Devangshu Dutta
July 16, 2009
The grocery market is loud. From the times when food markets were in streets and town squares, hawkers have cried out their wares, and the freshness or newness of everything made evident to the customers passing by. So, I guess, it is no surprise that today’s FMCG and food market is also tuned to high-decibel promotion.
You don’t need to search too long for the reason – margins are generally thin on these frequent-use products and inventories need to move fast. And what you don’t make a noise about may not be visible to the customer and may remain unsold.
But if that was the whole story, most players should be focussing on one brand, or at most a few brands, and should be using their advertising budgets to maximum effect on these.
Instead we see exactly the reverse phenomenon in the market – more brands, more sub-brands, more varieties of everything. Why? Because newness sells – it creates excitement, anticipation, and in customers with a sense of experimentation it creates the urge to buy.
The old proven method of doing this was the “New Improved” starburst on the pack. The slicker, updated method is to launch a new variety that is apparently different in some way. For instance, if the old supplement helped to strengthen bones, the new line might contain separate “child” and “adult” versions (growth vs. osteoporosis). The old shampoo might have helped to keep hair clean and prevent dandruff – the new one might leave the customer wondering if she should pick the dandruff-fighter that also reduces hair loss, or the variety that makes her hair glossy, or even the one that provides a date for the next weekend! By the time she reaches the end of the shelf, she might have forgotten that her need essentially was to prevent dandruff.
Due to this, the grocery and FMCG product mix is fractal. Each grocery shelf or grocery store is susceptible to fragmentation. Each such fraction is supposed to act as the seed that can allow a new segment in the market or a new use occasion to grow, and provide the FMCG company or the retailer with an avenue for additional business. This phenomenon is particularly visible in a growing consumption environment – consumption feeds proliferation, while proliferation provides further occasions to consume.
However, an unfortunate outcome of this proliferation of brands and SKUs is the heightened noise, in which the brand often loses its unique voice. Also, over time, the brand may be too thinly spread or be undifferentiated from its competitors, and its sales only sustained through ever increasing bouts of expensive advertising – a vicious spiral.
Another issue is the real estate availability and the cost. Chris Anderson wrote about “the long tail” about 5 years ago – the myriad products for which the market is limited, but demand may be sustained over a long period of time through internet sales. However, while the long tail works for e-commerce businesses such as Amazon that carry limited inventory, the physical store runs out of space for micro-segment items very quickly.
All of these factors obviously start hurting visibly when the market turns down, and when marketing investments start being evaluated against the returns. This is when proliferation starts giving way to “rationalization”, reduction of the brand portfolio, narrowing the SKU focus.
We are already seeing signs of this in many of the developed modern retail markets currently, where retailers and their suppliers are closely analyzing which parts of their portfolio they need to sustain, and which they need to drop.
The story in the Indian market is slightly different for a variety of reasons.
First, the market is still growing, and for most FMCG suppliers there are vast expanses of the market are still blank canvases.
Secondly, India has been a branded supplier driven market for a long time, and remains so, by and large. However, the SKU and brand density is nowhere close to what is seen in the West. There is plenty of headroom still for new varieties to be added and new brands to be developed.
But possibly the most important factor is the new modern retailers, who are desperately seeking additional sources of margin. When there is a limit to the traffic that you can divert from traditional mom-and-pop stores, and when you hit the glass ceiling on transaction values per customer, proliferation becomes the game to play. Therefore, these retailers are either busy introducing own labels or encouraging new branded vendors who would offer them higher margins than the more established brands.
Own label is obviously the tricky one. The customer needs to feel comfortable with the switch – in the US, a study showed that consumers would more easily switch to own label merchandise in categories where the “risk” was perceived to be low (such as household goods, rather than children’s products). Also, the best own label gross margins typically come from products that are presented to the consumer as “brands” comparable to national branded products, because the pricing is more on par.
So, on the retailer’s part, this requires sophistication of product development and brand management that may be expensive and may need time to develop. A short-cut could be the acquisition of an existing brand, its entire assets including the organisation, as some retailers have been reportedly looking to do. How well they integrate the brands into their businesses remains to be seen.
In the long term, like their counterparts in more developed markets, these retailers may also come to the point where they wonder whether these owned brands offer them enough return on the expense and the management effort spent on them, or whether they would be better off just buying brands that consumers are already familiar with through multiple channels.
