Contact

Retail in Critical Care – The Impact of COVID-2019

Oil shocks, financial market crashes, localised wars and even medical emergencies like SARS pale when compared to the speed and the scale of the mayhem created by SARS-CoV-2. In recent decades the world has become far more interconnected through travel and trade, so the viral disease – medical and economic – now spreads faster than ever. Airlines carrying business and leisure-travellers have also quickly carried the virus. Businesses benefitting from lower costs and global scale are today infected deeply due to the concentration of manufacturing and trade.

A common defensive action worldwide is the lock-down of cities to slow community transmission (something that, ironically, the World Health Organization was denying as late as mid-January). The Indian government implemented a full-scale 3-week national lockdown from March 25. The suddenness of this decision took most businesses by surprise, but quick action to ensure physical distancing was critical.

Clearly consumer businesses are hit hard. If we stay home, many “needs” disappear; among them entertainment, eating out, and buying products related to socializing. Even grocery shopping drops; when you’re not strolling through the supermarket, the attention is focussed on “needs”, not “wants”. A travel ban means no sales at airport and railway kiosks, but also no commute to the airport and station which, in turn means that the businesses that support taxi drivers’ daily needs are hit.

Responses vary, but cash is king! US retailers have wrangled aid and tax breaks of potentially hundreds of billions of dollars, as part of a US$2 trillion stimulus. A British retailer is filing for administration to avoid threats of legal action, and has asked landlords for a 5-month retail holiday. Several western apparel retailers are cancelling orders, even with plaintive appeals from supplier countries such as Bangladesh and India. In India, large corporate retailers are negotiating rental waivers for the lockdown period or longer. Many retailers are bloated with excess inventory and, with lost weeks of sales, have started cancelling orders with their suppliers citing “force majeure”. Marketing spends have been hit. (As an aside, will “viral marketing” ever be the same?)

On the upside are interesting collaborations and shifts emerging. In the USA, Jo-Ann Stores is supplying fabric and materials to be made up into masks and hospital gowns at retailer Nieman Marcus’ alteration facilities. LVMH is converting its French cosmetics factories into hand sanitizer production units for hospitals, and American distilleries are giving away their alcohol-based solutions. In India, hospitality groups are providing quarantine facilities at their empty hotels. Zomato and Swiggy are partnering to deliver orders booked by both online and offline retailers, who are also partnering between themselves, in an unprecedented wave of coopetition. Ecommerce and home delivery models are getting a totally unexpected boost due to quarantine conditions.

Life-after-lockdown won’t go back to “normal”. People will remain concerned about physical exposure and are unlikely to want to spend long periods of time in crowds, so entertainment venues and restaurants will suffer for several weeks or months even after restrictions are lifted, as will malls and large-format stores where families can spend long periods of time.

The second major concern will be income-insecurity for a large portion of the consuming population. The frequency and value of discretionary purchases – offline and online – will remain subdued for months including entertainment, eating-out and ordering-in, fashion, home and lifestyle products, electronics and durables.

The saving grace is that for a large portion of India, the Dusshera-Deepavali season and weddings provide a huge boost, and that could still float some boats in the second half of this year. Health and wellness related products and services would also benefit, at least in the short term. So 2020 may not be a complete washout.

So, what now?

Retailers and suppliers both need to start seriously questioning whether they are valuable to their customer or a replaceable commodity, and crystallise the value proposition: what is it that the customer values, and why? Business expansion, rationalised in 2009-10, had also started going haywire recently. It is again time to focus on product line viability and store productivity, and be clear-minded about the units to be retained.

Someone once said, never let a good crisis be wasted.

This is a historical turning point. It should be a time of reflection, reinvention, rejuvenation. It would be a shame if we fail to use it to create new life-patterns, social constructs, business models and economic paradigms.

(This article was published in the Financial Express under the headline “As Consumer businesses take a hard hit, time for retailers to reflect and reinvent”

Where is the Love? In the Brand.

A few months ago, when asked to speak about value-addition at a food industry seminar, I decided, in a deviation from the usual discussion, to dissect the meaning of “value”.

Most people in industry focus on only one dimension of value-addition – the economic value added by processing and transforming food raw materials – virtually ignoring two other dimensions which are required for most of the (undernourished) population: calorific value and nutritional value (see “Perishable Value Opportunities”).

At the end of that seminar session, an agriculturist from the audience put forth a very pointed question: “What is the cost of the potatoes in a bag of branded chips that sells for Rs. 10? Or to put it another way, how much of the retail price actually goes back to the potato farmer?”

