1. 2010
End Term Submission
Anshuman Jaiswal
G09051
ITC eChoupal- A FMCG
SuperHighway for rural
customers

2. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Table of Contents
Visit to Choupal Sagar, Mandsaur - A personal story............................................................................ 3
Introduction ................................................................................................................................................. 4
How Mandi Operations work? .................................................................................................................. 5
How E-Choupal works? .............................................................................................................................. 5
Future Plans ................................................................................................................................................. 6
How it helps? ............................................................................................................................................... 7
Superhighway for FMCG Evaluation ........................................................................................................ 7
Choupal Sagar ......................................................................................................................................... 8
Marketing ................................................................................................................................................ 9
Why should customers buy? ................................................................................................................. 9
Price: ................................................................................................................................................... 10
Promotion: ......................................................................................................................................... 11
Products: ............................................................................................................................................ 11
Place: .................................................................................................................................................. 11
Process ............................................................................................................................................... 11
People ................................................................................................................................................ 12
Competition........................................................................................................................................... 12
Stakeholders .......................................................................................................................................... 12
Customers .............................................................................................................................................. 13
Criticism ................................................................................................................................................. 13
Risk in the business .............................................................................................................................. 13
Profits ..................................................................................................................................................... 14
Is it replicable? ...................................................................................................................................... 15
Is it sustainable? .................................................................................................................................... 15
Fortune at bottom of Pyramid? .......................................................................................................... 15
References ................................................................................................................................................. 16
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3. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Visit to Choupal Sagar, Mandsaur - A personal story
It was month of April 2009, just a year back. I had just come from US for a visit to home and one
evening, I happened to visit newly opened Choupal Sagar. I was happy to visit the place as I had
heard quite a lot about the concept earlier.
Here are some observations that I made that evening
1. The mall was huge in size considering it as a rural target segment. It had a food court,
ware house adjacent to it. It was located on National Highway just 5 kms from the city.
2. There were few costumers in mall but food court seemed to be more popular than mall.
The quality of food and hygiene were excellent and also at affordable prices.
3. Food court had very few customers from rural areas but majority seemed to have come
from the city.
4. There was ample space for parking.
5. The mall was not crowded but customers were coming on a regular basis.
6. Mall was of good standard considering it was targeting rural populace. It was spacious
and all kind of stuff from groceries to apparel was available.
7. Billing was cash only.
8. The variety and assortment of products were limited.
9. It was carrying multiple brands and Most of ITC brand such as John players were
displayed prominently
10. Quality was on lower side but prices commensurate with quality seemed to be on higher
side. I was not able to fathom how mall can run as it would not attract variety seeking
customers and customers who look for premium brands. At the same time, it will not
attract value seeking, very price conscious customers.
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4. XLRI GMP 2009-10 Anshuman Jaiswal G09051
11. The mall was easily accessible from the city but in a district with population of more than
ten lakhs, it seemed to be very inaccessible for targeted rural customers. Question
remained; can it ever attract grocery shoppers from villages and towns nearby?
12. The SKUs need to be reworked as products need to be made available in smaller pack
sizes , smaller amounts to cater to affordability of customers
13. Also, customers would not buy inferior quality. Rural and small town customers are
getting aspirational and dumping of inferior quality will not fetch buyers.
14. There was no promotion in the city. Since the mall was very close to city, some amount
of promotion would have helped increase footfalls.
15. I was not sure whether local needs have been actively studied and researched or it was
just a mechanism to sell what the retailer has without concern for local needs and
aspirations.
16. But overall, I was happy to see a step in right direction to penetrate hinterlands and
reach out to vast majority of untapped markets.
Introduction
ITC’s e-Choupal network has reached out to over four million farmers growing a range of crops
such as soyabean, coffee, wheat, rice and pulses in over 40,000 villages through 6,500 kiosks
across 10 states including Madhya Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Karnataka,
Andhra Pradesh and Tamil Nadu. The reverse flow carries FMCG, durables, automotives and
banking services back to villages. By 2010, the e-Choupal network plans to cover over 100,000
villages, representing one sixth of rural India, and create more than 10 million e-farmers. ITC’s
strategic intent is to develop e-Choupal as a significant two-way multidimensional delivery
channel, efficiently carrying goods and services out of and into rural India. By progressively
linking the digital infrastructure to a physical network of rural business hubs and agro-extension
services, ITC is transforming the way farmers do business, and the way rural markets work.
