TH E IN DIAN I NSTIT UT E O F PLA NN IN G AN D

MA NAGEM EN T

PROJECT REPORT ON

SUBMITTED TO: SUBMITTED BY:

Prof. MANINDER SINGH
BHUMESH SHARMA (23)
MANISH CHANDRA (41)
SAURABH AGARWAL (61)
SHIV NARAYAN (64)
SUSHANT KISHORE (83)
VINEET GOEL (79)
VINUP KUMAR (80)
VIRENDER S. CHAUHAN (81)

SECTION: FB-1

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BATCH: SS/2004-06/PGP

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 ACKNOWLEDGEMENT

We know that the helping hands of many people back up the success. The
guidance of our teachers proves to be icing on the cake. The same is the case
with our project. Even our project wouldn’t have been possible without the
eminent guidance of our teachers, suggestion of our colleagues and a sincere
thanks to our respondents for their valuable views.

We are thankful to Prof. MANINDER SINGH for giving us continuous help and
guidance for the project. We are indebted to our colleagues at IIPM for their
contributions in improvements and reviewing the project report.

We express our heartful gratitude to all who assisted and supported to

accomplish our goal.

Above all we are thankful to almighty that blossomed us with his blessings for the
completion of the project.

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 TABLE OF CONTENTS

1. INTRODUCTION.....………………………………………………...4

2. HISTORICAL PROSPECTIVE…………………………………….6

3. HOW IT WORKS…………………………………………………....9

4. FINANCIALS……………………………………………………….11

5. OFFERINGS OF THE COMPANY……………………………....12

6. UNIQUE BUYING PROPOSITION….…………………………...15

7. COMPANY’S PLACE IN THE MARKET………………………...16

8. FUTURE…………………………………………………………….19

9. RECOMMENDATION…………………………………………..…22

10. APPENDIX………………………………………………………..25

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 INTRODUCTION

Everybody wants brands. And there are a lot more poor people
in the world than rich people. To be a global business and to
have a global market share you have to participate in all
segments.

- Keki Dadiseth, erstwhile Chairman, HLL .

-

The basic objective of Project Shakti is to economically empower underprivileged

rural women by creating income-generating capabilities and providing a
sustainable micro-enterprise opportunity in addition to improving rural living
standards through health and hygiene awareness.

-Sharat Dhall, Marketing Manager -Rural, HLL

In the early 2000s, around 700 million people, i.e. 70% of the Indian population
lived in 6,27,000 villages, in rural areas. Of this, 90% were concentrated in
villages with population less than 2000. According to a study conducted in 2001
by the National Council for Applied Economic Research (NCAER), there were as
many "middle income and above" households in rural areas as there were in
urban areas. There were almost twice as many "lower income households" in
rural areas as in urban areas. There were 2.3 million "highest income"
households in urban areas as against 1.6 million in rural areas.

NCAER projections indicated that the number of "middle income and above"
households was expected to grow to 111 million in rural India by 2007, compared
to 59 million in urban India. Gone were the days when a rural consumer had to
go to a nearby town or city to buy a branded product. The growing power of the
rural consumer was forcing big companies to flock to rural markets. At the same
time, they also threw up major challenges for marketers. Servicing rural markets
involved ensuring availability of products through a sound distribution network,
overcoming prevalent attitudes and habits of rural customers and creating brand
awareness. Price-sensitivity was another key issue. Rural income levels were
largely dependent on the vagaries of monsoon, and demand was not easy to
predict.

Thanks to TV, consumer awareness in rural areas had increased. Rural

expenditures on Fast Moving Consumer Goods (FMCG) were growing at an
impressive rate of 20 -25%. Several companies were taking rural marketing
seriously, one of them being Hindustan Lever Ltd (HLL), Unilever's Indian
subsidiary. In 2004, HLL was India's largest FMCG company, with 30 power

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brands (Exhibit: I), turnover of over Rs. 10,000 crores and 40,000 employees.
HLL derived around 50% of its sales from rural areas.

HLL's rural marketing initiatives began way back in 1988, when the company had
launched 'Wheel' for the rural and lower income urban consumer. These efforts
had intensified since the late 1990s when HLL like many other companies faced
flat growth in the urban markets. In early 2004, as it reviewed its past
performance, HLL realized that bulk of its future growth was likely to come from
rural areas. The challenge for HLL was to exploit this opportunity in a profitable
manner.

The objectives of Project Shakti, explains Dalip Sehgal, Executive Director,

New Ventures & Marketing Services, HLL, is creating opportunities to increase
rural family incomes puts more money in their hands to purchase the range of
daily consumption products - from soaps to toothpastes - that HLL makes. It also
enables HLL access hitherto unexplored rural hinterlands. Says Sehgal, "We
looked at several models of rural distribution, even at the Grameen Bank model
in Bangladesh, before we decided on the pilot in Nalgonda to figure out this
model. Now the model has been refined based on our learning here and we
expect to roll out quickly in other states."

For HLL greater penetration in rural areas is also an imperative - presently over
50 per cent of its incomes for several of its product categories like soaps and
detergents come from rural India. The challenge for HLL now is to take its
products to towns with a smaller population - under 2,000 people. As Sehgal
points out, HLL's conventional hub-and-spoke distribution model which it uses to
great effect in both urban and semi-urban markets, wouldn't be cost-effective in
penetrating the smaller villages. Now, with this new distribution model, the
smaller markets are now being referred to as `Shakti markets'.

