“Our partnership with HUL presents the agricultural entrepreneur a worthwhile enterprise mannequin whereas working i-Shakti kiosks. Additionally, low price supply and customised merchandise will end in greater profit via enhanced financial good points for the agricultural customers.”
~ 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 Ok. 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 adequate for six member household on account of extreme drought within the area. She began a enterprise in April 2003 with the Hindustan Unilever Ltd. By 2005, she had an everyday month-to-month turnover of Rs.10,000 per thirty days. Initially she bought door to door, however thereafter the purchasers began visiting her house for merchandise. She sees Undertaking Shakti as a imply for the intense futures of her youngsters. Undertaking Shakti additionally enabled her to offer mid-day meals on the main college in her village. As we speak, Sankaramma has turn out to be a key growth 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 Her husband’s earnings was not adequate for the 2 youngsters and their outdated mother and father. However the lengthy distance and the odd timings of the job compelled Usha to give up the job. Then she obtained a name from the Authorities dept. to attend a gathering, convened by Undertaking Shakti. Usha turned a Shakti Amma and began a brand new enterprise. In a brief span the great relationships she developed with the villagers helped her do good enterprise. She says, “I’m completely satisfied fulfilling my household’s necessities and folks give me plenty of respect right this moment.” And he or she is now very desirous to develop her enterprise within the years to return.
The listing doesn’t finish right here. Hindustan Lever Ltd., a subsidiary of Unilever is relying on 1000’s of girls like Sankaramma and Usha Sarvatai to promote its merchandise to the agricultural customers it could not attain earlier than. By 2005, round 13,000 poor girls had 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 per thirty days , usually doubling their family earnings which was used to teach their youngsters. General, round 30% of Hindustan Lever’s income got here from the agricultural markets in India
Began within the late 2000, Undertaking 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 a terrific 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 customers who’re poor however are wealthy in aspirations fueled by the media and different forces.
Unilever in India: Enterprise and Progress
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 Four 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 many others. These had 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 had been established in 1933 and 1935 respectively. In November 1956, these three corporations merged and type 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 development technique of diversification at all times consistent with Indian opinions and aspirations.
The financial and political growth within the 1990s had marked an inflexion in HUL’s and the Group’s development curve. Financial liberalization permitted the corporate to discover each single product and alternative phase, with none constraints on manufacturing capability. However, deregulation allowed alliances, mergers and acquisitions. In 1993, HUL merged with the Tata Oil Mills Firm (TOMCO) 1993 . In 1995, HUL shaped 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 had been the acquisition of Kothari Basic Meals (1992), Kissan (1993), Dollops Icecream enterprise from Cadbury India (1993), Trendy Meals (2002), Cooked Shrimp and Pasteurised Crabmeat enterprise of the Amalgam Group of Corporations (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 financial system with a market dimension 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 whole FMCG consumption, with rural India accounting for the remaining 34% . Nevertheless, rural India accounted for greater than 40% consumption in main FMCG classes similar to private care, material care, and scorching drinks . The Bid FMCG corporations similar to HLL, Nirma and ITC joined the foray to faucet the large potential.
Within the 1990s, a neighborhood Indian agency, Nirma Ltd. began offering detergents to the agricultural poor on the lowest price. 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 turned 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 many others. 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-Three lakh .The targets 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.Three crore in 2007 . This development was achieved on a mean 1.eight% year-on-year development within the variety of households, which use not less than one FMCG product. Nevertheless, the expansion in penetration degree for the complete FMCG merchandise was not identical. In keeping with one research 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 the direction of higher-value merchandise among the many rural market, from toothpowder to toothpaste or from unbranded to branded merchandise. In keeping with the senior venture director of IMRB Worldwide, Manoj Ok Menon, “One of the vital important modifications, consists of rising desire in the direction of branded merchandise. For instance, within the meals and drinks phase, penetration of branded atta has gone up year-on-year by eight per cent and branded salt by Three per cent. The penetration of unbranded atta has decreased by 1 per cent and salt by Three per cent.”