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5. XLRI GMP 2009-10 Anshuman Jaiswal G09051
How Mandi Operations work?
Inbound Display and Bagging and Outbound
Auction Payment
logistics Inspection Weighing Logistics
Low risk
Low margin
taking ability
Low value Low
addition investment
Weak
Low
market
productivity
orientation
How E-Choupal works?
Weighing
Inbound Inspection Hub
Pricing and
Logistics and Grading Logistics
Payment
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6. XLRI GMP 2009-10 Anshuman Jaiswal G09051
ITC’s e-Choupal in alliance with Monster India recently launched web portal Rozgarduniya .com
to enable job seekers in rural areas to apply for jobs through e-Choupals. In the first month,
over 1,200 job openings from 52 companies were made available through this channel.
e-Choupal Now
States covered 10
Villages covered 40,000
No. of e-Choupals 6,500
Farmers e-empowered 4 million
Future Plans
The company is now in the process of rolling out e-Choupal’s Version 3.0 by 2012. The new
version will help ITC discover new anchor businesses to insulate its existing e-Choupal model
from risks of reversal in government’s agri reforms. Under the new version, ITC plans to offer
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7. XLRI GMP 2009-10 Anshuman Jaiswal G09051
personalized crop management advisory services to individual farmers, integrating mobile
phones into the digital and physical network of e-Choupal. Integration of mobile phones with
sophisticated analytics will not only enable personalized solutions but also reduce costs. But all
this will require a fair amount of experimenting. The necessary hardware-cum-software
prototypes are being developed by Nokia and ITC Infotech. ITC plans to leverage the inputs it
will get from millions of our farmers. The data generated will be of immense value to companies
selling farm inputs as well as to financial services firms and consumer goods companies. ITC is
gearing e-Choupals as rural employment exchanges, which will connect the rural youth with
jobs. This will be a new anchor business with a clear revenue model. By personalizing its
relationship under e-Choupal’s Version 3.0, ITC plans to reach 20 million within the existing
network area itself.
How it helps?
 Delivery of real-time information independent of the transaction.
 Empowered choice of where and when to sell the crop.
 An international study has shown that the farmers income have increased by 20%.
 The productivity has increased from 14% to 29%.
 In three years, some 87% of the farmers in the e-Choupal areas have learned about the
e-Choupal services, and 78% have used it.
 A win-win situation for the farmers and the shareholders of ITC by linking the farm
operations directly to ITC’s agri-export business through e-Choupal.
 Avoided the middlemen
 The efficiencies and the capacities built by e-Choupal for agri-communities is attracting
the rural youth to re-consider agriculture & agri-services as a viable occupation and
encouraging them to take to it with confidence.
 Farmers’ profits increased by 33%, and the cultivation of soyabeans increased by an
average of 19% in districts with kiosks. And by buying some produce direct, ITC reduced
its costs, which paid for the kiosks.
 Strategic cost and quality advantages were realized by multi-sourcing across
geographies based on price optimization.
Superhighway for FMCG Evaluation
Many rural retailers are aiming to woo the rural consumers, especially after the traditional sales
and distribution strategies pioneered by FMCG firms have encountered several roadblocks. From
the so-called push factors, where goods were thrust down the rural consumers' throats, the
accent is now on pulling them to aspire for and consume them.
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8. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Choupal Sagar
A Choupal Sagar is like any urban hypermarket except that besides the usual products it also
stocks fertilizer and seeds. Saagars offer multiple services under one roof - a marketing
platform, store front for agri-equipment and personal consumption products, insurance
counters, pharmacy & health center, agri-extension clinic, fuel station and a food court.
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9. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Last year, three more Choupal Sagar malls were started, taking the coverage to 24 rural malls
across three states. With retail sales growing by 34% over the previous year, these unique
infrastructure points continue to be one-stop shops for the farming community with a host of
services like sourcing, training etc.