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 HISTORICAL PROSPECTIVE
HLL's INITIATIVE IN RURAL DEVELOPMENT:

Hindustan Lever Limited (HLL) and its constituent companies have been in India
since 1931.

Over these decades, while HLL has benefited from the developments in the
country, it has contributed equally to these developments.

HLL has consciously woven India's imperatives with the company's strategies
and operations. The company’s main contributions include developing and using
relevant technologies, stimulating industrialization, boosting exports, adding
value to agriculture and generating productive employment and income
opportunities.

HLL has been proactively engaged in rural development since 1976 with the
initiation of the Integrated Rural Development Programme in the Etah district of
Uttar Pradesh, in tandem with the company’s dairy operations. This Programme
now covers 500 villages in the district. Subsequently, the factories that HLL
continued establishing in less-developed regions of the country have been
engaged in similar programmes in adjacent villages.

These factory-centered activities mainly focus on training farmers, animal

husbandry, generating alternative income, health & hygiene and infrastructure
development.

The company has acquired a wealth of experience and learning from these
activities.

KEY LEARNING’S ON RURAL DEVELOPMENT:

The principal issue in rural development is to create income-generating

opportunities for the rural population. Such initiatives are successful and
sustainable when linked with the company’s core business and is mutually
beneficial to both the population for whom the programme is intended and for the
company.

Based on these insights, HLL launched Project Shakti in the year 2001, in
keeping with the purpose of integrating business interests with national interests.

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WHY SHAKTI?

 Empowering Women in Rural India

The objective of Project Shakti is to create income-generating capabilities for

underprivileged rural women, by providing a sustainable micro enterprise
opportunity, and to improve rural living standards through health and hygiene
awareness.

Following the pioneering work carried out by Grameen Bank of Bangladesh,

several institutions, NGOs and government bodies have been working closely, for
nearly five years, to establish Self Help Groups (SHGs) of rural women in
villages across India. Their experiments clearly indicate that micro-credit, when
carefully targeted and well administered can alleviate poverty significantly.

A crucial lesson learnt was that rural upliftment depended not on successful
infusion of credit, but on its guided usage for better investment opportunities

This is where HLL's Project Shakti is playing a role in creating such profitable
micro enterprise opportunities for rural women.

 Catalyzing Prosperity In Indian Villages

Under the project, HLL offers a range of mass-market products to the SHGs,
which are relevant to rural customers. HLL is investing significantly in resources
who work with the women on the field and provide them with on-the-job training
and support. This is a key factor in ensuring the stabilization of their fledgling
businesses.

HLL imparts the necessary training to these groups on the basics of enterprise
management, which the women need to manage their enterprises. For the SHG
women, this translates into a much-needed, sustainable income contributing
towards better living and prosperity. Armed with micro-credit, women from SHGs
become direct-to-home distributors in rural markets.

 Risk-Free Micro Enterprise That Yields High Returns

A typical Shakti entrepreneur conducts a steady business which gives her an

income in excess of Rs.1,000 per month on a sustainable basis. As most of these
women live below the poverty line, and hail from extremely small villages (with
populations of less than 2000), this earning is very significant, and almost twice
the amount of their previous household income.

For most of these families, Project Shakti is enabling families to live with dignity,
with real freedom from want.

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In addition to money, there is a marked change in the woman's status within the
household, with a much greater say in decision-making. This results in better
health and hygiene, education of the children, especially the girl child, and an
overall betterment in living standards.

The most powerful aspect about this model is that it creates a win-win
partnership between HLL and the consumers, some of whom will depend on the
organization for their livelihood, and builds a self-sustaining cycle of growth for
all.

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 HOW IT WORKS
Typically, a woman from a SHG selected as a Shakti entrepreneur receives
stocks at her doorstep from the HLL rural distributor and sells direct to
consumers as well as to retailers in the village.

Each Shakti entrepreneur services 6-10 villages in the population strata of 1,000-
2,000 people.

Typically, as Sehgal points out, a Shakti entrepreneur sets off with 4-5 chief
brands from the HLL portfolio - Lifebuoy, Wheel, Pepsodent, Annapurna salt and
Clinic Plus. "These are the core brands, they we layer it with whatever else is in
demand like talcum powder or Vaseline during winters," elaborates Sehgal.
These brands apart, other brands which find favour with a rural audience are:
Lux, Ponds, Nihar and 3 Roses tea. Typically, unit packs are small. All the brands
are national and HLL is cool to the idea of creating a rural-specific brand as it will
only dissipate the advertising media effort for the brands. To get started the
Shakti woman borrows from her SHG and the company itself chooses only one
person. With training and hand-holding by the company for the first three months,
she begins her door-to-door journey selling her wares.

The impact is slow and HLL too is not expecting any quick returns on this project.
In Andhra, so far, since the experiment began, HLL has seen 15 per cent
incremental sales from rural Andhra, which contributes 50 per cent to overall
sales from Andhra of HLL products. But analysts see this rural foray as
something the company has got to do. As Nikhil Vora, Sr. Vice President of
research group ASK Raymond James explains, if there is one company that can
take on the onus of developing the rural markets, it's HLL. Says he: "HLL
contributes 20 per cent of the total FMCG business in the country. So, clearly, the
onus is on HLL to grow the market. Returns may not happen in the next five
years, but a lot of consumer understanding and insights comes from an exercise
like Project Shakti, which in turn can lead to product innovation."