In the short term, however, we can expect proliferation, fragmentation, fractalization in all its forms. We can expect the illusion of plenty of choice to continue driving sales, and more and more products to fulfil needs that even the customer doesn’t know he has.
admin
June 29, 2009
By Raghavendra Kamath & Neeraj Thakur
Business Standard
Mumbai/new Delhi June 29, 2009,
Vijay Pokare, owner of a 400 square foot store in Mumbai’s Dadar market, knows his onions – literally. Just four months ago, he used to sell just 20 kg of them every day. After the nearby Subhiksha store on the ground floor of Shiv Sena Bhawan closed, Pokare spotted an opportunity and started packing washed onions in two kg plastic bags with a 10 per discount tag. Sales have soared three-fold since then.
In South Delhi’s Kalkaji area, a dozen small mom-and-pop stores (known as kirana stores in north and west India) have formed an informal alliance to buy in bulk from fast moving consumer goods (FMCG) giants to get better prices and fight the competition from retail biggies. The strategy worked; companies such as Hindustan Unilever and Godrej started offering higher trade margins.
The friendly neighbourhood stores are fighting back – and how. If the 1,500 square foot store of A P Mani & Sons in the narrow by-lanes of Mumbai’s Chembur station have cashiers in smart uniforms working with bar-code readers, Durgaram Choudhary, who owns Panchdeep Market in Pune’s Viman Nagar, has extended the free credit period from 30 to 50 days. Panchdeep is even offering free services such as crushing grain at the flour-mill and delivering to customers’ homes.
"You have to stoop to conquer," said Choudhary. Ingenuity is the key here. Pokare, for example, has only studied till standard four, but talks SMS marketing, home deliveries with customer ID numbers, or even loyalty programmes – all modern trade techniques but in a desi way. A few months ago, Pokare began registering customers who walked into his shop for the SMS service. Today, he has a data base of over 1,500 customers who are fond of beauty treatment products and keeps them informed about offers and discount schemes regularly. "No retail giant can afford to give such intensely personalised services," Pokare said.
It’s not just a coincidence that most of these initiatives have come at a time when modern retail is battling the slowdown in the economy. Some, like Subhiksha, have downed shutters, others are closing stores, burdened by consumer expectations of more frills compared to the no-frills kirana formats. By some estimates, FMCG sales from modern formats, which grew over 30 per cent in the past two or three years, have been almost flat this year.
Small retailers in India have inherent advantages, said a report titled "Rising Elephant" prepared by PriceWaterhouseCoopers and Confederation Indian Industries.
"They are located next to the consumer, making it convenient for top-up purchase. They know them well, some even by name. They give credit too – which no large retailer does. Their fixed costs are so low that their breakeven point is as low as 46 per cent of sales," the report said.
"Two years ago, when Sabka Bazaar (owned by Wadhawan Food Retail which runs the Spinach brand of stores) opened in our area, we had lost a lot of our customers as they wanted to buy from air-conditioned stores where they can pick and choose the products of their liking. But we renovated our shop with air conditioning and self-service facility. We are not lagging behind any big chains in terms of convenience and service now,” said Rajat Sharma, a shop-owner in South Delhi.
Analysts agree and have already pared the growth projection for organised retail, given the downturn in the economy.
According to a recent study by business consultancy KPMG, the growth in organised retail sales in India may continue to falter for the next 18 months at least. The share of organised retail was expected to grow to just about 10 per cent of the overall retail market by 2012, rather than the 16 per cent estimated earlier, the KPMG report said. Organised retail currently accounts for around 5 per cent of the estimated $350 billion Indian retail market.
"We give what our customers want and at the right price. We do not bombard irrelevant items with offers. Even in grocery, the price of some of our items are actually 5 to 10 per cent lower than theirs,” said R Ramasubramanian Nadar , co-owner of AP Mani & Sons, who manages around 1,000 customers a day at his store and plans to set up a dozen convenience stores across Mumbai with the help of a private investor.
That new-found confidence prompted Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy, to say: "When you go to kiranas, you fulfill your needs but when you visit a modern retail store, you end up buying more than what you need. In a downturn, an increasing number of shoppers think that they do not want to spend more. In that sense, there is a connection between shoppers switching from modern retail to kiranas."