The HLL Advertising Effort: Transition to Rural Market
HUL’s aggressive benefit generated from three sources. First it is robust effectively 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 could be quickly replicated by its rivals and to take care of its edge, the corporate needed to enhance 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 Four,000 stockists, masking 6.Three million stores reaching the complete city inhabitants, and about 250 million rural customers .
Sometimes, the products produced in every of the HUL’s 40 factories had 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 social gathering and obtained 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 stores. By the late 1990s, the HUL administration realized sure issues with the prevailing 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 completely for every city. Secondly, the retail revolution within the nation modifications the sample the purchasers store. Massive retail self service outlets had been established. Within the response of those issues, HUL redesigned its gross sales and distribution channel and the brand new system was referred to 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 entire FMCG market. The center, fatter a part of the diamond represented the profit-center primarily based gross sales workforce. Within the backside of the pyramid was the agricultural advertising and marketing and distribution which accounted for 20% of the enterprise .
Nearly three-fourth of the entire 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 deal with 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 business due to growing disposal incomes and consciousness degree.
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 degree and consumerism was very low. Secondly, rural FMCG demand was depended upon agricultural scenario which was once more depended upon monsoon. Transportation was additionally a significant hindrance. Lots of the rural areas weren’t related by rail transport. The Kacha roads had been unserviceable in the course of the monsoon and inside villages get remoted. Apart from transportation, there was an issue of distribution and communication services similar to phone, fax and web. Furthermore, the lives in rural areas had been nonetheless ruled by ethnicity and traditions and folks didn’t merely get used to new practices. For instance, even wealthy and educated class of farmers doesn’t put on denims or branded sneakers. The shopping for selections in villages had been gradual and delayed. They wished to present a trial and purchase solely after being happy. And, lastly the poor illiterate villagers considered expertise extra necessary than formal schooling and so they valued gross sales individuals who may 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 accountable for all retailers and all enterprise inside his specific 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 not 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 via credit score extension and commerce reductions. HLL launched this Oblique protection (IDC) in 1960s.
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 beneath the management of HLL. However a nonetheless untapped market – the inaccessible however low enterprise potential market was left exterior. The scale of this untapped market was estimated to be round 500,000 villages with a inhabitants over 500 million . At this stage, Undertaking 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 House for Shakti Streamline (35%)
Supply: V. Kasturi Rangan Rohithari Rajan, “Unilever in India: Hindustan Lever’s Undertaking Shakti–Advertising FMCG to the Rural”, http://www.caseplace.org/d.asp?d=244 – 27okay
HLL quickly realized that though it was having fun with a better penetration within the rural market when put next with its competitor similar to Nirma and ITC, its direct attain was restricted to solely 16% . The FMCG big was determined to extend this share. HUL noticed its dream achievement within the huge Indian rural market. The corporate was already engaged in rural growth 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 lined 500 villages in Etah. Subsequently, the corporate launched related packages in adjoining villages. These actions primarily geared toward coaching farmers, animal husbandry, producing different earnings, well being & hygiene and infrastructure growth. The principle challenge in rural growth was to create income-generating prospects for the poor villagers. Such initiatives, linked with the corporate’s core enterprise, turned profitable and sustainable and proved to be mutually helpful to each the corporate ant its rural clients. Nevertheless, a lot remained to be executed. Undertaking Shakti was conceived.
Following the pioneering work carried out by Grameen Financial institution of Bangladesh , Self Assist Teams (SHGs) of rural girls had been shaped by a number of establishments, NGOs and authorities our bodies in villages throughout India. This group of often 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 accepted financial exercise. Partnering with these SHGs, HLL began its Undertaking Shakti in Nalgonda district of Andhra Pradesh in 50 villages within the yr 2000. The social facet of the Undertaking Shakti was that it was aimed to create income-generating capabilities for underprivileged rural girls, by offering a sustainable micro enterprise alternative, and to enhance rural dwelling requirements via well being and hygiene consciousness. Most SHG girls considered Undertaking Shakti as a robust enterprise proposition and are eager contributors in it. There after it was prolonged in different states with the entire power of over 40,000 Shakti Entrepreneurs.