An analyst with a leading brokerage points out that a lot of HLL's rural initiatives
in the recent past have not paid off because of poor rural incomes. But, a
monsoon revival and greater rural incomes can mean payback time for projects
like Shakti. "Large companies like HLL have to push greater into rural areas.
Brand loyalty is declining among urban consumers; they're looking mostly for
consumer promos; regional brands too are snapping at their heels. So, to attain
growth, going rural has become an imperative," she says. Concurs K.N. Siva
Subramanian, Sr. Vice President, Franklin Templeton India Ltd: "The (HLL)
management had recognised the impending saturation of the urban markets
some time back and launched aggressive plans to capture the rural markets.
However, a slowdown in the agricultural sector resulted in rural incomes
remaining flat and affecting sales. We believe that by targeting lower price points

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and further expanding the distribution network, companies can tap the potential
of rural markets. Initiatives like Project Shakti will help them in establishing and
consolidating their base in rural markets." Regional brands, or even larger FMCG
companies, do not have the kind of distribution reach that HLL has established
and in the long run, that could prove a winner for HLL, according to analysts.

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 FINANCIALS (TURNOVER)
Consumption of Hindustan Lever’s (HLL) products in rural households has
increased by 15-20% after the multinational kicked off Project Shakti in 2001.
This is part of the findings from a dipstick conducted by market research firm
IMRB to ascertain the impact of Project Shakti on HLL’s financials.

The dipstick was a randomly selected sample in areas where Project Shakti
operates. As per the findings, there has been an increase in market share of
HLL’s toothpaste (Pepsodent), personal wash (Lifebuoy, Rexona and Breeze),
washing powder (Wheel) and tea (Brooke Bond) categories. Further,
penetration of iodized salt (Annapurna) and skin cream (Fair & Lovely and
Pond’s) is said to have gone up. There has also been an increase in the regular
usage of HLL brands, the study reveals.

Shakti targets small villages with population of 2000 people or less. It aims at
creating livelihoods for rural women, organized in self-help groups (SHGs), to
improve their standards of living. Shakti provides critically needed additional
income to these women and their families, by equipping and training them to
become an extended arm of the company’s operation. The income is to the tune
of Rs 700-Rs 800 per month per person. This income is higher in Andhra
Pradesh.

“Sales through Project Shakti contribute 10-15% of HLL’s rural sales. It has
also helped us in replacing and wiping out counterfeits,’’ said HLL executive
director, new ventures and marketing services, Dalip Sehgal.

Rural sales contribute around 40% to HLL’s overall sales which were at Rs
9,927 crore in calendar year 2004. Through Project Shakti, the company has
almost doubled its direct coverage in rural India with the project extending upto
70,000 villages, inching closer to the one lakh mark. The number of Shakti
dealers—Shakti Ammas, as they are referred to—has gone up to 17,000, with
the projected number being 25,000 by December this year.

“The potential is another one lakh direct coverage in 2-3 years. Beyond this,
however, it may not be viable,’’ said Sehgal. “With Shakti becoming a bigger
brand itself, it enables the company to get better recognition of its entire product
portfolio. We realized that physical presence is important. Brand saliency for our
leading brands has gone up by nearly 40%,’’ Sehgal added.

The next big task at hand for HLL is to improve literacy among 150-odd Shakti
Ammas under a pilot which is being carried out in Andhra Pradesh. It is a six
week programme and HLL is hopeful that this would bring about better
understanding of the business among the women. For these women, an increase

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in earnings has also led to a status in the society, an aspirational tool which
marketers latch on to for enhancing sales of consumer products.

OFFERINGS OF THE COMPANY

The fast-moving consumer goods (FMCG) segment in India is going rural with a
vengeance.

The lead is being taken by the country’s largest FMCG

company, Hindustan Lever (HLL). The Rs 11,000-crore
behemoth has indicated that it is enhancing its rural
penetration, despite the higher costs this would entail.

Says HLL chairman M S Banga: “This exercise may not

pay in the immediate future, but will definitely give long-
term dividends. Incidentally, over 50 per cent of the sales of HLL’s fabric wash,
personal wash and beverages are in rural areas. And we see a future in going
rural in a major way.”

The improved agricultural growth is expected to boost rural

demand, though not at too sizzling a rate. Moreover, the price
drop in personal products, after the recent excise duty
reductions, is also expected to drive consumption. “Better
agricultural yields will give farmers more spending power,
making the rural markets bullish,” says an analyst.

As a result, HLL has planned a rural marketing programme that

is expected to result in a marked growth in the consumption of
the company’s products in the rural market. HLL will adopt a
three-pronged marketing strategy - new price points, sizes and awareness
campaigns - for its detergents and soaps segment to augment rural growth.

Deep penetration

The goal is to reach 2,35,000 villages, up from the current 85,000; 75 per cent of
the population, up from 43 per cent today; and a message reach of 65 per cent,
up from the current television reach of 33 per cent. The company is expressly
aiming at reaching villages with populations less than 2,000. The rural
penetration exercise is going to be complemented by a 15-per cent hike in
advertisement expenditure.

