Topics to be covered

⚫ Distribution strategy : Accessing Rural Markets,

Coverage Status in Rural markets, Channels of
Distribution, Evolution of Rural distribution Systems –
Wholesaling, Rural Retail System, vans, Rural Mobile
Traders – The last mile distribution, Haats/Shandies,
Public Distribution System
⚫ Co-operative societies behavior of the channel, Prevalent
Rural Distribution Models – Distribution Models of
FMCG Companies, distribution model of Durable
companies, Distribution of fake products, Emerging
Distribution Models – Corporate-SHG Linkage, Satellite
Distribution, Syndicated distribution, ITC’s Distribution
Model, Petrol Pumps and extension counters, barefoot
agents, Agricultural agents, Agricultural input dealers,
Other channels, ideal distribution model for Rural

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 Challenges in rural Distribution
⚫ Large number of small markets
⚫ Dispersed population and trade
⚫ Poor road connectivity
⚫ Multiple tiers
⚫ Poor availability of suitable dealers
⚫ Low density of shops per village
⚫ Inadequate banks and credit facilities
⚫ Poor storage system
⚫ Low investment capacity of retailers
⚫ Poor visibility and display of products on rural shop
shelves.
⚫ Poor communication of offers

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 Distribution Strategy
⚫ Ensuring Reach & Visibility
⚫ Reaching upto Mandis, Towns, Semiurban centres
⚫ Targetting larger villages.
⚫ Understanding of Peak seasons
⚫ Delivery vans
⚫ Collaboration for Distribution
. For eg. P&G had tie-ups with Godrej.
⚫ Converting unorganised sector manufacturers into
distributors
⚫ Company’s own Distribution Network – Project Shakti
of HUL is one such example.
 Distribution Channels in Rural India
⚫ Use of cooperative societiesFor eg. Farmers
Service Co-operative Societies function like a mini
super market for rural consumers where they sell
soaps, detergents, cloth, seeds, fertilizers, pesticides
etc. at economical and reasonable prices. Since these
societies have necessary infrastructure for storage
and distribution, companies may contact these
societies to sell their products.

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⚫ Use of Public Distribution System – In India,
the Public Distribution System is well organized.
There are about 4.37 lakh fair price shops operating
in the country.

⚫ Utilization of Petrol Pumps – These

pumps, in addition to petrol/diesel, oil petrol
lubricants are also selling consumables and
soaps, detergents, biscuits etc, particularly on the
highways. These bunks may also suchthink of stocking
certain consumable agricultural inputs like
fertilizers, seeds and pesticides.
as
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⚫ Agricultural input dealers – There are about
2,62,000 fertilizer dealers in the country.

⚫ Shandies/ Haats/ Jathras/ Melas

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 Accessing Rural markets : Coverage Status in
Rural Markets
⚫ Marketers have to ensure the reach of their product
to retail outlets, and they also need to motivate
retailers to stock their product or brand.
⚫ 50% of the rural population resides in the 1 lakh odd
large villages. These villages are connected by all-
weather roads and they account for 60% of rural
wealth.
⚫ At the other end are 2.3 lakh tiny villages, which
have hardly any shops.
⚫ HUL, Eveready, ITC etc are the companies that have
the most deeply penetrated rural distribution system
just about cover the retail network up to the 2000+
population villages.
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 Rural distribution Channels
Five layers of distribution channels for the movement
of products from the company depot to the interior
village markets.
Layer Channel partner Location

Layer 1 Company depot / C&F A National/state level

Layer 2 Distributor/van operator/ District level

super stockist/ rural
distributor
Layer 3 Sub-distributor/ retail towns and large villages
stockist/ sub-stockist/ star
seller / Shakti dealer
Layer 4 Wholesaler Feeder towns, large
villages, haats
Layer 5 Retailer Villages, haats
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 Channels of Distribution
FMCG Durables PDS- Fake Goods Cement Bulbs &
Governme Tubes
nt
Company Company Food Manufacturer Company Company
manufacturi manufactu Corporation s manufact Manufactur
ng plant ring plant of India uring ing plant
plant
Company Wholesaler Depot
Depot (city)
C&F A C&F A Zonal Wholesaler C&F A
Offices (small town)
Distributor District Distributo Distributor
office r
Sub stockist Depot
Retail Exclusive Fair Price Retailers Outlets Exclusive
outlets dealers/ Shop (village haats, dealer/
dealers mobile retail
traders outlets
Chottnpss:/u/ oCk.oconms/ nkCporenttystuhimer
Consumer Consumer Consumer
 Evolution of Rural Distribution Systems
⚫ Historically, the rural distribution system has
included wholesalers, retailers, mobile traders, vans
and weekly haats.
⚫ In the feeder markets, retailers act as wholesalers
and vice versa to sell to small retailers who come
from surrounding villages.
⚫ Some town retailers send their salesmen to villages
to book orders and supply goods to these small
retailers.