The question, of course, was completely loaded with angst on the economic imbalance between farm and factory, supplier and buyer, small and big, rural and urban. But it also underlined missed opportunities to capture economic value, which in turn accentuate the imbalances in growth.

Economic value can be added to food through improvement, providing protection, changing the basic product and through marketing. Improvement typically focuses on seeds, growing techniques and post-harvest areas for improved quality of harvests, disease resistance, better colours, size and flavour, possibly nutrition. Protection initiatives work across cultivation, harvest and post-harvest, storage, during processing, through packaging, while change is essentially focused on processing techniques (cooking, combining, breaking down and reconstitution).

There is a lot of work going on in the food supply chain to enhance the value captured closer to the farmgate. And, certainly, the “value-added” earlier is vital to maintaining and building value later in the supply chain.

However, what is striking is the fact that as we move downstream towards final consumption, the economic value captured as a price premium also increases dramatically.

So, as depressing as the multiplier may be to the farmer, on a kilo-for-kilo comparison, the bag of factory-fresh potato chips is priced many times higher than his farm-fresh potatoes. And, the maximum economic value is created, or at least captured, by the act of branding and marketing.

The Love is in the Brand

A short quiz break: can you recall the “most valuable company” in the world in August 2011, as measured by valuation on the stock market?

The answer is Apple. It is a company that physically manufactures nothing, but tightly controls the design, development, sourcing, distribution and, yes, branding of a group of products and services, whose fans seem to grow by the minute.

Of course, one can argue that Apple “produces” by the very act of designing completely new, highly desirable, products that are not available from anyone else, and that this is what provides the premium. But similar premium – which is due to branding and marketing, rather than proprietary products – is also visible in thousands of companies, across product sectors, including food. That sustained price premium is the sign that the consumer trusts and wants a particular brand’s product more than another one. There is a hook, a strong connect, due to which that consumer is willing to lighten her wallet just that much more.

In India, surprisingly, “value-addition” discussions in the food industry focus almost entirely on cultivation, storage and transformation through processing, virtually ignoring branding and marketing. In fact, branding is usually only discussed in the context of multinationals or some of the largest Indian companies. What’s more, most of the brands discussed are focussed largely in the area of processed food products that originated in the west.

Run these tests yourself. When you think of food and beverage branded companies who do you think of? And, when you think of food brands, what kind of products come to mind first?

The answer is that the brand landscape is dominated by products such as biscuits and cookies, jams, fruit and non-fruit beverages, potato chips, 2-minute noodles, confectionary products and food supplements, mostly from the portfolio of some of the largest companies operating in the market.

Of course, there are some alternative examples.

Aashirvaad and Kitchens of India present quintessentially Indian products (albeit from the gigantic stables of ITC which also has a multinational parent).

And, yes, there are cooperatives such as Lijjat, as well as home-grown mid-sized companies such as the Indian snack maker Haldiram’s, spice brands such as MTR and MDH, pickle brands such as “Mother’s Recipe”, rice brands such as Kohinoor and Daawat.

But, given the size of the Indian food market and the width and depth of Indian cuisine, shouldn’t there be more brands that are Indian and focussed on essentially Indian food products?

This is a tremendous opportunity – a gap – not just in the Indian market (among the largest and fastest growing in the world), but also globally.

The Hurdles to Branding

So, why aren’t there more Indian brands?

Let’s face it, for most companies, marketing fulfils one need: to communicate their name to potential customers. Most of them generally hope that if they do it enough, they would actually be able to sell more volume.

Of course, no one has been able to draw a straight line graph that correlates more marketing expense with higher sales.

Those are two self-destructive notions. Obviously, if marketing is an expense, then it must be minimised! And secondly, if it cannot be proven to be effective, why would you spend money doing it? For most people, branding is even fuzzier in that regard, in terms of what it is and what it achieves.

However, the picture changes when you look at marketing as an investment rather than an expense. As we evaluate any investment, there should be an expected return that should be quantifiable. Examples of Apple and other brands make it amply clear that branding and marketing, when done well, can certainly create quantifiable financial returns on the investment.

The second hurdle to branding and marketing is that they require consistency, which is not a strong point for most wannabe brands. They end up with too many messages to the consumer, or the messages keep changing and shifting. The company, the name, end up representing many things, sometimes everything, and eventually nothing.

The third, enormous, hurdle is the time needed to develop a brand with a decent sized marketing footprint and a deep relationship with the consumer. Most small and mid-sized companies, constrained as they are for resources, focus on areas that seem to offer more immediate returns, such as distribution margins or discounts, or even expansion of production capacity. Especially in the early years of the business, the benefits of branding and marketing seem to be too far in the future to be a priority for investment.

