Tag: Traditional Trade

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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 ?

Categories
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 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 !