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 Wholesaling
⚫ 50% of rural consumption is still routed through
wholesalers because they are located in nearby feeder
markets, which are frequented by village retailers to
replenish stocks.
⚫ Indian wholesaler is a trader rather than a distributor
and therefore tends to support a brand during periods of
boom and withdraws support during periods of slump.
⚫ Rural markets were neglected by most companies due to
the low density of retail outlets and the small off-take per
retailer. Wholesalers based in feeder towns took
advantage of this situation as village retailers found it
convenient to buy from these places. This resulted in the
hold of the market by these wholesalers, who often
indulged in trade malpractices in the channel.
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 Rural Retail System
⚫ Rural India accounts for 65% of retail outlets in the
country. The logistics of feeding the 35 lakh retail outlets
spread over 6 lakh villages is a tough task.
⚫ The high distribution costs due to geographical spread
and low volumes per outlet act as a barrier to the entry of
products in rural markets.
⚫ The average monthly sale per village shop is less than Rs.
5000, which restricts the variety and range of the
products stocked.
⚫ Since a significant portion of the sale is on credit, it puts
most village shops in a self-limiting sales cycle.
⚫ Despite the same product being available in the village
shop, 58% of villagers prefer to buy these from a haat
because of better price, quality and variety.
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 Stock Turnover
⚫ Average value of stock per product category in interior
villages is about a third of that in feeder villages.
⚫ Off-take of packaged food stuff and tobacco is higher in
interior villages, whereas toiletries have a higher take-off
in feeder villages in comparison to other products.
⚫ The cash outlay of rural retail outlets is extremely low
and most of it is invested in fast moving brands and high
margin commodities.
⚫ The low off-take, low stocks and lower stock turnover
ratio together pose a challenge to the marketer of a new
product that how to occupy retail shelf space in rural
markets.
⚫ Rural retail shelf space can be occupied by offering
consumers a combination of attractive margins, credit
facility and servicing that is superior to that offered by
the competition.
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 Rural retail Shelves
⚫ Unlike urban retail shelves, rural retail shelves are
flooded with local and regional brands as these
promise the retailer higher margins and longer credit
periods.
⚫ The number of product categories stocked by rural
and urban stores does not vary significantly. But
what does vary is the number of companies/brands.
This difference in stocking pattern is because of poor
reach and difficulty in servicing stores.

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⚫ The first task is making brands available, but
simultaneously marketers also need to make efforts to
ensure their visibility on rural retail shelves. Products are
stocked in a cluttered and disorganized way.
⚫ Slow-moving products covered with dust accumulated
over a period of time are a common sight. The visibility
of brands is very poor due to the absence of proper racks
and display boxes and stands.
⚫ Brands that are advantageous to the retailer’s business
are displayed prominently.
⚫ Therefore marketers need to devise strategies to occupy
rural retail shelf space by providing display and storage
systems. (wall mounted display strips for fairness creams
and ice boxes for soft drinks.)