Kirana stores said the arrival of "big retail" forced them to offer new things to customers. Rupali Saha of RGN Stores has lit up her store well and now stocks more products than before.
"I realised that consumers go to supermarkets if they do not get what they want on a daily basis from the shop next door. So, I carried out a survey on their daily requirements. For instance, now I also stock reading material for school children and accessories that they need for school-level project-work. Sales have automatically gone up," Saha said.The fast moving consumer goods (FMCG) companies are also increasingly acknowledging the significance of kiranas. For starters, modern retail contributes just 5-9 per cent of revenues of the top FMCG companies such as Hindustan Unilever, Marico, Godrej among others.
"The slower growth of modern retail does not have any impact on our sales. If modern trade growth slows down, traditional trade will take up the slack," said Adi Godrej, chairman and managing director of Godrej Consumer products, which gets nearly eight per cent of its revenues from organised retail.
(Additional reporting by Pradipta Mukherjee in Kolkata, Kaustubh Kulkarni in Pune and Sapna Agarwal in Mumbai)
admin
June 25, 2009
By Sangita Ghosh & Sarimul Islam Choudhury
Indiretailing.com
Thursday, June 25, 2009
By how much has the consumer’s pocket been impacted by the economic crisis? This is a question that has been troubling consumer goods manufacturers and retailers over the past few months. Thoughts on how to emerge from the crisis slowdown stronger and more resilient are keeping most modern retailers busy these days. How the Indian retail industry navigates the current challenges will determine its character and shape in the coming years, experts say.
It has been suggested that investing in innovation during a downturn helps retailers counter depressed consumer sentiments. But it is also said that instead of investing in innovation, concentrating more on value addition of the existing products could result in higher benefits. According to most experts, organisations should focus more on their sales and marketing efforts during a downturn. There are organisations who fortify their positions by investing more in innovation, and there are others who choose to make the same investment in R&D on value addition, during such times.
So, which strategy works better? Last week, IndiaRetailing opened the following statement to debate: "Marketing during a downturn should focus on value and not so much on innovation." The subject received a positive response of 70.49 per cent and a negative from 29.51 per cent of the total respondents.
To further nitpick on the thought, IndiaRetailing opened the floor to individual retailers as to what should be appropriately implemented in the situation.
Sharing his views, Balvinder Singh Ahluwalia, president, Koutons Retail India Ltd, states, "When a market hits a slump, that’s when we realise how it gets into its shell just as a cocoon does. However, I believe that a downturn is no time to stop spending on marketing." On the contrary, it’s the best time to invest in value marketing rather than putting more emphasis on innovation, Ahluwalia advised. "To my mind, brands that increase advertising during a downturn can improve their market share and return on investment thereafter."
Ambeek Khemka, group president, Vishal Retail also believes in this strategy. Echoing Ahluwalia’s opinion, he says that in the current scenario, marketing strategy should be value-driven as consumers are particularly conscious about the worth of currency they are spending.
But the word ‘value’ somewhat can be misleading and can become synonymous to only discounting on prices. Therefore, Asim Dalal, MD, The Bombay Store, doesn’t believe in offering value in terms of discounts at the cost of brand value. "There are supermarkets and hypermarkets, which are selling products at cheaper prices in the mistaken belief of giving value to their customers," he stated. According to him, a slowdown doesn’t necessarily mean that each and every retailer should sell products at lower prices. "One can’t suddenly change one’s focus because of a slowdown. Also, without being innovative, how can a retailer survive?" Dalal argues.
On a similar note, Shriti Malhotra, GM, The Body Shop, iterates, "Without being innovative, how can a retailer offer value to its customers?" In this context, she instances the example of The Body Shop’s marketing initiative during the first quarter of 2009. "We at The Body Shop lowered prices of some of our best selling products in March 2009 and invested heavily in advertising and translating PR communication in regional languages, besides English, to offer value to our customers as well as to reach out to as many consumers in the cities we are operational in." Following the implementation of the strategy, The Body Shop received ‘satisfactory and positive response’ in these markets, Malhotra informed.