Due to these one of these reasons or a combination, many companies are unable to see their brands through to success. In fact, sadly, most companies do not last long enough to become owners of successful brands.

Even those who do achieve success and even market leadership, sometimes choose to cash-out on their success by selling their brands to larger competitors, rather than competing with the financial might of the giants (such as Thums Up being sold to Coca Cola; Kissan, Kwality and Milkfood being sold to Hindustan Unilever).

In the past, one of the other barriers in India was the hugely fragmented retail and distribution system, which essentially sapped energy, resources and focus for any company that wished to grow a brand across regions. In fact, one of the key lessons from the western markets is that the growth of brands has been closely linked to the expansion of retail chains. So, certainly, we should view the growth of modern retail in India as a platform for the emergence of regional, national and global Indian food brands.

However, there is a flip side to this retail growth. In the west, most retailers were focussed on running shops, and were content to leave product development and brand development to their suppliers, the national brands. These retailers began looking at private labels only as an additional source of margin well after they had gained scale, and even then they ventured rather carefully into the space. In India, on the other hand, private label is very high on the priority list of our nascent modern retailers, precisely because the effectiveness of that business model has been proven elsewhere and because there are such few national brands that have a strong, irrevocable connect with the consumer.

Should You Invest in Branding?

The short answer is to that question is: yes.

It doesn’t matter if you run a small company or start-up, or a more mature company. It doesn’t matter whether you are selling a consumer product directly, which is the most effective and most necessary playing field for building a brand, or an intermediate product or service where you can still achieve a premium within the trade.

If you are committed to selling only commodities, where your selling prices are determined only by the tug-of-war between supply and demand, government policies and Acts of God, then you wouldn’t be reading this article.

Since you are reading this, you should brand.

In the short to medium term, if you do the job well, your customers will pay you a premium. And in the mid to long term, financial investors looking to ride India’s economic growth are more willing to put their money in a company that has a recognisable hook and a trading premium over its generic competition.

The brand can be built on any platform for which there could be a discernible premium. This can be trust (quality, quantity), simplicity and convenience (prepared snacks and meals, pre-ground spices, flour instead of grain), or even novelty (fizzy coloured sweetened water, reconstituted potato “chips” so uniform in shape and size such that they fit into a cylinder). Organic, vegan, fair-trade – you take your pick of the platform on which to build the brand.

Possibly the strongest driver of premium and brand value is a properly maintained heritage. Some brands have a past, some of them even have a history, but very few have a heritage. If your business has a history, there is a heritage waiting to be discovered, and it is worth a lot.

Of course, this doesn’t mean that a brand should become anchored at a certain historical time point and expect to only milk its age. Heritage is always viewed in a cultural context and culture evolves over time, so the most effective brands maintain a link between the attributes of their past to their ever-evolving present.

As with most other things, it is good idea to start early. Take on board the lessons of branding early in the company’s life so that the foundation is strong, and the brand can grow organically. As a side benefit, strongly branded companies also have strong and cohesive organisation cultures, a fantastic defence during times of high employee attrition.

The Global Branding Opportunity for Indian Food Companies

One of the most important ingredients of a good brand is clarity of identity and origin.

Often we confuse identity with the name, the logo, fonts or colours associated with a brand. Yes, a brand’s identity is certainly indicated by these – as much as our name and our physical appearance indicate our identity. However, the identity itself is much larger; in fact, it is helpful to think of the brand’s identity as a personality. The personality gets expressed in many different ways, but is tied together in a definable manner and has some strong traits that define its actions.

There are clear statements that can be associated with effective brands, whether or not they have been expressed by the company or brand in any of its formal communications. For instance, some globally relevant Indian brands include Tata Nano (“frugal engineering”), the Taj Mahal (“timeless beauty”), Goa (“party”), Rajasthan (“royal exotica”), and Kerala (“bliss”).

(I am deliberately picking “global relevance” as a theme to keep in mind that there is, literally, a world of opportunity that we could be looking at.)

We find a high number of tourism-related brands in this list, because these are destinations that pull the customer in – as long as they are true to themselves and relevant to the context of the consumer, they will be successful.

More conventional consumer product brands, on the other hand, must work harder to fit into the consumer own context, especially as they move away from their geographical origin, their home market.

