“Our partnership with HUL offers the rural entrepreneur a lucrative enterprise product even though working i-Shakti kiosks. Also, lower cost supply and custom made solutions will end result in better benefit via enhanced economic gains for the rural consumers.”
~ Mr. Nachiket Much more
Executive Director, Wholesale Banking Group
“There is outstanding opportunity in rural marketplaces. That is where the expansion will arrive from.”
~ Sharat Dhall, Hindustan Lever’s director of new ventures and advertising solutions
Sankaramma, the chief of the regional Kanaka Durga self-support Group (SHG) belongs to K. Thimmapuram village’s Muddaner Mandal in the Kadapa district of Andhra Pradesh. The village has 350 households with a full inhabitants of 1200. Sankaramma’s 5 hectares of agricultural land was not ample for 6 member spouse and children because of to significant drought in the region. She started off a enterprise in April 2003 with the Hindustan Unilever Ltd. By 2005, she had a common month-to-month turnover of Rs.10,000 for every month. In the beginning she marketed door to door, but thereafter the shoppers started off browsing her home for solutions. She sees Project Shakti as a mean for the vivid futures of her young children. Project Shakti also enabled her to supply mid-working day foods at the main faculty in her village. Nowadays, Sankaramma has become a vital development determine in her village.
Usha Sarvatai, a mom of two, traveled 32 km every day to work. Her husband’s cash flow was not ample for the two young children and their previous mothers and fathers. But the long distance and the odd timings of the work forced Usha to give up the work. Then she obtained a call from the Government dept. to show up at a assembly, convened by Project Shakti. Usha turned a Shakti Amma and started off a new venture. In a quick span the very good relationships she made with the villagers aided her do very good enterprise. She states, “I am pleased satisfying my family’s requirements and individuals give me a great deal of regard nowadays.” And she is now incredibly eager to increase her enterprise in the several years to arrive.
The record does not conclude below. Hindustan Lever Ltd., a subsidiary of Unilever is counting on hundreds of gals like Sankaramma and Usha Sarvatai to market its solutions to the rural consumers it could not access right before. By 2005, about 13,000 weak gals had been providing the company’s solutions in fifty,000 villages in India’s 12 states and contributed for fifteen% of the company’s rural product sales in individuals states . The gals generally earned amongst $16 and $22 for every month , normally doubling their house cash flow which was utilised to educate their young children. General, about thirty% of Hindustan Lever’s revenue came from the rural marketplaces in India
Begun in the late 2000, Project Shakti had enabled Hindustan Lever to obtain eighty,000 of India’s 638,000 villages . Hindustan Lever’s director of new ventures proudly expressed, “At the conclude of the working day, we’re in enterprise. But if by performing enterprise we can do some thing beneficial, it can be a terrific earn-earn product.” Hindustan Lever was not the only firm recognizing the wide advertising opportunity in rural India. With the saturation of urban current market, the businesses started off reengineering their enterprises and solutions to goal rural consumers who are weak but are loaded in aspirations fueled by the media and other forces.
Unilever in India: Business enterprise and Development
Unilever was the world’s most significant Rapid Transferring Customer Goods (FMCG) firm with a around the world revenue of $fifty five billion in 2005 . It is Indian subsidiary, the Hindustan Unilever Limited (HUL) was the country’s most significant FMCG firm with blended volumes of about 4 million tonnes and revenues in close proximity to about $two.43 billion . HUL’s important brand names included Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Charming, Pond’s, Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall’s and so on. These had been manufactured in excess of 40 factories across the state .
In 1931, Unilever established up its initially Indian subsidiary, Hindustan Vanaspati Production Company . Thereafter the Lever Brothers India Limited and United Traders Limited had been established in 1933 and 1935 respectively. In November 1956, these three businesses merged and type HUL. Unilever’s share in HUL was 51.fifty five% in 2005 and the remaining of the shareholding was dispersed amid about 380,000 particular person shareholders and economical 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 next a expansion strategy of diversification normally in line with Indian opinions and aspirations.
The economic and political development in the nineties had marked an inflexion in HUL’s and the Group’s expansion curve. Economic liberalization permitted the firm to examine each individual solitary merchandise and chance segment, devoid of any constraints on creation capability. On the other hand, deregulation authorized alliances, mergers and acquisitions. In 1993, HUL merged with the Tata Oil Mills Company (TOMCO) 1993 . In 1995, HUL shaped a fifty:fifty joint venture with one more Tata firm, Lakme Limited .