Elaborating on the points that the retailers should consider during a slowdown, Ahluwalia states, "A downturn also creates opportunities in the market. Companies should be more efficient at turning marketing investments into revenue, as competition is much lowered overall." During these times, marketing budgets might scale down significantly broadening space for creativity of the marketing professional to come into play, Ahluwalia pointed out, while analysing the situation. "It is the best time to step up your marketing strategy and that too in terms of quality, not quantity. We at Koutons view the downturn as an opportunity to develop an aggressive marketing strategy in response to it."
Devangshu Dutta, chief executive, Third Eyesight remarks that ‘value’ is a much misused word and it gets misused even more during economic downturns. "For many people ‘value’ seems to have gotten equated with ‘discount’. If I were to look at the statement, I would rather re-state it as, ‘marketing during a downturn should focus on true value, and not just discounting on prices’."
According to Dutta, what is important and more significant is that retailers and brands should concentrate more on evaluating the term ‘value’. "For some, innovation in products or services may be termed as value but for many, still, the term is synonymous with discounting on prices," he notes.
It is incorrect to assume that all consumers trade down during an economic downturn and only want cheaper products, Dutta pointed out. "There are also consumers who want the best of the offerings and may even trade up to more expensive products so that they get a better ‘return on investment’ during the time," he concludes.
Devangshu Dutta
June 18, 2009
It has been around 200 years since the birth of Charles Darwin, and about 150 years since the publication of his and Alfred Wallace’s thoughts on evolution by natural selection. In their honour, let us remind ourselves of the basic theory that all of us learn at school. (So I’m a few months late acknowledging it – please bear with me!)
On Evolution: Change Happens
(1) Species differ from each other, but individuals within a species also differ from each other quite a bit.
(2) These differences are due to changes to the basic genetic framework of the organism (mutations) which can get passed on to following generations.
(3) The environment keeps changing physically, climatically and biologically.
(4) In the new (changed) environment some of the mutations survive better than others (“natural selection”).
(5) The effect of these changes over several generation results in the evolution of species, and the rise of new species.
The primary reason I am highlighting this theory is because, to my mind, businesses are like living beings. Businesses are conceived, given birth to, they grow, and most of them die after a few years or a few decades. During their life some businesses get married (merged or acquired), and sometimes they give birth to other businesses.
About 2-3 years ago, the business climate seemed predictable and only looking upwards – the biggest challenges in the food and grocery sector seemed to be whether your ambition was bigger than your competitor’s. Many predictions were made about how the large – more “organised” – businesses would quickly kill the small.
However, with much turmoil in the business environment in the last year or so, it is evident now that it is not just the small companies that are vulnerable. The change in the environment is also giving new growth opportunities to the smaller or younger, previously vulnerable, businesses. While some of the larger businesses have died or are in the process of dying, some of the smaller businesses are mutating even more to survive better in the changed surroundings.
Although small businesses are always looking for growth, the new environment can bring such a surplus of opportunities that, in the helter-skelter growth the learnings are quickly lost and the business may actually go off the tracks.
On Process: Passing On the Genes
The challenge for the smaller businesses now is to pass on their genes down the generations; for the management to ensure that the newer stores and the newer recruits gain from the learning and the adaptations already in the organisation.
At an entrepreneurial stage, the core team handles critical activities and is on call to guide others. The team is knit quite tightly, and located geographically close together. The stores are few and in locations with a similar environment. “Knowledge” is inherent in the way you do things, guided rather than taught.
You may recall my stressing culture and organisational personality, the “people” end, in a previous article. At the early stage of the business, very often, that is all there is. But growth needs replication and predictability.
Biology again gives us a great lesson in how to replicate learnings and functionality: genes (DNA) provide the template for cell functions, and are reproduced almost faithfully from previous generations.
In a business, such replication comes from well-designed processes incorporating the intent, the activities and the desired outcomes. For growth, processes are a must; they are the genetic code of the business. Processes provide the design for how a customer would interact with the store, how the store would interact within itself and with other points in the organisation, and how the organisation would interact with external agencies.
You may ask, “How much process should we depend on, and how prescriptive or restrictive should we make them?” You may also point out that processes start off with very good intention, but with time – and often distance from head office – the processes decay.
And you would be right.
On Decay: Bad or Good
Even in bureaucratic organisations, adjustments are made to fit people or situations, and that causes the process to mutate. Sometimes the change is temporary, at other times the process may change completely and permanently. If changes happen passively and are not channelled the existing process will decay.