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 Vans
⚫ Mobile vans have an important place in the distribution
and promotion of products in villages.
⚫ In this system, the salesman loads the van with stocks
from the nearest stockist or company stock point and
works the surrounding markets.
⚫ Once he has covered all such markets, he moves to the
next stock point and starts covering the villages
surrounding that stock point.
⚫ Eveready batteries and torches are market leaders. It
established an extensive distribution network that
includes 1000 vans, 4000+ distributors and 44
warehouses. These vans reach 6 lakh retail outlets
directly, each van making 50 to 60 calls per day. The
company ensures that the van revisits a retailer every 15
days. The stock for these vans is supplied by the small
town distributors.
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Rural Mobile Traders – The Last-Mile distribution
⚫ Mobile trading is an age-old, direct to home, unorganized
distribution system in rural India.
⚫ Sell a variety of daily-need products, mostly local brands
ranging from detergent, cosmetics, and personal care
products to garments and footwear.
⚫ They carry their product on bicycles, mopeds, handcarts
or on foot.
⚫ Mobile traders have a deep reach since they target small
villages to avoid competitions from shops in bigger
villages. Their direct selling approach ensures high
involvement on the part of consumers and since they
have a fixed and committed consumer base, mobile
traders enjoy a good rapport with their clients.
⚫ Mostly sell fakes and local brands.
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 Haats / Shandies
⚫ Haats are the periodic markets and the oldest marketing
channel in India.
⚫ These markets provide people an opportunity not only to
purchase consumer goods, but also to sell surplus
agricultural and allied products.
⚫ They provide a first-contact point for villagers with the
market, a means for distributing local products and
exchanging rural surplus, an opportunity for buying daily
necessities as well as farm supplies and equipment and a
place for social, political and cultural contact.
⚫ Each haat caters to the need of a minimum of 10 to a
maximum of 50 villages, drawing around 4000 persons
who come to buy and sell a range of daily necessities and
services.

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 Public Distribution System (PDS)
⚫ PDS is a system of distribution for essential commodities
to a large number of people through a network of FPS
(Fair Price shops, often referred to as ‘ration shops’).
⚫ The commodities are wheat, rice, sugar, edible oil and
kerosene. PDS has been evolved to reach the urban as
well as the rural population in order to protect
consumers from the fluctuating and escalating price
syndrome.
⚫ It has emerged as a major instrument of the
Government’s economic policy aimed at ensuring
availability of food grains to the public at affordable
prices as well as for enhancing food security for the poor.
⚫ PDS with a network of about 4.76 lakh FPS is the largest
distribution network of its type in the world.

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 PDS Network

Orders for
Food Corporation of India
Central procurement
Government
Orders
Commission on
agricultural costs
23 Zonal offices
1. Procurement and prices
2. Storage
3. Transportation
4. Bulk Allocation 173 District offices
Recommends
minimum
support price
1560 Depots

Fair Price Shops

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 Behavior of the Channel
⚫ Credit facilities to customers – In some districts,
credit sales account for as high as 60 to 70% of the total
rural business, while in others it is only 15 to 20%.
Consumers usually have a running account, a part of the
outstanding dues is cleared every month but the final
settlement takes place at the harvest time.
⚫ Pricing by the channel – Sometimes retailers in
interior villages sell at a price higher than the maximum
retail price. They justify doing this on the ground that
they spend time and money to fetch the products from
town wholesalers. A town wholesaler may deliberately
cut the price of a fast-moving brand to increase his
business.
⚫ Reason for stocking a product/brand – Rural
retailers stock a particular item usually because
consumers demand it and to a lesser extent because of
the wholesaler’s push or because a competitor stocks the
item too.
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⚫ Seasonal pattern of stocking – Seasonal pattern is
probably because the main buying season for rural consumers
is during the harvest and retail stocking of toiletries,
cosmetics, ribbons, bangles, clothes, fertilisers, seeds also
follows this pattern.
⚫ Information source and influence – Wholesaler is the
most important source of information and also most
important influence on the retailer.
⚫ Purchase source – Retailers in interior areas are not visited
by agents of distributors; retailers go to the nearby town /
large feeder village once or twice a month to buy their stock.
⚫ Chanel credit – Small retailers and retailers in the interior
villages must buy in cash, while large retailers in feeder
markets are offered credit.
⚫ Purchasing cycles – In high turnover feeder villages, rural
shopkeepers often visit the neighbouring urban wholesale
market for their purchases, sometimes as frequently as three
to four times a week. In other areas, where rural shopkeepers
depend only on counter sales and not on wholesale purchases,
they may buy once a week or once a fortnight.
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 Prevalent Rural Distribution Models

Retail Wholesale
Feeder Towns
Van/ Wholesale and
Sub-stockist Retail

Rural Market

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Rural distribution can broadly be categorized into two models:
Smaller companies adopt the wholesale activation route owing
to a lack of viability, whereas companies with sizeable product
baskets adopt the retail route to reach rural markets.
Van Operation :
⚫ Stockists from nearby urban markets cover four to five rural
markets per day.
⚫ A distance of 60-70 km is covered per day.
⚫ They operate mostly on cash basis as per the
desired frequency.
⚫ They provide better control over distribution.
Sub-stockist Operation
⚫ Gets stock from super stockists appointed in the district.
⚫ Super stockists typically cover 10-15 sub stockists in
the district.
⚫ The sub-stockist covers all the outlets in his rural market like
the regular stockist, by extending credit and services.