This is particularly true of food, which is widely divergent across geographies. Some products can be adopted into multiple cuisines, offering more easily accessible opportunities and potentially greater scale. Rice and generic spices fit the bill here. However, for most other food items, the context of the home country cuisine is vital. Therefore, the growth of food brands, not surprisingly, is linked to the expansion of cuisines across borders. It is partly driven by the movement of people, and partly by the movement of culture (television and movies being the most important in current times), mostly both together.

For Indian companies, there is certainly an opportunity to ride on the back of the Indian diaspora across the world. And now there is an additional opportunity: expatriates who spend a few years living and working in India can also help to carry the cuisine and its associated brands out.

Finished product brands such as Tasty Bite, Haldiram’s and Amul are good examples of diaspora-led expansion, where the original driver was to bring people of Indian-origin a taste of home. In fact, Amul has recently announced that it wants to set up a manufacturing plant for cheese and other dairy products in the US, to service the Indian-origin population more effectively. Should it be restricted only to that? Certainly not; availability, if supported well by branding, can help it to cross into other segments as well.

As the consumption of Indian food grows across ethnic lines, it is likely to drive the growth of Indian ingredients as well – a perfect vehicle for branded ingredient suppliers. What’s more, Indian recipe books could even specify Amul Cheddar Cheese, MDH Chaat Masala or MTR’s Dosa Mix as ingredients – they wouldn’t achieve a 100% hit rate, but it would certainly be significantly higher than zero!

There is an opportunity to capture economic value that branding offers, which is very often greater than any other process in the food supply chain. Remember two phrases made famous by Hollywood: “show me the money” and “show me some love”. In the business of brands, these are one and the same.

It’s worth asking: do we have the patience to live through the lifecycle of a brand, and can we commit resources to nurturing it? If the answer is “yes” to both, we are most likely to benefit from branding.

Here’s to more Indian food brands that grow within India and across the world.

(If you need support with growing brands, do connect with us.)

Celebrities as Mindful Consumers

Retailwire hosted an interesting discussion on ethical consumerism, based on Andrew Benett’s description of the decline of hyper-consumerism, and the emergence of a more conscious, frugal consumer in his new book, “Consumed: Rethinking Business in an Era of Mindful Spending”.

In a recent article Benett identified 10 public figures who also act as beacons for mindful consumption. The list includes people as diverse as US first lady Michelle Obama, talk show host & actress Ellen Degeneres, investor Warren Buffet, PepsiCo CEO Indra Nooyi  and rapper Ludacris.

Of course, Ellen, Ludacris or Oprah have a communication reach that most marketers would kill for. Walmart pushing sustainable technologies in its supply chain could possibly achieve more than many governments around the world would hope to, because its powerful carrot of buying budgets is far stronger for many vendors in Asia, than the sticks of legislation. Many of these are genuine, praiseworthy attempts.

However, much as I would like to believe that all celebrities and high profile businesses are evolving into mindful, careful consumers, that would be a gullible step too far. In the current economic climate, consuming too conspicuously is just “not done.” But that may change as markets improve, jobs expand and incomes rise again.

Having said that, if the current fashionable rash of mindfulness raises the profile of concerns around over-consumption and waste, if it actually drives us towards more sustainable behavior and be more gentle to the planet and our future generations then, well, the end justifies the means.

Andrew Benett’s list is here: Top 10 Public Figures Who Are Also Mindful Consumers.

And this is the discussion on Retailwire on this subject.

Organic – Hope or Hype?

The organic movement has touched a variety of products, including clothing, cosmetics and home products. Possibly the most emotive area is organic food, because food products are directly taken into the body while other products have a limited and external contact. 

In a sense, before the appearance of industrial agriculture and the application of synthetic nutrients and pesticides, all farming was organic. In fact, the traditional Sanjeevan system of India dates back several millennia. 

Even the existing organic farming movement has been around since its founding in Europe in the early-1900s. This was initially treated as fad and its proponents were seen as eccentric (at best) or insane. However, as damage to the environment and to human health became a bigger concern, organic farming emerged as the healthier option. 

Organic farming is based on the following fundamental premises: 

  • a farm that uses natural rather than synthetic inputs throughout, from seeding (or insemination in the case of animals) to post-harvest
  • methods that are sustainable rather than exploitative or injurious to the farm and its surroundings, with an emphasis on conservation of soil and water resources

The aim is to drive a more healthy approach all around – for the environment, for people, as well as for the animals and plants. 

The organic trade (all products) is currently estimated at over US$ 40 billion globally, with an annual growth of approximately US$ 5 billion. Organic production is driven today more by demand than by supply – in many cases supply constraints of certified organic produce is more of a concern than the market demand. 

