Hariyali Kisaan Bazaar, India’s biggest rural retail chain by sales, which operates 230 stores across eight states and had seen good growth in the past two years, said it had seen a fall in rural demand in the past two to three months.

A drop in prices of potatoes, onions and some other vegetables, leading to low realisation for farmers, and an increase in cost of fertiliser, are reasons for these changed sentiment. Except on necessary agricultural inputs, rural consumers are just not spending as much as they used to, it said.

  “The rural marketplace is not as buoyant as it was two-three months ago. Income at the farm level has come down for crops like potato, onion, tomato, etc. At the same time, cost of farm inputs such as fuel, fertiliser and labour has moved up,” said Ajay Shriram, chairman and senior managing director, DCM Shriram Consolidated. Its rural retail arm is Hariyali Kisaan Bazaar, with annual turnover of nearly Rs 800 crore. Hariyali stores are operational in Haryana, Punjab, Uttar Pradesh, Rajasthan, Uttarakhand, Madhya Pradesh, Maharashtra and Andhra Pradesh.The fall in rural demand has recently been worrying retailers and marketers. Television and refrigerator makers such as LG Electronics have articulated this worry in recent months, attributing it to high inflation and a fall in government’s ability to spend on rural programmes.

Figures for the fast moving consumer goods sector (FMCG) tell the same story. In the past few years, rural demand has been the key for FMCG companies to push overall sales. In the past three years, rural FMCG sales in volumes grew at a heady 15 per cent per annum, while urban sales growth has been around 10 per cent. However, rural sales growth was only 10 per cent in April-September 2011, according to the data available.

Data from Hariyali stores point to a decline in consumption of potash and phosphate after their prices went up 15-20 per cent, in tune with global price changes. Overall demand for agricultural inputs has not gone down, as these are a must for farmers’ livelihood.

Hariyali stores sell agri-inputs, cattle feed, plastic furniture, FMCG products, and automobiles, besides services such as banking and crop insurance. A typical store caters to agricultural land of 50,000-70,000 acres and impacts the life of around 15,000 farmers and their families.

“On a national level, we are seeing a general slowdown in purchases in rural India. Staple food is moving but in lower quantities. Everything is toned down,” said Shriram. He said it was early to quantify the impact on his company’s retail turnover.

Shriram’s view, though, is contradicted by ITC, another company that operates in UP, MP and Maharashtra and says it has not seen an impact. “We are not seeing any such downward trend in our sales growth at Choupal Saagars. Maybe because our catchments do not have many growers of commodities like onion and potato,” said S Sivakumar, chief executive of ITC’s agribusiness division. Choupal Saagar is a large-format rural mall, with 24 stores.

Rural retail has been a tough ride for companies. Most have faced problems due to infrastructure, distribution and fluctuating rural incomes, along with competition from local kirana stores, which operate at much lower costs. In early 2010, Triveni Engineering shut its rural retail arm, Khushali Bazaar, after incurring a loss of Rs 19 crore in five years. ITC has not expand its Choupal Sagaar business for the past few years. Godrej sold its Aadhaar rural retail business to the Future Group and the latter revamped it into a wholesale format. Hariyali Kisan Bazaar had to shut at least 70 outlets over the past couple of years.

It has planned to add 10 stores this year.

“Even in cities, retail is a difficult business. We will expand as and when sentiment improves and it makes logical business,” said Shriram.

Source - http://www.business-standard.com/