“Our partnership with HUL gives the agricultural entrepreneur a worthwhile enterprise mannequin whereas working i-Shakti kiosks. Additionally, low value supply and customised merchandise will end in greater profit by enhanced financial good points for the agricultural shoppers.”
~ Mr. Nachiket Extra
Govt Director, Wholesale Banking Group
“There’s unimaginable potential in rural markets. That is the place the expansion will come from.”
~ Sharat Dhall, Hindustan Lever’s director of latest ventures and advertising and marketing providers
Sankaramma, the chief of the native Kanaka Durga self-help Group (SHG) belongs to Okay. Thimmapuram village’s Muddaner Mandal within the Kadapa district of Andhra Pradesh. The village has 350 households with a complete inhabitants of 1200. Sankaramma’s 5 hectares of agricultural land was not enough for six member household as a result of extreme drought within the area. She began a enterprise in April 2003 with the Hindustan Unilever Ltd. By 2005, she had a daily month-to-month turnover of Rs.10,000 monthly. Initially she bought door to door, however thereafter the shoppers began visiting her house for merchandise. She sees Challenge Shakti as a imply for the brilliant futures of her kids. Challenge Shakti additionally enabled her to supply mid-day meals on the main faculty in her village. At the moment, Sankaramma has grow to be a key improvement determine in her village.
Usha Sarvatai, a mom of two, traveled 32 km on a regular basis to work. Her husband’s earnings was not enough for the 2 kids and their previous mother and father. However the lengthy distance and the odd timings of the job compelled Usha to stop the job. Then she bought a name from the Authorities dept. to attend a gathering, convened by Challenge Shakti. Usha grew to become a Shakti Amma and began a brand new enterprise. In a brief span the nice relationships she developed with the villagers helped her do good enterprise. She says, “I’m completely satisfied fulfilling my household’s necessities and other people give me a variety of respect at this time.” And he or she is now very desperate to develop her enterprise within the years to return.
The checklist doesn’t finish right here. Hindustan Lever Ltd., a subsidiary of Unilever is relying on hundreds of ladies like Sankaramma and Usha Sarvatai to promote its merchandise to the agricultural shoppers it could not attain earlier than. By 2005, round 13,000 poor ladies have been promoting the corporate’s merchandise in 50,000 villages in India’s 12 states and contributed for 15% of the corporate’s rural gross sales in these states . The ladies usually earned between $16 and $22 monthly , usually doubling their family earnings which was used to teach their kids. General, round 30% of Hindustan Lever’s income got here from the agricultural markets in India
Began within the late 2000, Challenge Shakti had enabled Hindustan Lever to entry 80,000 of India’s 638,000 villages . Hindustan Lever’s director of latest ventures proudly expressed, “On the finish of the day, we’re in enterprise. But when by doing enterprise we will do one thing constructive, it is an amazing win-win mannequin.” Hindustan Lever was not the one firm recognizing the huge advertising and marketing potential in rural India. With the saturation of city market, the businesses began reengineering their companies and merchandise to focus on rural shoppers who’re poor however are wealthy in aspirations fueled by the media and different forces.
Unilever in India: Enterprise and Development
Unilever was the world’s largest Quick Shifting Shopper Items (FMCG) firm with a worldwide income of $55 billion in 2005 . It is Indian subsidiary, the Hindustan Unilever Restricted (HUL) was the nation’s largest FMCG firm with mixed volumes of about 4 million tonnes and revenues close to about $2.43 billion . HUL’s main manufacturers included Lifebuoy, Lux, Surf Excel, Rin, Wheel, Truthful & Pretty, Pond’s, Sunsilk, Clinic, Pepsodent, Shut-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall’s and so forth. These have been manufactured over 40 factories throughout the nation .
In 1931, Unilever arrange its first Indian subsidiary, Hindustan Vanaspati Manufacturing Firm . Thereafter the Lever Brothers India Restricted and United Merchants Restricted have been established in 1933 and 1935 respectively. In November 1956, these three corporations merged and kind HUL. Unilever’s share in HUL was 51.55% in 2005 and the remaining of the shareholding was distributed amongst about 380,000 particular person shareholders and monetary establishments. A foray of acquisitions adopted thereafter . In 1984, the Brooke Bond joined the Unilever fold. Lipton was acquired in 1972 and Ponds in 1986 . HUL was following a progress technique of diversification at all times consistent with Indian opinions and aspirations.
