was that it was aimed to create income-generating capabilities for underprivileged rural women, by providing a sustainable micro firm opportunity, and to heighten rural living standards through condition and hygiene awareness. Most Shg women viewed task Shakti as a powerful firm proposition and are keen participants in it. There after it was extended in other states with the total strength of over 40,000 Shakti Entrepreneurs.
Hll offered a wide range of products to the Shgs, which were relevant to rural customers. Hul invested significantly in resources who work with the women on the field and provide them with on-the-job training and support. Hul provided the indispensable training to these groups on the basics of firm management, which the women need to carry on their enterprises. For the Shg women, this translated into a much-needed, sustainable revenue contributing towards best living and prosperity. Armed with micro-credit, women from Shgs come to be direct-to-home distributors in rural markets [Exhibit Iii].
Exhibit Iii
Structure of Hll's market Reach in India
Source: Kash Rangan, Sehgal Dalip et. Al., "Global Poverty: firm Approaches and Solutions", http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf
Shakti: How it works
In general, a member from a Shg was premium as a Shakti entrepreneur, commonly referred as 'Shakti Amma' received stocks from the Hll rural distributor. After trained by the company, the Shakti entrepreneur then sold those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually serviced 6-10 villages in the people strata of 1,000-2,000 people with 4-5 major brands of Hll - Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. Apart from these, other brands included Lux, Ponds, Nihar and 3 Roses tea. The Shakti entrepreneurs were given Hll products on a `cash and carry basis.' However, the local self-help groups or banks provided them micro prestige wherever required. Agreeing to Dalip Sehgal, administrative Director, New Ventures & Marketing Services, Hll task Shakti was adding up to 15% of Hll sales in rural Andhra Pradesh. He further asserted that given the largeness of the country and backwardness of its women, task Shakti-like exertion would place everyone in a win-win situation.
I-Shakti: Crossing the Border
Encouraged by the goodwill and success of task Shakti, in August 2003, Hll launched an Internet-based rural data service, called I-Shakti, in Andhra Pradesh, in connection with the Andhra Pradesh Government's Rajiv Internet hamlet Programme. I-Shakti was an It-based rural data aid to provide vital data to the rural people in fields like agriculture, education, vocational training, health, hygiene and the like [Exhibit Iv]. The objective behind the i-Shakti model was to give need based examine driven data and services in the villages.
The i-Shakti kiosk was operated by the Shakti Entrepreneur. This was thinkable, to enlarge their connection with their customers. Hul thinkable, that this would heighten the productivity of the rural society and unlock economic and group progress.
Exhibit Iv
A snapshot of the 'i-Shakti' website
Source: "Hul Shakti-Changing lives in rural India.", http://www.hllshakti.com/sbcms/temp1.asp?pid=46802256 - 41k
I-Shakti was based on an interactive conference technology industrialized & patented by the Unilever Corporate investigate Team, U.K. The law enabled an in-depth insight of each user needs and thereby improved the quality of services offered to them. The Aponline , had tied up with i-Shakti to commence various services. Moreover, through i-shakti, the Icici Bank and Hul jointly provided various financial products and services such as life and normal insurance, investment products (Equity, Mutual Funds, Bonds), Icici Bank Pure Gold (gold coins), Personal Credit, Rural Savings Accounts and Remittances to the rural customer.
Redefinition Rural Distribution: Changing Lives
Having victorious in Nalgonda, in 2003 Hll planned to broaden Shakti to a 100 districts in Madhya Pradesh, Gujarat and Up. There were other plans such as to allow other fellowships (except Hll's competitors) such as Nippo, Tvs Motor for mopeds, insurance fellowships for Lic policies to get onto the Shakti network to sell their stocks. Sehgal was looking proud when he announced, "We wanted to first stabilise the task before we can look at other companies. It requires somebody with scale and size to build a platform and then ask other fellowships onto this platform." He further emphasized that Shakti was creating a win-win partnership between Hll and its consumers.
There were about 4.36 lakh women Shgs in Ap with approximately 58.29 lakh poor women. Ap alone had about half of the Shgs of the country. By 2005 the Shgs had mobolised Rs 1500 crore had mobilised as corpus. The rural women organised themselves into `thrift and credit' groups with a rescue of Re.1 a day which created a fund of more than Rs 800 crore. While the savings was there among the Shgs, there was no channel of investment. Hll tapped this huge overlooked network to commence task Shakti. Hll has able tp provide a window of anticipation to invest and earn.
The impact of Hll was not all of a sudden. Hll witnessed 15% incremental sales from the villages of Ap, which accounted 50% of the total sales of Hll products in Ap. market analysts were perceiving a huge inherent in the rural foray of Hll. Nikhil Vora, Sr. Vice President of investigate group Ask Raymond James believed that if there was one firm that could take on the onus of developing the rural markets, it was Hll. He further continued, "Hll contributes 20 per cent of the total Fmcg firm in the country. So, clearly, the onus is on Hll to grow the market. Returns may not happen in the next five years, but a lot of buyer insight and insights comes from an practice like task Shakti, which in turn can lead to stock innovation."
Hll acknowledged that for task Shakti to be victorious for the company's rural penetration, dealers and communicators must be well trained. It was unclear how dealers would achieve in an expanded infrastructure. Although Hll's rural initiatives incurred huge costs to the company, it was thinkable, that with the monsoon revival and greater rural incomes could decline the payback period for projects like Shakti. Moreover, the decreasing brand loyalty among urban consumers rural market had come to be an imperative. Agreeing to the Concurs K.N. Siva Subramanian, Sr. Vice President, Franklin Templeton India Ltd, "The (Hll) management had recognized the impending saturation of the urban markets some time back and launched aggressive plans to capture the rural markets. However, a slowdown in the agricultural sector resulted in rural incomes remaining flat and affecting sales. We believe that by targeting lower price points and further addition the distribution network, fellowships can tap the inherent of rural markets. Initiatives like task Shakti will help them in establishing and consolidating their base in rural markets."
Hll would have to determine either task Shakti could be repeatable in other countries. The Indian family buildings and hamlet interaction provide a unique diffusion mechanism that is an sufficient car for Shakti. either this model could be successfully implemented in other countries must be further explored. Moreover, it need to find out either the task Shakti or e-choupal like initiatives could be increased. There was no doubt that the regional brands, or even larger Fmcg companies, did not have the kind of distribution reach that Hll had established and in the long run, that could prove a winner for Hll.
project Shakti - A Win Win Situation
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