Marketing
Distribution of FMCG products in the rural markets through the e-Choupal network gained
traction with the addition of personal care products to the portfolio. These products have been
well received by the rural community. Marketing of Kisan Credit Cards on behalf of the State
Bank of India received a very positive response from the farmers. The quantum of farmer loans
grew by 31%. This was achieved despite slower loan sanctions during the crucial kharif season in
the wake of the farm loan waiver scheme announced by the Government of India.
Why should customers buy?
Customers should buy a product or service if he/she needs it and it satisfies his/her need. Is ITC
satisfying the needs of rural customers? Who are the target customers? Are rich farmers or
people from towns and districts buyers of FMCG and other products? It needs to be found out
how many who sell produce shop at Choupal Sagars. Also, Is ITC not sucking their earnings in
spreading materialism?
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10. XLRI GMP 2009-10 Anshuman Jaiswal G09051
There has to be value for money for the customer and for the targeted customer. If value is
being delivered to wrong target segment then the target segment needs to be approached or
enticed to shop at e-Choupals.
Also, value-add for customer can be in form of lower prices, good quality and convenience for
shopper. For small buys visiting Sagar Choupal is not possible because of large distance from
villages and small towns. Also, large buying happens only seasonally and hence, demands for
goods and service needs to be generated throughout the year.
Price:
The consumers are value conscious, unless quality and quantity are adjusted to suit price
sensitivity of customers, selling to customers is not possible. Also, Choupal Sagar should look at
option of providing credit in offseason for easing the price sensitivity. Unless, it brings variety
and volume into business and efficiency in supply chain, it cannot demand price cuts from
manufacturers other than ITC. Price –Quality matrix is very important. Many products in e-
Choupal are not available in smaller SKUs which lead to poor off take. Also, ITC should work on
the practice of EDLP(Everyday low pricing) and guarantees the lower prices than the existing
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11. XLRI GMP 2009-10 Anshuman Jaiswal G09051
markets. Unless consumers see the benefit Vis a Vis existing markets, real consumer pull will not
be possible.
Promotion:
Currently, there is no clearly orchestrated promotional plan visible on ground. The products and
services need to be adequately promoted and communicated in rural masses to ensure the
consumer pull for all their needs.
Products:
Choupal Sagar is seen as place for farmers but 50% of income generation happens in non
farming sector and hence, products and services need to designed and promoted for farm as
well as nonfarm population. Hence, apart from designing services such as soil testing, crop
advisory, other services to tap non farmers need to be built in. Also, there is daily production of
milk and vegetables which could be bought from farmers and sold to nearby cities. This would
lead to enhanced incomes for farmers and stronger, non seasonal and year round relationship
with customers ultimately leading to regular, frequent and high value buying.
Place:
The retail outlet should be accessible to customer when and where they need it. In current
format it is impossible for customers to come from interior areas, tehsils etc. Also, major issue is
connectivity. Villagers form rural areas and towns don’t have proper road connectivity. Also, it
needs to be in accessible to customers when they visit city. If it is too far from bus stand or
railway station, then customers will not be aware about it and also will not come into
consideration set of customers. The sample case of Choupal Sagar at Mandsaur is not near to
railway station or bus stand. Neither the buses carrying passengers to the city of Mandsaur pass
through that route.
ITC needs to plan the layout and location very strategically to attract right customer and in right
numbers.
Process
Internal background processes are very important for success of any retail and distribution
format. The processes behind running for the retail such as Billing, customer service, stock
replenishment, product display, customer feedback are integral to reducing costs and customer
orientation. Low cost of operation rather low cost in every sphere of retailing – merchandising,
managing supplies are essential parameters for achieving breakeven and long term
sustainability.
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12. XLRI GMP 2009-10 Anshuman Jaiswal G09051
People
Employees in Choupal Sagar are locally recruited and trained by ITC. There was visible gap in
mastery of running retail outlet and serving customers. Employees are keys to success and
achieving customer delight, helping them in buying process and converting potential sale into
actual sale. More on understanding customer behavior and service is needed. Also, training is
required to manage retailing and also prepare the staff to take on the competition. ITC also
needs to prepare its people strategy as new players would want to poach a trained employee
than hiring a fresher.
