Tag: Modern Retail

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Business India

Gloom and Doom…Or Not…

Hello Hello…for all of you who may have mistakenly happened to chance upon this blog..

Today’s post..one that emerges after a long-ish interval, is slightly darker in tonality…

The landscape has changed so much that its difficult to imagine the amazing so called short sightedness of my own views of a year ago.

And pray, what is it that has changed so dramatically, which has forced me to examine my own views about modern retail so dramatically.

E-commerce, in one word.

The rise of e-commerce in India has been spectacular, to use a tired adjective.
Flipkart, Amazon, Snapdeal, Jabong have been the key players in the “general merchandise” or the “something for everyone” space.

Niche players like Zivame, Fabfurnish, Babyoye  & Lenskart have coasted over their initial teething phases and are now attracting global investor funding, with the ambition to become part of the daily existence of their shoppers.

So where does the rise of e-commerce leave our good old brick and mortar retailer players..

In a very tough space, honestly….

The only category that remains fairly unaffected today by the ecommerce onslaught seems to be FMCG – though that too is increasingly looking like a fortress under attack – the insurgents being local portals like Localbanya et al.

Modern trade/organized retails faces high barriers like constantly increasing overhead costs (manpower, facilities, rentals et cetera). E commerce has a lesser set of variables to deal with.

Ubiquitous internet access means more power to the shopper – who can now postpone the purchase “impulse” for a better deal from a dot com retailer. And when I, as 30+ individual was able to make this behavioural change, I am sure the younger generation will find it a way of life.

Add to this the convenience of home delivery, avoiding the parking and traffic hassle, options to pay in EMIs, means that suddenly, high margin categories like apparel, consumer durables, and electronics suddenly face solid competition from the e-retailers.

Such has been the impact of this threat that leading players like Sony and Lenovo have issued advisories and restricted warranty benefits to online purchases, amidst increasing resistance from the traditional dealer channel on pricing (online prices in a large number of cases being lesser than the landing rates of traditional retailers)

It is a convenient armchair theory that India will go the way of the mobile phone in this space. Though I don’t have exact data, I remember from my telecommunications engineering class that India had one of the lowest tele densities in the pre mobile era. Within ten years of my engineering graduation, it turns out that India has leapfrogged a large number of economies on this parameter.

With a bleak foreign investment prospect, increasing pressures on profitability, and a dynamic competitive environment, I feel that a large chunk of modern retail is headed the way of the pager…an equipment seen only in the earlier seasons of House MD !

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Business India

A Few Tricks of Trade…

The traditional trade outlet is a high volume, fast turnover location. Since the business operates on credit and wafer thin margins (the volumes make up for it !), there typically are many “short cuts” that a not so scrupulous shop owner can resort to, in order to get rich quick.

Common among these are
1) Underweighing
2) Adulteration
3) Over pricing
4) Mis calculation !
5) No pukka bills

Disclaimer : I have been at the receiving end of one of these lately – hence the personal angle to this post !

1) Underweighing – typically happens when one is out to purchase a loose commodity – typically sugar, rice or pulses. A simple adjustment of the weighing scale and voila ! The retailer makes a healthy premium on every such sale.

Consider the hypothetical example below – will remind you of a junior school maths problem.

A dealer buys sugar at Rs 37 per kg. He sells it for Rs 40 per kg. His weighing scale however measures out 990 g for each sale of 1 kg. What is the incremental profit made by this dealer on each such sale.

Current profit : Rs 3 per kg – 8% on CP
CP of 990 gm : Rs 36.63
Hence, incremental profit on each sale : 37 paise
Which translates to : 37 paise / 3 rupee – an astounding 12% higher than the original profit margin.
On a CP basis, his profit works out to 9.2% on 990 gm, versus 8.1% on 1000 gm – again a healthy difference of 1.1%  – considering that his average margin on FMCG products would not be more than 7-8%.

And do you really think you will ever notice this difference in weight ??

So how do you address this – simple – buy known brands. All manufacturers have to comply with a very stringent Weights and Measures act, which penalizes them in case of any discrepancy between declared product weight and actual.They also have consumer care and helpline forums where grievances can be aired and redressed.

2) Adulteration – Carried out with the same intention as the one above – except that it is harder to detect, and may have health consequences. Essentially, a cheaper substitute is added to the original article, to bring down the overall cost of the item. This game works very well till the costs of the replacement article are in check. The day these increase, another substitute is found.

3) Over pricing – this is where I got ripped off. I was shopping with my mother at Qutub Plaza (DLF Phase 1)  We walked into a store promising home delivery etc of foods. beverages, pulses etc.
We purchased three items there – all commodities. Mum also remarked that the rates seemed higher than usual, but the guy pointed us to the MRP sticker. There was no way we could argue beyond a point with that. However, we asked him to give us a bill for this purchase so that we could track prices.

