) and Coca-Cola Co. (KO
), each of which claims over 50% of Jagadri's soft-drink market. Coke's newest weapon to gain an advantage over Pepsi is a smaller 200ml bottle of cola, which it sells for a very affordable 12 cents in the town's small shops, bus-stop stalls, and roadside eateries.
On hand recently to make sure the distribution network was shipshape: Sanjeev Gupta, deputy president of Coca-Cola India. "They need more display racks," he instructed his staff as he surveyed one Coke outlet. Jagadri and thousands of towns like it are crucial to Coke's new rural marketing strategy in India. "Our hands are firmly in the dust here," Gupta says. "It's the only way we can capture this market."
The story is the same across the vast landscape of India. Multinational corporations are fanning out into the countryside, where 70% of India's population--some 700 million people--still lives. The effort to reach those consumers represents one of the largest marketing efforts in Asia, a push led by such firms as Coca-Cola, Danone, Samsung, and Honda. These giants are lured to the countryside for a very simple reason: Economic growth in India's agricultural sector last year was over 7%, compared with 3% in the industrial sector.
More growth means more income, and more income means more sales. Purveyors of everything from detergent to mobile phones to life insurance are sending out salesmen and setting up outlets in hundreds of tiny towns and villages. According to the National Centre for Applied Economic Research in New Delhi, 50% of durables and consumer goods are now sold in rural markets. "It's a very clear revolution, an incredible power shift in favor of the small guy," says Sonjoy Mohanty, marketing head of cellular provider Escotel, whose base is rural India.
To be sure, the obstacles to commercial success in many areas are immense. Most rural Indians are too poor to buy appliances like refrigerators; the average income is $42 a month. Besides, roads, electricity, and other infrastructure remain decrepit in most areas. But the sales teams have found plenty of rural locations worth exploiting. Incomes are rising, thanks to a decade of good monsoons and bumper crops. In Punjab and other prosperous agricultural areas, wages reach as high as $200 a month--solidly lower-middle-class by Indian standards. Just as important, the arrival of television has driven up aspirations, and rural Indians suddenly are demanding better education for their children, tarred roads to facilitate business, and better products and services to make their lives a little easier.
On the last issue, the multinationals are happy to accommodate. After a decade of experimentation, the companies have settled on a strategy: Think small, and keep the product simple. Their model is the stolid Anglo-Dutch conglomerate Unilever Group, which has enjoyed a century-long presence in India through subsidiary Hindustan Lever Ltd. It was Hindustan Lever that several years ago popularized the idea of selling its products in tiny packages. Its 4 cents sachets of detergent and shampoo are in great demand in Indian villages--and in emerging markets throughout Asia and Africa. Coke's Gupta makes no bones about whom he is copying. "We want to be the Hindustan Lever of the Indian beverage business," he says.
After a humiliating $400 million loss in India in 2000 and a flat 2001, Coke's rural strategy of selling small sizes helped sales jump 34% in the quarter ended Mar. 31. Other food sellers have picked up the theme. Britannia, the Indian subsidiary of France's Groupe Danone, sells 2 cents and 6 cents "energy" biscuit packs that are popular among children. Italy's Perfetti and Spain's Agrilimon fill glass jars at village shops with hard candies that sell for a tenth of a cent each.
The keep-it-cheap-and-simple sales strategy carries over to bigger-ticket items. One hot product from Philips India Ltd. is a wind-up, no-battery radio ($20). South Korea's Samsung Group sells a $215 refrigerator and a $175 14-inch television. (The appliances are affordable because extended families buy them together.) Samsung estimates that 15% of its $316 million 2002 Indian income will come from rural areas. Rival LG Electronics, which is investing $100 million this year in a new plant for air conditioners and refrigerators, takes in 30% of its $430 million in Indian sales from the countryside. "The real strength two to five years from now lies in rural markets," says Pradeep Tognatta, LG's Indian marketing chief. Another rural success story is Japan's Honda Motor Co. (HMC
), which sells motorbikes in a joint venture with Delhi-based Hero, almost half of them in the countryside. The $900 bikes, which easily traverse India's rough roads, have become a hot gift item from parents of the bride to their new sons-in-law.
Consumer products are just part of the story: Services like cellular and insurance are growing, too. Cell-phone operators like Escotel Mobile Communications Ltd., a joint venture between Hong Kong investment firm First Pacific and New Delhi-based Escorts Ltd., are finding new customers all over rural India. Fishermen in coastal Kerala in the south use the phone service to find the best prices for their catch, a practice that can earn them up to 50% more. Escotel now controls 14% of India's nonmetro cellular market, providing service to 500,000 subscribers in 3,240 towns and villages.
And then there is insurance. New York Life Insurance Co., which runs a joint venture with local partner Max India, is one of several companies that report booming business in villages of 5,000 and less. Talk about thinking small: A typical term policy might have a payout of $208 and an annual premium of $2.
All this is very promising. But the multinationals fear their growth will be stifled if New Delhi doesn't amend policies for rural areas. Bad roads are the least of it. Government controls on food prices and commodities trading limit the amount of money India's farmers can make. That's why the multinationals are joining their domestic Indian rivals in clamoring for reform. Vindi Banga, chairman of Hindustan Lever, is urging government to abandon outdated policies. "The game has to change," he says. The change will benefit Lever, of course, but also India. "The grand outcome is that all these companies are going to get rich selling to the poor," says Pradeep Kashyap, president of Marketing & Research Team, a rural strategy consultancy. The good news is that at last the poor can afford to buy. By Manjeet Kripalani in Jagadri and Bombay