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Modern Trade in India: Changing the Landscape - Global India Forum | XING
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Posts 1-2 of 2 Rajiv Banerjee The company name is only visible to registered members. Modern Trade in India: Changing the Landscape At Food Bazaar, the food retail supermarket of Indian retail major in India, Pantaloon retail, a new revolution is unfolding. Indian consumers in huge shopping malls with carts overflowing with goods match upto the their counterparts in any part of the developed world. The rise of modern trade, which for now accounts for only 3-4 % ofn the total trade in India, but is estimated to clip a fast growth rate of 30 % per annum has thrown many a opportunities and challenges. Retailers such as Food Bazaar from Pantaloon, Food World from RPG group and Subhiksha stores in Chennai have found themselves in a position of strength vis-a-vis the manufacturers. It is a marked departure from the time when manufacturers called the shots in the entire bargain. Now with a dedicated shelf space which ensures a captive audience in terms of the foofalls, modern trade is slowly emerging as a new viable channels for the manufacturers, says Damodar Mall, head of Food Bazaar. Now the relationship between the organised retailer and the fmcg companies is that of engagement rather than superiority. So if Nestle wants shelfspace for Maggi, a ready to eat two minute noodle brand in India in any of the major retail formats, it knows that engagement means sitting with the retailer and chalking out a focussed marketing strategy within the outlets. So specific promotions and discount schemes specific to few retail outlets or restricted to one geographical area are being undertaken by the manufacturers at modern formats. Infact many a fmcg companies are initiated dialogue with retailers for category management, where a brand by virtue of being the largest selling brand on the shelf takes the responsibility of managing the category. Under the initiative, the category leader and the retailer enter into an agreement to manage a particular category. The manufacturer then undertakes activities to promote the category and carry out various activities like shoppers analysis, customer research, merchandising plans, floor layouts and SKU mix in an outlet. By undertaking these activities, the category leader alongwith the retailer undertakes marketing and promotional activities for the particular category, explains Mall. Worldwide, the likes of P&G conduct category management activities with retailers like Walmart. Though it is too early in India given the nascency of modern trade, a beginning has been made as companies realise the criticality of engagement with modern trade. So companies like Marico Industries, which sells Safolla oil brand and Cadbury India with its portfolio of products have undertaken specific programmes under the category management initiative. With organised retailing growing at a frentic pace of 30 % annually, retailers are rushing to expand their presence not only in metros, but in smaller towns and cities. These retail outlets have a sizeable dedicated catchment and therefore the fight for the shelf space is likelt to become even more competitive in the time to come. The mandate is to increase not only the sales of our own brands but the overall sales of the category as we are fighting for the same shelf space as other categories are, says senior official at Marico. However, even as marketers concentrate on modern trade and chalk out specific programme, the grocers and neighbourhood stores, which have been existence much longer than modern trade and form the backbone of retail trade in the country are also figuring high on the radar of the executives. Engagement is a popular buzz word these days with the marketers and they are using it with the conventional trade as well by carrying out specific marketing programmes. Now its about building relationships with these traditional grocer stores. fmcg major HLL has Super Value Stores (SVS) programme, Marico Industries is prototying a Mera Outlet. And companies like Cadbury and P&G have the Purple Star programme and the Star store respectively allready in operation. Under the SVS programmeinvolves the key retail partners of HLL across the country. The programme which was initiated a year ago as a pilot project in Chennai today covers around 6000 outlets across 60 cities. We run appropriate and relevant plans for our channel partners and have been doing it for years, says the spokesperson at HLL. There is a realisation that we have to be more pro-active in our approach towards the traditional grocer stores who still constitute a vast chunk of the retail trade in India, explains sources at HLL. According to the sources, the company is on an over drive in its effort to expand the scope of the SVS programme to as many key retailers across India. And HLL is not alone in the quest to forge a more deeper and meaningful relationship with the traditional grocers. Marico Industries is prototying a retail outlet called Mera Outlet. Once the pilot is completed, the company will roll out the initiative across the top stores in terms of volume across various cities in India. Senior offocials at Marico say that the objective behind the initiative is to have a partnership approach towards the particular channel. The idea behind the initiative is to look at ways of working together with the