The financial and political improvement within the Nineteen Nineties had marked an inflexion in HUL’s and the Group’s progress curve. Financial liberalization permitted the corporate to discover each single product and alternative phase, with none constraints on manufacturing capability. Alternatively, deregulation allowed alliances, mergers and acquisitions. In 1993, HUL merged with the Tata Oil Mills Firm (TOMCO) 1993 . In 1995, HUL fashioned a 50:50 three way partnership with one other Tata firm, Lakme Restricted .
The corporate had additionally made a string of mergers, acquisitions and alliances within the Meals and Drinks sector. A few of these have been the acquisition of Kothari Basic Meals (1992), Kissan (1993), Dollops Icecream enterprise from Cadbury India (1993), Fashionable Meals (2002), Cooked Shrimp and Pasteurised Crabmeat enterprise of the Amalgam Group of Firms (2003) .
With 12.2% of the world inhabitants residing within the villages of India, the nation’s rural FMCG market had an enormous potential . The Indian FMCG sector was the fourth largest sector within the economic system with a market measurement of $13.1 billion . The sector was anticipated to develop by over 60% by 2010. In 2005-2006 the city India accounted for 66% of complete FMCG consumption, with rural India accounting for the remaining 34% . Nevertheless, rural India accounted for greater than 40% consumption in main FMCG classes comparable to private care, cloth care, and sizzling drinks . The Bid FMCG corporations comparable to HLL, Nirma and ITC joined the foray to faucet the large potential.
Within the Nineteen Nineties, an area Indian agency, Nirma Ltd. began offering detergents to the agricultural poor on the lowest value. The corporate had created a enterprise system with a brand new product formulation, low-cost manufacturing, huge distribution channel, particular packaging and worth pricing. After a decade, Nirma grew to become one of many largest branded detergent makers with a 38% market share and 121% return on its capital employed .
In 2002, ITC arrange a community of internet-based kiosks, e-choupals, to assist the farmers of their procurement course of. The initiative started with the soya growers in Madhya Pradesh after which expanded to cotton, tobacco, shrimp and so forth. Beginning with six e-choupals in June 2000, ITC’s Web-based, rural initiative had linked 6,000 Indian villages with round 1,200 e-choupals by 2002. The establishing of every e-choupal entails an funding of Rs 1-3 lakh .The goals behind e-choupals was to permit single place procurement and buy level, permitting farmers to promote their merchandise on to ITC on the premise of up to date present costs prevailing available in the market. This eradicated middlemen and thus helped ITC to chop its prices.
In 2007, round 34% of the FMCG merchandise gross sales got here from rural areas . The variety of households that used FMCG merchandise in rural India had grown from 13.6 crore in 2004 to 14.3 crore in 2007 . This progress was achieved on a median 1.8% year-on-year progress within the variety of households, which use no less than one FMCG product. Nevertheless, the expansion in penetration stage for your entire FMCG merchandise was not identical. In line with one examine by a market analysis agency IMRB, the month-to-month consumption of detergents and bathroom soaps remained largely stagnant with a 92% penetration, however that of liquid shampoos grew from 68% in 2004 to 83% in 2007 . These figures revealed a shift in direction of higher-value merchandise among the many rural market, from toothpowder to toothpaste or from unbranded to branded merchandise. In line with the senior mission director of IMRB Worldwide, Manoj Okay Menon, “Some of the important adjustments, consists of rising desire in direction of branded merchandise. For instance, within the meals and drinks phase, 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 Advertising Effort: Transition to Rural Market
HUL’s aggressive benefit generated from three sources. First it is sturdy nicely established manufacturers, second, its native manufacturing capability and provide chain and third its huge gross sales and distribution system. It was quickly felt that HUL’s gross sales and distribution system which had protected it from opponents can be quickly replicated by its rivals and to take care of its edge, the corporate needed to improve its attain past the city markets. To this point the operations of HUL included greater than 2,000 suppliers and associates. The distribution community, consisted of 4,000 stockists, protecting 6.3 million shops reaching your entire city inhabitants, and about 250 million rural shoppers .
