Co's rural push to bypass wholesalers and stockists in target markets to boost sales
ITC is revitalising its distribution strategy for fast moving consumer goods (FMCG) with a greater focus on supplying products directly to retailers. This involves an ambitious target of directly reaching out to one lakh villages which account for 80% of India's rural consumer goods consumption.
ITC's rural push, especially of premium FMCG products, bypassing wholesalers and stockists matches the scale of market leader Hindustan Unilever (HUL), which last year launched a 'Perfect Village' initiative to increase sales of categories like hair conditioners, face wash, body lotion, fabric conditioner and liquid hand wash in villages.
HUL covered 8,500 villages in eight states last fiscal year and plans to further scale up the programme.
ITC's plan is to immediately expand its reach and investment in the top 16,000 rural markets.
ITC's divisional chief executive for FMCG trade, marketing and distribution, Sanjiv Puri, said direct coverage would help the firm expand reach and sales. "We are prioritising the target markets based on consumption concentration rather than the conventional approach based on population," Puri said.
ITC has been diverting more energy towards consumer goods ever since Chairman YC Deveshwar announced his vision to turn the tobacco-to-hospitality giant into the nation's largest FMCG company.
ITC overtook HUL in the packaged-food business two years ago and, more recently, in the deodorant space. Its FMCG business broke even last fiscal year.
Edelweiss Securities Associate Director Abneesh Roy expects ITC's rural-focused strategy to have a mixed outcome. The plan wouldn't work much for personal-care portfolio as for that it need to focus more on brand building which is currently restricted to larger cities, he said. "However, ITC's foods business could benefit and rivals such as Nestle and Britannia will be impacted by this move."
HUL currently has a much wider direct and rural coverage than ITC. According to a recent Edelweiss report, HUL has increased direct coverage from nine lakh outlets in FY09 to 20 lakh in FY13 and 32 lakh in FY14, much of it in the rural areas.
At present, ITC directly services more than 20 lakh outlets, based mostly in urban and semi-urban areas. Companies like GSK Consumer Healthcare too have adopted initiatives to expand rural sales.
According to a report from market tracker Nielsen, aspiration of consumers in Indian villages now matches that of their urban counterparts. For instance, sales of toilet soaps grew 18% in rural India last year compared with 8% in cities.