Every year, increasing numbers of consumers consciously buy organic products regularly or occasionally on the basis that it is good for them and good for the planet. Certainly, true organic farms do not use synthetic materials, avoiding damage to the environment and can help to retain the biodiversity. Whether measured by unit area or unit of yield, organic farms are more sustainable over time as they use less energy and produce less waste. 

It is not as if, after decades of individual enthusiasts pushing their ideas from the fringes, consumers have suddenly become more environmentally conscious. This mainstream awareness has possibly been pushed up in recent years by the involvement of large companies which have spotted the tremendous growth of a profitable niche. “Organic” is the new speciality or niche product line that can be priced at a premium due to the greater desirability amongst the target consumer group, with potentially higher profits than inorganic products or uncertified products. Today, at least in the two largest markets (the USA and Europe), large companies have the lion’s share. For instance, statistics from Germany show that in 2007 conventional retail chains sold over 53% of organic produce, while specialist organic food retailers and producers lost share during the year. Similarly in the US, after the development of the USDA National Organic Standard in 1997, significant merger and acquisition activity has been visible.

However, as the interest in organic products has grown, so have the noise levels in the market. With that the potential for confusion in customers’ minds has also grown.

In day-to-day conversations, we tend to treat organic as superior to inorganic. But the reality is a little bit more complex.

For instance, we expect organic products to contain more nutrition and be better for our bodies. While this may be true of organic animal products compared to their inorganic counterparts, it has not been demonstrated for plant products, other than anecdotal experience of taste and appearance.

There are studies that suggest that inorganic farming can produce more crop per acre and more meat per animal, and is, therefore, the better option for a planet bursting with overpopulation. (Some proponents extend that argument to genetically modified foods as well, but let’s stay away from that for the moment.) 

However, there are also other studies that counter this argument by suggesting that the organic farms can end up being more efficient and productive in direct costs, yield and long-term sustainability. 

Then, the big question is: if organic foods are no better nutritionally than inorganic and could be as productive for the farmer, are organic brands just skimming the gullible customer while the going is good?

We might expect certification and regulation to clear the air, but in many instances these leave out as many things as they include. Labelling is yet another concern. Countries where labelling is more stringently monitored allow logos such as “100% organic”, “organic” (more than 95% organic ingredients) and “made with organic ingredients” (over 70% organic ingredients). In other countries logos and where labelling may be less strictly monitored, the use of the term organic is far looser and even more confusing. What’s more, the usage of terms such as “Bio” or “Eco” can also mislead consumers into believing that there is something distinctly superior about the product they are about to buy when, in reality, it is often only a marketing gimmick.

Further, just because something is certified as organic does not mean it is a higher grade of product. Organic produce may end up having a shorter shelf-life, or may also be otherwise inferior to inorganic produce in the store. In fact, as the KRAV (Sweden) website states: “The KRAV logo is a clear signal that the product is organically produced but does not say anything about the quality. That must be guaranteed by the producer, i.e. yourself”. This is similar to saying that the fact that someone has a management certification from a certain institute means that he or she passed the tests of that institute in a particular year, but that does not automatically make him or her a good businessperson.

Countries and regions that have a poor record of environmental consciousness, poor transparency norms, are also not seen as the best source for organic produce even if it is apparently from a certified producer. In some cases, certification may be carried out second-hand and unverified, leading to instances such as the one in 2008 where the US retailer Whole Foods pulled out pesticides-laden “organic-certified” ginger that was shipped from China. The mixing of inorganic ingredients of uncertain origin, especially in blended products such as juices or snacks, can also make a mockery of the organic labelling.

Another visible concern today is the carbon footprint, and some people raise the question whether buying local (whether inorganic or organic) may be less environmentally damaging than importing produce from distant countries. In such instances, the evidence of lax certification, such as the Chinese case mentioned earlier, takes support away from the cause of organic imports.

Arguments have also been raised about whether the larger “organic” factory farms merely follow the letter of the law rather than the principles behind the organic movement? Small organic farmers allege that large organic-certified factory farms – especially those selling animal products – do not really follow the core principles of “natural” growth, and confine their animals in unnatural surroundings. 

With all these arguments and counter-arguments flying about, some organic (or nearly organic) producers elect not to be certified, letting their customers vote with their wallets. Some of these smaller farmers may be driven by economic necessity since certification could be costly and cumbersome, while others may just find it more feasible to stick with a local sales strategy where the customers are able to physically see the organic nature of the farm. 