Say company sources: “We have found ways and means to trigger growth in
rural areas. For instance, cutting across categories, we have conceived products
that are relevant to rural needs. A unique example is HLL’s Lifebuoy soap. In
rural India, health is of paramount importance, because indisposition is very
directly related to loss of income. Lifebuoy, whose core equity has been health

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through vigorous cleansing, has, for decades now, been synonymous with soap
in rural India. At the same time, we are making the products affordable.”

In fact, HLL is now creating a market even for apparently premium

products by offering them in small-pack sizes, like sachets, whose
unit prices are within the reach of rural consumers. Initiated in the
1980s, sachets today constitute 70 per cent of HLL’s shampoo
sales.

The sources add: “We have managed to create a market

for products like premium stain-removing detergents (Surf
Excel), beauty soaps (Lux), talcum powder (Pond’s),
toothpaste (Pepsodent) and skin cream (Fair & Lovely) by
offering them in low unit price packs.”

HLL is also going to non-conventional media to spread the word about its rural
presence. The sources add that media like wall paintings, cinema vans, weekly
markets (haats), fairs and festivals will be increasingly used. “Communication
through fairs and festivals is going to be backed by direct consumer contact,”
says Banga.

Rural involvement

HLL has launched a direct contact programme called Lifebuoy Swasthya

Chetana. This project aims at covering about 5-crore people in 15,000 villages in
10 states. “The project intends to generate awareness about good health and
hygienic practices, and specifically, how the simple habit of washing hands with
soap is essential to maintaining good health. The initiative will involve interaction
with students and senior citizens, who are expected to act as change agents,”
say HLL marketing personnel.

But generating awareness will pay dividends only when steps are taken to
ensure constant availability of products. Accordingly, HLL is focusing on its retail
network as well. “We have progressively strengthened our distribution reach in
rural India, which today has about 33 lakh outlets,” HLL marketing officials say.

In 1998, they add, “we launched Project Streamline to further extend our
distribution reach. With this project, we now directly cover about 46 per cent of
the rural population. In the coming years, we will further strengthen our
distribution through mutually beneficial alliances with rural self-help groups
(SHGs).”

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Besides, HLL has also begun a pilot project called Project Shakti, whereby SHGs
are being offered the option of distributing relevant products of the company as a
sustainable income-generating activity.

HLL’s decision to focus on niche marketing also seems to be showing results.

The company had recently decided to focus on 30 power brands out of its
portfolio of more than 110 brands. Explaining the move, Banga says: “Today,
focus is crucial and niche marketing is the order of the day. You cannot fight
every battle - you have to identify the strengths and persist with them.”

And that is precisely what HLL seems to be doing.

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 UNIQUE BUYING PROPOSITION
A pack for every budget

But the potential is even larger, both in terms of consumption and penetration.
The fact that 70% of the population accounts for only 50% of even relatively well-
penetrated categories, like soaps & detergents, indicates the enormous scope of
consumption-led growth in these categories. Therefore such categories will
derive growth out of increased usage. In categories, which are relatively less
penetrated, like personal products, rural India offers an even bigger growth
opportunity through greater penetration and then consumption. For example only
three out of 10 consumers in rural markets use shampoo or skin care products.
Therefore growth in such categories will emerge, as more consumers purchase
these products, and then continue to use them regularly.

Hindustan Lever has taken many initiatives over the decades to create markets
in the rural hinterlands. By marketing relevant products, at affordable prices.

A unique example is Hindustan Lever's Lifebuoy soap. In rural India, health is

of paramount importance, because indisposition is very directly related to loss of
income. Lifebuoy, whose core equity is health and hygiene, has for decades now
been synonymous with soap in rural India.

At the same time, if products have to come up the order in the rural purchase
hierarchy, they have to be affordable. If rural India today accounts for about half
of detergents sales, it is because HLL has developed low-cost value-for-money
branded products, like Wheel. The company has also taken initiatives to create
markets even for apparently premium products, by offering them in pack sizes,
like sachets, whose unit prices are within the reach of rural consumers. For
example, initiated in the 1980s, sachets (Rs.2, Re.1, or 50 paise) today constitute
about 55% of Hindustan Lever's shampoo sales. With media reach gradually
increasing, rural consumers today, where the media has its footprints, share the
same aspirations with their urban counterparts. HLL has responded to the trend
with low unit price packs of even other products - Lux at Rs.5, Lifebuoy at Rs.2,
Surf Excel sachet at Rs.1.50, Pond's Talc at Rs.5, Pepsodent toothpaste at Rs. 5,
Fair & Lovely Skin Cream at Rs.5, Pond's Cold Cream at Rs.5, Brooke Bond
Taaza tea at Rs.5.

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 COMPANY'S PLACE IN THE MARKET

The Competitors

The Indian FMCG markets have witnessed some of the classic struggles
involving HLL. So far Levers have been able to stand their ground but times are
changing. HLL’s response to the latest challenges is being eagerly studied by the
corporate India. There are following some of the examples:

HAVE you heard of the `sachet' salesman, the man on a cycle who pedals to the
local grocer to sell sachets of pickles and spices? If not, you may soon get to
meet such a person. Because Chennai-based CavinKare Pvt Ltd is using this
novel approach to distribute its food products. The company's Foods Division,
barely 15 months old, realised the importance of putting in place a
comprehensive distribution plan even before its first product hit the shelves. It
began by creating two separate brands - Chinni's for smaller pack sizes and
Priya for larger packs - so that the two segments can be treated separately. And
the company has been using a separate sales force for each brand ever since.