HLL supplied a variety of merchandise to the SHGs, which had been related to rural clients. HUL invested considerably in sources who work with the ladies on the sector and supply them with on-the-job coaching and assist. HUL offered the mandatory coaching to those teams on the fundamentals of enterprise administration, which the ladies have to handle their enterprises. For the SHG girls, this translated right into a much-needed, sustainable earnings contributing in the direction of higher dwelling and prosperity. Armed with micro-credit, girls from SHGs turn out 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
Basically, a member from a SHG was chosen as a Shakti entrepreneur, generally referred as ‘Shakti Amma’ acquired shares from the HLL rural distributor. After skilled by the corporate, the Shakti entrepreneur then bought these items on to customers and retailers within the village. Every Shakti entrepreneur often serviced 6-10 villages within the inhabitants strata of 1,000-2,000 individuals with Four-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 offered them micro credit score wherever required. In keeping with Dalip Sehgal, Govt Director, New Ventures & Advertising Companies, HLL Undertaking 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 girls, Undertaking Shakti-like endeavor would place everyone in a win-win scenario.
I-Shakti: Crossing the Border
Inspired by the goodwill and success of Undertaking Shakti, in August 2003, HLL launched an Web-based rural info service, referred to 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 info service to offer very important info 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 present want primarily based demand pushed info and providers within the villages.
The i-Shakti kiosk was operated by the Shakti Entrepreneur. This was anticipated to strengthen their relationship with their clients. HUL anticipated that this might 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 – 41okay
I-Shakti was primarily based on an interactive dialogue expertise developed & patented by the Unilever Company Analysis Workforce, U.Ok. 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, via i-shakti, the ICICI Financial institution and HUL collectively offered numerous monetary services and products similar to life and common 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 similar to to permit different corporations (besides HLL’s opponents) similar 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 wished to first stabilise the venture earlier than we will take a look at different corporations. It requires someone with scale and dimension 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 customers.
There have been about Four.36 lakh girls SHGs in AP with virtually 58.29 lakh poor girls. 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 girls 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 enormous neglected community to launch Undertaking Shakti. HLL has ready tp present a window of prospect to take a position and earn.
The impression of HLL was not impulsively. HLL witnessed 15% incremental gross sales from the villages of AP, which accounted 50% of the entire gross sales of HLL merchandise in AP. Market analysts had 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 might tackle the onus of growing the agricultural markets, it was HLL. He additional continued, “HLL contributes 20 per cent of the entire 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 plenty of shopper understanding and insights comes from an train like Undertaking Shakti, which in flip can result in product innovation.”
HLL acknowledged that for Undertaking Shakti to achieve success for the corporate’s rural penetration, sellers and communicators have to be effectively skilled. It was unclear how sellers would carry out in an expanded infrastructure. Though HLL’s rural initiatives incurred enormous prices to the corporate, it was anticipated that with the monsoon revival and better rural incomes may decline the payback interval for initiatives like Shakti. Furthermore, the lowering model loyalty amongst city customers rural market had turn out to be an crucial. In keeping with the Concurs Ok.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 imagine that by concentrating on cheaper price factors and additional increasing the distribution community, corporations can faucet the potential of rural markets. Initiatives like Undertaking Shakti will assist them in establishing and consolidating their base in rural markets.”
HLL must decide whether or not Undertaking Shakti might be repeatable in different international locations. The Indian household construction and village interplay present a novel diffusion mechanism that’s an efficient automobile for Shakti. Whether or not this mannequin might be efficiently carried out in different international locations have to be additional explored. Furthermore, it want to search out out whether or not the Undertaking Shakti or e-choupal like initiatives might be elevated. There was little doubt that the regional manufacturers, and even bigger FMCG corporations, didn’t have the sort of distribution attain that HLL had established and in the long term, that might show a winner for HLL.