It’s clear that all of these questions will take years to sort out – through debate, research, legislation, as well as social and commercial pressure. Meanwhile, most conscientious retailers and concerned consumers will need to do their own studies to educate themselves, and will need to examine each product for genuineness of the organic promise.

And, if you are not quite that savvy, the final message would be: “caveat emptor” (“let the buyer beware”).

Less Could Be More

For all those who have admired the consistency and presentability of produce in western supermarkets, here’s proof that tough times really focus us on substance and force us to look beyond skin-deep beauty.

Even in fruits and vegetables.

British supermarket Sainsbury has challenged European Union guidelines that restrict the sales of fruits by certain physical standards. Sainsbury’s is questioning EU regulations that prevent selling “ugly” fruit and vegetables. Due to EU regulations such as size of cauliflower (minimum 11 cm diameter) and the shape of carrots (requirement that there should be a single root, not multiple), Sainsbury estimates that up to one-fifth of what is produced in British farms cannot be sold in the supermarket. According to Sainsbury’s estimate, not following these regulations can help to reduce prices by up to 40%, and reduce wastage by up to 20%. The retailer is also trying to drum up customer support by running an online poll (94% responses were in favour of Sainsbury’s move, at the time this column was being written).

So less beauty could mean more veggies in the supermarket, and more money in everyone’s pocket including, hopefully, the farmer.

And this may also vindicate anyone who has complained that the beautiful veggies and fruits in western supermarkets taste inferior to their “ugly” counterparts sold on Asian hand-carts. Give us more substance and less style, any day.

Let’s look at some other substantial issues that merchants should consider.

Remember “I can’t get no satisfaction”? That’s what Mick Jagger and his mates in the Rolling Stones hit the world in the face with in 1965, allegedly in response to the rampant commercialism they had seen in the US.

After 43 years – at least judging by the modern supermarket shelves – apparently we still ain’t getting no satisfaction. In fact, the array of choice tends towards “overload”.

A typical developed country supermarket is estimated to carry over 40,000 SKU’s. Can you think of 40,000 types of items (or even 10,000) that you would need from the supermarket for your home?

So here’s the result. During my travels, if I’m in a store that is unfamiliar I could spend over an hour wheeling a trolley around before reaching the checkout. The first 5-10 minutes are focussed on figuring out the aisles based on my list. The next 10 minutes are spent picking what is actually on my list. And the rest of the time before the checkout is usually spent browsing through the thousands of SKU’s and picking stuff that we never knew we needed when the family made the shopping list.

Now, the guys who run the supermarkets are generally a smart bunch – they’ve figured that the more options you put in front of consumers, the more they buy. My cash receipts are proof of that. But, as American professor and author Barry Schwartz (“The Paradox of Choice”) says, the point where the choice becomes counter-productive is already well-past in developed markets.

With such overwhelming choice, consumers get into analysis-paralysis. And even after they finally purchase something out of the enormous range, you get shades of post-purchase dissonance. Only, in this case the dissonance, the dissatisfaction is not related to a bad product, but: “What if there I had made another choice? What if there was a better product than this? What if there was something available for less?”

During these times, it is pertinent to also put this in the context of business costs. There is surely a cost of providing that humongous choice in supermarkets. Have we considered what the saving could be, if the variety was reduced, if the product range was consolidated?

Consider the time (and therefore cost) spent on product mix and pricing decisions – surely merchandising teams have to be larger if you have a larger product mix, since each person can only handle a finite workload. Consider the cost of logistics of handling a widely diversified range. Consider the efficiencies lost in diverse production mix. So, does the consumer really need, really even want all that choice?

Retailers like the German chain Aldi raise precisely those questions. Aldi sells about 1,100 SKUs compared to the usual 40,000. And it claims that the typical shopping basket in Aldi’s UK stores is 25% less than competing supermarkets.

Indian retailers, of course, are possibly yet to reach that pain threshold of choice. There are possibly some potentially useful choices that are still missing. But even here, it is well worth taking a hard look at the product offering. With availability levels that can dip as low as 50-60%, it is probably worth asking – what if we dropped XYZ product from our range? Would it really hurt our sales or even our image; or would it help us to focus better on the products that really matter?

If we took our attention away from building such false choices, could the business become more profitable and therefore more sustainable?

The US and European markets are often the source of many a management thought and business model related to consumer products and retail, and of “best practices”.

