HUL, P&G leaders in direct distribution at village level in India: Xpand report

According to the report, Britannia's topmost position in the availability at village level is highest among all the companies

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HUL, P&G leaders in direct distribution at village level in India: Xpand report

Hindustan Unilever and Procter & Gamble are among the leaders in direct distribution at village level in India, as per a recent report by Xpand.

Xpand, a rural marketing consultancy firm, has released a report on rural distribution in India, highlighting the enormous potential for growth in rural markets. The report stated that rural retailers are fast adopting digital payment technologies, while they continue to use cash for transactions.

Rural consumer aspirations are rising and they want to try new products and brands, especially post reverse migration in rural areas due to COVID-19. For making their products available, the companies should get into strategic partnerships, where there is transparency and reliability, unlike the wholesale channel, which runs on subjective business speculation of wholesalers, according to a report by Xpand. 

According to the report, the rural market in India is one of the fastest-growing markets in the world and remained resilient during the pandemic, with demand for essential goods remaining strong. 

Rural markets have seen significant improvements in infrastructure, connectivity, and literacy rates that have brought the economic potential of rural markets to an inflection point. However, these markets are considered to be the most challenging for corporates to penetrate and grow.

Fast-Moving Consumer Goods (FMCG) comes as the 4th largest sector of the Indian economy where the contribution of Food and Beverage CF&B) is 19%, health and hygiene is 31%, and personal care is 50%. The FMCG market in rural India is witnessing a rapid expansion and holds immense untapped potential. 

With a market size of Rs 6.5 lakh crore in 2020, it is projected to reach a massive Rs 17.6 lakh crore by 2025, as per market research. Furthermore, rural retailers cover 60% of the total FMCG outlets in India, indicating the substantial role they play in driving the growth of the FMCG market. 

India's rural markets hold the key to sustainable growth. Companies that recognise this opportunity are stepping up their game to gain a strong foothold in these areas. Corporate giants are leading the way with their strategic focus on expanding rural reach, as per the report. 

Need to re-align distribution realities to unlock the rural potential

The survey has been designed and conducted to understand the availability of brands in the rural heartland of UP and Bihar - two of the most rural populous states of India, with high density of outlets and population that resides in villages below 25,000 population.

The survey was conducted in 75 districts of UP and 38 districts of Bihar, across 500+ villages, with sample size being 1000 plus outlets. The survey was carried out in October and November 2022.

"We find that companies implement a mix of wholesale and direct distribution models," the report read. 

As many as 51 FMCG players with multiple categories and wide SKU (stock keeping unit) lines are available in 25,000 and below markets, with their direct distribution model and through wholesale channels. 

In availability through direct distribution at village level, HUL and P&G lead the pack, with an availability range of over 50%, pointing to their robust distribution networks. Parle, being operative since 1929 is ranked behind ITC that has just forayed in FMCG business in 2001. Thereby clearly reflecting the merit of direct distribution and winning over the timelines of availability of a particular company in the marketplace, the report stated. 

Another insight from direct distribution figures is that distribution network wins over the consumer equity. Companies like Parle Agro and Colgate Palmolive lose on the availability at village level i.e. in less than 30% of the surveyed villages, by way of direct distribution, compared to brands such as PepsiCo, Britannia and ITC.

Top ranking companies including HUL and P&G, have been the pioneers in product design for rural areas, with their low-cost and single-use packets and given the product portfolio these companies operate in, the penetration still has room for improvement. Availability of ITC's tobacco products were not considered for the survey. 

Britannia's topmost position in the availability at village level is highest among all the companies. Even companies including Jyothy Labs, Dabur and DS Group hold a strong presence in ruralthrough their wholesale network compared to their direct distribution availability. This highlights the potential of wholesale as a driver for certain categories such as impulsive and those with strong low-cost product design and high consumer equity.

