Merchandising and Procurement practices of Rural retailers and compare and contrast with Urban retailers

Management Development Institute

Gurgaon 122 001 December, 2011

Submitted To: Prof. S. Chandwani MDI, Gurgaon

Submitted By: Group 1 Abha Bhuskute Deepak Ranjan Rout Nikhil Singhal Venkata Narsi Reddy 10P133 10P135 10P155 10P178

ACKNOWLEDGEMENT
We would like to express our deepest gratitude to Prof. S. Chandwani for guiding us on the course Issues in Rural Marketing and for his invaluable guidance, support, and encouragement throughout our term paper which has helped us in the successful completion of our project.

We also extend our gratitude to our friends who directly or indirectly helped us during our project work.

Abha Bhuskute Deepak Ranjan Rout Nikhil Singhal Narsi Reddy

TABLE OF CONTENTS

ACKNOWLEDGEMENT ....................................................................................... 3

Objectives of the Project: 1. Understanding the merchandising practices being followed in Kiryana stores in rural areas 2. Understanding the procurement practices of Kiryana stores in rural areas

Stores Selected: Kiryana Stores in villages Kiryana stores cater to the basic day to day needs of rural people in villages & keep a large number of products which includes some big brands as well as local brands. As these stores are have big brands as well, we wanted to study if these retail stores are being influenced by MNCs for merchandising & what is the procurement methods being followed by the rural retailers and contrast it with urban retailers where the channels of distribution are established & well developed.

Primary Research: To collect information about the rural retailers villages near Gurgaon were visited, details of which are given below. For understanding urban retailers, Retailers in Gurgaon & Rohini, Delhi were visited. Interviews of these retailers were conducted asking various questions about the practices they follow related to merchandising & procurement. Village Visited Basai Village near Gurgaon Teekli Road near Sohna Road Urban Retailers Visited: Sector-14 Gurgaon Sector-9 & 13, Rohini, Delhi These are villages in Gurgaon District and can be categorized as well off villages with constant interaction with urban areas as they are in vicinity (10-15kms) from urban areas. People regularly travel between village & urban centers for work & to meet other needs.

Procurement Practices in Rural vs Urban Retailing - Our Observations:

The procurement practices in urban and rural retailing differ in two ways in terms of replenishment cycle and in terms of travelling. 1. In terms of travelling: Rural Retailers In the villages visited by us, the retailers themselves travel to the nearby wholesalers to procure stocks of FMCG goods. Shopkeepers with larger shops and greater inventory, hire tempos to bring their stock from the wholesaler to their shops. They usually go themselves for procuring or send their sales boys while they manage the store themselves. Shopkeepers with smaller shops use their cycles or motorbikes for transportation of the stocks. This also leads to smaller replenishment cycle which is discussed in detail below. Given the poor road connectivity and smaller inventory procured per cycle, wholesalers are reluctant to supply these shops and hence they have to do the procuring themselves. In case of local products like chips, bread, biscuits etc. the manufacturers generally send their aids with stocks on cycles and motorbikes to supply the retailers. For many of the above products, distributors send sales boys on cycle carrying loads of material who visit many villages every day. Procurement of products is done through this channel. Urban Retailers However in urban retail, it is the wholesalers who supply the retailers with stocks periodically using tempos or mini trucks as the medium of transport. Given the larger bulk of supply and much better connectivity, the wholesalers are willing to bear the transportation costs in urban areas.

2. In terms of number of days per replenishment cycle: Rural Retailers For the retailers visited in Basai Village and Teekli Road, the replenishment cycle is two to three days for FMCG products which are obtained from the wholesalers and every alternate day for local products like potato chips, biscuits etc. which have a short shelf life. The retailers attributed this short replenishment time to the lack of storage space as they had small stores and used their houses as well as a part of the store for stock keeping. Also, they could not afford to invest capital to buy goods to last for longer periods and the customer base being very small, limited to one or two nearby villages, they did not want goods to lie in stock for longer periods. They also said that shorter replenishment time was more suitable for them because FMCG companies changed schemes, discounts and offerings very fast and advertised the same via mass media. But since the time to market was much longer, customers were unwilling to buy older stock without discounts once they heard about the new discounts. Since the shopkeepers had to procure stocks themselves as compared to delivery by the wholesalers in urban areas, hence returning old stock regularly when customers did not want to buy them represented additional transportation costs for them. Hence shorter replenishment time helped the rural retailers overcome this problem.

Urban Retailers This is in contrast to urban retail, where the replenishment time is usually a week. Given the larger stores, greater capital investment, a huge customer base which leads to large demand as well as demand for greater variety of SKUs, urban retailers procure stocks in much larger quantities as compared to rural retailers which usually last for about a week.