I have been interacting with a bunch of folks who are building products targeting the rural markets in areas like irrigation, energy and services. What is interesting is all of them are looking for an efficient and scalable distribution channel to these rural markets.
If you look at rural India, the FMCG companies like ITC, Levers have built out a great distribution network. Look at any small outlet in the hinterlands of India and you can easily find cigarettes, biscuits etc available.
So for these new companies and products to reach these markets should not be an issue. The reality is this is a big hurdle.
Firstly India is a bast country with relatively disorganized infrastructure. Moving good from one place to another is not easy.
Secondly with a multitude of languages labeling and packing becomes an issue.
Thirdly most of transactions are primarily cash and carry based with little credit offered due to the lack of credit infrastructure like ratings, limited credit card penetration etc.
Also there is the if issue of customer acceptance of products and market viability. Distributors will not take the risk of buying products with clear understanding of the market viability ( since they pay cash down for most products today).
I spent a day at a small village that is about 100 km from Bangalore and takes about 2 hours to get to. There is good bus connectivity but no real rail connectivity.
I did a little impromptu survey with the local retailers about their business and the distribution channels available to them.
The bottomline is most of them could
Access popular FMCG products like chocolates, ciggarettes, biscuits etc. They mostly got them directly from the city on bikes or at times through distributors. They also know the demand for specific products and are able to manage their procurement and inventory well but all their buying was cash down. Also when they run out of products they typically just or their ext big buying trip to the city, on the bike.
There is an opportunity here to create a scalable distribution network for the rural markets that addresses sine of issues around credit (using MFIs), transportation (using existing alternatives like buses and bikes). In addition the other value adds that can be leveraged include:
1. Better inventory management using simple SMS and mobile phones to increase product availability and sales
2. Capturing customer inputs and feedback to impove products and create products to meet rural demand. Most end retailers in rural areas are very close to their customers. Creating simple data collection mechanisms can be of enermous value.
We are incubating a company to do just this. Currently we are looking to run a pilot with a couple of new products and about 15 entrepreneurs in villages around Bangalore.
I will keep posting our experiences and the challenges we face out here.
Sorry typos are courtesy of iPhone.