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 Distribution Model for FMCG Companies
Distribution Model 1
Company

C&F A

Distributor Distributor
(Rural) (Urban)

Sub- Wholesaler
Wholesaler
distributor

Retailer Retailer
Retailer Retailer (Satellite (Urban)
(Urban)
market)
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 Channel Structure
⚫ In Model 1, rural distribution has been separated from
urban distribution to create a specific focus on the rural
market.
⚫ Coverage area of rural distributors is clearly defined.
Company appoints a sub-distributor under the
distributor to penetrate deeper into rural areas upto the
5000 population villages.
⚫ The RD covers a large area with poor road network and a
low volume per outlet, which would make it unprofitable
for him to cover small locations. The RD services the
wholesale market in his area.
⚫ It has a large number of points appointed in the rural
areas, because the locations are many and scattered.
⚫ Model focuses more on distributors and sub-distributors
rather than the wholesale channel.
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 Distribution Models of FMCG Companies
Distribution Model 2 Company

C&F A/ Depot

Distributor

Wholesaler

Retailer (Local) Retailer

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 Channel Structure
⚫ This is a simpler model compared to DM1. There is no
separate channel for rural distribution.
⚫ This model minimizes distribution costs, allowing the
company to offer better margins to the distributors and
other channel partners who then push the sales of such
products.
⚫ Wholesaler locations work as feeder markets, from where
the company caters to the requirements of nearby
villages, places not covered by the distributor.
⚫ It is mostly companies with a limited number of SKUs
and high sales volume that adopt this model.
⚫ Channel partners are few and the distributor is given a
large territory.

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 Nirma Distribution System

Nirma
(Ahmedabad)

Depot (Hyderabad,
Kolkata, Kanpur)

Direct Distributor (At the

district level)

Sub – distributor / Big wholesalers

(At the tehsil level)

Wholesaler Retailer

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 Nirma Distribution System
⚫ The structure followed by Nirma consists of
minimum channel partners. Direct distributors
receive supplies from the depot. Market coverage is
mainly through the wholesaler’s network and hence
few distributors are required to handle bulk
despatches.
⚫ In some cases, a big wholesaler plays the role of a
sub-distributor, supplying to the retailers and
wholesalers.

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Distribution Model of Durable Goods Companies

LG

Depot

New Rural District

Office
C&F Agents
Warehouse

Exclusive Dealers Multiple Dealers

Consumer

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⚫ Since durables are purchased largely from small and
large towns, the number of locations for distribution
is a few thousand only and these can be managed by
a few channel partners.
⚫ LGs manufacturing plant is located in Greater Noida,
near Delhi. The finished goods are transported from
the manufacturing plant to the company-owned
depot, which in turn passes down the line to C&F
agents. There is a specific area assigned to each C&F
agent and multiple dealers and exclusive dealers are
tied to the C&F agent by the company’s field force.
The orders are generated by the company’s sales field
force, which in turn is supplied by the C&F agent.

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 Distribution of Fake Products
Manufacturer

Wholesaler in Big
City

Wholesaler in small
town / Kasba

Haat Retailer Village Retailer Mobile Trader

Customer

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 Channels of Distribution for fake products
⚫ Manufacturers to wholesalers/retailer in big
city or small town, or directly to customer –
Manufacturers take orders for fake products through
personal visits or over the telephone from big
wholesalers/retailers who deal in fakes. They also
leave sample of new fake products for test marketing.
Delivery is made to wholesalers/retailers through
vans and tempos authorized by the manufacturer.
⚫ Wholesaler in big city to wholesaler in small
town/kasba – Wholesalers in kasbas source their
supply of fakes through daily rail commuters. These
passengers book orders from wholesalers and collect
supplies from the manufacturer of fake goods. These
are hand delivered the next day.
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⚫ Wholesaler in small town/kasba to village
retailer/mobile trader/haat – Salesmen of fake
products visit retailers in villages of 3000+
population category located 15-20 km. from the
nearest town to deliver products. Mobile traders get
their stock of fake goods for purchases above Rs. 500
from mandis in nearby towns, or from the nearest
kasba for smaller purchases.