Says Satish Mane, Chief Executive Officer (Foods), at CavinKare: "We have
launched pickles and spices in single-serve sachets that cost as little as 50
paise. Besides offering the consumer convenience, they encourage out-of-home
consumption and allow consumers to taste a variety of flavours at an affordable
price. And instead of using the conventional distribution route, we have created a
`sachet' sales force that sells only sachet packs to small retailers including
cigarette and paan shops." He says creation of a separate `sachet' sales force
ensures that the smaller pack sizes get retailer attention and shelf space and
asserts that this is not an experiment but a dedicated mode of sales and the
results have been encouraging so far.

Not only CavinKare but several other FMCG companies have also started to use
unconventional routes to distribute their products, leaving no stone unturned in
their quest for consumers. After waging a bitter price war through most of 2004,
the FMCG majors are now eyeing distribution as the next function which needs
an overhaul to keep pace with fast-changing consumer preferences. Companies
are not only finding it tough to create an extensive distribution network along
conventional lines, a la Hindustan Lever Ltd or Coca-Cola India; they are also
looking to place their products where there is more visibility.

And, being aware that in smaller towns and villages the access to consumers
may be limited, several FMCG companies have taken to unconventional modes
of distribution. In a similar quest to capture consumers in remote villages,
Kolkata-based Emami Ltd has tied up with the Posts and Telegraph Department
to place its products across 5,000 post offices. The pilot project has been initiated

17
in Maharashtra. The President (Sales) of Emami's distribution arm, J.B.
Marketing & Finance Ltd, Hari Gupta, says that eventually the company wants to
reach all the 1.05 lakh post offices across India. Besides, Emami will also use `e-
choupal' outlets - where a computer literate villager conducts trade on the Net -
across Madhya Pradesh and Uttar Pradesh to gain better access.

"We chanced upon the idea of using post offices after we realised that the local
post office is the communication hub for a small village or even a small town.
People invariably visit the post office to get mail, make outstation calls and for
other similar purposes and placing Emami products there would be sure to give
them more visibility," he adds.

Also, ITC Ltd has been successful in eliminating middlemen by creating e-

choupals where farmers use credit to buy FMCG goods. Yet another example
has been set by e-governance projects such as the one being conducted by the
Andhra Pradesh Government. Begun as a project to increase the common man's
interface with the Government, the e-seva project has roped in Wipro Consumer
Care and Lighting (WCCL) to place it products for sale at e-seva points. Says
Kumar Chander, Vice-President (Marketing), at WCCL, "This helps us access
remote markets and a totally different set of consumers."

CavinKare's personal products division too is enthused by Emami's experiment

involving post offices and e-choupals. "The idea of placing products at post
offices is very interesting. We may evaluate this option, especially for products
such as shikakai powder, shampoo and hair dye," says K.S. Ramesh, Executive
Director and CEO, CavinKare.

However, Kumar Chander of Wipro Consumer sounds a note of caution. He says

that alternative distribution channels do not offer better margins and are, at best,
tools to gain accessibility in certain areas. Also, distribution costs across such
channels are identical to those in conventional routes, so there is little saving. He
says that while using such channels to expand product reach and gain
accessibility has become important for most FMCG companies, the
unconventional route is not expected to become a major revenue generator in
the coming years.

And, some FMCG majors such as Dabur India Ltd and Nirma do not believe in
deviating from the tried and tested conventional methods. So, while alternative
distribution options are gaining acceptability, it may be some time before these
become a rage.

Competition will finally catch up with whatever distribution mode a marketer can
use but the issue is that if the brand has pull it makes life easier in two ways —
better sales and distribution cost and the products can also get into outlets where
space or capital constrains multiple brands from being stocked thereby giving an

18
advantage. In that context, it looks like distribution is the next function FMCG
firms will focus on for the coming year!

HLL's challenges are of another nature. It still has to improve the incomes of the
Shakti entrepreneurs in order to retain their interest. To do that, it may need to
widen its offerings - on its own or in partnership with other companies. It may
also consider local manufacturing by these entrepreneurs, where they use
ingredients supplied by Lever to make the final product. Above all, Lever would
probably do well to allow its distributors to run the channel.

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 FUTURE
HLL envisions the creation of 25,000 Shakti Entrepreneurs covering 100,000
villages, and touching the lives of 100 million rural people by the year 2005.

In order to achieve this goal, Project Shakti plans to extend to the states of West
Bengal, Punjab and Rajasthan in addition to expanding operations in the eight
existing states.

Having perfected the model in Nalgonda, in 2003 HLL plans to extend Shakti to a
100 districts in Madhya Pradesh, Gujarat and UP. There are other plans brewing:

 One is to allow other companies which do not compete with HLL to get
onto the Shakti network to sell their products. Talks are on with battery
companies like Nippo, TVS Motor for mopeds, insurance companies for
LIC policies. "We wanted to first stabilize the project before we can look at
other companies. It requires somebody with scale and size to build a
platform and then invite other companies onto this platform," elaborates
Sehgal. The most powerful aspect about this model, emphasizes Sehgal,
is that it creates a win-win partnership between HLL and its consumers,
some of whom will also draw on the organisation for their livelihood, and it
builds a self-sustaining virtuous cycle of growth for all.
 The next stage of Project Shakti is even more ambitious. HLL is now in the
process of piloting `I-Shakti', an IT-based rural information service that will
provide solutions to key rural needs in the areas of agriculture, education,
vocational training, health and hygiene. The project will be piloted in
Nalgonda district again. Based on a palm pilot, HLL is looking at sourcing
appropriate low-cost hardware from Hewlett-Packard while Unilever
Research out of London is developing the consumer interactivity software.
The premise of the i-Shakti model is to provide need based demand
driven information and services across a large variety of sectors that
impact the daily livelihood opportunities and living standards of the village

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 community.