The firm had also manufactured a string of mergers, acquisitions and alliances in the Foodstuff and Beverages sector. Some of these had been the acquisition of Kothari General Foodstuff (1992), Kissan (1993), Dollops Icecream enterprise from Cadbury India (1993), Present day Foodstuff (2002), Cooked Shrimp and Pasteurised Crabmeat enterprise of the Amalgam Group of Companies (2003) .
With 12.two% of the entire world inhabitants residing in the villages of India, the country’s rural FMCG current market had a large opportunity . The Indian FMCG sector was the fourth most significant sector in the economy with a current market sizing of $13.1 billion . The sector was predicted to increase by in excess of 60% by 2010. In 2005-2006 the urban India accounted for sixty six% of full FMCG use, with rural India accounting for the remaining 34% . Nonetheless, rural India accounted for more than 40% use in important FMCG groups this sort of as private treatment, fabric treatment, and scorching drinks . The Bid FMCG businesses this sort of as HLL, Nirma and ITC joined the foray to tap the large opportunity.
In the nineties, a regional Indian firm, Nirma Ltd. started off offering detergents to the rural weak at the most affordable cost. The firm had produced a enterprise process with a new merchandise formulation, lower-cost manufacturing, vast distribution channel, exclusive packaging and price pricing. Just after a decade, Nirma turned just one of the most significant branded detergent makers with a 38% current market share and 121% return on its cash utilized .
In 2002, ITC established up a community of world wide web-based kiosks, e-choupals, to support the farmers in their procurement method. The initiative started with the soya growers in Madhya Pradesh and then expanded to cotton, tobacco, shrimp and so on. Starting with 6 e-choupals in June 2000, ITC’s Internet-based, rural initiative had linked six,000 Indian villages with about 1,200 e-choupals by 2002. The environment up of every e-choupal involves an investment of Rs 1-three lakh .The goals driving e-choupals was to enable solitary place procurement and buy position, allowing for farmers to market their solutions instantly to ITC on the basis of up to date existing selling prices prevailing in the current market. This eliminated middlemen and consequently aided ITC to slash its costs.
In 2007, about 34% of the FMCG solutions product sales came from rural spots . The quantity of households that utilised FMCG solutions in rural India had developed from 13.six crore in 2004 to fourteen.three crore in 2007 . This expansion was accomplished on an common 1.8% yr-on-yr expansion in the quantity of households, which use at least just one FMCG merchandise. Nonetheless, the expansion in penetration degree for the complete FMCG solutions was not identical. In accordance to just one review by a current market study firm IMRB, the month-to-month use of detergents and toilet soaps remained largely stagnant with a 92% penetration, but that of liquid shampoos grew from sixty eight% in 2004 to 83% in 2007 . These figures unveiled a shift to better-price solutions amid the rural current market, from toothpowder to toothpaste or from unbranded to branded solutions. In accordance to the senior project director of IMRB Global, Manoj K Menon, “One particular of the most sizeable alterations, includes expanding preference to branded solutions. For instance, in the food and drinks segment, penetration of branded atta has long gone up yr-on-yr by 8 for every cent and branded salt by three for every cent. The penetration of unbranded atta has reduced by 1 for every cent and salt by three for every cent.”
The HLL Internet marketing Effort: Changeover to Rural Industry
HUL’s competitive advantage generated from three sources. Initially it can be robust very well established brand names, second, its regional manufacturing capability and provide chain and third its wide product sales and distribution process. It was soon felt that HUL’s product sales and distribution process which had shielded it from competition would be soon replicated by its rivals and to retain its edge, the firm had to improve its access outside of the urban marketplaces. So considerably the functions of HUL included more than two,000 suppliers and associates. The distribution community, consisted of 4,000 stockists, masking six.three million retail retailers reaching the complete urban inhabitants, and about 250 million rural consumers .
