Maruti Suzuki aims to double rural outlets in three years, projects 10% growth in FY 2014/15

Maruti Suzuki has outlined an aggressive retail expansion in smaller cities and rural areas, reports the Economic Times. India's leading automaker plans to double its rural footprint over the next three years, the report quoted a senior company executive as saying. The strategy forms the backbone of the automaker's positive outlook of achieving sales volume growth of 9-10% during the current financial year (FY) that ends 31 March 2015. "We are bullish on our exchange program, a rural area continues to do well for the company and we expect niche marketing to bring in incremental numbers. The whole effort this year is to harvest more than what we seeded. That is our work, that is our challenge this year," said senior executive officer Mayank Pareek.

Maruti Suzuki already has an extensive network of 1,331 sales outlets in India, putting it far ahead of its competitors. Over half of these sales outlets are in smaller format outlets which have a display area only big enough for two or three vehicles. The aggressive target to double the sales network stands out as it took the automaker nearly three decades to develop the well-entrenched sales network it currently enjoys. Doubling this wide network over the next three years will require huge effort and initiative.

In recent years, Maruti Suzukhas taken an active approach of reaching out to its customers, as opposed to the traditional passive stance of expecting customers to turn up at showrooms. This strategy is more prominent in rural markets where it employs a dedicated sales force. As on March 2013, it had 7,150 resident dealer sales executives (RDSE) for rural markets. It has further dissected the rural market in 372 interest groups based on occupation and other factors and has reached out to 200 such groups.

Outlook and implications

Maruti's projections of solid volume growth this fiscal year are well known as the automaker has already asked its dealers to try for 15% sales jump (see India: 8 May 2014: Maruti asks dealers to target 15% y/y growth, aims for higher market share in FY 2014/15). The automaker's targets do not look out of place considering its aggressive model launch programme, involving the Ciaz sedan, an unnamed light commercial vehicle (LCV), and the S-Cross sport utility vehicle (SUV) spread over the current financial year. The launch of the Celerio hatchback earlier this year is also expected to help. The model, introduced as a replacement for the A-Star and Zen Estilo hatchbacks, is witnessing strong demand. Maruti Suzuki also plans to refresh the Swift, Dzire, Alto K10, and Ertiga models throughout the year.

While new model launches help the automaker to stave off competition in urban areas, its incremental gains come from smaller cities and rural areas. Towns and cities with population less than 10,000 people are considered rural by Maruti Suzuki. Given that potential buyers in rural markets are not as concentrated as in urban areas, Maruti Suzuki has tweaked its approach. The automaker is focusing on opening smaller-format rural dealerships that require less investment. According to the company's latest annual report, it had 640 smaller format outlets out of the total 1,204 sales outlets at the end of March 2013. Sales outlets in smaller areas often serve as the point of sale for adjoining areas, which presents its own set of challenges when it comes to servicing customers in the event of breakdowns. Maruti handles this with a service model called Maruti Mobile Service. The service essentially involves a Maruti Eeco van providing doorstep service. The company plans to have at least 1,000 such mobile service vans by the end of this fiscal.

The focus on rural areas is paying off. From just over 9% in FY 2008/09, the contribution of rural sales to total domestic sales volumes has steadily increased to 32% in FY 2013/14, said vice-president (corporate) KD Singh, after announcing its fourth quarter and full year results last month. Maruti's strong line-up of compact products and a long and successful history are likely to allow it to make further inroads in rural areas. Maruti's success in tapping demand from rural markets has got other automakers interested too including its biggest rival Hyundai which plans to boost its presence in this segment to 350 Rural Sales Outlets (RSOs) by the end of this year (see India: 26 May 2014: Hyundai India outlines rural strategy, compact SUV in development and India: 6 March 2014: Automakers in India increasingly targeting small cities, rural markets to boost sales).