Fast-moving consumer goods majors Hindustan Unilever, ITC and others seem to be benefiting the most from India Inc's new fixation with the rural markets.
Companies across sectors such as telecom, pharmaceuticals, banking and even cosmetics are queuing up to join forces with FMCG firms that have a reputation for running well-oiled and deeply entrenched rural distribution networks.
On Tuesday, HUL said its board has approved a proposal for an alliance with Tata Teleservices and Tata Teleservices (Maharashtra) for distribution of telecom products ‘leveraging the HUL distribution network in rural markets in India'.
A Tata Tele spokesperson said both parties are still in the process of working out the contours of the arrangement.
Recently, drug-makers Ranbaxy Laboratories and Pfizer tied up with ITC for distributing their over-the-counter products across 6,500 e-Choupal centres spread across 40,000 villages, sources said. (e-Choupal is an ITC initiative that links rural farmers directly via the Internet for procurement of agricultural and aquacultural products.)
SBI's tie-ups
State Bank of India (SBI) has tie-ups with both HUL and ITC to promote financial inclusion in rural pockets. According to a Crisil research report released earlier this year, HUL, which works with around 4,000 stockists, has access to 6.3 million retail outlets and 166 million households in India.
Mr Ranjit Kapadia, senior vice-president of Centrum Broking, is of the view that such commercial arrangements with FMCG majors is essential for companies that do not wish to invest in building their own distribution infrastructure in tier-two and tier-three cities.
“Creating a distribution network from scratch is a costly affair and hence arrangements with FMCG players are a win-win for both parties as network costs are shared. However, companies leveraging the FMCG's network will be successful only if they come up with a differential pricing mechanism, keeping in mind the sensitivity of the market,” said Mr Kapadia.
Going forward, even cosmetics makers should look to take this route as there is a huge demand for cosmetics and grooming products in the smaller cities and towns, he added.