The i-Shakti kiosk will be operated by the Shakti Entrepreneur, which

further strengthens the relationship we have already cultivated and builds
new capacity. HLL expects that the information provided would improve
the productivity of the rural community and unlock economic and social
progress.

To catalyze overall rural development, HLL hopes to collaborate with

mainstream institutions (both corporate and not-for-profit organizations)
that are experts in agriculture, health, insurance, financial services and
education. For Example: Through i-Shakti kiosks, ICICI Bank and HLL will
work together to provide a new delivery channel for rural India, which
offers a multitude of products and services to the rural customer. In the
first phase, Life and General Insurance will be offered through this
channel. Other financial services including Investment products (Equity,
Mutual Funds, Bonds) ICICI Bank Pure Gold (gold coins), Personal Credit,
Rural Savings Accounts and Remittances will be introduced subsequently.

THERE are about 4.36 lakh women self-help groups in Andhra Pradesh covering
nearly 58.29 lakh poor women. AP alone has about half of the SHGs organised in
the country. The SHGs are also popularly called DWCRA groups and this name
became popular after the DWCRA programme (Development of Women and
Children in rural areas) through which women's groups were assisted initially.
The SHGs not only save but also take small loans out of the corpus available
with the group. The group corpus consists of savings , government assistance as
well as bank loans. Members use the loan out of the group corpus for their
personal needs initially. However, in the long run such loans are utilised for
income generation activities. Since the inception of the SHGs, an amount of Rs

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1,362.98 crore has been mobilised as corpus by these groups and it is estimated
to reach Rs 1,500 crore by the middle of this year.

The women's savings movement, explains C.S. Ramalakshmi, Commissioner,

Women Empowerment, Govt of AP, started in 1993 as an offshoot of the total
literacy campaigns conducted by the government. Rural women organised
themselves into `thrift and credit' groups with one rupee saving a day and this
mass movement, in which 58 lakh members saved more than Rs 800 crore is
rotated internally and lent amongst members twice in a year as per the interest
rates fixed by the groups. Such amounts are used for their daily consumption
needs as well as for making goods to sell. It is into this strong network that HLL
tapped to launch Project Shakti. While the savings was there among the SHGs,
there was no channel of investment. Now, HLL has provided a window of
opportunity to invest and earn.

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 RECOMMENDATIONS
Call it the so called Project Shakti or mere HLL’s rural India distribution network,
you will hardly find any difference. If there is any difference then the difference
lies in the people’s perception. It will not be wrong to say that Self Help Groups
(SHG) is the backbone of the project Shakti because HLL makes Shakti
entrepreneurs out of the SHG. Everyone wondered why HLL has so much
attachment with Andhra Pradesh later it was revealed that Andhra Pradesh has
the largest number of SHG,i.e, slightly less than half a million, which is sixty
percent of total number of SHG in India.

HLL Shakti works on the model ‘Bottom of Pyramid’ (BOP) propounded by C.K.
Prahalad, in which company first sees the potential of the BOP market and then
according to need and want decides to roll out project Shakti foot prints. Till now
HLL made profits out of just few years (four) old project with help of few
thousands (approx 5000) Shakti entrepreneurs covering eight states (130
districts and 35000 villages). Apropos to the said facts and figures we would like
to recommend.

 INCREASE THE REACH: India’s biggest advantage is its huge population

which is in every aspect is a good signal for any FMCG major. 70%
percent of India resides in rural areas. Huge potential is still untouched;
HLL should pull up its socks and work faster towards this by making as
many Shakti entrepreneurs either through SHG or by any other means.
SHG are there in every part of rural India so the need for the day is to
reach them as soon as possible.

Every Shakti entrepreneur covers 1000 to 1400 homes within the radius of
12 kms. Usually to return to the same home it will take a Shakti
entrepreneur 100-125 days due to the poor social infrastructure and mode
of transport. Apropos to the given facts we would like to recommend

 INCREASE THE NUMBERS: Rural consumers generally don’t buy in bulk

and expect Shakti women to revisit their house on regular basis. But due
to the constraints, entrepreneurs find it difficult to visit frequently. An idea
here is to increase the number of Shakti entrepreneurs within the given
reach, i.e, 1000-1400 homes. Advantages to this are firstly visit the target
consumers frequently and secondly spend more time in order to convert
non-consumers into consumers by educating the customer about health
and hygiene.