Commonly, the goods created in every of the HUL’s 40 factories had been sent to a depot with the support of a carrying and forwarding agent (CFA). The firm had its depot in each individual state of the state. The CFA was a third party and obtained servicing fee for inventory and supply of the solutions. In every city, there was a redistribution stockist (RS) who took the goods from the CFA and market them to retail retailers. By the late nineties, the HUL administration realized sure difficulties with the present product sales product. Initially, the product was not feasible for little towns with little inhabitants and little enterprise. HUL found it costly to appoint just one stockist exclusively for every city. Secondly, the retail revolution in the state alterations the pattern the shoppers store. Large retail self support outlets had been established. In the reaction of these difficulties, HUL redesigned its product sales and distribution channel and the new process was recognised as ‘diamond model’ in the firm. At the best conclude of the diamond, there had been the self support retail shops which constituted 10% of the full FMCG current market. The middle, fatter aspect of the diamond represented the revenue-middle based product sales crew. In the base of the pyramid was the rural advertising and distribution which accounted for twenty% of the enterprise .
Almost three-fourth of the full 1.two billion Indian inhabitants resided in the rural spots and vast majority of them had a incredibly lower for every capita cash flow (about forty four% of that of urban India) . City current market had arrived at the saturation position, consequently switching target on rural India. In comparison to just 5,161 towns in India there are six,38,365 villages in India [Exhibit I]. Also, more than 70% of India’s inhabitants lived in villages and manufactured a large current market for the FMCG marketplace because of rising disposal incomes and consciousness degree.
Distribution of Villages in India
Resource: Kash Rangan, Sehgal Dalip et. Al., “Worldwide Poverty: Business enterprise Ways and Alternatives”, http://www.hbs.edu/socialenterprise/pdf/three-Rangan&Rajan-Presentation.pdf
When HLL shifted to the rural India, it confronted several difficulties. In distinction with a lower for every capita cash flow comparative to the urban citizens, there had been some spots with adequate cash but their consciousness degree and consumerism was incredibly lower. Secondly, rural FMCG demand was depended upon agricultural predicament which was again depended upon monsoon. Transportation was also a important hindrance. Several of the rural spots had been not related by rail transport. The Kacha streets had been unserviceable for the duration of the monsoon and interior villages get isolated. Moreover transportation, there was a difficulty of distribution and communication amenities this sort of as telephone, fax and world wide web. Also, the lives in rural spots had been nonetheless ruled by ethnicity and traditions and individuals did not basically get utilised to new techniques. For instance, even loaded and educated course of farmers does not dress in jeans or branded shoes. The getting choices in villages had been gradual and delayed. They required to give a trial and acquire only after becoming glad. And, lastly the weak illiterate villagers viewed expertise more critical than formal education and learning and they valued product sales individuals who could supply simple options to their difficulties.
HLL approached the rural current market with two conditions – the accessibility and viability [Exhibit II]. Close to 40% of the obtainable rural current market had superior enterprise opportunity. To support this segment, HLL appointed a popular stockist who was liable for all retailers and all enterprise within his particular city. In the twenty five% of the obtainable marketplaces with lower enterprise opportunity, HLL assigned a retail stokist who was liable to obtain all the villages at least once in a fortnight and ship stocks to individuals marketplaces. This allows HLL to affect the stores stocks and quantities marketed via credit rating extension and trade reductions. HLL launched this Oblique coverage (IDC) in 1960s.
To cater the requirements of the inaccessible current market with superior enterprise opportunity HLL initiated a Streamline initiative in 1997. HLL appointed rural distributors and Star Sellers. The star vendor purchased goods from rural distributors and dispersed them to stores in little villages utilizing the regional mean of transport. In this way about 35% of the inaccessible rural current market came less than the control of HLL. But a nonetheless untapped current market – the inaccessible but lower enterprise opportunity current market was remaining exterior. The sizing of this untapped current market was believed to be about five hundred,000 villages with a inhabitants in excess of five hundred million . At this phase, Project Shakti was conceived.
