Undertaking Shakti – A Win Win State of affairs

“Our partnership with HUL bargains the agricultural entrepreneur a successful industry variation whereas running i-Shakti kiosks. Additionally, low value supply and customised merchandise will lead to better merit via improved financial features for the agricultural shoppers.”

~ Mr. Nachiket Extra

Govt Director, Wholesale Banking Crew

ICICI

“There is improbable attainable in rural markets. Which is the place the expansion will come from.”

~ Sharat Dhall, Hindustan Lever’s director of recent ventures and advertising services and products

Sankaramma, the chief of the native Kanaka Durga self-assist Workforce (SHG) belongs to Ok. Thimmapuram village’s Muddaner Mandal within the Kadapa district of Andhra Pradesh. The village has 350 households with a complete inhabitants of 1200. Sankaramma’s 5 hectares of agricultural land was once now not enough for six member household because of extreme drought within the area. She began a industry in April 2003 with the Hindustan Unilever Ltd. With the aid of 2005, she had a typical month-to-month turnover of Rs.10,000 monthly. At first she bought door to door, however thereafter the shoppers began traveling her dwelling for merchandise. She sees Mission Shakti as an average for the brilliant futures of her kids. Venture Shakti additionally enabled her to supply mid-day foods on the major faculty in her village. Nowadays, Sankaramma has develop into a key building determine in her village.

Usha Sarvatai, a mom of two, traveled 32 km on a regular basis to work. Her husband’s profits used to be no longer adequate for the 2 youngsters and their outdated oldsters. However the lengthy distance and the abnormal timings of the job compelled Usha to stop the job. Then she acquired a name from the Executive dept. to attend a gathering, convened through Challenge Shakti. Usha changed into a Shakti Amma and began a brand new mission. In a brief span the great relationships she developed with the villagers helped her do just right industry. She says, “I’m chuffed pleasing my domestic’s necessities and other people supply me plenty of appreciate as of late.” And he or she is now very desirous to develop her industry within the years yet to come.

The record does no longer finish right here. Hindustan Lever Ltd., a subsidiary of Unilever is reckoning on heaps of ladies like Sankaramma and Usha Sarvatai to promote its merchandise to the agricultural shoppers it could not attain prior to. Via 2005, round thirteen,000 bad girls have been promoting the corporate’s merchandise in 50,000 villages in India’s 12 states and contributed for 15% of the corporate’s rural gross sales in these states . The ladies most often earned between $sixteen and $22 per 30 days , incessantly doubling their family profits which used to be used to coach their kids. General, round 30% of Hindustan Lever’s earnings got here from the agricultural markets in India

Began within the late 2000, Undertaking Shakti had enabled Hindustan Lever to get right of entry to eighty,000 of India’s 638,000 villages . Hindustan Lever’s director of latest ventures proudly expressed, “On the finish of the day, we’re in industry. But when via doing trade we will do one thing sure, it can be a really perfect win-win edition.” Hindustan Lever was once no longer the one firm recognizing the huge advertising attainable in rural India. With the saturation of city market, the businesses began reengineering their companies and merchandise to focus on rural shoppers who’re terrible however are wealthy in aspirations fueled by means of the media and different forces.

Unilever in India: Trade and Boom

Unilever was once the sector’s greatest Quick Shifting Client Items (FMCG) firm with a global earnings of $fifty five billion in 2005 . It can be Indian subsidiary, the Hindustan Unilever Restricted (HUL) was once the united states of america’s biggest FMCG firm with mixed volumes of about four million tonnes and revenues close to about $2.forty three billion . HUL’s main manufacturers incorporated Lifebuoy, Lux, Surf Excel, Rin, Wheel, Truthful & Pretty, Pond’s, Sunsilk, Health center, Pepsodent, Shut-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna, Kwality Wall’s and so on. These had been manufactured over forty factories throughout the united states .

In 1931, Unilever arrange its first Indian subsidiary, Hindustan Vanaspati Manufacturing Firm . Thereafter the Lever Brothers India Restricted and United Merchants Restricted have been based in 1933 and 1935 respectively. In November 1956, these three firms merged and kind HUL. Unilever’s share in HUL was once fifty one.fifty five% in 2005 and the remainder of the shareholding was once allotted amongst about 380,000 person shareholders and monetary establishments. A foray of acquisitions adopted thereafter . In 1984, the Brooke Bond joined the Unilever fold. Lipton used to be bought in 1972 and Ponds in 1986 . HUL was once following a boom technique of diversification at all times in keeping with Indian opinions and aspirations.

