The informal market does not lend itself to a one size fits all distribution system. On the one hand, we have the issues raised by crowded urban environments and, on the other, the issue of access to highly dispersed and remote rural communities. The cost of reaching each consumer varies greatly and this is where the field marketing and neighbourhood based sales initiatives covered above can be so successful.  

 

In fact, the role of technology and connectivity has transformed views of value chains within emerging markets. Instead of an obsession with hard infrastructure, as a pre requisite of any major initiatives; a focus on the benefits of soft infrastructure are already bearing considerable fruit. By soft infrastructure we mean mobile IT and broad band. It is useful to bear this in mind as we explore ways in which performance can improve the remotest of regions within the emerging world.

 

In India, food supplies in the poorest areas are rationed. We are more than miles away from shopping malls. Bihar has 12% of Indian poor but gets just 3% of the subsidy and much of what remain drains away due to inefficiencies. As commodity prices climb this situation worsens. In Uttar Pradesh, the focus has been on the last mile of delivery and instead of delivery every day they deliver once a month in an organised fashion. Better fed voters and benefits reach the needy.[i]

 

Currently, the Indian Agriculture sector is plagued by bad news: 17,000 suicides per year, heavy subsidies and poor productivity. Growth is a miserable 2.6 per cent and this lags so far behind the rest of the economy that even the politicians are wary. As the Global Food crisis gathers momentum, Agri Business will become big business and things will change – all the more reason to look harder at this classic part of the informal marketplace for growth opportunities and seamless links to the organised Retail sector.   

 

Quick, leak proof and consumer oriented distribution of rationed and affordable food is critical to nutritional security. As world food prices soar, the need to reach the widest consumer base with affordable products becomes acute. Back in the early 90’s I worked on projects with well known consumer brands wanting to penetrate kiosks and small stores in Spain and Japan. In Spain, we were able to demonstrate quickly the visibility and availability of products in the kiosks but confidence in the project turned sour when the situation simply got worse. It was a case of the sales and field marketing effort being isolated from the distribution network. In contrast, Tokyo wholesalers literally pounced on every out of stock opportunity with immediate delivery and, with these examples we turn to distribution.  

 

In India, food accounts for the largest share of consumer spending at 53% and this is sold through over 5 million stores throughout India. Most of these stores, as noted above, are Kirana or Mom & Pop stores. In fact, the size of the organised sector is tiny at 0.2% of food expenditure. This contrasts starkly with the highly concentrated trade elsewhere. In countries such as Australia, France, Germany, Denmark and the Netherlands, the share of top 10 retailers is more than 80%. The USA is 35% and China is already at 15%. In fact, in contrast to these countries, retailers are much less powerful than food companies. This is changing and within 5 years it is estimated that organised retail will climb to 30% of the trade in India. [ii]

  

The low level of organised Retailing in India illustrates the large element of informal trading involved. This is reflected in the distribution system which is characterised by extensive waste and inefficient multiple handling. Waste is due to a combination of poor packaging compounded  by multiple handling and high levels of damaged goods. In addition, perishable products suffer serious quality loss due to idling time throughout the delivery chain. Much of this is caused by poor infrastructure compounded by inefficient and old handling equipment and poor trucks.

 

The characteristics of distribution in the informal sector need close inspection and assessment:

*      Outlets covered

*      Delivery routes and patterns

*      Constraints

*      Impact of organised retailing

*      Constraints

 

The characteristics of shopping in the informal sector need to be understood:

*      Average visits to outlets per day

*      Value of purchase per trip

*      Quality standards

 

The capacity to invest in major infrastructure projects does not exist in the informal market so, the only avenue open is to improvise with things as they are. Equally, for those companies from the formal economy who are keen to develop business in the informal market there is no point in waiting for ideal market access conditions. The only option is to move and learn as you go. 

 


[i] The Economic Times, India. Food Miles: Let’s go the distance. Nidhi Nath Srinivas. 9 April 2008.

[ii] Vision 2015: Strategy & Action Plan for Food Processing Industries in India. Sponsored by Ministry of Food Processing Industries. (April 2005)