HLL’s Technique to Rural Industry
Minimal Business enterprise Potential High Business enterprise Probable
Obtainable Markets Indirect Protection (twenty five%)Direct Protection (40%)
Inaccessible Markets Space for Shakti Streamline (35%)
Resource: V. Kasturi Rangan Rohithari Rajan, “Unilever in India: Hindustan Lever’s Project Shakti–Internet marketing FMCG to the Rural”, http://www.caseplace.org/d.asp?d=244 – 27k
HLL soon realized that although it was having fun with a better penetration in the rural current market when when compared with its competitor this sort of as Nirma and ITC, its direct access was restricted to only 16% . The FMCG giant was determined to improve this share. HUL observed its aspiration achievement in the wide Indian rural current market. The firm was already engaged in rural development with the launch of the Integrated Rural Progress Programme in 1976 in the Etah district of Uttar Pradesh. This program was in tandem with HUL’s dairy functions and covered five hundred villages in Etah. Subsequently, the firm released equivalent plans in adjacent villages. These things to do primarily aimed at schooling farmers, animal husbandry, creating alternate cash flow, health and fitness & hygiene and infrastructure development. The principal situation in rural development was to make cash flow-creating prospective clients for the weak villagers. This kind of initiatives, linked with the company’s main enterprise, turned profitable and sustainable and proved to be mutually advantageous to each the firm ant its rural shoppers. Nonetheless, a lot remained to be accomplished. Project Shakti was conceived.
Next the groundbreaking work carried out by Grameen Financial institution of Bangladesh , Self Support Teams (SHGs) of rural gals had been shaped by quite a few establishments, NGOs and authorities bodies in villages across India. This group of usually fifteen members contributed a little amount of money of cash to a popular pool and then presented a micro-credit rating to a member of the group to devote in a typically accredited economic action. Partnering with these SHGs, HLL started off its Project Shakti in Nalgonda district of Andhra Pradesh in fifty villages in the yr 2000. The social aspect of the Project Shakti was that it was aimed to make cash flow-creating abilities for underprivileged rural gals, by offering a sustainable micro company chance, and to strengthen rural dwelling requirements via health and fitness and hygiene consciousness. Most SHG gals viewed Project Shakti as a powerful enterprise proposition and are keen individuals in it. There after it was extended in other states with the full energy of in excess of 40,000 Shakti Business owners.
HLL presented a vast range of solutions to the SHGs, which had been relevant to rural shoppers. HUL invested considerably in sources who work with the gals on the field and supply them with on-the-work schooling and assistance. HUL furnished the vital schooling to these groups on the fundamental principles of company administration, which the gals need to regulate their enterprises. For the SHG gals, this translated into a a lot-needed, sustainable cash flow contributing to superior dwelling and prosperity. Armed with micro-credit rating, gals from SHGs become direct-to-home distributors in rural marketplaces [Exhibit III].
Construction of HLL’s Industry Attain in India
Resource: Kash Rangan, Sehgal Dalip et. Al., “Worldwide Poverty: Business enterprise Ways and Alternatives”, http://www.hbs.edu/socialenterprise/pdf/three-Rangan&Rajan-Presentation.pdf
Shakti: How it functions
In common, a member from a SHG was selected as a Shakti entrepreneur, typically referred as ‘Shakti Amma’ gained stocks from the HLL rural distributor. Just after properly trained by the firm, the Shakti entrepreneur then marketed individuals goods instantly to consumers and stores in the village. Each individual Shakti entrepreneur usually serviced six-10 villages in the inhabitants strata of 1,000-two,000 individuals with 4-5 important brand names of HLL – Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic As well as. Apart from these, other brand names included Lux, Ponds, Nihar and three Roses tea. The Shakti business people had been provided HLL solutions on a `cash and carry basis.’ Nonetheless, the regional self-support groups or banking companies furnished them micro credit rating where ever required. In accordance to Dalip Sehgal, Executive Director, New Ventures & Internet marketing Providers, HLL Project Shakti was including up to fifteen% of HLL product sales in rural Andhra Pradesh. He additional asserted that provided the largeness of the state and backwardness of its gals, Project Shakti-like endeavor would place everyone in a earn-earn predicament.
I-Shakti: Crossing the Border
Encouraged by the goodwill and achievements of Project Shakti, in August 2003, HLL launched an Internet-based rural data support, termed I-Shakti, in Andhra Pradesh, in affiliation with the Andhra Pradesh Government’s Rajiv Internet Village Programme. I-Shakti was an IT-based rural data support to supply vital data to the rural individuals in fields like agriculture, education and learning, vocational schooling, health and fitness, hygiene and the like [Exhibit IV]. The aim driving the i-Shakti product was to give need based demand driven data and solutions in the villages.
The i-Shakti kiosk was operated by the Shakti Entrepreneur. This was predicted to improve their marriage with their shoppers. HUL predicted that this would strengthen the productivity of the rural local community and unlock economic and social development.