The industrial and political building within the Nineteen Nineties had marked an inflexion in HUL’s and the Workforce’s boom curve. Financial liberalization approved the corporate to discover each single product and chance phase, with none constraints on manufacturing capability. However, deregulation allowed alliances, mergers and acquisitions. In 1993, HUL merged with the Tata Oil Mills Firm (TOMCO) 1993 . In 1995, HUL shaped a 50:50 three way partnership with any other Tata firm, Lakme Restricted .

The corporate had additionally made a string of mergers, acquisitions and alliances within the Meals and Drinks sector. A few of these had been the acquisition of Kothari Normal Meals (1992), Kissan (1993), Dollops Icecream industry from Cadbury India (1993), Up to date Meals (2002), Cooked Shrimp and Pasteurised Crabmeat industry of the Amalgam Workforce of Firms (2003) .

With 12.2% of the arena inhabitants dwelling within the villages of India, the us of a’s rural FMCG market had an enormous attainable . The Indian FMCG sector used to be the fourth greatest sector within the financial system with a market dimension of $thirteen.1 billion . The field was once anticipated to develop by means of over 60% through 2010. In 2005-2006 the city India accounted for sixty six% of whole FMCG consumption, with rural India accounting for the remainder 34% . Then again, rural India accounted for greater than forty% consumption in main FMCG classes equivalent to private care, material care, and scorching drinks . The Bid FMCG corporations comparable to HLL, Nirma and ITC joined the foray to faucet the massive doable.

Within the Nineteen Nineties, an area Indian agency, Nirma Ltd. began offering detergents to the agricultural negative on the lowest value. The corporate had created a trade machine with a brand new product formula, low-value manufacturing, vast distribution channel, unique packaging and worth pricing. After a decade, Nirma turned into one of the vital greatest branded detergent makers with a 38% market share and 121% return on its capital employed .

In 2002, ITC arrange a community of web-primarily based kiosks, e-choupals, to lend a hand the farmers of their procurement course of. The initiative commenced with the soya growers in Madhya Pradesh after which increased to cotton, tobacco, shrimp and many others. Beginning with six e-choupals in June 2000, ITC’s Web-primarily based, rural initiative had linked 6,000 Indian villages with round 1,200 e-choupals with the aid of 2002. The putting in of every e-choupal entails an funding of Rs 1-three lakh .The targets in the back of e-choupals was once to permit single location procurement and buy level, permitting farmers to promote their merchandise right away to ITC on the root of up to date present costs prevailing out there. This eradicated middlemen and to that end helped ITC to chop its prices.

In 2007, round 34% of the FMCG merchandise gross sales got here from rural areas . The choice of households that used FMCG merchandise in rural India had grown from thirteen.6 crore in 2004 to 14.three crore in 2007 . This increase used to be executed on a normal 1.eight% 12 months-on-yr increase within the collection of households, which use at the least one FMCG product. On the other hand, the expansion in penetration degree for the complete FMCG merchandise was once no longer comparable. In step with one find out about by using a market analysis agency IMRB, the month-to-month consumption of detergents and bathroom soaps remained mostly stagnant with a ninety two% penetration, however that of liquid shampoos grew from sixty eight% in 2004 to eighty three% in 2007 . These figures published a shift in opposition to better-price merchandise among the many rural market, from toothpowder to toothpaste or from unbranded to branded merchandise. In keeping with the senior challenge director of IMRB Global, Manoj Okay Menon, “One of the vital modifications, contains rising choice in opposition to branded merchandise. As an example, within the meals and drinks section, penetration of branded atta has long gone up 12 months-on-12 months by way of eight per cent and branded salt with the aid of three per cent. The penetration of unbranded atta has diminished through 1 per cent and salt by means of three per cent.”