On comparing these with similar weights in a nearby supermarket, we discovered that we had been over – charged by at least 35-40% on each article! Imagine the kind of money made on the side, which is not declared and not paid tax for. A sureshot way to go from nothing to everything in no time at all !

Moral of the story – Trust your instinct – Don’t pay the price printed on a sticker, because that could have been printed anywhere ! Only go by the price printed on the packaging – because there are fewer chances of that being tampered with.

This is where Modern Trade’s arrival will help consumers.
Standard product availability, at fixed prices, sold with printed receipts..combined with promotions to create consumer value ..arent’ these what consumers want ?

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Business India

A Tale of Two Channels…

Good Morning. Here’s wishing you a very happy new year, hoping that you are blessed with good health, prosperity and success in your endeavors in 2013 !

Today’s post is about the two channels in India’s retail environment – Traditional / General Trade & obviously, Modern Trade. 

The reason for choosing this particular topic is well, a little personal and professional. Having worked in the FMCG sector managing the Modern trade business, I have seen little understanding, and even condescension, from peers and seniors, who normally would consider a Modern Trade posting as a “promotion” or a sinecure. 

Given the current scale of MT in India, its quite normal that a channel which contributes nearly 5% to overall industry turnover is less understood and lesser planned for.That it is a different eco system, with its own set of challenges and requirements, is another story !

But to understand why things are the way they are, we must take a look at how the traditional trade business works. 

Traditional trade is the industry term for the maze of small. unorganized retailers that span the length and breadth of the country.
Typical features of a “TT” outlet are – 
1) Small shop area
2) Low operating costs (no fancy fixtures, lighting, sales staff !) 
3) Easy consumer relationships, conveniently accessible, and offer value added services as well (home deliver, order on phone, credit) 

In short, your neighbourhood kirana store !

Nearly all FMCG companies utilize the services of a private individual known as a distributor to service this environment. The distributor essentially is a third party who takes care of the operational side of the business – selling the product to retailers, collecting cash, managing bad debts et cetera. He does this for a return on his investment, which is ideally supposed to higher than what a bank / stock market / financial instrument can give him. 

Do refer to Ketan Joshi’s book, What They Don’t Teach You About Marketing to understand the finer points about how and why this system works.

Note very well here that technically, the bulk of liabilities for the company end with the banking of the distributor’s cheque for stocks. 

A sub channel through which the distributors service the smaller / marginal retailers is the wholesale channel. Unlike retailng, which requires door to door outlet coverage, wholesaling is about fewer, larger volume transactions with faster rotation of money. 

Distribution therefore, becomes the most critical agenda that this entire system is supposed to deliver, the hypothesis being availability = offtake, or as is often said , “Jo dikhta hai, woh bikta hai”. 

Success or failure of this agenda is measured by third parties like AC Nielsen, which are appointed to audit selected stores and gauge whether measures of distribution are getting impacted or not.Eventually, increase in distribution is supposed to impact Market Share, which is what all companies are slugging it out for in the environment.

Distribution again has two imperatives – Higher Reach or greater depth. Companies would tend to shape their distribution strategy basis product type / category – for example – batteries / pens would follow a “greater reach” approach, whereas cold drinks would prefer to drive higher sales from a smaller, but high salience – outlet universe.

Hence, the key priorities for the traditional trade system can be summarized as – 

1) Ensuring greater coverage of the outlet universe
2) Making products available across most of them.
3) Management of channel partners to ensure ROI & hence stability (through increased turnover, lower operating costs etc)

Next week : A similar analysis of the Modern Trade business.

PS: Apologies to Charles Dickens for the post title ! 

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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 !





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Business India

Modern Retail in the News – IV – Update : May 2012 : Week 2

Three very interesting articles appeared this week across the papers – 

The first one, appearing in DNA talks about a paper written by two IIM-A profs on how retail in India is likely to stay local. It raises interesting points on how the larger retailers are already in India in various forms, and the larger imperative on the Govt is to reform infrastructure – something alluded to in my earlier post here. I would like to reiterate to all the advocates of the anti FDI policy that it would be really really difficult to wipe out the entrenched Kirana stores – unless they all become franchisees – which would be good as they would then have to come under the tax net.

The second article refers to how companies would have to change their understanding of the shopper – again, something that would become really critical to driving innovation and business growth – as the large growths that modern retail is currently seeing on the back of store expansions would slow down dramatically. There is a hint of self interest though, as the article interviews the marketing bosses of Tracy Locke, an international shopper marketing agency.

