30:70 Pareto Principle

TRIMILLENNIUM MANAGEMENT
30:70 Pareto Principle

By Y.L.R .Moorthy

Urban retailing will see bigger and bigger retail outlets. And this trend will spread beyond the metropolitan cities to the larger towns. But most of the
6 lakh villages in India will still be serviced by small retail outlets

At the beginning of this century, there are 6 million retail outlets in India. Of them, 3.6 million are in the villages, and the rest in the towns and cities. And 25 per cent of the outlets in the urban areas are in the metros. Conclusion: retail distribution in India is skewed towards the urban, and especially the metropolitan, customer.

But India has close to 600,000 villages that about 70 per cent of its population. Several villages do not even have proper roads leading to them. Few companies can reach these remote outlets through their own distributors; these outlets buy from the wholesalers in the nearest town. Thus, there are 1,000 hub-towns that act as the conduits for distribution to the hinterland. In organisational parlance, this is called indirect distribution. Of the total number of retail outlets in the country, only a third are serviced directly even by the distribution-led companies. One of the biggest problems that Indian companies will face in this millennium is reaching rural outlets, and at an economically-viable cost.

Another issue that will need to be addressed keen is the skew in the population-distribution across villages: 61 per cent of the rural population lives in 27 per cent of the villages. And the remaining 39 per cent in 73 per cent of the villages. In other words, some rural areas are thickly populated while others are thinly populated. So, an important issue for marketers is to identify clusters of thickly-populated villages that can be serviced economically. But there does not seem to be any pattern to the distribution of these villages. In some parts of the country, like Uttar Pradesh, they are clustered around big rivers like the Ganges, and in Tamil Nadu, they seem to be clustered around small towns.

Provision-stores, paan shops, and ration-shops are the most popular vehicles of distribution in rural India. Sixty-six per cent of our villages have provision-stores, 60 per cent have paan shops, and 32 per cent have ration-shops. Besides, rural consumers also have another shopping option: shandies or haats. These are temporary markets that sprout at the same location at a regular frequency, and cater to the needs of neighboring villages. Often, covering a shandy on a stand-alone basis is not cost-effective. Therefore, companies engage rural vans to cover several shandies in sequence.

If this is the way rural consumers purchase products, how do marketers decide whether a rural location is worth being covered by indirect distribution or through rural vans? There is no direct answer to this question at the village level. However, the Thomson Rural Index gives an indication of the purchasing power of India's districts. In 1999, the Mudra Institute of Communications Ahmedabad (mica) developed a Rural Market Rating on similar lines. This used variables like cropped area, bank credit, value of agricultural output etc. to arrive at an index that reflects the buying- potential of each district. E.g., the mica rating gives a score of 100 to Midnapore in West Bengal, 95.91 to South Arcot in Tamil Nadu, and 94.1 to Ganganagar in Rajasthan. In other words, Midnapore is the most prosperous district. While this data is useful, the one thing marketers need to do in this century is to evolve a mechanism that can assess buying-power at the village- rather than the district-level.

The data from such indices, marketers will discover, has other uses also. For instance, North Arcot, South Arcot, Trichy, and Thanjavur, together with Chennai, form a contiguous belt of prosperity, according to the index. From a distribution point of view, it would be a good idea to concentrate on this area rather than on all of Tamil Nadu, especially if a company has limited resources. Such contiguous areas of prosperity can be identified in other parts of the country too. Thus, we will find companies locating sales-offices, depots, and warehouses centrally in such contiguous areas of prosperity.

As for urban India, it will perhaps take a decade or more for big time retailing to establish itself. Foodworld, KidsKemp, and Shopper's Stop-all of which had their genesis in the 1990s-heralded the arrival of a new retailing era. However, it is difficult to see these big outlets replacing conventional retail- stores. They may complement them. A somewhat confusing trend is the growth in urban outlets outstripping the growth in urban population since 1990. Will this mean that urban retailing in this millennium will be more fragmented than it was? How do we reconcile this with the growth of outlets like KidsKemp, which depend on the size and efficiency of their sourcing?

In the us, retail chains like Wal-Mart have grown so strong that they dictate terms to brands as strong as Coke and Crest. They have their own labels, which offer stiff competition to the established brands. Retailers are yet to grow that big in India although durables retailers are stronger than the rest. In India, the role of private labels is fulfilled by the unorganised sector, which dominates industries like biscuits, moulded luggage, fans, and even air-conditioners. But if India continues to liberalise, the excise duties levied on the organised sector will continue to decline. When that happens, the unorganised sector will be much less effective as a competitor to the organised sector. Here again, retailing in urban India will prove to be different from that in the West: in this century, the unorganised sector may beat a slow retreat, but the power of private labels has anything but waned in the West.

Another 21st Century retailing challenge is posed by the Net. Will conventional retailing be affected by the Net and e-Commerce? Chances are that it will. However, internationally, b2b commerce is growing faster than b2c commerce, and this trend is likely to be duplicated in India.

Rural and urban retailing will present different types of challenges in this millennium. The foremost challenge in rural retailing is reaching remote locations. Urban retailing will see bigger and bigger retail outlets. And this trend will spread beyond the metropolitan cities to the larger towns as well. One of the most significant changes will have to do with measures. The existing practice of creating independent urban and rural indices is of much less real use to marketers than a joint index. Today, an organisation is more interested in knowing areas of contiguous prosperity, irrespective of whether they are urban or rural, as it will help them focus their distribution more effectively. My simple conclusion: the challenges of urban and rural retailing will keep marketers busy for much of this millennium.

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