HUL to look at financing rural retailers' purchases

Hindustan Unilever is looking at ways to provide finance to rural and small town FMCG retailers who are strapped for cash while buying goods and replenishing stocks.

While HUL has a thriving microfinance programme through Project Shakti for rural women, it is now making sure that the rural FMCG retailers have enough cash to buy their goods.

Speaking to Business Line , Mr Anshul Asawa, Vice-President, Marketing Operations, HPC & Foods (South Asia), said, “Today our biggest challenge in the rural markets is how to provide additional finance to FMCG retailers to whom we supply our goods on cash. We are looking at means to help them in generating finances, as credit is not always acceptable.”

Considering that rural FMCG retailers do not always have the means to access finance from banks, there could be a possibility that HUL might help them in getting easy finance to give them access to working capital. As Mr Asawa said, “We are evaluating finance options for rural FMCG retailers but have yet to decide on how this will be possible.”

According to Ms Nandini Chopra, Executive Director, Corporate Finance, KPMG India, “Raising finance may work well for the big modern retailers but smaller retailers have no fixed assets and tend to raise money by mortgaging their current assets. Such FMCG retailers feel the pinch in terms of constraints in working capital and do not always have the money to replenish their stocks.”

Typically HUL and other FMCG companies sell personal care products in the rural markets where the gross margins are generally higher than the foods category. “There has been dramatic increase in the sale of beauty and skin care brands in rural India. Today rural consumers tend to use the same brands as urban consumers,” added Mr Asawa.

HUL has adopted a direct distribution model for the rural markets and also employs advertising agencies such as Ogilvy and Lowe Lintas (Linterland) to sell brands such as Fair & Lovely, Lux and Lifebuoy. “Apart from distribution we have activation models to create demand in the rural markets. There are agencies like Ogilvy and Linterland who are helping us in accessing these markets,” said Mr Asawa.

At the recently concluded CII organised special session for FMCG, Mr Nitin Paranjpe, MD, HUL, said, “To succeed in India you have to succeed in Bharat. Bharat and India can no longer be differentiated.”

HUL expects the rural markets to contribute half of its Rs 18,000 crore turnover in the next five years.