In last week’s post , I had shared an article on how the tier II cities have shown higher growths for modern retailers – with specific reference to Hypercity. This piece encourages retailers to explore the Tier II segment in depth. Simple and obvious reasons – low rentals => faster and higher profitability, people with spending power who aspire to the larger city lifestyles => higher and sustained growths, and no comparable options in the towns. 

The last article tells us that Spar and Max Hypermarkets are not going to be partners any more. I think this was on the cards since some time now, as Spar had released a statement saying that they wanted to expand their footprint across the country rapidly, and were open to alliances with other partners who could take the business across zones. 

That’s all for this week folks !

More to follow next week.
Cheers !




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Business India

Modern Retail in the News – III – Nielsen, Hypercity and Pantaloons

Finally, I have figured out a Google alert to supplement the manual reading efforts into compiling Modern retail news in the country and the world :). 
Consequently, I will try and update the news pieces once a week henceforth.


This week’s last few pieces make for interesting reading.


A summary of the Nielsen report on Modern retail growth across cities points out how the smaller towns are showing high growths for the channel – and cites how Hypercity has got this model right. Read it here for details. 


The other article appears in The Financial Express, and mentions how Hypercity is likely to turn cash positive later than expected. Both pieces highlight different dimensions of India’s modern retail growth story, and give a sense of how it is expected to unfold.


The nugget of information gleaned from this article is how the chain has brought down the contribution of the FMCG category to business, and is now looking to increase the share of apparel in order to drive profits. 


It is ,indeed, ironic to contrast this with this report from HT that talks about Future Group’s sale of the Pantaloon’s business to the AV Birla Group – since apparel / fashion was the first successful money spinner for Mr Biyani, which propelled him on to becoming India’s retail tsar. Such has been the turn of events since then, that Mr Biyani has eventually sold it off to reduce the burgeoning debt column on the group’s balance sheet.


Hope you enjoyed reading, and do comment on what you liked / disliked. 
That’s it for now. Have a great week ahead !
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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 !



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Business India

A Random Reading List

What started with a bit of blog post statistics analysis soon turned to a Googling frenzy – First, to determine if this piece of authorship would feature even remotely on the Google radar – (alas, it didn’t !) – and so, what does Google throw up when I type “FDI in Retail”…

This led me to an interesting web page hosted by The Hindustan Times at – http://www.hindustantimes.com/India-news/NewDelhi/What-s-FDI-in-retail/Article1-775543.aspx. 
This page had links to other articles on the FDI in Retail issue, one of which was written by Mr Harsh Mariwala – the top boss at Marico Industries –  for the Economic Times :  http://articles.economictimes.indiatimes.com/2011-11-30/news/30458687_1_retail-chains-foreign-retailers-retail-fdi  –  It details out the impact of the retail revolution on job creation with relevant data, and also touches upon other relevant points of view in favour of this idea. 

As I was mulling over this, I realized that I had rather ambitiously somewhere in my earlier posts mentioned that I would talk about data and its impact on modern retail. 

And that in my enthusiasm to capture the history of modern retailing in India, I had completely missed this bit out. 

I then suddenly recalled a brilliant article on data mining, and how retailers in the west use it to gauge when female consumers could possibly be pregnant – yes, you read that right ! – and after some more mind search and googling, I found the link to – http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all – truly an amazing piece of “detective work” if I may call it that..and the interesting thing here is that Indian retailers are not unaware of this and similar data related practices to track and predict consumption – two circumstantial pieces of evidence to support this notion – 

1) All modern retailers today try and push sell a loyalty / membership card – one that rewards the user with points for every purchase. This is precisely what is used to study and analyze consumer behaviour trends.Its not a bad thing, as it helps them to plan assortments, time new introductions, and even store lay outs in some cases.

2) That it is now being put into action was corroborated today, when a senior colleague received an SMS from Domidoesntknow’s PizzaChain, saying that its been three months since he’s visited them and how they would like to hear from him again – and all this while communicating a discount offer! 

So, if companies in India are now doing what is an already established practice in the evolved modern retail markets out west, what are they doing to survive and thrive, given the difficult times they seem to be facing. 

Cue – to the second interesting article which was discovered amidst the frenzy..http://hbswk.hbs.edu/item/6944.html – highlighting how JC Penney is attempting to re-invent itself, in order to be more competitive in the future…

That’s all for today guys – no weekend off this week again, so I have to end it now. 
Cheers !

Categories
Business India

Modern Retail in the News

Off late, I have been noticing a higher frequency of modern retail related news in the papers -observation constrained to two dailies as of now.


Whether this is a conscious tactic to educate the public at large about the modern retail business, or build awareness among policy makers – is something that I leave to the news channels to debate over. What is important is that it seems as if the mainstream media is taking cognizance of this format – and trying to figure out how it works.


