Minding other people’s business


January 9, 2012

Sayantani Kar, Business Standard

Mumbai, January 09, 2012

The entry of Future Supply Chain Solutions into multi-brand retail via a subsidiary has given some regional brands the kind of exposure they could only aspire to before.

Shopping for the humble bathing soap has now become an arduous task for the tiny tot’s mother. She now has to choose not just among proven national brands like Johnson & Johnson or Himalaya, or for that matter Wipro’s Baby Soft; time permitting, she has to examine the benefits of picking a Doy Kids versus a Woodwards or a Mysore Sandal baby soap, and carefully evaluate the pros and cons of deploying shapes such as elephant, lion and bear and many others that grace the shelves of modern retail.

FMCG and food sections in such stores have seen an influx of smaller and regional brands in recent months. But the rules of distribution for modern chain-stores are very different from distribution for kirana stores. While the tussle between large brands and retailers make news headlines, smaller brands have more often grappled with margin issues, delayed payments and supply chain shortfalls. Enter FSC Brand Distribution Services (BDS), a subsidiary of Future Suppy Chain Solutions (FSCS), the logistics arm of the Future Group. A Big Bazaar or Food Bazaar may or may not stock the above brands but an outfit such as this helps brands of any size access a full-fledged modern trade servicing team, complete with logistics, store management as well as strategy.

More than the large pan-India brands, it is the regional brand which stands to gain by riding on modern trade. Devangshu Dutta, chief executive, Third Eyesight, a retail consulting firm, says, “Small or new brands offer the modern retailer more margins while the retailer, in turn, affords them consistent demand and a scale to grow. Future Group has done it more aggressively than others.”

Most of the brands that have signed up with BDS first came into modern retail, and often wide national circulation, through Big Bazaars and Food Bazaars which stock non-food FMCG products as well. Modern trade may still comprise 5-6 per cent of the overall FMCG market of Rs 130,000-Rs 140,000 crore, but in urban areas it hovers at 20 per cent. Devendra Chawla who is the president of food and FMCG at Future Group and has studied brand-play closely at its retail stores, says, “The many categories of Indian packaged food are still restricted to their original markets in their regions. Some of the regional brands are also challenger brands which lack the wherewithal of large brands in distribution. Modern retail stores can incubate these over time, building customer loyalty. For such brands they also provide the quickest route to the national market.”

As many mid-sized and small brands (below Rs 500 crore) lack the volumes to justify a separate team or investment in a supply chain to keep in stride with organised retail, they take the next best option — to enter some sort of distribution understanding with the big daddies of the game — such as the Future Group, Hypercity, Reliance and more.

At the same time, organised retailers, which are often large national players, don’t bend terms to suit such brands. Future Supply Chain CEO Anshuman Singh explains, “Organised retail chains expect brands to manage shelves, offer promotions and take replenishment orders through automated systems.” In general trade, the brands would just sell stocks to a distributor/stockist who would take care of the supply chain from there on. He would sell it to dealers and retailers who place orders ad hoc, on the phone.

The larger players in the FMCG space service organised retailers themselves while others resort to logistics companies and transporters or even general trade distributors who supply to stores on their routes. But these players are not comfortable with the different set of rules. For example, when servicing modern trade, distributors who have to buy stocks from brands and then pass it on to modern retail stores, might have to wait for payment since organised retailers have longer credit periods than the stockists in general trade. They often pay those brands first whose stocks fly off the shelves the fastest.

The task of labeling and packaging is another bone of contention as is the longer time taken for delivery. Most modern trade outlets have a designated time for deliveries leading to a narrow window and a queue unlike general grocery stores. At the end of the day, if the shelves remain empty, as they would with a brand’s average of 70 per cent fill rate in general trade, organised retailers just fill their shelves with other brands.

What brands get

Large FMCG companies by now have a modern trade cell. But for some brands, it would mean a distraction from the core business. Ajay Gupta, managing director at Capital Foods (in which Kishore Biyani has 40 per cent stake through Future Ventures), makers of Ching’s Secret and Smith & Jones, says, “In the long term, we would like to focus on building our brand and leave the modern trade distribution to a specialist for a country as vast as India. There is a huge range in food, limited shelf life, high substitution since people don’t wait over and above the issue of local taste.”

The Rs 118-crore company has handed over 30 per cent of its modern trade distribution to BDS with plans to hand over more. In Delhi, where BDS has taken over, Capital Foods has seen a jump from 44 per cent to 70 per cent in fill rates. Singh reasons, “General stores are in millions, and hence need so many distributors. But in modern trade, which has about 40 retail chains with 2,000 stores across India, a national distributor not only can service but also bring in supply chain efficiencies.”