So, in closing, I should share this question someone asked me recently: “when do you think consumer spending will bounce back in the US?” My first response was, “If only I had a crystal ball”. But the next thought in my mind was what if US consumers actually came to a decision that they had “enough”? What if their excessive consumption was no longer the role model for consumers in emerging economies? What if, instead, the frugal consumers of India and China became the global role model?

What would your business model look like then? Would your corporate be more socially responsible? And would it have a better chance of lasting longer?

For those who are interested in taking this inquiry even further, I can recommend John Naish (“Enough: Breaking Free from the World of More”, 2008), John Lane, Satish Kumar, M. K. Gandhi, Alan Durning (“How Much is Enough?”), or any number of ancient Indian, Chinese, Greek or Roman schools of thought, many of them pigeonholed into “religious” or spiritual categories.

You might also like this video of a talk by Barry Schwartz on Ted.com (below).

Do please share the results of your inquiry with us, too.

Are Your Deals Still in the Fridge?

If you’re like me, then at any given point of time you have a vague idea about what is in your refrigerator, but not quite. That must why we end up buying stuff that duplicates what is already in the fridge.

Here’s an example of what that translates into for me:

  • A second bottle of chilly sauce, when the first one is only half-way through
  • Three semi-consumed jars of jams and preserves, none of which look anywhere near finishing for the next couple of months
  • Three packs of juice because one came “free” with two others (and all open because the family does not coordinate its consumption of flavours!)

At other times, it is the semi-consumed half-loaf of bread that gets trashed half-way through its fossilization process. Or the new flavour of cheese spread, where the price offer may have been tastier than the spread itself.

I sure there will be at least some among you who would have similar stories. (I would be shattered if I’m told that I am the only one with these tales of inadvertent consumption!)

In the normal course, we would not call ourselves excessive consumers. For the most part, we believe we display rational shopping behaviour. We make our lists before leaving for the market and we generally know which shop or shops we want to stop in at. So, why do we end up doubling or trebling our purchases, when we aren’t actively “consuming” double or triple the amount of food?

Well, the lords of marketing spin have mapped their way into our minds. In a strategy that has been proven over centuries, we are offered things ‘free’ or at a significant discount. The very thought of getting something for free, or for less than what it is worth, is so seductive and irresistible.

(As an aside, just look at what has happened during the last few years in the real estate market and the stock market – everyone thought that they were getting a good deal because the stuff was “worth actually more” than the amount they were paying. Not!)

We believe we are being rational in buying the three packs of juice at the price of two – never mind the fact that juice wasn’t on the shopping list in the first place. The danglers and end-caps jump out and ambush us, as we walk through the aisles. The samplers entice in their small voices: “try me”.

You might say that the really traditional kiranawala is the customer’s greatest friend and also a barrier against uncontrolled consumption.

By keeping the merchandise behind the counter or in the back-room, he maintains a healthy distance between the addiction source and all us potential shopaholics. In fact, he goes beyond the call of duty, and even prevents us from stepping anywhere near the merchandise by delivering to our homes.

The enticing deals and offers that you can’t see won’t hurt you. You won’t call to get that new, exciting BOGO (buy one-get one) offer, because you don’t know that it’s there in the store.

Unless, of course, the sneaky brand with its accomplice – the advertising agency – sidesteps him, and puts out the temptation in your morning newspaper.

By now, surely, you’re wondering whose side I am on.

Well, as a consumer and a customer, I am only on one side – mine!

As someone who is intensively involved with the retail sector, I’m also on the side of the brands and the retailers.

And believe me, we are all actually sitting on the same side of the table.

The years in this decade, after the recovery from the minor blip of dot-com busts, have been like one mega party and most people have forgotten that parties seldom last forever. And the morning after the wild party can start with quite a headache.

Retailers and brands have recently acted as if there is no end to multiplier annual growth rates, and consumers have been only to happy to prove them right. Until now.

Currently, we are passing through a fairly serious global economic correction which started in 2007. But it has only really hit hard in the last couple of months, as the headlines have increasingly started talking about recessions and depressions. Naturally, there are some people who have really lost money, others may be looking at the possibility of lower income. But even those people who sustain their current incomes are “feeling poor”, just as they were “feeling wealthy” when the markets were booming.

Of course, superfluous or discretionary expenditure such as movies in multiplexes, eating out etc. are the first to get hit. But should grocery retailers rest easy – after all, people still have to eat, right?

And how about deals, and multi-buy discounts – isn’t this the scenario where “more for less” will be the strategy which will work?

Well, I don’t believe it is quite so cut-and-dried, or quite so simple. The grocery shopping lists will not only become tighter, but will also be more tightly adhered to. Anything that looks like it may be a wasteful expense will be unlikely.