Companies with limited range of products are seen to make the wholesale back bone of their distribution channel. The surprising presence of Britannia should not be mistaken as having neck to neck availability compared to HUL, ITC and P&G because their presence is sheer through a limited range of products, against a larger portfolio of HUL and P&G.

Clear trade-off for wholesale channel vis investing in direct distribution

Wholesale business in rural distribution comes out to be speculative in nature rather than distributive in function. Well established brands of a company get easily pushed through wholesale. 

Another factor which contributes to the prevalence of wholesale distribution is the availability is indirectly proportional to the physical space occupied by a particular product. There will be a primacy of wholesale distribution owing to convenience of buying multiple brands at the wholesale point and carrying back stocks by the rural retailer.

The wholesale contribution in distribution is higher for many companies hence they spring up in percentage of total availability at village level where the SKUs are limited and smaller for rural retailer to carry. Britannia tops the chart with their strong wholesale distribution. PepsiCo also jumps up at sixth place, surprisingly not because of its flagship beverage but their snack brands Kurkure and Lays.

Apart from Britannia we can see that all top FMCG companies such as HUL and P&G have balanced interplay between the two channels of distribution. Even for ITC, given they had started their non-tobacco FMCG operations way after their top-competitors, the distribution between two channels shows a good balance.

How many FMCG categories are stocked in most of the rural retail outlets?

As per industry estimates, big stores stock close to 25-30 categories on an average, whereas smaller stores keeping mostly loose staple items, stock four to five essential categories such as biscuits/snacks, soaps and detergents.

As per survey also we can see that the number of categories stocked in an outlet is proportional to the population of the village.

Leading FMCG players operate in diverse categories. The availability of product categories at village level is similar to brand availability in the same geography. Detergents, hair care and soaps emerge as the top three categories in direct distribution whereas in wholesale and overall availability biscuits and cookies category tops the charts.

Snacks, confectionery and cosmetics, baby care (diapers), are the categories which are more wholesale driven. Emergence of categories like baby care and personal care reflects the rising aspirations and purchasing power of the rural population.

If a brand reaches the village, it reaches the potential outlets in the villages. In village versus outlet level, there is minimal difference in the availability of brands. The scores of top companies remain the same at village as well as outlet level availability, with a mere 7-8% difference.

It is the direct distribution reach that companies need to engineer to reap the benefits of rural potential.

Companies with biggest share in terms of number of brands reaching rural

Only two leading players including HUL and P&G which have a fair intermix of direct and wholesale distribution in below 25,000 markets, lead the list of top brands in terms of availability. Companies with a decent timeline of establishment in the Indian market and low cost products designed for rural, like Emami, Dabur, Godrej are confined to three brands in the list of top available brands in our target market of survey.

There are many brands which are more available through direct distribution as compared to wholesale, including Tide, Wheel and Ariel. The common factor is all of these being detergent brands, we can establish that high involvement products like detergent, are more available through direct distribution.

Established brands which are yet to leverage the rural potential

Out of 51 leading FMCG national players that were a part of our survey, many companies can be identified that have low availability at the village level, despite having good equity among the consumers. 

Many brands have less than 30% availability, signalling the need for improvement in their distribution networks. This finding underscores the importance of investing in distribution channels for FMCG companies, as it can significantly impact their market share in rural areas.

Even Patanjali, which has positioned itself as a company tailored for Indian consumers, has a low penetration by way of availability at village level. Brands Rasna, Hamdard, Priya Gold, Anmol Biscuits and Ajanta do not emerge with strong presence despite being in the market for 30-50+ years and low-cost products suiting the affordability quotient of the rural consumers.

Influence of retailer on buying choices of consumer

Retailers play a crucial role in influencing the behaviour and purchasing decisions of consumers in rural areas. In many cases, they are the primary point of contact for consumers seeking to purchase goods and services.

FMCG ITC P&G HUL Report Hindustan Unilever Procter & Gamble Britannia Rural XPAND retailer wholesale