The HLL Advertising and marketing Effort: Transition to Rural Market

HUL’s aggressive benefit generated from three sources. First it is sturdy smartly dependent manufacturers, 2nd, its native manufacturing capability and provide chain and 0.33 its huge gross sales and distribution gadget. It used to be quickly felt that HUL’s gross sales and distribution device which had safe it from rivals can be quickly replicated by means of its opponents and to handle its aspect, the corporate needed to raise its attain past the city markets. To this point the operations of HUL incorporated greater than 2,000 suppliers and colleagues. The distribution community, consisted of four,000 stockists, overlaying 6.three million stores attaining your entire city inhabitants, and about 250 million rural shoppers .

Usually, the products produced in each and every of the HUL’s forty factories have been despatched to a depot with the assist of a carrying and forwarding agent (CFA). The corporate had its depot in each state of the united states of america. The CFA used to be a 3rd birthday celebration and bought servicing price for inventory and supply of the merchandise. In every city, there was once a redistribution stockist (RS) who took the products from the CFA and promote them to shops. Via the late Nineteen Nineties, the HUL administration realized sure issues with the present gross sales variation. First, the variation was once now not doable for small cities with small inhabitants and small trade. HUL discovered it dear to nominate one stockist completely for every city. Secondly, the retail revolution within the us of a modifications the sample the purchasers keep. Massive retail self provider retail outlets have been centered. Within the response of those issues, HUL redesigned its gross sales and distribution channel and the brand new device was once often called ‘diamond variation’ within the firm. On the high finish of the diamond, there have been the self provider retail shops which constituted 10% of the overall FMCG market. The center, fatter a part of the diamond represented the revenue-heart based totally gross sales group. Within the backside of the pyramid used to be the agricultural advertising and distribution which accounted for 20% of the industry .

Nearly three-fourth of the whole 1.2 billion Indian inhabitants resided within the rural areas and majority of them had an awfully low per capita profits (round forty four% of that of city India) . City market had reached the saturation level, in this case altering focal point on rural India. Compared to simply 5,161 cities in India there are 6,38,365 villages in India [Exhibit I]. Furthermore, greater than 70% of India’s inhabitants lived in villages and made a gigantic marketplace for the FMCG business on account of rising disposal incomes and consciousness degree.

Show off I

Distribution of Villages in India

Supply: Kash Rangan, Sehgal Dalip et. Al., “International Poverty: Trade Strategies and Options”, http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf

When HLL shifted to the rural India, it faced many problems. In contrast with a low per capita income comparative to the urban citizens, there were some areas with enough money but their awareness level and consumerism was very low. Secondly, rural FMCG demand was depended upon agricultural situation which was again depended upon monsoon. Transportation was also a major hindrance. Many of the rural areas were not connected by rail transport. The Kacha roads were unserviceable during the monsoon and interior villages get isolated. Besides transportation, there was a problem of distribution and communication facilities such as telephone, fax and internet. Moreover, the lives in rural areas were still governed by ethnicity and traditions and people did not simply get used to new practices. For example, even rich and educated class of farmers does not wear jeans or branded shoes. The buying decisions in villages were slow and delayed. They wanted to give a trial and buy only after being satisfied. And, finally the poor illiterate villagers viewed experience more important than formal education and they valued sales people who could provide practical solutions to their problems.

HLL approached the rural market with two criteria – the accessibility and viability [Exhibit II]. Around 40% of the accessible rural market had high business potential. To service this segment, HLL appointed a common stockist who was responsible for all outlets and all business within his particular town. In the 25% of the accessible markets with low business potential, HLL assigned a retail stokist who was responsible to access all the villages at least once in a fortnight and send stocks to those markets. This enables HLL to influence the retailers stocks and quantities sold through credit extension and trade discounts. HLL launched this Indirect coverage (IDC) in 1960s.

To cater the needs of the inaccessible market with high business potential HLL initiated a Streamline initiative in 1997. HLL appointed rural distributors and Star Sellers. The star seller purchased goods from rural distributors and distributed them to retailers in small villages using the local mean of transport. In this way around 35% of the inaccessible rural market came under the control of HLL. But a still untapped market – the inaccessible but low business potential market was left outside. The size of this untapped market was estimated to be around 500,000 villages with a population over 500 million . At this stage, Project Shakti was conceived.