Competition
Corporate bigwigs like Reliance, Tata, Godrej, DCM and Bharti, want to tap the potential of
selling goods worth $500-600 billion to the consumers. DCM Shriram Consolidated Ltd's (DSCL)
retail outlet, Hariyali Kisan Bazar (HKB) sells everything from home appliances to motorbikes,
from Godrej's Adhaar stores to HLL's 'Shakti' initiatives, scores of rural retail stores and malls are
cropping up on a regular basis.
Stakeholders
Stakeholder analysis is very important. Any sustainable enterprise needs to manage expectations
of shareholders, Government, Local bodies, employees, suppliers and end customers. So far
profitability of venture is not clear and hence shareholders would want to understand capital
deployment and potential for profits. Government needs to play an active role in facilitating
expansion of eChoupals and Choupal Sagars and provide basic help in land acquisition etc. ITC
should work with local bodies in achieving strategic mission and provide necessary help.
Committed and well trained employees would be keys to success of the venture and finally the
suppliers - ITC needs to work in close association with suppliers to enhance the supply chain
profit and have strong negotiations with them to bring down the prices. As that seems to be a
missing link in bringing down the prices.
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13. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Customers
There’s apparently a new bracket of buyers who are emerging in the semi-urban and rural areas.
They have the aspirations to replicate the feverish spending of their urban counterparts. They
have, or will soon possess, the purchasing power to consume the best that's available. And they
do have the size—over 110 million consumers spread across over 6,00,000 villages. The myths
about the rural consumer class being an impoverished mass are slowly being dispelled.
Criticism
There has been good amount of criticism of such rural initiatives. Suman Sahay of Gene
Campaign terms it as a "wholesale holocaust." "In the absence of any legally enforceable
regulation, the partnership between two unequal partners—where one is a large corporate and
the other may be a local adivasi community—can be highly detrimental to both the overall food
security of the country and to local farming communities," . Vandana Shiva of Navdanya joins
the refrain, and feels that large retailers drive down prices whenever they enter the fray, and,
therefore, will not benefit the farmers. "People like ITC want to do away with the mandi system
so that they can influence farmers and get away with giving them lower rates. HLL has turned
self-help groups across the country into their marketing arms. Thus, the farmers get trapped in
vicious circles of purchasing a condition fostered by unchecked corporate involvement in the
rural sector."
Risk in the business
Currently Choupal Sagars are present in only 24 districts in three states - MP, UP and
Maharashtra.
CHOUPAL
SAAGARS - RURAL
SERVICES
CENTRES State
Amravati Maharashtra
Parbhani Maharashtra
Wardha Maharashtra
Washim Maharashtra
Yavatmal Maharashtra
Chindwara MP
Dewas MP
Dhar MP
Itarsi MP
Mandsaur MP
Mhow MP
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14. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Nagda MP
Ratlam MP
Sehore MP
Ujjain MP
Vidisha MP
Badaun UP
Bahraich UP
Chandouli UP
Gonda UP
Hardoi UP
Hathras UP
Jagdishpur UP
Pilibhit UP
Hence, from coverage aspect, Choupal Sagar has just penetrated 5% of districts and primarily in
Soyabean and wheat belt of India. From replicability aspect, ITC has huge task at its hand to
increase the coverage to remaining districts and bring remaining 75% India under its ambit.
Unless, the business shows scale, it is success is limited. Also, restriction to Wheat and Soyabean
belt has been because of ITC’s expertise in agri export business and consumption for branded
Foods business.
Profits
Existence of any business depends on profitability. Any commercial enterprise without potential
for profits is waste of resources and defies the logic for existence of business. If we look at
profitability of FMCG-Others business segment, there was loss of 483.45 crores most of it
because of cost incurred on promoting and establishing FMCG brands. Since FMCG Rural
Retailing (Choupal Sagar) is also part of FMCG-Others and we don’t know profit/loss
contribution of rural retailing; it is difficult to talk about profitability of the FMCG retailing
business.