Generally a rural woman takes loan from the SHG for initial payment on a
specific terms and conditions. SHG also have other projects under them under
various schemes of government and self-started schemes, which also require
funds. Micro credit is firstly not easily available and secondly the interest rate

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varies between 10-12%. Apropos to the said facts and figures we would like to
recommend:

 AVAILABILITY OF CREDIT: With a marketing network in place in coming

years, Mission Shakti will be the biggest movement in the state to
eradicate poverty and for the empowerment of women. SHGs are likely to
make village moneylenders jobless, and would be able to do away with
the middle man in trade, if bank credit is adequate and the marketing
network functions efficiently. Even a HLL local distributor can extend one
time credit to the entrepreneur, which is common in only specified areas.

Money drives HLL to rural India and same motivator drives women of SHG
to be a part of HLL Shakti. A Shakti entrepreneur earns Rs700-Rs1000 a
month from the sale of goods worth Rs 10,000-15,000. The 15-month pilot
project in Andhra Pradesh turned out to be a good learning ground. For
instance, the company initially decided to save distributor margins by
cutting one layer of distribution - the local distributor. These savings
helped in giving higher margins to the Shakti entrepreneurs and retailers.
Stocks were directly sent to the Shakti distributor from the local C-and-F
(carry and forward) depots. However, Shakti's still trying to effectively bring
down distribution costs. Targeting the Bottom Of Pyramid is at least 5-10
per cent costlier than selling in urban markets. HLL need to keep driving
costs down, especially while scaling up. Manpower costs are one area
where a lot could be done - it forms 80 per cent of total costs in selling to
the BOP. The task is manpower intensive as employees are required to
identify and develop new BOP markets, train the entrepreneurs and revisit
existing markets to ensure that it has adequate stocks. Hence, HLL is
experimenting with three-four pilot models. It has rolled out mobile trainers
who move from village to village and perform multi-functions from
selecting entrepreneurs, training them and hand holding. It is also
experimenting with exclusive trainers. Apropos to the said facts and
figures we would like to recommend

 INCREASE THE MARGINS: In order to impact both livelihood

opportunities and living standards of rural communities ‘i-Shakti’ - an IT-
based rural information service has been developed to provide
information and services to meet rural needs in agriculture,
education, vocational training, health and hygiene.

The premise of the i-Shakti model is to provide need based demand

driven information and services across a large variety of sectors that
impact the daily livelihood opportunities and living standards of the village
community. The i-Shakti kiosk will be operated by the Shakti Entrepreneur,
which further strengthens the relationship we have already cultivated and
builds new capacity. HLL expects that the information provided would
improve the productivity of the rural community and unlock economic and

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 social progress. To catalyze overall rural development, HLL hopes to
collaborate with mainstream institutions (both corporate and not-for-profit
organizations) that are experts in agriculture, health, insurance, financial
services and education, with i-Shakti in place HLL could easily reduce the
overhead costs. Allowing Shakti entrepreneurs to sell products other than
the HLL portfolio but not the other FMCG brand gives another reason to
earn extra.

The principal issue in rural development is to create income-generating

opportunities for the rural population. Such initiatives are successful and
sustainable when linked with the company’s core business and is mutually
beneficial to both the population for whom the programme is intended and
for the company. Based on these insights, HLL launched Project Shakti
in the year 2001, in keeping with the purpose of integrating business
interests with national interests. Apropos to the said facts and figures
we would like to recommend

 WHY ONLY RURAL WOMEN: even the UPA government Rural

Employment Guarantee Scheme includes people from all walks of life then
why HLL just embrace women. Rural India has huge amount of seasonal
and disguised unemployment (generally unemployed men). This segment
can also be used as distributors because firstly they are more active as
compare to women and secondly they can also work in night when head
of the family of the consumer household is available.

Recommendations could be countless but right timings are inevitable. HLL

should also work with more organizations (profit and non-profit) along with
state governments to bring all possible resources to the rural India in order
to create a win-win situation for all parties. A lot has to be done, doing
things efficiently is required but effectiveness is the call for the day.

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 APPENDIX
For Rojamma, Project Shakti means being able to educate her
daughters – A LIVE CASE

Rojamma is a single parent living in Kurumurthy, a small rural village 150

kilometres south west of Hyderabad in the Indian state of Andhra Pradesh. From
a very poor background, she was married at seventeen to a man with whom she
had two daughters but who then left her to fend for herself. At first she earned a
few rupees working in her mother’s field but she found it difficult to live on.

A few years ago she joined a women’s self-help group that was formed in the
village to help women like Rojamma. “It felt good to be part of a group but that’s
not the same as eating food”, she remembers. But then a man from Hindustan
Lever came to Kurumurthy and told the women about Project Shakti. “From that
moment my life changed”.

Hindustan Lever is Unilever’s business in India. Its brands include such well-
known names as Lifebouy, Lux, Surf, Vim, Pond’s and Lipton, as well as local
brands, such as Kissan, Annapurna, Lakme, Fair & Lovely and Wheel.

The company generates around half its business from India’s towns and cities
and half from rural areas, where its products are sold in some 100,000 villages
with populations of 2,000 or more. By the end of the 1990s, however, the
company realised that to increase its market share it had to expand the market.
The challenge was how to reach the 500,000 villages with smaller populations in
more remote parts of the country, where there are millions of potential consumers
but no retail distribution network, no advertising coverage and poor roads and
transport.

Hindustan Lever’s solution, called Project Shakti (which means ‘strength’ in

Sanskrit), was both bold and innovative. The company decided to tap into the
growing number of women’s self-help groups that had been springing up around
the country. These groups, about one million of which now exist across India, are
usually formed to help women save money and borrow from each other to avoid
the excessive demands of unscrupulous moneylenders. Hindustan Lever made
presentations at rural self-help group meetings, initially in Andhra Pradesh, and
invited women, including Rojamma, to become direct-to-consumer sales
distributors.