Exhibit II

HLL’s Approach to Rural Market

Low Business Potential High Business Potential

Accessible Markets Indirect Coverage (25%) Direct Coverage (40%)

Inaccessible Markets Space for Shakti Streamline (35%)

Source: V. Kasturi Rangan Rohithari Rajan, “Unilever in India: Hindustan Lever’s Project Shakti–Marketing FMCG to the Rural”, http://www.caseplace.org/d.asp?d=244 – 27k

Project Shakti

HLL soon realized that although it was enjoying a greater penetration in the rural market when compared with its competitor such as Nirma and ITC, its direct reach was restricted to only 16% . The FMCG giant was desperate to increase this share. HUL saw its dream fulfillment in the vast Indian rural market. The company was already engaged in rural development with the launch of the Integrated Rural Development Programme in 1976 in the Etah district of Uttar Pradesh. This program was in tandem with HUL’s dairy operations and covered 500 villages in Etah. Subsequently, the company introduced similar programs in adjacent villages. These activities mainly aimed at training farmers, animal husbandry, generating alternative income, health & hygiene and infrastructure development. The main issue in rural development was to create income-generating prospects for the poor villagers. Such initiatives, linked with the company’s core business, became successful and sustainable and proved to be mutually beneficial to both the company ant its rural customers. However, much remained to be done. Project Shakti was conceived.

Following the pioneering work carried out by Grameen Bank of Bangladesh , Self Help Groups (SHGs) of rural women were formed by several institutions, NGOs and government bodies in villages across India. This group of usually 15 members contributed a small amount of money to a common pool and then offered a micro-credit to a member of the group to invest in a commonly approved economic activity. Partnering with these SHGs, HLL started its Project Shakti in Nalgonda district of Andhra Pradesh in 50 villages in the year 2000. The social side of the Project Shakti was that it was aimed to create income-generating capabilities for underprivileged rural women, by providing a sustainable micro enterprise opportunity, and to improve rural living standards through health and hygiene awareness. Most SHG women viewed Project Shakti as a powerful business proposition and are keen participants in it. There after it was extended in other states with the total strength of over 40,000 Shakti Entrepreneurs.

HLL offered a wide range of products to the SHGs, which were relevant to rural customers. HUL invested significantly in resources who work with the women on the field and provide them with on-the-job training and support. HUL provided the necessary training to these groups on the basics of enterprise management, which the women need to manage their enterprises. For the SHG women, this translated into a much-needed, sustainable income contributing towards better living and prosperity. Armed with micro-credit, women from SHGs become direct-to-home distributors in rural markets [Exhibit III].

Exhibit III

Structure of HLL’s Market Reach in India

Source: Kash Rangan, Sehgal Dalip et. Al., “Global Poverty: Business Approaches and Solutions”, http://www.hbs.edu/socialenterprise/pdf/3-Rangan&Rajan-Presentation.pdf

Shakti: How it works

In general, a member from a SHG was selected as a Shakti entrepreneur, commonly referred as ‘Shakti Amma’ received stocks from the HLL rural distributor. After trained by the company, the Shakti entrepreneur then sold those goods directly to consumers and retailers in the village. Each Shakti entrepreneur usually serviced 6-10 villages in the population strata of 1,000-2,000 people with 4-5 major brands of HLL – Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. Apart from these, other brands included Lux, Ponds, Nihar and 3 Roses tea. The Shakti entrepreneurs were given HLL products on a `cash and carry basis.’ However, the local self-help groups or banks provided them micro credit wherever required. According to Dalip Sehgal, Executive Director, New Ventures & Marketing Services, HLL Project Shakti was adding up to 15% of HLL sales in rural Andhra Pradesh. He further asserted that given the largeness of the country and backwardness of its women, Project Shakti-like endeavor would place everybody in a win-win situation.

I-Shakti: Crossing the Border

Encouraged by the goodwill and success of Project Shakti, in August 2003, HLL launched an Internet-based rural information service, called I-Shakti, in Andhra Pradesh, in association with the Andhra Pradesh Government’s Rajiv Internet Village Programme. I-Shakti was an IT-based rural information service to provide vital information to the rural people in fields like agriculture, education, vocational training, health, hygiene and the like [Exhibit IV]. The objective behind the i-Shakti model was to give need based demand driven information and services in the villages.

The i-Shakti kiosk was operated by the Shakti Entrepreneur. This was expected to strengthen their relationship with their customers. HUL expected that this would improve the productivity of the rural community and unlock economic and social progress.