Usually, the products produced in every of the HUL’s 40 factories have been despatched to a depot with the assistance of a carrying and forwarding agent (CFA). The corporate had its depot in each state of the nation. The CFA was a 3rd celebration and bought servicing price for inventory and supply of the merchandise. In every city, there was a redistribution stockist (RS) who took the products from the CFA and promote them to shops. By the late Nineteen Nineties, the HUL administration realized sure issues with the present gross sales mannequin. First, the mannequin was not viable for small cities with small inhabitants and small enterprise. HUL discovered it costly to nominate one stockist solely for every city. Secondly, the retail revolution within the nation adjustments the sample the shoppers store. Massive retail self service outlets have been established. Within the response of those issues, HUL redesigned its gross sales and distribution channel and the brand new system was generally known as ‘diamond mannequin’ within the firm. On the high finish of the diamond, there have been the self service retail shops which constituted 10% of the full FMCG market. The center, fatter a part of the diamond represented the profit-center based mostly gross sales group. Within the backside of the pyramid was the agricultural advertising and marketing and distribution which accounted for 20% of the enterprise .
Virtually three-fourth of the full 1.2 billion Indian inhabitants resided within the rural areas and majority of them had a really low per capita earnings (round 44% of that of city India) . City market had reached the saturation level, thus altering concentrate on rural India. Compared to simply 5,161 cities in India there are 6,38,365 villages in India [Exhibit I]. Furthermore, greater than 70% of India’s inhabitants lived in villages and made an enormous marketplace for the FMCG trade due to rising disposal incomes and consciousness stage.
Distribution of Villages in India
Supply: Kash Rangan, Sehgal Dalip et. Al., “World Poverty: Enterprise Approaches and Options”, http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf
When HLL shifted to the agricultural India, it confronted many issues. In distinction with a low per capita earnings comparative to the city residents, there have been some areas with sufficient cash however their consciousness stage and consumerism was very low. Secondly, rural FMCG demand was depended upon agricultural state of affairs which was once more depended upon monsoon. Transportation was additionally a serious hindrance. Lots of the rural areas weren’t related by rail transport. The Kacha roads have been unserviceable throughout the monsoon and inside villages get remoted. In addition to transportation, there was an issue of distribution and communication services comparable to phone, fax and web. Furthermore, the lives in rural areas have been nonetheless ruled by ethnicity and traditions and other people didn’t merely get used to new practices. For instance, even wealthy and educated class of farmers doesn’t put on denims or branded footwear. The shopping for selections in villages have been gradual and delayed. They needed to provide a trial and purchase solely after being glad. And, lastly the poor illiterate villagers considered expertise extra vital than formal schooling and so they valued gross sales individuals who might present sensible options to their issues.
HLL approached the agricultural market with two standards – the accessibility and viability [Exhibit II]. Round 40% of the accessible rural market had excessive enterprise potential. To service this phase, HLL appointed a typical stockist who was liable for all shops and all enterprise inside his explicit city. Within the 25% of the accessible markets with low enterprise potential, HLL assigned a retail stokist who was accountable to entry all of the villages no less than as soon as in a fortnight and ship shares to these markets. This allows HLL to affect the retailers shares and portions bought by credit score extension and commerce reductions. HLL launched this Oblique protection (IDC) in Sixties.
To cater the wants of the inaccessible market with excessive enterprise potential HLL initiated a Streamline initiative in 1997. HLL appointed rural distributors and Star Sellers. The star vendor bought items from rural distributors and distributed them to retailers in small villages utilizing the native imply of transport. On this manner round 35% of the inaccessible rural market got here below the management of HLL. However a nonetheless untapped market – the inaccessible however low enterprise potential market was left outdoors. The dimensions of this untapped market was estimated to be round 500,000 villages with a inhabitants over 500 million . At this stage, Challenge Shakti was conceived.