I use the word “decay” carefully. While the process change itself may be good at a point (e.g. responding to a customer need), the organisation as a whole may not learn much from it, or the change may affect one part of the organisation and not others. If that happens, the organisation and its systems will become dysfunctional at some point.
For instance, it could be the little leeway that the merchandising head provided to some managers that erupts into an uncontrolled working capital epidemic across the chain. Or a margin adjustment with a vendor at a certain point in time becomes a deadly norm.
So, back to evolution: mutations are a fact of life. Adaptations are happening because of the changes in the environment. Managers need to critically question: does this change meet a current ongoing need or provide an ongoing advantage, and can it apply to the rest of the business? If the answer is no, ask people to read the rule-book (the process manual).
If the answer is yes to both, change the rules, and make sure the new process is implemented quickly and smoothly across the organisation. Then it will be “adaptation” rather than “decay”.
After all, the conclusion that Darwin, Wallace and many others have given us is this: it is not the strongest, the biggest, the fastest, but the most adaptive who survive.
admin
June 16, 2009
By Raghavendra Kamath
Business Standard
Mumbai June 16, 2009
Speciality homeware retail chains, such as Kishore Biyani’s HomeTown, Landmark group’s Max Retail and Wadhawan group’s Home Store, have changed tack as home sales drop and shoppers defer buying big-ticket items like furniture and furnishing to save cash in the downturn.
The realty sector has seen home sales fall by up to 70 per cent in the early part of this calendar year from the peak in 2007-08 and developers have shifted to smaller, affordable homes to counter the drop in sales.
Consequently, retailers are witnessing a drop in sales, too.
Pantaloon Retail, the country’s largest listed retailer, has seen a continuous slide in same-store sales in its home retailing segment in the last seven months. From a steep fall of 36 per cent in November 2008, Pantaloon has seen further drops, ranging from 4 per cent to 28 per cent, in home retailing from January-May 2009.
To counter the slowing sales, retailers have adopted strategies to prop sales and cut losses. For instance, HomeTown has increased its offering in the value segment and launched furniture and bedroom sets in the Rs 10,000-15,000 category to boost sales.
HomeTown is also planning a shopping event called ‘Home Carnival’ soon .
"Home retailing was in doldrums in the end 4-6 months of 2008. People were not buying new homes and that was impacting home retailing," said Mahesh Shah, chief executive of HomeTown, a part of Pantaloon Retail.
Max Retail, a part of the Dubai-based Landmark group, has removed the home category from its stores altogether, while others like the Mumbai-based Wadhawan group – which acquired Home Store, a chain selling homeware items earlier – is not expanding its half-a-dozen stores to conserve cash.
Max is also reducing its store size to 10,000 sq ft from 14,000 sq ft to optimise costs. The home category used to occupy 6 per cent of its space, while contributing 10 per cent of its revenues.
After a lackluster performance in the last six months, homeware retailers believe things have changed in the last two-three weeks with the sales of affordable homes picking up.
"Sales have picked up since last month. We are expecting 5-6 per cent growth from next month onwards," said Shah of HomeTown, which is planning to open four stores in Mumbai, Bangalore and Kolkata in the coming months.
According to estimates, the overall home retail market in the country is over Rs 50,000 crore in size, with organised retail segment accounting for just 10 per cent of that. Local carpenters and small furniture shops cater to most homeware needs.
"There is a lot of competition from unorganised players and it is difficult to make an impact here," said Vasanth Kumar, executive director of Max Retail.
Analysts say retailers prefer those categories which require less working capital and shorter inventory levels to beat a downturn. The home segment is considered as a high-inventory and capital-intensive segment. Food and grocery requires an inventory of 15-30 days, furniture and furnishings require inventories of 4-6 months.
"Besides a large inventory of goods, the home segment requires large space to showcase items. In the current financial scenario, retailers are looking at those segments which have a better sales-to-stock ratio," said Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.
International retail consultancy AT Kearney’s Debashish Mukherjee feels organised home retailing is yet to make a dent in the country.
"The average number of rooms per family and average square feet per person in India is very low. Since most of the furniture is imported, people do not have space for that. Besides, since the chains sell furniture made out of composite materials, Indian consumers are yet to move from wood to new materials," Mukherjee said.
