In process of understanding and reaching the scattered rural markets of India, FMCG majors HUL and ITC have formed a strong rural distribution network over the years. These networks reach out to the billion dollar consumer market which companies from various sectors aim to connect with. Hence, companies across sectors such as telecom, pharmaceuticals, banking and even cosmetics are queuing up to join forces with FMCG firms to leverage the entrenched network.
Pharmaceutical giants Ranbaxy and Pfizer recently tied up with the FMCG Company, ITC in order to distribute their over the counter (OTC) products across 6,500 e-Choupal centres spread across 40,000 villages. The e-Choupal initiative by ITC is by far one of the most successful initiatives in empowering the rural farmers thus building a healthy rural network across 40,000 villages in 9 states. The initiative currently empowers 4 million farmers while the number is growing fast. The alliance will open windows for the less equipped consumers in rural areas and provide them with better medical and healthcare products currently available only in urban cities and towns.
As corporate partnerships to push rural growth are on a upswing, the recent Reserve Bank of India (RBI) decision to allow “for profit” companies to be business correspondents of banks has encouraged such tie-ups. For instance, in a step to promote financial inclusion, SBI bank has tied up with HUL. HUL’s ‘Shakti Ammas’ network, the self-help groups that distribute the company’s products in remote villages with a population of 2,000 and less, will now be opening SBI bank accounts for people. The alliance will ensure that the rural folks not only get access to capital, but also generate savings. While multiple banks can use a company as a business correspondent, more than one bank cannot be in the same village. Hence, the wide spread network of consumer product companies is the most effective way to gain access to scattered rural market of India.
The Hindustan Unilever (HUL) board also recently announced its strategic alliance with Tata Teleservices for distribution of latter’s telecom products by leveraging company’s distribution network in rural markets in India.
“Creating a distribution network from scratch is a costly affair and hence arrangements with FMCG players are a win-win for both parties as network costs are shared. However, companies leveraging the FMCG’s network will be successful only if they come up with a differential pricing mechanisms, keeping in mind the sensitivity of the market,” said Mr Ranjit Kapadia, senior vice-president of Centrum Broking.
Nonetheless, such tie-ups will induce further consumer brand engagements giving further exposure to the rural folks and also make them aware of various products and services available in the market.