Exhibit IV

A snapshot of the ‘i-Shakti’ website

Source: “HUL Shakti-Changing lives in rural India.”, http://www.hllshakti.com/sbcms/temp1.asp?pid=46802256 – 41k

I-Shakti used to be in keeping with an interactive dialogue expertise developed & patented with the aid of the Unilever Company Analysis Crew, U.Okay. The device enabled an in-depth working out of each and every consumer desires and thereby more suitable the standard of products and services supplied to them. The APonline , had tied up with i-Shakti to launch quite a lot of products and services. Furthermore, via i-shakti, the ICICI Financial institution and HUL collectively equipped more than a few monetary services and products akin to lifestyles and normal insurance coverage, funding merchandise (Fairness, Mutual Money, Bonds), ICICI Financial institution Pure Gold (gold cash), Private Credit score, Rural Financial savings Money owed and Remittances to the agricultural consumer.

Redefinition Rural Distribution: Altering Lives

Having a success in Nalgonda, in 2003 HLL deliberate to increase Shakti to a one hundred districts in Madhya Pradesh, Gujarat and UP. There have been different plans equivalent to to permit different corporations (aside from HLL’s opponents) similar to Nippo, TVS Motor for mopeds, insurance coverage corporations for LIC insurance policies to get onto the Shakti community to promote their shares. Sehgal used to be having a look proud when he introduced, “We needed to first stabilise the undertaking ahead of we will take a look at different firms. It requires anyone with scale and dimension to construct a platform after which invite different corporations onto this platform.” He additional emphasised that Shakti used to be making a win-win partnership between HLL and its customers.

There have been about four.36 lakh ladies SHGs in AP with virtually fifty eight.29 lakh negative ladies. AP on my own had about half of of the SHGs of the united states of america. By using 2005 the SHGs had mobolised Rs 1500 crore had mobilised as corpus. The agricultural ladies organised themselves into `thrift and credit score’ teams with a saving of Re.1 a day which created a fund of greater than Rs 800 crore. Whereas the financial savings used to be there among the many SHGs, there was once no channel of funding. HLL tapped this large overpassed community to launch Mission Shakti. HLL has in a position tp present a window of prospect to take a position and earn.

The affect of HLL was once no longer rapidly. HLL witnessed 15% incremental gross sales from the villages of AP, which accounted 50% of the overall gross sales of HLL merchandise in AP. Market analysts had been perceiving an enormous attainable within the rural foray of HLL. Nikhil Vora, Sr. Vice President of analysis staff ASK Raymond James believed that if there was once one firm that might tackle the onus of creating the agricultural markets, it was once HLL. He additional endured, “HLL contributes 20 per cent of the full FMCG trade within the usa. So, evidently, the onus is on HLL to develop the market. Returns would possibly not occur within the subsequent 5 years, however quite a few shopper figuring out and insights comes from an train like Venture Shakti, which in flip can result in product innovation.”

HLL mentioned that for Undertaking Shakti to achieve success for the corporate’s rural penetration, sellers and communicators should be neatly educated. It was once doubtful how sellers would function in an multiplied infrastructure. Even though HLL’s rural initiatives incurred enormous prices to the corporate, it used to be anticipated that with the monsoon revival and larger rural incomes might decline the payback length for initiatives like Shakti. Furthermore, the reducing model loyalty amongst city shoppers rural market had turn into an crucial. In line with the Consents Okay.N. Siva Subramanian, Sr. Vice President, Franklin Templeton India Ltd, “The (HLL) administration had known the approaching saturation of the city markets a while again and launched aggressive plans to seize the agricultural markets. Alternatively, a slowdown within the agricultural sector resulted in rural incomes last flat and affecting gross sales. We consider that by using concentrated on lower cost factors and additional increasing the distribution community, corporations can faucet the opportunity of rural markets. Initiatives like Venture Shakti will lend a hand them in setting up and consolidating their base in rural markets.”

HLL must decide whether or not Challenge Shakti may be repeatable in different international locations. The Indian household construction and village interplay present a novel diffusion mechanism that is a good automobile for Shakti. Whether or not this adaptation might be efficiently carried out in different international locations have to be additional explored. Furthermore, it want to to find out whether or not the Undertaking Shakti or e-choupal like initiatives will be elevated. There was once certainly that the regional manufacturers, and even better FMCG corporations, didn’t have the roughly distribution attain that HLL had dependent and ultimately, that would show a winner for HLL.

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