Remember the deals in the fridge? What you are throwing away now starts looking like money being put into the trash.

Pardon the seemingly sexist remark, but men: your wives will not let you get away with driving your trolleys irresponsibly into aisles where you are not supposed to be!

So how should retailers and brands respond?

Well, a good starting point would be to understand what the real market is. Let us not infinitely extrapolate growth figures on a excel spreadsheet on the basis of the early-years of new businesses. Let us not extrapolate national demand numbers from the consumption patterns of select suburbs of Delhi and Mumbai.

When we have the numbers right, let’s look at the business fundamentals at those basic levels of consumption. Is there a viable business model?

Is the business full of productive resources, or are we overstaffed with “cheap Indian labour”?

Is your modern retail business or your food / FMCG brand really providing value to the Indian consumer? For instance, two very senior people from large retail companies were very vocal this last weekend in stating that the value provided by local business to the value-conscious consumer was grossly underestimated by the industry.

I believe that best filter for business plans is the filter of business sustainability. How sustainable is the business over the next few years? What is the real demand? What are the true cost structures, and can these be supported on an inflationary basis year-on-year, or will you be squeezing the vendors for more margin at every stage until the relationship goes into a death spiral?

Let’s look at macro-economics. Are you actively looking at generating and spreading wealth and income around, or is your focus only on stuffing that third pack of juice into the fridge for it to go stale? If your strategy is the latter one then, to my mind, that is neither a sustainable economic model nor a sustainable business.

There’s more about the current and developing economic scenario, “realistic retailing” and other such issues, elsewhere on the Third Eyesight website and blog, including a presentation made at the CII National Retail Summit in November 2006 (download or read as a PDF). (The article based on that presentation is here.)

I really look forward to your thoughts and would welcome a dialogue on how you believe retailers and brands should work through the next few years as we unravel the excesses of the recent past.

CSR – Philanthropy or Empowerment

We’ve been discussing Corporate Social Responsibility (CSR) and whether its implications (and need) is fully appreciated by businesses.

A couple of years ago I did a project with the weavers of Chanderi and it was a good reality check of the India that struggles to live behind the facade that the world thinks real India is. India really isn’t only about Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata, or Jaipur, Jodhpur, Agra for that matter. Neither is it about the stage set villages with its token computer/cyber point dressed up for visits of foreign heads of state. The potential to develop an economically sound India actually lies in its rural areas, in its cottage industries, in the small scale businesses of the unorganized sectors. The talent, the pride, the dignity of human life, the shrewd and competent business brain all exists there, but need to be nurtured and developed and most importantly need to be given a fair hearing and chance. Rural India is not looking for charity or ‘assistance’ – it is looking for empowerment. Unfortunately most of us don’t understand the difference. Corporate Social Responsibility is about empowerment, and does not mean ‘giving’ but ‘encouraging, developing, nurturing and sustaining’. CSR practiced in its truest sense would be a ‘win-win’ for both the buyers and the sellers in a given business environment.

With the growth of consumerism and wealth in urban India, businesses must realize that community awareness and service is not an option but a requirement. CSR can no longer be a sub-department of the personnel and HR division of the company. There is need for the ownership of CSR at a much higher level, on par with all other activities and decisions that drive the business. Corporate activism must be sustainable and accepted as a valuable change agent of today’s business environment. Corporate Social responsibility must have a much broader implication in modern India and reduce dependency on the government for social change.

Empowerment and concern for the society is often misunderstood as socialism. However one must realize that a capitalist economy only thrives when every citizen is a contributor and a participant in it and has the opportunity to succeed. As a recent example, ITC’s e-Choupal has demonstrated the success of such a concept in the current business environment, as did the success of Amul and Mother Dairy co-operative movement of the pre ‘CSR’ era of Indian business.

And yet, there is so much more to be achieved.

Welcome to Third Eyesight’s Blog

Thanks for visiting Third Eyesight’s blog. We hope you will find information here that will be useful for you in your business or for your studies. Please share the blog links with your friends, co-workers and business associates: you can use the social bookmarking tools, or just copy and paste the URL from the address bar above. Do encourage everyone to explore the Third Eyesight blog.

While we share this content freely, please keep in mind that we do like to be acknowledged if someone re-uses our content.  So if you quote material from our website, please ensure that you clearly and unambiguously credit Third Eyesight and the website page URL as the source.

If you run a print or online publication, and want to re-publish our content, please send us an email on “services [at] thirdeyesight [dot] in” or leave a message here: CONNECT.