The company provides selfhelp group women with training in selling, commercial
knowledge and bookkeeping, teaching them to become fully-fledged
microentrepreneurs. The women who are trained can then choose to set up their
own business or to become Project Shakti distributors – or Shakti Ammas
(‘mothers’) as they have become known. Each woman who becomes a distributor

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invests 10,000 – 15,000 rupees (US$220-330) in stock at the outset – usually
borrowing from self-help groups or micro-finance banks facilitated by Hindustan
Lever. Each aims to have around 500 customers, mainly drawn from her village’s
self-help groups and from nearby smaller villages.

Most generate sales of 10,000-12,000 rupees a month, netting a monthly profit of

700-1,000 rupees (US$15-22). For those with husbands who work in the fields,
this typically doubles the household income. For single mothers like Rojamma, it
is a far cry from the handful of rupees she earned working in her mother’s field.

Project Shakti has proved to be a great success for Hindustan Lever and for
women in India. The project started in a few pilot villages in Andhra Pradesh in
2000. In 2002 it expanded to two states and by the end of 2004 had grown to
over 13,000 Shakti women entrepreneurs covering 50,000 villages in 12 states,
selling to 70 million consumers. This represents a 30% increase in rural
population reached.

Hindustan Lever has had strong support from over 300 partners, including
NGOs, banks and both state and local government departments, who recognise
the potential for economic growth by encouraging women to become
entrepreneurs. Andhra Pradesh typically had a 3% success rate in creating
entrepreneurs among women’s self-help groups prior to Project Shakti. This
initiative has a 90% success rate so, not surprisingly, Andhra Pradesh’s Women’s
Empowerment Commissioner, Ms Ramalakshmi, requests monthly updates on
Project Shakti’s progress.

In 2003 Hindustan Lever started to pilot an information technology initiative called

i-Shakti. This is designed to meet rural villagers’ information needs and provide
organisations with communications access to those parts of the country not
reached by TV, radio and newspapers. This involves creating village ‘kiosks’
containing internet-linked computers run by entrepreneurs.

i-Shakti was formally launched in partnership with the Government of Andhra

Pradesh in November 2004, and aims to have 3,500 i-Shakti kiosks on stream by
the end of 2005. Mostly housed in the homes of Shakti entrepreneurs, i-Shakti
kiosks provide villagers with free information on a wide range of topics, including
health and hygiene, agriculture and horticulture, child and adult education,
finance, employment, and entertainment.

Content is in the local language and has been specially developed by institutions
and NGOs with experts in these fields, including the Azim Premji Foundation for
children’s education, the Tata Consultancy Services’ Adult Literacy Programme
and ICRISAT (International Crops Research Institute for the Semi-Arid Tropics)
for information on agriculture.

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i-Shakti also includes an interactive service in which villagers can email
questions to a panel of experts and receive a response within 24 hours. Sharat
Dhall, Hindustan Lever’s Business Head for the Shakti initiative, is excited about
i-Shakti’s capabilities: “Farmers can find a quick solution to pest problems with
their crops, villagers can email their symptoms to a doctor and get a diagnosis in
hours rather than days, and computer programs with voiceovers will teach people
who are illiterate”.

Hindustan Lever and its partners are funding the initiative in the initial stages, but
in future it is planned to charge content providers and brand advertisers to make
the initiative self-financing and to generate incomes for i-Shakti entrepreneurs.

While Hindustan Lever is intent on building its rural sales and market share, it is
equally committed to improving the lives and livelihoods of people in India. Shakti
Vani (‘Voice’) takes Project Shakti a stage further. Hindustan Lever is now
training rural women to give talks to villagers about basic health practices, such
as good hygiene, disease prevention and pre- and post-natal care.

“Project Shakti’s role in creating incomes for

underprivileged rural women and helping to empower
them economically is more important than sales alone”,
says Sharat Dhall. He believes Project Shakti, i-Shakti
and Shakti Vani will have the potential to act as a catalyst
for creating new markets and generating rural micro-
economies. He recognises this is something that
Hindustan Lever cannot achieve alone and is actively
building links with noncompetitive partners, such as ICICI Bank, which
specialises in micro-loans. At the same time, competitors and companies from
other sectors are watching Project Shakti very closely and are expected to
develop similar distribution models.

Project Shakti’s goal is to recruit 100,000 Shakti entrepreneurs covering 400,000

villages and 400 million consumers by 2008. “I believe it can become the biggest
rural operation in the history of Indian business and change the way companies
look at reaching consumers living in the smallest of villages”, says Sharat Dhall.

For the thousands of women like Rojamma who have become Shakti
entrepreneurs, this initiative has already changed their lives in ways that are
much more profound than the income they earn selling soaps and shampoos. It
has brought them self-esteem, a sense of empowerment and a place in society.

As Rojamma says: “When my husband left me I had nothing except my

daughters. Today everyone knows me. I am someone now”. It has also meant
she has been able to send her daughters to school, giving them the chance in life
she didn’t have, although Rojamma’s aspirations for them remain modest: “I
hope they have happy marriages and they too become Shakti Ammas”.

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