HLL’s Strategy to Rural Market
Low Enterprise Potential Excessive Enterprise Potential
Accessible Markets Oblique Protection (25%) Direct Protection (40%)
Inaccessible Markets Area for Shakti Streamline (35%)
Supply: V. Kasturi Rangan Rohithari Rajan, “Unilever in India: Hindustan Lever’s Challenge Shakti–Advertising FMCG to the Rural”, http://www.caseplace.org/d.asp?d=244 – 27k
HLL quickly realized that though it was having fun with a better penetration within the rural market in comparison with its competitor comparable to Nirma and ITC, its direct attain was restricted to solely 16% . The FMCG large was determined to extend this share. HUL noticed its dream achievement within the huge Indian rural market. The corporate was already engaged in rural improvement with the launch of the Built-in Rural Growth Programme in 1976 within the Etah district of Uttar Pradesh. This program was in tandem with HUL’s dairy operations and coated 500 villages in Etah. Subsequently, the corporate launched related applications in adjoining villages. These actions primarily aimed toward coaching farmers, animal husbandry, producing different earnings, well being & hygiene and infrastructure improvement. The primary challenge in rural improvement was to create income-generating prospects for the poor villagers. Such initiatives, linked with the corporate’s core enterprise, grew to become profitable and sustainable and proved to be mutually useful to each the corporate ant its rural prospects. Nevertheless, a lot remained to be achieved. Challenge Shakti was conceived.
Following the pioneering work carried out by Grameen Financial institution of Bangladesh , Self Assist Teams (SHGs) of rural ladies have been fashioned by a number of establishments, NGOs and authorities our bodies in villages throughout India. This group of normally 15 members contributed a small amount of cash to a typical pool after which supplied a micro-credit to a member of the group to spend money on a generally permitted financial exercise. Partnering with these SHGs, HLL began its Challenge Shakti in Nalgonda district of Andhra Pradesh in 50 villages within the 12 months 2000. The social facet of the Challenge Shakti was that it was aimed to create income-generating capabilities for underprivileged rural ladies, by offering a sustainable micro enterprise alternative, and to enhance rural residing requirements by well being and hygiene consciousness. Most SHG ladies considered Challenge Shakti as a strong enterprise proposition and are eager individuals in it. There after it was prolonged in different states with the full energy of over 40,000 Shakti Entrepreneurs.
HLL supplied a variety of merchandise to the SHGs, which have been related to rural prospects. HUL invested considerably in assets who work with the ladies on the sector and supply them with on-the-job coaching and assist. HUL supplied the required coaching to those teams on the fundamentals of enterprise administration, which the ladies have to handle their enterprises. For the SHG ladies, this translated right into a much-needed, sustainable earnings contributing in direction of higher residing and prosperity. Armed with micro-credit, ladies from SHGs grow to be direct-to-home distributors in rural markets [Exhibit III].
Construction of HLL’s Market Attain in India
Supply: Kash Rangan, Sehgal Dalip et. Al., “World Poverty: Enterprise Approaches and Options”, http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf
Shakti: The way it works
Typically, a member from a SHG was chosen as a Shakti entrepreneur, generally referred as ‘Shakti Amma’ obtained shares from the HLL rural distributor. After skilled by the corporate, the Shakti entrepreneur then bought these items on to shoppers and retailers within the village. Every Shakti entrepreneur normally serviced 6-10 villages within the inhabitants strata of 1,000-2,000 individuals with 4-5 main manufacturers of HLL – Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. Aside from these, different manufacturers included Lux, Ponds, Nihar and three Roses tea. The Shakti entrepreneurs got HLL merchandise on a `money and carry foundation.’ Nevertheless, the native self-help teams or banks supplied them micro credit score wherever required. In line with Dalip Sehgal, Govt Director, New Ventures & Advertising Providers, HLL Challenge Shakti was including as much as 15% of HLL gross sales in rural Andhra Pradesh. He additional asserted that given the largeness of the nation and backwardness of its ladies, Challenge Shakti-like endeavor would place all people in a win-win state of affairs.
I-Shakti: Crossing the Border
Inspired by the goodwill and success of Challenge Shakti, in August 2003, HLL launched an Web-based rural data service, known as I-Shakti, in Andhra Pradesh, in affiliation with the Andhra Pradesh Authorities’s Rajiv Web Village Programme. I-Shakti was an IT-based rural data service to supply very important data to the agricultural individuals in fields like agriculture, schooling, vocational coaching, well being, hygiene and the like [Exhibit IV]. The target behind the i-Shakti mannequin was to provide want based mostly demand pushed data and providers within the villages.
The i-Shakti kiosk was operated by the Shakti Entrepreneur. This was anticipated to strengthen their relationship with their prospects. HUL anticipated that this could enhance the productiveness of the agricultural neighborhood and unlock financial and social progress.