2009 2008
Segment- Inter Inter
FMCG External Segment External Segment
Others Sales Sales Total Sales Sales Total
Revenues 3010 4.04 3014.04 2508.25 2.8 2511.05
Profit Before
Tax -483.45 -263.52
It is surprising to note that for such an acclaimed initiative, there is no mention of its profitability
numbers in the annual report or the website. Without taking the credit from ITC, revenues itself
will not justify the existence . There needs to be value for the company as well as for the
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15. XLRI GMP 2009-10 Anshuman Jaiswal G09051
customer. If with planned capex and current cost structure, this venture doesn’t turn out to be
profitable then ITC need to relook at the cost optimization, efficiency of operations without
sacrificing the value proposition for the customer.
Is it replicable?
Replicability is function of stronger leadership, acceptability of business model by customer,
availability of potential markets and financial strength of the organization. Let’s analyze each of
the variables in context of ITC.
Leadership: eChoupal was genesis of senior leadership and hence there is no dearth of support
and motivation from the top leadership.
Acceptability of business model: Unless, customers approve the value proposition of the
model, the replication is not possible. Hence, ITC needs to work on getting customer approval
and acceptability. It is very important to map customer needs and get their true feedback
regarding the value chain of ITC Sagar Choupal. There could be variation while expanding in
other parts of the country but those need to be managed locally.
Availability of potential markets: At present, Choupal Sagars are present in only 24 districts in
3 states. The current penetration is very low and holds scope for huge expansion. 750 mn
people live in rural areas and just 1% has been touched by the whole initiative. Low penetration,
rising rural incomes, better infrastructure will help ITC expand into other areas of the country.
Financial strength: ITC is a cash rich company with other strong profit generating businesses
especially – Tobacco business. ITC has strong financial, human resource and distribution
network which enables it to lead in rural retailing space and take first mover advantage.
Is it sustainable?
Without doubt, there are lots of gaps ranging from financial sustainability to satisfying
customer need which need to be ironed out but there are strong positives for rural distribution
and organized retailing becoming success. ITC’s strong Tobacco distribution business, its first
mover advantage, financial wealth and leadership’s willingness to tap into unchartered territories
has been major drivers for its current state and will continue to fuel the growth of the business
in near and distant future. It has all the elements for successful execution of its strategy.
Fortune at bottom of Pyramid?
Is Choupal Sagar trying to target BOP? The answer is empathic no. Its current model is based on
bridging the gap of an organized distribution channel in hinterlands of India. There is a gap
where it can operate and achieve long term sustainability and hence, to call it as an innovation
built for BOP would be misnomer. The target segment needs to be clearly identified and tapped.
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16. XLRI GMP 2009-10 Anshuman Jaiswal G09051
Even if it reaches bottom 25 to 50 percentile of a district’s population (rural as well as semi
urban), it could be called a success as it would add value to customers by bringing down prices
and making quality product available at affordable prices. One should remember that Wal-Mart
also started operations from rural America and its success has been built upon its understanding
and accessibility of the rural customers. Hence, definitely, the rural retailing is not targeting BOP
who live on $2 a day but targeting those who can relate to its existence and appreciate the value
for money proposition that its stands for.
References
http://economictimes.indiatimes.com/opinion/editorial/ITC-e-Choupal-to-quintuple-
reach/articleshow/5786129.cms
http://www.itcportal.com/rural-development/eChoupal.htm
http://www.itcportal.com/newsroom/press06june07-a.htm
Year 2009 Annual report
http://www.outlookindia.com/article.aspx?232470
http://www.rozgarduniya.com/?lang=hi
http://lh3.ggpht.com/_sjsXVlMBPeY/RjYX6ayDaFI/AAAAAAAAC_E/Un12F2ylwTU/DEL_2855.jpg
http://farm1.static.flickr.com/27/46477776_1404e98e4f.jpg
http://www.pitchonnet.com/images/FeaNov05Rural-pic.jpg
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