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Modern Trade in India: Changing the Landscape - Global India Forum | XING
channel and grow their business. Its a win win situation for both parties, the officials explain. The increased focus on traditional trade and the resultant marketing activity thereof comes as companies that even as the modern trade brings opportunities for companies, it has also brought the spectre of monopoly and domination by the modern trade closer home in India. Globally, many a manufacturers have seen the balance of power shift from manufacturer to retailer as modern trade has taken roots. A HLL distributor in Mumbai states that modern trade is a threat more to HLL than us as no one can match the retailers in terms of the personalised service that they offer. Even as modern trade is getting more attention, there have been times when they have indulged in undercutting, which has put the companies in a very awkward position when they visit us, says a HLL distributor. Globally, while there is a mushrooming of the modern trade and the traditional mom and pop stores have either vanished or become franchisees of retail chain, in India, the picture in the time ahead will be different. According to a study conducted by AC Nielsen, by the year 2007, the traditional stores will go upto 7.8 million, from 6.9 million in 2004. The report states that the urban stores will grow faster than the rural stores and grocers and pan plus will exhibit high growth in numbers. They are stocking more product categories than ever before and such stores can contribute close to 20 % of the metro fmcg from the current 8 % in the time to come, the report adds. India, according to the AC Nielsen Asia Pacific retail and shopper trends 2005 is one of the four countries which still has over 6000 grocery stores per million of population. The other countries are Sri Lanka, Philipines and Indonesia. Infact, even in the South East Asia where the growth of modern trade is far more mature than countries like India, 75 % of the urban population continue to use the traditional trade regularly. In a lot of these countries, shoppers are using the traditional trade frequently, at least once every other day, hence their continued importance, particularly for impulse categories, the report states. Thus the landscape is changing at a very rapid pace and companies realise that they need to match up to the changing tide. So new marketing strategies specific to each trade is the norm of the day. Even as manufacturers and retailers slug it out, its boomtime for the consumers and they certainly are not complaining. This post was changed on 14 Sep 2006 at 02:17 pm by Anju Rupal .
13 Sep 2006, 1:58 pm

Peter J Aylwin The company name is only visible to registered members. Re: Modern Trade in India: Changing the Landscape Greetings Rajiv, This is a very interesting posting. I too have been assessing the Indian retail landscape and considering many of the ramifications of the statistics, trends and opportunities you highlighted above. Naturally one cannot avoid looking at Western countries where organised and consolidated retail is rampant and make comparisons and predictions as to how the Indian retail landscape will continue to evolve. Question 1: In your opinion Rajiv, which of these points mentioned in your posting will lead to the most opportunities and growth for independent Entrepreneurs?

Question 2: Are there any additional factors or statistics that you feel we should be privy to when interpreting the above posting? I am intrigued to hear more ;-) As there is no specific question asked within your post, Ill elaborate upon some points I found of interest and compare it to what can and does occur in some Western countries: * By the year 2007, the traditional stores will go up to 7.8 million, from 6.9 million in 2004 . Generally speaking it is good to see that based upon the information in this posting, the number of smaller grocers and retailers will continue to grow and not immediately be crippled or swallowed by large mass merchant and large chain retailers. India possesses a very, Fragmented retail sector as opposed to a much more Consolidated retail sector in Western countries such as USA, UK and Australia. It will be interesting to see how long this will last (Hopefully for as long as possible). Also, with the increase in western style malls being developed in major cities, it would be interesting to see if these house more Mom and Pop type businesses or become the breeding ground of more large retailers or overseas franchises. * The changing of the guard so to speak regarding the bargaining power shifting in the favour of retailers as opposed to manufacturers is also not surprising. Simple economics of supply and demand dictates this. As little as the manufacturers like it, they only continue to exist if end users make purchasers. Those that control the distribution channel and make the largest volumes of sale to these end users will always have increasing bargaining power. In Western countries such as USA, UK, Australia, etc the purchasing power of the large retailer is far greater than smaller traditional grocers / retailers or 1 shop business owners unless the smaller retailers are part of a franchise