Shared below are two links that throw some light on recent developments in this industry


Organized retailers change tack as sector evolves
http://www.livemint.com/2012/04/16230124/Organized-retailers-change-tac.html?atype=tp


Lure of the hypermarket 
http://www.hindustantimes.com/business-news/Features/Lure-of-the-hypermarket/Article1-844582.aspx
The article carries the following statistics as well – numbers which I feel are on the higher side (unless they include generic hypers & specialized retailers)


Let’s see what’s in store in the days to come ! 





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Business India

FDI in Modern Retail – To be or not to be?

Over the past few weeks, we have been subjected to a huge hue and cry over the FDI in retail announcement and its sudden roll back – both the GoI and the opposition have presented their PoV – let’s try and  make sense of the key arguments from both sides and examine the issue from a balanced perspective.


1) Large retail will improve supply efficiencies and give better prices to the farmers – mostly correct – provided i) they get the rights from the APMCs to procure ii) Given the 1 mn population rider, conveniently located sources for a range of products may not be easy to find. 
A possible solution – get them to set up their own farms – start contract farming – this would ensure focus on productivity, better farm techniques and conservation efforts being made for the environment.

2) Prices for consumers will go down – Not too sure about this one – Given our creaking road network, where it takes five and a half hours to cover 250 km – (Delhi – Agra) – and the ever increasing costs of fuel – one cannot be too sure whether this would be an enduring phenomenon –but prices at Cash and Carry centres would definitely be lower than traditional kirana – of course – the consumer will have to spend time and money (and fuel) to go and shop from the Cash and Carry – which would be located at city outskirts ! 

3) Small retailers would get wiped out – Easier said than done – 
a. Finding real estate cheap at prime locations would not be easy – rent is one of the largest overhead of a modern retail outlet. All the prime locations – near residential colonies, high rises – are occupied by either our neighbourhood Lala ji, or by Indian modern retailers ( who had burnt their fingers in a mad store expansion race in 2007 – and are still struggling to recover from that adrenaline rush)

b. Store operating costs – Manpower, Electricity – are huge in a modern retail shop as compared to Lalaji. An anecdote – During a market visit in Hyderabad, a consumer complained to the store staff about the lack of air conditioning. This was in peak summer, and the chain was on a cost cutting drive – hence only fans were operational. Bottomline – glitzy exteriors will raise consumer expectations and consequently, operating costs. Given the erratic power supply situation in most of our cities, generators are only going to add to the confusion.


c. Convenience and friendliness of the kirana – most kiranas maintain credit accounts of the families they service. Can you even imagine that happen in a modern retail outlet ? Add to it the benefit of free home delivery, service on phone , and the occasion for gossip at the Lala’s counter !

d. Don’t underestimate the Lala’s ability to innovate – in the past five years since Modern retail has started expanding, a quiet revolution has been happening in the kirana outlets as well – they are becoming modern, adding self service and accepting credit cards too! Large retailers will not have it so easy!

e. The Journey to profitability at store level could evolve along two possible lines – franchising (like the Nilgiri’s model – which upgrades existing kiranas to self service) or rapid expansion of the Hyper format – which would allow for lower operating costs per square foot, higher range display, and a heavy mix of apparel, consumer durables and other high margin categories.

The Modern retail outlet would also need critical support from a few, “non policy” factors to be able to really succeed – namely –  

Readiness of FMCG companies to service modern trade – 
a. Modern retail today contributes nearly 5-7% to a typical FMCG cos’ sales. Given the strong reliance on traditional trade and wholesale, the SKUs available for a large number of products are suited for this environment 

b. To really drive business in the modern retail format, companies will have to introduce innovative packs (bulk packs – as the latest Nielsen shopper survey suggests), invest in shopper research and consumer understanding, deliver exciting promotions and the whole shebang – to really make modern retail work. 

c. We have to remember that unlike the Lala who has no qualms in selling whatever he is dispatched, Modern Retail is very finicky about Fill Rates. ( % of stocks supplied to order received) – levying penalty on firms who drop below agreed service levels. Managing this complexity would not be easy for FMCG firms as well. 

d. Plus, Modern Retail works on high margins, and credits!

Availability of cost effective work force and labour – A possible drawback of a large number of malls / hypers opening up would be on labour – people would be more keen to work in an AC environment, cleaning floors and toilets, but not be willing to be employed as labourers / loaders / unloaders – which would mean additional costs for the suppliers, coupled with delays in servicing.

It is also possible that it would do good to the government to organise this sector, as this would do away with “kachcha” bills and impact tax revenues too. 

To sum up, while the government, the consumers and commodity suppliers would stand to gain from the advent of modern trade, a magical, overnight transformation would be difficult to achieve – given the challenges faced by the suppliers, the infrastructure and the external environment – this, of course, is the “dhande” ka perspective !