Rajheev Agrawal, director and CEO of Nilon’s Enterprises, which is India’s largest pickle manufacturer with a turnover of Rs 240 crore, says, “We wanted to free ourselves from following up on purchase orders, payment collections and even merchandising at the large stores. Except for some areas which BDS does not service such as Guwahati, almost 80 per cent of our modern trade distribution is handled by them.” Modern retail returns about 15-16 per cent of Nilon’s revenues, with same store growth clocked at 25 per cent after signing up with BDS.

Ravi Chandra, general manager, sales and marketing at Super-Max Personal Care, says BDS helps with improved fill-rates and reaching smaller town which its own sales force didn’t reach. Gupta of Capital Foods agrees, “We can now reach tier 2 towns, thanks to their footprint.” Singh elaborates, “Distribution to smaller towns comes at a large cost. The volumes might not fill entire trucks for general distributors. But we already have our own transport business in the Future Supply Chains, which we ride easily.”

Ameve Sharma, president of Baidyanath Ayurved Bhawan, says, “In modern trade, every single outlet expects me to deliver stocks to it from my depot, manage inventory and negotiate consumer schemes. It is a full-time job.” This even though modern trade is less than one per cent for its Rs 410 crore turnover.

Some of BDS’ clients have seen huge jumps in their sales as a result, according to analyst estimates. They estimate 300 – 1,000 per cent increase in modern trade sales of for some of the brands BDS services. Singh says, “There is a thin line between national and regional brands. Some brands might be widely available in south India. But their presence in, say, Delhi, would be counted as presence in the north, even though it would be just one city.” Brands have to shell out a slightly higher percentage of margins for BDS’ services (11 per cent instead of 5-8 per cent on the product, according to some clients).

The big push

Future’s Singh says, “We entered FMCG distribution because we had access to both the back-end and the front-end of FMCG retail.” BDS will only be handling distribution of FMCG brands in modern trade. “We will stick to what we know best,” points out Singh. At work is the integration on the retail side with Future Group’s 208 Big Bazaars. For example, BDS works with the small brands on promotions at Big Bazaar well in advance. Plans for the discount days around January 26 — which is an annual feature now — are already afoot, with these brands manufacturing and storing stocks for additional demand.

Chandra of Super-Max and Gupta of Capital Foods point out the assortment of products based on store location is a lot better with the help of BDS’ insights. Singh says, “Understanding what flavours of wafers will work in which regions comes to us naturally, and are of help to brands like Dukes, for example.”

The front-end integration ensures that BDS always has a retail chain, the country’s largest, as its client. However, Singh claims that gradually other retailers too are subscribing to its services. Singh says, “About 20 per cent of the business (Rs 310 crore) now involves servicing other retailers.” BDS reaches 1,700 stores of other retailers.

Logistics heritage

While logistics companies would not have an in-house retail chain to learn from, retail distributors would not have a supply chain set-up like BDS has. Dutta of Third Eyesight reminds that other retailers such as Reliance had drawn up plans for supply chain integration but it was scuppered by the downturn. FSCS had been building up its logistics capabilities over the last four years. Singh believes the supply chain automation which FSCS has invested in will stand it in good stead when dealing with FMCG products.

The supply chain set up that BDS has access to offers more advantages than what is offered by regular distributors. Apart from the technology, it also incorporates features such as roll-cages which make the consignments from the warehouses to the stores shelf-ready. These allow store attendants to unpack right at the shelves with pre-sorted packaging and labeling, instead of unloading at a warehouse of the store and sorting. Shrinkage, which is a result of product pieces missing along the supply chain due to damage or stealing, has been reduced by almost 90 per cent as a result. Loading and unloading times have been reduced by 20 minutes, vital when the window to deliver goods at retail chains for everyone is about three hours.

Real-time tracking of vehicles of within one metre further saves on time and lets brand owners view their consignments. BDS’s six distribution centres which consolidate stocks also allow the flexibility to meet additional demand from one store, which the general distributors might not have met.

The use of technology by the BDS team is acknowledged by competitors as well — for instance, its ‘Put to light’ sorting which ensures that the BDS team can send shelf-ready product pieces to respective stores rather than cartons. Compared to supply chains which don’t have this technology, the speed of picking an order at the distribution centres of BDS has improved by 40 per cent while the order-picking for the various retail stores from the distribution centres is 100 per cent, says Singh.

Ashutosh Chakradeo, head, buying, merchandising & supply chain at Hypercity Retail, says, “BDS, given its lineage, understands our needs better as well. We needed shelf-ready packs rather than cartons for delivery which they have enabled. We can do it for larger brands but for smaller brands the volumes don’t justify investments.”

BDS plans to put its own salespeople in modern retail chains to push its bevy of products, another service that individual brands might not have been actually able to afford. Sampling, which is critical in modern trade, will get a boost without the need for additional ad spends, says Singh.