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or buying group. In these Western regions there are large retail chains that in fact make the supplier pay for strategic shelf space and also have to convince the large retailer that their product will provide Maximum return on investment for the shelf positioning and space provided. It is all about making as much revenue and profit per square metre of shelf and store space for larger retailersbottom line!!! A relative of mine who ran a number of small successful retail outlets overcame this bargaining power of the large retailers by forming a buying group which comprised several smaller retailers of smaller chains of shops that were not within a competitive geographical territory. This evened the playing field somewhat between the large retailers and the smaller independent shops. What will be interesting is when larger retailers become more prevalent in India, how will the smaller specialised retailers will continue to compete successfully? Buying groups seem like one of many logical first steps. Competitive disadvantages that small retailers / grocers have in comparison to large retailers is a very important issue that needs consideration. For example: a small retailer may sell basic grocery items but not possess near the same range of product or store space as a large retailer. As a result, the larger retailer may be willing to sell products that are also stocked in the small retailer / grocers store at a lower price margin to make things difficult for the smaller retailer. In order to compete, the smaller retailer drops their price and is lured into being in a price war. Where the large retailers have been able to out do the smaller retailers and either eliminate them or buy them out is due to the larger retailer knowing that by selling other product categories that the smaller retailer does not stock, they can charge more and obtain a higher profit margin for these products. Next, if the smaller retailer attempts to stock these additional items, they may not be able to due to exclusive contracts or licensing agreements tied up between large retailers and certain suppliers. Another challenge for the small retailer is having to find greater store space to display the increased range, which increases operating expenses. Furthermore, in many cases, the larger retailer obtains a much better leasing agreement on a price per square metre for the store space than a small retailer due to the greater store size of the larger retailers premises. This is another competitive disadvantage for the smaller retailer to contend with. In order to continue to protect the smaller retailers / grocers, it is in these areas and others the smaller retailers / gorcers need to be protected and mindful of before it becomes a serious issue in the future. * On the issue of undercutting, that has also been an interesting topic in Western Countries. Many a time, the suppliers would provide the same specials or bulk discounts to retail purchasers, however they would circulate who received what discount and when. For example: retailer A may get a bulk discount one week, retailer B obtains it 3 weeks later, and a buying group of independent retailers obtains the discount a few weeks after that etc. By doing this, suppliers maintain competition amongst the retailers and maintain some of their power. It also means each retailer can undercut the other for a short period of time. Often bulk purchases are made during these special rate periods, but often it is not enough if there are storage limitations (Particularly for smaller retailers part of buying groups) and particularly if certain goods are perishable. * So new marketing strategies specific to each trade is the norm of the day. This is present in western organised retail and other Western businesses due to increased competitiveness and the need for companies to differentiate themselves due to increased competition. To match up with the changing tide, many Western businesses began to focus on a market niche. As the trend of organised retail growth continues in India, it will be interesting to see the number businesses specialising in niches to also grow. When the industry grows, opportunity seekers will look at capitalising upon this, so why not specialise? For example: look at the legal profession in the services sector. If you are in a business litigation dispute over a patent, do you want a general lawyer representing you or specialist patent litigation lawyer with a long-term track record of success representing you? In short, to differentiate oneself, companies and individuals will look to capitalise on these niches because as the market grows, so will the opportunities for small businesses or suppliers who choose to "own a category".
18 Sep 2006, 4:31 pm

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