By Namita Jain

Last fortnight, this column conjectured on what would happen to Hindustan Lever if Wal-Mart were to come to India, on how the FMCG giant would be forced to cut prices dramatically, in exactly the same manner that suppliers in the US and other countries have had to, if they want to be on Wal-Mart’s shelves. This triggered a number of e-mail responses making broadly the same point – that Wal-Mart may not be allowed to come into the country, and more important, even if it did, it would take a very long time for it to develop an all-India footprint. In fact, even before Wal-Mart comes into the country, a company that looks like its going to emerge as a retail powerhouse with the retail footprint required to bring in volumes of the Wal-Mart kind, is ITC.

Of course, if you looked at one of their most visible retail ventures – Wills Lifestyle – you wouldn’t think so. Wills Lifestyle comes across as this majorly upmarket, contemporary design-conscious brand that doesn’t look like it’s getting too much traffic and perhaps that’s why some part of the range is now making its way to department stores like Shoppers’ Stop. The fact that it was awarded the ‘Most Admired Exclusive Retail Chain of the Year’ at the Images Fashion Awards 2001 says it all. I do concede that they have also launched John Players range of menswear in the popular segment. However, if you take a look at their e-choupal venture it gives a totally different picture of ITC’s retail capability.

I must confess I am a recent convert to this venture of ITC primarily because like a lot of other dotcom has-beens, I was skeptical about whether the venture could ever make money, given that this is a business of agricultural commodities where margins can be as slim as one per cent. It was only when I read about the fact that 60 companies like Monsanto, Eicher, BPCL, LIC and ICICI Prudential sell their products through the e-choupal network that it began to make sense. On each sale, ITC earns a commission varying from 3 per cent to 40 per cent (Business Today, January 2004).

When I started thinking about the possibilities of this model in the retailing context, the distribution reach of this e-biz became even more important than its revenue – earning potential. This is important for India because distribution of products and services to the hinterlands of India is a daunting task, and this is the bit that most FMCGs as well as the cola majors are struggling with.

In fact, the early success of a shop like Metro Cash and Carry is proof of the fact that the HLLs of the world are not able to reach as many retailers as they’d like to – why else would a retailer wish to make cash-down purchases at Metro Cash and Carry when he can get 10-15 days credit from a Lever? Obviously, because the Lever network is not able to reach him. And if this is the case in urban areas, you can imagine how inadequate the existing sales/distribution network is in rural India.

And going to that part of India is important, as anyone will tell you because 700-750 million people live in there. Nor is it simply poor people who live here. According to the NCAER, nearly 400 million of these people will earn around Rs.22,000-Rs.45,000 per annum by the year 2006-07. So you have Project Shakti of HLL, Coke trying mobile dispensing units, where rather than individual paanwallas coming to town to pick up replenishments, there are distributors on cycles doing the rounds of these paanwallas and TTK Prestige’s Project Mobile Prestige. This is where the e-choupal model is scoring. ITC covers some 18,000 villages currently reaching 1.8 million farmers and ITC chief Yogi Deveshwar expects the network to cover 100,000 villages or one-sixth of rural India by 2010.

Okay, one might say, ITC may be getting the distribution strategy right, but surely Wal-Mart’s more than just a huge bunch of shops across all of America. Absolutely, and this is where I see ITC heading as well. Nearly 20 per cent of Wal-Mart sales come from its own private-label goods. This does two things. One, it gives the company decent margin, and two it forces other suppliers to reduce prices if they want to sell to Wal-Mart – and given that 82 per cent of American households bought something at a Wal-Mart.

Move to the Indian retail scene, and there are two things that drive the business – groceries and clothing. With its e-choupal business helping ITC improve the quality of its commodities like wheat, coffee, soya, packaged basmati rice or processed fruits or even frozen and cooked shrimp and reduce their costs, clearly the company has a head-start in the groceries part of the business, in terms of its ability to develop private labels. The company has already made some kind of start into the ready-to-eat business through its Bukhara brand of dals and various regional preparations. Issues that are common in this category such as storage temperatures and quality of canning would have also been addressed; it appears to be available across 40 of the main metros at grocery stores and food outlets.

ITC has also forayed into staples like atta and salt, confectionery like mint and candy, and snack food like biscuits. And guess where the atta is sourced from – yes, the e-choupal network. In fact, in a recent interview to a newspaper daily, the CEO of ITC’s International Business Division which runs the e-choupals has said the group plans to set up rural malls (selling tractors, cement, steel, diesel, financial products) of 5 acres each, across 15 states, starting with five by March 2004.

All this, needless to say, can go horribly wrong. But there must be a fairly good chance of it happening since ITC is one of the few FMCG players that investment firms like SSKI rate as over-performer is the fact that they believe ITC to be mulling an entry into a core FMCG category leveraging the strong distribution network they have, namely, soaps and detergents.