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Business India

A Tale of Two Channels : Part 2 : Modern Retail

A smallish outlet universe of nearly 4500 outlets across the country, contributing nearly 5% by value to the Indian retail sector, Modern Trade (MT) is, well, in embryonic infancy right now. 
However, as mentioned in the earlier post, the lack of scale does not take away the operating complexities from the business. 

We saw that the traditional trade business strives to drive distribution of products across the outlet universe. Hence, its sustenance and growth depends upon whether stocks reach the outlets successfully, day in and day out. Initiatives to generate offtake are really very few, limited to tactical interventions like merchandising or hiring shop windows for display. This is primarily because the outlets are manned counters, unlike the self – service types found in Modern retail.

However, modern retail works on what is called the Distribution Centre (D.C) model of supply. The retailer’s supply chain measures stock on hand, outlet level sales by SKU, the minimum inventory level required, and then raises purchase orders. These orders are then billed by the manufacturer (the FMCG company) and supplied directly from the company warehouse to the retailer’s DC. Note that the distributor is usually not involved in this transaction.Once the stocks reach the DC, the system allocates them basis secondary sales and current stock position to each outlet. Hence, product distribution is taken care of. 

This, therefore, raises the next logical question – If distribution was the biggest agenda being driven by the traditional trade side of the business, it suddenly becomes redundant in modern retail – why then do you need a sales team to manage this, because all orders et cetera are system based ? 

That is because the role of a modern trade sales team is slightly different from that of a traditional trade team. 
The MT team too has to ensure product availability across stores, because, well, embryonic infancy also means less than perfect systems and lots of manual processes, hence room for errors. However, it is also the responsibility of the MT team to ensure that the available product is displayed and merchandised in a manner such that maximum off take happens, and the replenishment cycle does not fall off the rails. 

What this essentially means is that the MT guy has to not only ensure high quality merchandising of products and maintenance of fixtures, he also has to be aware of opportunities inside the store where he can purchase / poach space to increase stock availability, participate in store promos (especially around festivals) to piggy back on other product categories, use store level insights to develop tactics that would help drive off take. 

In addition, he also has to manage payments within the agreed time period, deliver stocks at high fill rates, within the specified freshness norms (typically products need have minimum 75% shelf life at the time of supply), at the right time (after taking appointments at the DC- because there are 50 other vehicles ready to offload). 

Basically, all the complexities of the traditional trade business, and much more !! 

To sum it up, both business work on the Availability — Offtake — Replenishment cycle.

Traditional trade focuses on ensuring availability and hence drives replenishment, while modern trade focuses on generating off take and hence replenishment.

Hence, the submission that the modern trade role involves tactical elements of marketing, which are needed to prompt consumers to give their product a try – would not be too far fetched in my opinion ! 

Categories
Business India

A Little Prescience & A Risky Prediction : The Aaramshop Model

Hello all,

I deviate from my regular weekly updates today to highlight and build on two important ideas that just got printed in the newspapers.

One was the emergence of the upgraded kirana stores (read it here) – and perhaps I can stake my claim to a little bit of prescience on this – though not in so much detail (see here).

Kirana stores are indeed an important component in the social ecosystem. Their sheer accessibility puts them leagues ahead of the competition at any point in time. And imagine, if they become like the modern retail outlets that allegedly threaten their existence, I can comfortably state that the threat would soon be directed in the opposite direction! I am quite sure that the anti FDI in retail advocates have got the wrong end of the stick by opposing investment – if at all, the advent of competition would hasten the modernization process across the country.

The article quoted Mr Sameer Suneja, the MD of Perfetti on how it had identified the high offtake retailers and treated them differently.
HUL had pioneered this differential treatment concept in 2007 with the launch of the Supervalu stores programme – which was later adapted basis respective category relevance by other FMCGs (see this & this). 

The Supervalu programme was possibly ahead of its time – it was a serious attempt to upgrade the retailer from his traditional practices and fast track him towards modern retail. It was also designed with a strategic vision of occupying key display opportunities and creating a 360 degree connect with the consumer. I cannot comment on whether it was a success or failure, but I am pretty sure that the current trend of retailer upgradation owes something to this initiative, which had the potential of being a game changer.

Speaking of game changers – the other point of today’s gyaan – one name that is frequently doing the rounds these days in my mind is that of Araamshop. This is a model which is bringing the established web economy  “aggregator” concept to FMCG stores in the country. Araamshop lets you shop from a neighbourhood grocery store, via a convenient portal / smartphone app – a boon for people who typically put in long hours and are too tired to go to the market once they reach home – if they reach home on time. 

It is a very powerful concept, one that marries the best of two worlds – bringing the convenience of the kirana to the consumers’ mobile phones – thus providing instant connectivity and freeing up of precious time and bandwidth for the user.

I am not too sure whether the model would be sustainable in the long run – and the reasons for my doubt are as follows – 

I don’t know how the business makes money – I guess the retailers may be paying them some money to become a part of their network – but this is idle speculation on my part. 
However, it seems to be a low capex, low opex model, so it could break even quickly and even turn profitable soon. Will it be sustainable – not quite sure.

I believe it would be an operational challenge of Himalayan proportions to be able to ensure consistent service delivery from such a large group of diverse retailers. 
I could be wrong, and will be very happy if I am proved to be, but basis field experience – I can say that exerting sufficient levels of control on this motley crew would be a challenge.

Critical to the success of this model would be a few simple, basic facts – ensure timely service, correct billing, quality of goods supplied, & deliver customer satisfaction, and do all this consistently. We must remember that in the store environment, it is the shopper who makes the choices, and has various alternatives at her disposal. In this case, the severest drawback is the ability to change ones’ mind, and pick up something else.

If the model gets the service level bit right, then nothing can stop it from taking off, as the buzz that good experience would generate would be nothing short of significant- I for one would definitely become its advocate !

Of course, we can always rewind to the Supervalu experiment – and imagine a scenario where a large FMCG company (say ITC, because it already has the critical experience of running a similar initiative with its e-choupal experiment) – would throw its weight behind this programme, and support it through resourcing – in terms of ATL, website presence and the  most effective lever – stocks. It could then ensure that the retailers partner with them in this new way of doing business. This support would give the company the first right of choice, create superb brand recall and would translate to higher  offtake as well – but maybe I am getting too far ahead of myself in this mist of crystal ball gazing !

That’s it for tonight folks ! Have a great weekend ahead !





Categories
Business India

Modern Retail in the News – II

Adding two more interesting articles today : May 05, 2012 – 
http://www.livemint.com/2012/05/03223807/Modern-retail-has-13-of-big-c.html?atype=tp
talks about the changing preferences of consumers and their shifting attitudes towards Modern Trade – as highlighted by a Nielsen study released recently. 


Till we understand the latest report, it would do good to refresh what Nielsen said in 2011 http://www.acnielsen.co.in/news/20111115.shtml

The other interesting article is : 
http://www.dnaindia.com/money/report_india-likes-buying-certain-products-only-at-organised-outlets_1674238
which tries to elaborate how FMCGs are looking to grow contribution from Modern Retail.


Watch this space for more..
Cheers !