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The Rediff Business Special/ R Gopalakrishnan

How to delight the consumer of the future

Part I

Ayaz Peerbhoy himself is still remembered for his campaign Sanforised, done for the textile industry. While he was in the industry, he saw the first flutters of consumerism. He saw Indian brand building as evidenced by the successful lines, "Mother's milk is the best for a child, Amul is second best." And 'Utterly-butterly Amul'. He saw that television advertising had begun. The Jenson & Nicholson advertisement by Rediffusion, featuring Dalip Tahil and Maya Alagh arguing over the colour of their bedroom and the Garden/Vimal saris advertising which transformed the traditional Indian dress into esoterics -- these shifts too were seen by Ayaz Peerbhoy.

And then he died in 1980.

Cut to 2011.

What might he see when he returns? How should marketeers prepare for this scenario? There is no early authentic retail universe data, but extrapolating from old Brooke Bond/Lever data, in the '50s there were about 250,000 outlets catering to 400 million people -- say 600 outlets per million population. Nowadays, it is estimated that there are 5 million outlets catering to a billion people -- say 5,000 outlets per million population.

This is the opposite of trends in other parts of the world, including developing countries where outlets per million is decreasing and grocery trade is getting more concentrated.

Yes, India is different. India retailing is different, not because the Indian consumer is contrarian, poor or stupid. It is different because our infrastructure is woefully underdeveloped -- roads, traffic, cars. I don't suggest that there will be no supermarkets or self-service stores.

Indeed, estimates are that there could be 500 to 600 in metro towns in 2003. All I am saying is that the consumer will, by and large, continue to shop in neighbourhood stores, even in 2011, when it comes to daily consumption items.

This has an implication for marketeers, that is, that distribution and selling will continue to play a major role within the marketing mix as it had in the past. With urban-centric marketeers and their agencies, there is growing resistance among youngsters for whom a stint, let alone a career, in selling is unattractive. Ayaz will not recognise old familiar companies in 2011 if they do not manage this aspect judiciously.

That is why HLL has such an accent on rural marketing even after 50 years because with all its investments, even today HLL covers only 10 per cent of India's villages and 25 per cent of the outlet universe through its own distribution system. New geographies and rural penetration will continue to offer significant competitive opportunities.

Another thing Ayaz will see is the rapid rise of services in employment. In 1951, there were 125 million unorganised sector workers and 15 million organised sector workers, making a workforce of 140 million. In 2011, there will be 430 million unorganised sector workers and only 30 million in the organised sector.

In other words, while organised sector employment will double in 60 years, unorganised sector will increase by over three times. It is also instructive to note that even within the organised sector, employment in services is growing faster than industry -- trade, banking, insurance, public administration and so on constitute services.

It was Simon Kuznets, the Nobel prize winning economic historian, who first proposed that economic development involved the transformation of agrarian economies first into industrial economies and thereafter into service-oriented. It appears that India may leapfrog and go directly into the service economy -- and this will be interesting for Ayaz when he returns in 2011.

Services were 25 per cent of GDP in 1951, now they are at 45 per cent and by 2011, they could well be around 55 per cent of the economy -- bearing in mind that downsizing in the organised industrial and services sector consequent to liberalisation is an ongoing process.

The burgeoning unorganised labour of 430 million and the increasing importance of services sector employment has some implications. Have we not noticed neighbourhood caterers for parties, the pickle or healthfood making neighbour, the small company that does house cleaning on contract? All services sector.

In 1971, there were one million vehicles on the road, today there are 30 million, in 2011 there will be 90 million! These require drivers, cleaners, petrol pumps. Don't ask me where the roads are, but ask yourself whether consumers would want to drive out for any shopping or will pay for home delivery service.

If you study the difference in the income per agricultural worker and per non-agricultural worker, then you get a measure of how attractive it is to migrate from agriculture. In Punjab and Haryana, if a worker earns 100 in agriculture, then he can earn about 150 in non-agriculture. In Maharashtra and Tamil Nadu, 100 from agriculture compares to 550 from non-agriculture, thus explaining rapid urbanisation. In the cowbelt, it is 100 to 300. What will people do when the cities of their own state cannot absorb them?

Employment statistics show that the cowbelt states have the maximum backlog of unemployment, but it is in these states that the growth of labour force is expected to be very high.

These states will witness a 50 per cent increase in the already high rate of unemployment according to Ninth Plan documents. The job opportunities in Andhra Pradesh, Karnataka, Maharashtra, Gujarat on the other hand would be higher than the labour force growth.

Thus, while the nation is doing aggregate growth planning, regional imbalances in employment necessitate either regional planning or some pretty big migrations. I reckon on the latter. One from my personal experience: while living in Bangalore, my family hired a Bihari cook and taught him to make Tamil dishes. This was unthinkable for a southern city only 25 years ago!

When we were young sales managers, one of the activities that companies undertook for government was to distribute Nirodh. Out in military areas around Tezpur, Assam in the late '60s, there were many troops. An inexperienced contemporary of mine who was trained to correlate large populations with demand for consumer products pushed a Marwari dealer to stock more Nirodh. The dealer laconically posed: Saheb aapne moja tho de diya, is ilakey mein joothe kahaan hain?

So, the rhetorical question for our marketeer of 2011 is, where is your consumer? In the villages.

India has always lived in the villages. Although seven out of ten consumers live there, marketeers behave as though it is another world, which is separate from themselves. In the villages, there are rich people who may follow adoption models of urban brands. What about consumers who are rural and poor? Marketeers' understanding of those consumers, comprehension of their economics and aspirations, are all vague.

Amongst a few vanguard companies, HLL has invested to enhance this understanding. In 1968, a rural survey was done in the four districts of Ludhiana, Junagadh, Shahabad and Tanjore. It was repeated in 1982 to analyse the shifts. In those fourteen years, there was a dramatic shift in the penetration of toilet soaps -- from about 55 per cent to over 70 per cent if I remember right.

The 50s image of the farmer as a simpleton was just not true -- his understanding of agricultural productivity, adoption of high-yielding seeds were beacons of great hope for future change. In 1996, Brooke Bond Lipton conducted group discussions among 4000 rural consumers in three states on tea drinking.

So what is the benefit? All consumers have the need to wash, eat, and move about, irrespective of income. Can we meet consumers' need at a cost they can afford? Can we shift our thinking from low prices, low profit to large volumes, low cost? It is not so much that the rural consumer is changing, he/she is just being progressively unshackled.

India's great strength is democracy, which provides a gyroscopic balance to visible instabilities. What Lord Keynes said rather generally applies very aptly to India -- that we will do the obvious only after trying all other alternatives.

Ayaz Peerbhoy will return in 2011 and he will not see a land of great wealth, that is for sure. But he will find that one and a quarter billion consumers, many of whom are rural and poor, have real choices, that they exercise it with earthy common-sense, and spend money in ways that will attract many from all over the world.

The consumer has waited long for the marketeer to change -- from explaining shortages of imports, to stoking aspirations, to selling dreams in the 90s, the marketing and advertising professionals have metamorphosed. As Konosuke Matsushita wrote, "The mission of a marketeer should be to overcome poverty, to relieve society as a whole from misery, and bring it wealth."

Let us delight the consumer of the future as our gift to Ayaz Peerbhoy.

R Gopalakrishnan, former vice-chairman, Hindustan Lever Limited, is executive director, Tata Sons Limited. This article is adapted from the 18th Ayaz Peerbhoy Memorial Lecture he delivered in Bangalore recently.

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