“Our partnership with HUL presents the agricultural entrepreneur a worthwhile enterprise mannequin whereas working i-Shakti kiosks. Additionally, low value supply and customised merchandise will lead to increased profit via enhanced financial good points for the agricultural customers.”
~ Mr. Nachiket Extra
Govt Director, Wholesale Banking Group
“There’s unbelievable potential in rural markets. That is the place the expansion will come from.”
~ Sharat Dhall, Hindustan Lever’s director of recent ventures and advertising 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 a daily month-to-month turnover of Rs.10,000 per thirty days. Initially she bought door to door, however thereafter the shoppers began visiting her residence for merchandise. She sees Undertaking Shakti as a imply for the intense futures of her kids. Undertaking Shakti additionally enabled her to offer mid-day meals on the major college in her village. Right this moment, Sankaramma has turn out 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 Her husband’s earnings was not adequate for the 2 kids and their outdated dad and mom. However the lengthy distance and the odd timings of the job pressured Usha to stop the job. Then she bought 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 happy fulfilling my household’s necessities and folks give me plenty of respect at the moment.” And he or she is now very wanting to develop her enterprise within the years to come back.
The checklist doesn’t finish right here. Hindustan Lever Ltd., a subsidiary of Unilever is relying on hundreds 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 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 per thirty days , usually doubling their family earnings which was used to teach their kids. Total, 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 recent ventures proudly expressed, “On the finish of the day, we’re in enterprise. But when by doing enterprise we are able to do one thing constructive, it is an incredible win-win mannequin.” Hindustan Lever was not the one firm recognizing the huge advertising 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 Development
Unilever was the world’s largest Quick Transferring 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, Honest & 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 development technique of diversification all the time in keeping with Indian opinions and aspirations.
The financial and political improvement within the Nineties 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 section, with none constraints on manufacturing capability. Then again, 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 have 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 economic 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% . Nonetheless, rural India accounted for greater than 40% consumption in main FMCG classes comparable to private care, material care, and scorching drinks . The Bid FMCG corporations comparable to HLL, Nirma and ITC joined the foray to faucet the large potential.
Within the 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 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 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 development was achieved on a median 1.8% year-on-year development within the variety of households, which use not less than one FMCG product. Nonetheless, the expansion in penetration degree for your entire FMCG merchandise was not similar. Based on 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 direction of higher-value merchandise among the many rural market, from toothpowder to toothpaste or from unbranded to branded merchandise. Based on the senior mission director of IMRB Worldwide, Manoj Ok Menon, “Probably the most important modifications, contains rising choice in direction of branded merchandise. For instance, within the meals and drinks section, 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 rivals can be quickly replicated by its rivals and to keep up 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, masking 6.3 million shops reaching your entire city inhabitants, and about 250 million rural customers .
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 occasion and bought servicing charge 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 Nineties, 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 solely for every city. Secondly, the retail revolution within the nation modifications the sample the shoppers store. Massive retail self service retailers have 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 prime finish of the diamond, there have been the self service retail shops which constituted 10% of the overall FMCG market. The center, fatter a part of the diamond represented the profit-center based mostly gross sales crew. Within the backside of the pyramid was the agricultural advertising and distribution which accounted for 20% of the enterprise .
Virtually three-fourth of the overall 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 give attention to 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 a giant 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., “International 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. Most of the rural areas weren’t linked 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 amenities comparable to phone, fax and web. Furthermore, the lives in rural areas have 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 choices in villages have been gradual and delayed. They needed to present a trial and purchase solely after being glad. And, lastly the poor illiterate villagers seen expertise extra vital than formal training they usually 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 section, HLL appointed a standard stockist who was answerable 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 not less than as soon as in a fortnight and ship shares to these markets. This permits HLL to affect the retailers shares and portions bought via credit score extension and commerce reductions. HLL launched this Oblique protection (IDC) in Nineteen 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 approach 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 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 Method 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 – 27k
HLL quickly realized that though it was having fun with a higher penetration within the rural market compared with its competitor comparable 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 improvement with the launch of the Built-in Rural Improvement 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 various earnings, well being & hygiene and infrastructure improvement. The principle problem in rural improvement 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 useful to each the corporate ant its rural clients. Nonetheless, a lot remained to be performed. Undertaking Shakti was conceived.
Following the pioneering work carried out by Grameen Financial institution of Bangladesh , Self Assist Teams (SHGs) of rural girls have 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 sum of money to a standard pool after which supplied a micro-credit to a member of the group to spend money on a generally authorised financial exercise. Partnering with these SHGs, HLL began its Undertaking Shakti in Nalgonda district of Andhra Pradesh in 50 villages within the 12 months 2000. The social aspect 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 residing requirements via well being and hygiene consciousness. Most SHG girls seen Undertaking Shakti as a strong enterprise proposition and are eager members in it. There after it was prolonged in different states with the overall power of over 40,000 Shakti Entrepreneurs.
HLL supplied a variety of merchandise to the SHGs, which have 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 help. 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 girls, this translated right into a much-needed, sustainable earnings contributing in direction of higher residing 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., “International Poverty: Enterprise Approaches and Options”, http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf
Shakti: The way it works
On the whole, a member from a SHG was chosen as a Shakti entrepreneur, generally referred as ‘Shakti Amma’ obtained shares from the HLL rural distributor. After educated 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 folks 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.’ Nonetheless, the native self-help teams or banks supplied them micro credit score wherever required. Based on 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 data 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 data service to offer important data to the agricultural folks in fields like agriculture, training, vocational coaching, well being, hygiene and the like [Exhibit IV]. The target behind the i-Shakti mannequin was to present 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 clients. HUL anticipated that this is able to 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 Group, 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 supplied numerous monetary services comparable to life and normal 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 rivals) 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 trying proud when he introduced, “We needed to first stabilise the mission earlier than we are able to take a look at different corporations. It requires any individual 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 4.36 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 large ignored community to launch Undertaking Shakti. HLL has in a position tp present a window of prospect to take a position and earn.
The impression of HLL was not unexpectedly. HLL witnessed 15% incremental gross sales from the villages of AP, which accounted 50% of the overall 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 might tackle the onus of creating the agricultural markets, it was HLL. He additional continued, “HLL contributes 20 per cent of the overall 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 should be nicely educated. It was unclear how sellers would carry out in an expanded infrastructure. Though HLL’s rural initiatives incurred large prices to the corporate, it was anticipated that with the monsoon revival and higher rural incomes might decline the payback interval for tasks like Shakti. Furthermore, the lowering model loyalty amongst city customers rural market had turn out to be an crucial. Based on the Concurs Ok.N. Siva Subramanian, Sr. Vice President, Franklin Templeton India Ltd, “The (HLL) administration had acknowledged the approaching saturation of the city markets a while again and launched aggressive plans to seize the agricultural markets. Nonetheless, a slowdown within the agricultural sector resulted in rural incomes remaining flat and affecting gross sales. We imagine that by concentrating on lower cost 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 may very well be repeatable in different nations. The Indian household construction and village interplay present a singular diffusion mechanism that’s an efficient automobile for Shakti. Whether or not this mannequin may very well be efficiently applied in different nations should be additional explored. Furthermore, it want to seek out out whether or not the Undertaking Shakti or e-choupal like initiatives may very well 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.