A snapshot of the ‘i-Shakti’ site
Resource: “HUL Shakti-Switching lives in rural India.”, http://www.hllshakti.com/sbcms/temp1.asp?pid=46802256 – 41k
I-Shakti was based on an interactive discussion technological know-how made & patented by the Unilever Company Investigation Staff, U.K. The process enabled an in-depth being familiar with of every person requirements and therefore improved the high quality of solutions presented to them. The APonline , had tied up with i-Shakti to launch a variety of solutions. Also, via i-shakti, the ICICI Financial institution and HUL jointly furnished a variety of economical solutions and solutions this sort of as everyday living and common insurance policy, investment solutions (Fairness, Mutual Money, Bonds), ICICI Financial institution Pure Gold (gold coins), Private Credit, Rural Savings Accounts and Remittances to the rural shopper.
Redefinition Rural Distribution: Switching Lives
Getting profitable in Nalgonda, in 2003 HLL prepared to broaden Shakti to a 100 districts in Madhya Pradesh, Gujarat and UP. There had been other plans this sort of as to enable other businesses (except HLL’s competition) this sort of as Nippo, TVS Motor for mopeds, insurance policy businesses for LIC guidelines to get on to the Shakti community to market their stocks. Sehgal was searching proud when he announced, “We required to initially stabilise the project right before we can look at other businesses. It calls for somebody with scale and sizing to make a platform and then invite other businesses on to this platform.” He additional emphasized that Shakti was producing a earn-earn partnership amongst HLL and its consumers.
There had been about 4.36 lakh gals SHGs in AP with pretty much fifty eight.29 lakh weak gals. AP by itself had about fifty percent of the SHGs of the state. By 2005 the SHGs had mobolised Rs 1500 crore had mobilised as corpus. The rural gals organised them selves into `thrift and credit’ groups with a saving of Re.1 a working day which produced a fund of more than Rs 800 crore. Though the cost savings was there amid the SHGs, there was no channel of investment. HLL tapped this large ignored community to launch Project Shakti. HLL has ready tp supply a window of prospect to devote and gain.
The affect of HLL was not all of a unexpected. HLL witnessed fifteen% incremental product sales from the villages of AP, which accounted fifty% of the full product sales of HLL solutions in AP. Industry analysts had been perceiving a large opportunity in the rural foray of HLL. Nikhil Vora, Sr. Vice President of study group Request Raymond James considered that if there was just one firm that could choose on the onus of building the rural marketplaces, it was HLL. He additional ongoing, “HLL contributes twenty for every cent of the full FMCG enterprise in the state. So, plainly, the onus is on HLL to increase the current market. Returns might not come about in the future 5 several years, but a great deal of consumer being familiar with and insights arrives from an exercise like Project Shakti, which in flip can direct to merchandise innovation.”
HLL acknowledged that for Project Shakti to be profitable for the company’s rural penetration, sellers and communicators ought to be very well properly trained. It was unclear how sellers would carry out in an expanded infrastructure. Though HLL’s rural initiatives incurred large costs to the firm, it was predicted that with the monsoon revival and better rural incomes could decline the payback time period for projects like Shakti. Also, the reducing model loyalty amid urban consumers rural current market had become an crucial. In accordance to the Concurs K.N. Siva Subramanian, Sr. Vice President, Franklin Templeton India Ltd, “The (HLL) administration had acknowledged the impending saturation of the urban marketplaces some time back and launched aggressive plans to capture the rural marketplaces. Nonetheless, a slowdown in the agricultural sector resulted in rural incomes remaining flat and influencing product sales. We believe that that by focusing on decrease rate details and additional increasing the distribution community, businesses can tap the opportunity of rural marketplaces. Initiatives like Project Shakti will support them in establishing and consolidating their base in rural marketplaces.”
HLL would have to decide irrespective of whether Project Shakti could be repeatable in other international locations. The Indian spouse and children structure and village interaction supply a one of a kind diffusion mechanism that is an effective vehicle for Shakti. Regardless of whether this product could be properly executed in other international locations ought to be additional explored. Also, it need to obtain out irrespective of whether the Project Shakti or e-choupal like initiatives could be enhanced. There was no doubt that the regional brand names, or even greater FMCG businesses, did not have the kind of distribution access that HLL had established and in the long operate, that could demonstrate a winner for HLL.