A snapshot of the ‘i-Shakti’ web site
Supply: “HUL Shakti-Altering lives in rural India.”, http://www.hllshakti.com/sbcms/temp1.asp?pid=46802256 – 41k
I-Shakti was based mostly on an interactive dialogue know-how developed & patented by the Unilever Company Analysis Workforce, U.Okay. The system enabled an in-depth understanding of every person wants and thereby improved the standard of providers supplied to them. The APonline , had tied up with i-Shakti to launch numerous providers. Furthermore, by i-shakti, the ICICI Financial institution and HUL collectively supplied numerous monetary services and products comparable to life and basic insurance coverage, funding merchandise (Fairness, Mutual Funds, Bonds), ICICI Financial institution Pure Gold (gold cash), Private Credit score, Rural Financial savings Accounts and Remittances to the agricultural buyer.
Redefinition Rural Distribution: Altering Lives
Having profitable in Nalgonda, in 2003 HLL deliberate to broaden Shakti to a 100 districts in Madhya Pradesh, Gujarat and UP. There have been different plans comparable to to permit different corporations (besides HLL’s opponents) comparable to Nippo, TVS Motor for mopeds, insurance coverage corporations for LIC insurance policies to get onto the Shakti community to promote their shares. Sehgal was wanting proud when he introduced, “We needed to first stabilise the mission earlier than we will take a look at different corporations. It requires any person with scale and measurement to construct a platform after which invite different corporations onto this platform.” He additional emphasised that Shakti was making a win-win partnership between HLL and its shoppers.
There have been about 4.36 lakh ladies SHGs in AP with virtually 58.29 lakh poor ladies. AP alone had about half of the SHGs of the nation. By 2005 the SHGs had mobolised Rs 1500 crore had mobilised as corpus. The agricultural ladies organised themselves into `thrift and credit score’ teams with a saving of Re.1 a day which created a fund of greater than Rs 800 crore. Whereas the financial savings was there among the many SHGs, there was no channel of funding. HLL tapped this big ignored community to launch Challenge Shakti. HLL has ready tp present a window of prospect to take a position and earn.
The impression of HLL was not swiftly. HLL witnessed 15% incremental gross sales from the villages of AP, which accounted 50% of the full gross sales of HLL merchandise in AP. Market analysts have been perceiving an enormous potential within the rural foray of HLL. Nikhil Vora, Sr. Vice President of analysis group ASK Raymond James believed that if there was one firm that would tackle the onus of growing the agricultural markets, it was HLL. He additional continued, “HLL contributes 20 per cent of the full FMCG enterprise within the nation. So, clearly, the onus is on HLL to develop the market. Returns could not occur within the subsequent 5 years, however a variety of shopper understanding and insights comes from an train like Challenge Shakti, which in flip can result in product innovation.”
HLL acknowledged that for Challenge Shakti to achieve success for the corporate’s rural penetration, sellers and communicators should be nicely skilled. It was unclear how sellers would carry out in an expanded infrastructure. Though HLL’s rural initiatives incurred big prices to the corporate, it was anticipated that with the monsoon revival and better rural incomes might decline the payback interval for tasks like Shakti. Furthermore, the lowering model loyalty amongst city shoppers rural market had grow to be an crucial. In line with the Concurs Okay.N. Siva Subramanian, Sr. Vice President, Franklin Templeton India Ltd, “The (HLL) administration had acknowledged the upcoming saturation of the city markets a while again and launched aggressive plans to seize the agricultural markets. Nevertheless, a slowdown within the agricultural sector resulted in rural incomes remaining flat and affecting gross sales. We consider that by focusing on lower cost factors and additional increasing the distribution community, corporations can faucet the potential of rural markets. Initiatives like Challenge Shakti will assist them in establishing and consolidating their base in rural markets.”
HLL must decide whether or not Challenge Shakti could possibly be repeatable in different nations. The Indian household construction and village interplay present a singular diffusion mechanism that’s an efficient car for Shakti. Whether or not this mannequin could possibly be efficiently applied in different nations should be additional explored. Furthermore, it want to seek out out whether or not the Challenge Shakti or e-choupal like initiatives could possibly be elevated. There was little question that the regional manufacturers, and even bigger FMCG corporations, didn’t have the type of distribution attain that HLL had established and in the long term, that would show a winner for HLL.