The Managing Director's statement semi-urban towns - 650000 The real India liesin its villages andvillages comprising around 900 million consumers accounting forabout 50% of the country's GDP and 70% of the population.
For years this segment of the population accounted for possibly the largestunder-penetrated population in the world. There are indications that this populationsegment may be at the cusp of a rapid transformation. The o_take of FMCG in the ruralmarket is expected to increase from approximately USD 20 bn in 2018 and is expected tocross USD 100 bn by 2025 an unprecedented opportunity.
This transformation is expected to be derived through an increase in per capita incomesand aspirations catalysed by the increased ownership of smartphones. Since the country'srural population is equivalent to the cumulative population of a number of countries evena 1% increase in consumer product demand could create a significant opportunity forconsumer-facing product companies.
Success in a challenging space
Even as the country's rural market is large and growing it is also challenging. Forone the country's rural market is price-sensitive and influenced by product unit pricingin multiples of H5 (H10/15/25) per unit making it imperative to introduce qualityproducts at the right price points. The other challenge lies in the high delivery cost inservicing semi-urban distributors and customers. Over the last few years RMCL hasselected to deliver products to shops and marts by land. A distributor or customer getsquick service with the option to pick up the product from a nearby shop with no deliverycharge making it possible to not just save money but enhance footfalls. In addition toonline access consumers need products to be physically available as well. RMCL servicesaspiring customers and distributors in small towns villages and agriculture-dominatedgeographies.
In rural India consumers need products in small and a_ordable SKUs. The Companyintroduced high-end products for aspiring distributors and smaller economical packs toattract first-time users. Besides the Company is redesigning packaging around bulk packsto address demand from beauty parlours. In rural India consumers need one-stop solutions.In line with this the Company strengthened its organic manure and additive segment thattranslated into a soil-to-harvest solution for distributors. In rural India most consumerbrands focus on marketing a larger throughput. The Company is focused on the introductionof online and o_ine education tutorials for NIIT IIT-JEE competitive examinations andcomputer courses among others to attract students into the RMCL universe. In rural Indiathere is a premium on the ability to extend from vertical to another.
The Company is reinforcing its long-standing FMCG exposure with pharmaceuticalproducts addressing the growing needs of mid-range doctors clinics and chemists. Inrural India much of the distribution is geography-centric with one individualresponsible for overseeing a specific geography. The Company reinforced this conventionalapproach through the appointment of category heads. In rural India there is a premium onthe need to enhance visibility. The Company opened more than 8000 shops and approximately300 marts strengthening trust. In rural India most brands make do with whateverdistribution personnel they get. The Company strengthened online trainings livedemo' and recorded programs.'
Besides shops marts and eagle distributors conduct product training sessions andsales skills training sessions creating a single window system for product purchaseafter-sales service creation of model plots for farming and answering queries related toincentives.
Growing our distribution competence
RMCL's reinvention of the consumer business was derived through a unique model makingit possible to address growing demand and distribution challenges. Through the Company'snetwork of warehouses depots and stores a distributor is always provided products evenas neighbouring stores may not have the requisite inventory. Through this model adistributor books the desired product based on the inventory lying at the nearby depot. Astore calls for products from the
first in-first out possible and when products near expiry these products areaggressively marketed through careful selection and packing into Trial packs or starterkits. The high sale of Starter Kits addresses slow-moving inventory.
What we achieved in 2017-18
The Company reported a decisive turnaround in 2017-18 sales being approximately 60%higher and a profit of H103.05 million compared with a loss of H33.88 million in theprevious year. During the year the Company added new products and increased its marketcoverage through the addition of approximately 5000 shoppes. A major achievement was thesuccessful settlement/negotiation of ongoing H320 crore of long-term debt for H85 crore.The outstanding debt is payable across five years helping moderate our interest outgo and2.5-2.8 times our assets. By the fourth quarter of the current year we expect to increaseour capacity utilisation from 3%-5% in 2017-18 to 45%. In our consumer product businesswe are targeting to offier additional services to our existing customer base of 4 million.We are introducing Notional Discount Cash or RMCL Cash' to be used for furtherpurchases and services. This Digital Discount Cash' which can be used acrossservices (flight or hotel bookings DTH recharge mobile phone bill payments electricitybill payments gas payments wallet transfers among others) in addition to for RMCLGalaxy Mall purchases (comprising products offiered by RMCL and third parties) opening upa larger market for RMCL. The Company's incentives will be directed towards securingfuture sales' through enhanced loyalty among distributors. We are in the process ofenhancing expertise in product knowledge buying patterns and local preferences. We arehopeful of expanding the business without straining our working capital requirements. TheCompany plans to start RMCL Cafs in most the marts equipped with vending machinesmicrowave ovens uniform furniture-cum-design and free Wi-Fi making it possible tostrengthen footfalls visibility and word-of-mouth promotion (over the conventionalcostlier advertisement-driven route).
These initiatives could help the Company carve out a large market share of the directselling industry in India.
The last four years were trying for the Company. We have started building our directselling business and expect to resurrect our packaging business. We expect that acombination of two profitable businesses should enhance value in the hands of ourstakeholders.