PREVALENT RURAL DISTRIBUTION MODELS.

PREVALENT RURAL DISTRIBUTION MODELS

Rural distribution can be categorized in to two models

Smaller companies adopt wholesale activation route.

Bigger and sizeable companies adopt the retail route. Retail

WholesaleVan/

Sub-stockistFeeder towns/

Wholesale &retail

Rural Market

RURAL DISTRIBUTION MODEL Van operation Stockists from nearby urban markets cover four to five

rural markets per day. And they cover around 60-70 km per day to reach rural

villages. They operate mostly on a cash basis . They provide better control over distribution.

Sub-stockist operation Gets stock from super stockists appointed in the district. Super stockists cover 10-15 sub-stockists in the district. The sub-stockist covers all the outlets in his rural

market like the regular stockists,by extending credit and services.

DISTRIBUTION MODELS OF FMCG COMPANIES

The rural distribution models of all FMCG co’s can be divided in to two models.

Distribution model 1(DM1)

Distribution model 2 (DM 2)

C & FA

Distributor(RURAL)

Sub-distributor

Retailer ruralRetailer(local)

Wholesaler

Retailer urbanRetailer

Retailer(Urban)

Distributor( Urban)

COMPANY

Wholesaler

CHANNEL STRUCTUREDistribution model 1 In Distribution Model 1 company appoints a sub-

distributor to penetrate deeper into rural areas up to the 5000 population villages.

The rural distribution services the wholesale market in the rural areas.

The wholesaler becomes important because of the assortment that he keeps and the volume that he generates and the customers to whom he caters.

DM1 has a larger number of points appointed in the rural areas.

DISTRIBUTION MODEL 2 In DM 2 ,mostly co’s with a limited no of SKU’s

and high sales volume adopt this model. This is the simplest model compared to DM1. This model minimizes distribution costs, allowing

the co’s to offer better margins to the distributors and other channel members to push the sales.

Wholesale locations work as feeder markets from where the co’s caters to the requirements of nearby villagers.

Distributors sell large volumes and earn good money in addition to regular margins.

Company

Distributor

wholesaler

Retailer( local) Retailer( rural)

parameters

cavinkare

Eveready

HLL Brittania

Nirma Ghari priyagold

No of channel partners

6 7 7 6 3 3 3

Different channels for Rural &urban

yes yes yes yes no no no

No of distributors per district

2-3 2-3 2-3 2-3 1 1-2 1

Mode of pmt

ADV/CHQ

ADV/CHQ

ADV/CHQ

ADV/CHQ

ADV/DRAFT

CASH/DRF

ADV/CHQ

DISTRIBUTION MODEL OF DURABLE GOODS COMPANIES

Durables are purchased largely from small & large towns.

Number of locations for distribution is a few thousand only.

These are managed by a few channel partners.

Examples of Good durable goods company are: PHILIPS & LG

LG DISTRIBUTION MODEL

LG

Depot

C & F Agents

New Rural District Office

Warehouse

Exclusive Dealers Multiple Dealers

Consumer

LG’S DISTRIBUTION STRATEGY

Introduced Company’s Rural Office at the District Level.

Separate stocking point (Warehouse) to manage logistics of achieving deeper market.

Appointed Dealers & Exclusive dealers. C & F agent act as large distributor. They

do not own goods but provide logistical support.

PHILIPS(LIGHTING) DISTRIBUTION MODEL

PHILIPS

Depot

Urban Distributor Rural Stockist

Retailer Retailer

Consumer

PHILIPS DISTRIBUTION STRATEGY

Each depot cater at least 1 state. Divided the pops(electrical wholesale outlets)

into strata. Distribution network covers 15000-20000

Locations.

EMERGING DISTRIBUTION MODELS

SHG distribution model Satellite distribution Syndicated distribution NYKS model Petrol pumps Agriculture input dealers Other channels

SHG DISTRIBUTION MODEL

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.

There are over 10 lakh SHGs across India.

HINDUSTAN LEVER’S PROJECT SHAKTI

Interested women from SHGs were appointed as shakti entrepreneurs; they borrow money from their group corpus and provide services to 6-10 villages, covering a population of 6,000-10,000.

They receive stock from HLL rural distributors and make sales to both retailers and direct consumers in villages.

This increased penetration into the rural market for HLL and the ability to reach out to small villages that are often left out of the distribution circuit.

HINDUSTAN LEVER’S PROJECT SHAKTI

HLL earlier had only 70,000 villages in its ambit, but after the launch of project shakti this number has more than double.

Small villages below 2000 population size are most common in rural areas. Project shakti was able to succeed in penetrating into small villages.

The biggest beneficiaries of this project are the shakti entrepreneurs, who in some cases have been able to augment their incomes up to Rs. 1000.

SATELLITE DISTRIBUTION

Manufacturer

Stockists

Retailers

1. Financing 2. Warehousing 3. Sub-

distribution

THE HUB-AND-SPOKE SYSTEM

Whole

saler town

S4S3

S2S1

S4

S2

A1A3

S4A2

S1

S1

S3

A4

S4

S3 S1

S2

S2

S4

PEPSI AND COKE: PIONEERS OF THE HUB-AND-SPOKE MODEL

Since soft drinks are sold in returnable glass bottles, one cannot sell through the conventional FMCG wholesale channel, to drive availability in rural markets.

Therefore, Pepsi, has chosen a hub-and-spoke distribution format. The spoke is typically closest to the retail outlets and is serviced by a hub distributers, who is supplied directly from the manufacturing plant or the companies warehouse.

This format allows for large loads travelling longer distance and short loads doing short distances, an arrangement that is cost effective.

SYNDICATED DISTRIBUTION

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.

Cavinkare used the distribution network of Amrutanjan pain balm, for its Chik shampoo.

PROBLEMS WITH THE SYNDICATED MODEL OF DISTRIBUTION

• Markets for coverage of two companies is different.

• Terms of payments are different.• As the salesman of only one company

accompanies the van, he pushes his own products and is lax about booking orders for the other company.

• The salesman does not make serious efforts to collect payments for the other company.

NYKS HAAT DISTRIBUTION MODELNehru Yuva Kendra Sangathan, a central

government organization, was well established to promote and develop cultural and sports activities in rural India. It has regional office in all states and local offices in most districts.

NYKS hires young people as National Service Volunteers (NSV) on a fixed term, 2 years contract and pays a monthly stipend of Rs. 2,000. NSVs are graduates, in the 18-35 age group and belong to a nearby area.

NSVs retire at the end of 2 years to make way for a fresh batch.

PROJECT DISHA: A NEW LOW-COST LAST MILE DISTRIBUTION MODEL

Colgate used ex-volunteers/youth club members to promote and sell company brands in rural areas.

Each ex-volunteers was equipped with branded bicycles, umbrellas, storage boxes, T-shirts and caps.

As against a typical van operation cost Rs. 3000/day, the volunteer model costs the company less than that per month.

PETROL PUMPSIn India there are over 12,000 petrol pumps

spread across the country, 60% of which are located on highways close to villages.

These pumps, in addition to selling petroleum products, have also started selling consumables like food products and toiletres.

Oil companies are exploring the possibility of selling agri inputs, LPG cylinders and other rural-based items from these outlets.

AGRICULTURAL INPUT DEALERS

There are about 2,62,000 fertilizer dealers across the country. Fertilizer companies have retail outlets within a range of 5 Km. of any village.

Marketers could explore the possibility of partnering them and utilizing their infrastructure for selling products.

OTHER CHANNELS

Hero Honda Motors has 400 dealers all over the country. The company has reported the emergency 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.