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 Emerging Distribution Models
⚫ Corporate-SHG Linkage – SHG is a group of 10-15
women organized by government bodies or NGOs, who
come together to form a mutual thrift group, to inculcate
savings discipline and boost feelings of self-worth among
women. Members of SHGs get matching loans from rural
banks to set up income-generating enterprises.
Originally, SHGs were formed to support poverty-
alleviation programmes in rural areas after the success of
the model in Bangladesh, where this concept originated.
⚫ HUL’s Project Shakti was targeted at strengthening the
company’s FMCG rural distribution drive. Interested
women from SHG’s were appointed as Shakti
entrepreneurs, they borrow money from their group
corpus and provide services to 6-10 villages, covering a
population of 6000-10000.They receive stocks from
HUL rural distributors and make sales to both retailers
and direct consumers in villages.
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 Satellite Distribution (the Hub-and Spoke
System)
⚫ Stockists are appointed in major towns and feeder towns.
By and large, they discharge the following functions : a)
financing, b) warehousing and c) sub-distribution.
⚫ Retailers in and around the feeder towns get attached to
these stockists. The manufacturer supplies goods to the
stockists either on a consignment basis or on a cash or
credit purchase basis.
⚫ The stockists take care of sub-distribution on the terms
and conditions determined by the manufacturer or as
agreed upon by the parties. Often, the stockists operate
their own delivery vans to take care of secondary
transport and local delivery jobs.

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 Coca Cola Hub & Spoke Model

⚫ Recently modified its distribution channel by

shifting from a centralized model to a three-tier hub-
and-spoke model. Invested in glass bottles and new
vehicles in consonance with the three tier
distribution structure. Large trucks were used to
move stocks from the bottling plant to the hubs,
medium commercial vehicles were used to move
stock from the hub to the spokes and after that auto
rickshaws and cycles were used to cater to the
requirements of rural markets.

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 Hub and Spoke System

A2 S1

S2 S1
S2
A1
Wholesal
er Town
A3
S3

S4
S3
S4 A1 – A4 Semi
A4 wholesalers
S1-S4 Satellite
markets
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 Syndicated distribution
⚫ Syndicated distribution is a viable and novel approach to
gain entry into rural markets. Under this approach, two
or more companies come together to form a syndicated
trading organization, to jointly distribute a collective
group of household products in rural markets by sharing
distribution costs.
⚫ The solution for small companies is to tie up with a
leading company, that already has a presence in the rural
market, in order to distribute products through its
distribution network. The golden rule is that the small
company should not deal in the same products, that the
leading company sells.
⚫ Eg. P&G uses the rural distribution network of Marico to
sell Ariel, Tide etc. CavinKare used the distribution
network of Amrutanjan pain balm for its Chik shampoo.
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 ITC’s Distribution Model

⚫ ITC has taken the initiative to reach rural consumers

through its e-choupal model for backward and
forward linkages for its agri-related business, for
direct procurement of agri produce from farmers and
for selling a range of products through Choupal
Sagar.

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 Barefoot Agents
⚫ Few insurance companies have taken the initiative of
appointing barefoot insurance agents in order to
penetrate rural markets. Agents are recruited on the
basis of three parameters : 1) direct personal contact,
2) spreading information through group discussions
3)and motivating people to become life insurance
agents through counselling.

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 Other Channels

⚫ Hero Honda Motors has 400 dealers all over the

country. The company has reported the emergence of
an unofficial channel of distribution – village
mechanics, local real estate agents and shopkeepers.
These people take the motorcycles, usually in twos
and threes, from company dealers after providing
adequate security deposits and display them outside
their premises for closing the sale. The paper work,
however, is left to the dealer to complete.

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 Ideal Distribution Model for Rural

⚫ On the basis of the equation Per Capita Sales (PCS) =

Annual Sales / Market Population, the ideal
distribution model for rural can be depicted as
follows :
⚫ The Project Shakti type of model best serves the
needs of the Low PCS-Low population density
segment consumers.
⚫ The NSV model is more appropriate for the Low
PCS-High population density segment. PDS,
cooperatives and fertiliser dealers could also be
integrated into this model.

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