Devangshu Dutta
January 10, 2017
In this piece I’ll just focus on one aspect of technology – artificial intelligence or AI – that is likely to shape many aspects of the retail business and the consumer’s experience over the coming years.
To be able to see the scope of its potential all-pervasive impact we need to go beyond our expectations of humanoid robots. We also need to understand that artificial intelligence works on a cycle of several mutually supportive elements that enable learning and adaptation. The terms “big data” and “analytics” have been bandied about a lot, but have had limited impact so far in the retail business because it usually only touches the first two, at most three, of the necessary elements.
“Big data” models still depend on individuals in the business taking decisions and acting based on what is recommended or suggested by the analytics outputs, and these tend to be weak links which break the learning-adaptation chain. Of course, each of these elements can also have AI built in, for refinement over time.
Certainly retailers with a digital (web or mobile) presence are in a better position to use and benefit from AI, but that is no excuse for others to “roll over and die”. I’ll list just a few aspects of the business already being impacted and others that are likely to be in the future.
On the consumer-side, AI can deliver a far higher degree of personalisation of the experience than has been feasible in the last few decades. While I’ve described different aspects, now see them as layers one built on the other, and imagine the shopping experience you might have as a consumer. If the scenario seems as if it might be from a sci-fi movie, just give it a few years. After all, moving staircases and remote viewing were also fantasy once.
On the business end it potentially offers both flexibility and efficiency, rather than one at the cost of the other. But we’ll have to tackle that area in a separate piece.
(Also published in the Business Standard.)
Devangshu Dutta
July 22, 2011
The apparel retail sector worldwide thrives on change, on account of fashion as well as season.
In India, for most of the country, weather changes are less extreme, so seasonal change is not a major driver of changeover of wardrobe. Also, more modest incomes reduce the customer’s willingness to buy new clothes frequently.
We believe pricing remains a critical challenge and a barrier to growth. About 5 years ago, Third Eyesight had evaluated the pricing of various brands in the context of the average incomes of their stated target customer group. For a like-to-like comparison with average pricing in Europe, we came to the conclusion that branded merchandise in India should be priced 30-50% lower than it was currently. And this is true not just of international brands that are present in India, but Indian-based companies as well. (In fact, most international brands end up targeting a customer segment in India that is more premium than they would in their home markets.)
Of course, with growing incomes and increasing exposure to fashion trends promoted through various media, larger numbers of Indian consumers are opting to buy more, and more frequently as well. But one only has to look at the share of marked-down product, promotions and end-of-season sales to know that the Indian consumer, by and large, believes that the in-season product is overpriced.
Brands that overestimate the growth possibilities add to the problem by over-ordering – these unjustified expectations are littered across the stores at the end of each season, with big red “Sale” and “Discounted” signs. When it comes to a game of nerves, the Indian consumer has a far stronger ability to hold on to her wallet, than a brand’s ability to hold on to the price line. Most consumers are quite prepared to wait a few extra weeks, rather than buying the product as soon as it hits the shelf.
Part of the problem, at the brands’ end, could be some inflexible costs. The three big productivity issues, in my mind, are: real estate, people and advertising.
Indian retail real estate is definitely among the most expensive in the world, when viewed in the context of sales that can be expected per square foot. Similarly, sales per employee rupee could also be vastly better than they are currently. And lastly, many Indian apparel brands could possibly do better to reallocate at least part of their advertising budget to developing better product and training their sales staff; no amount of loud celebrity endorsement can compensate for disinterested automatons showing bad products at the store.
Technology can certainly be leveraged better at every step of the operation, from design through supply chain, from planogram and merchandise planning to post-sale analytics.
Also, some of the more “modern” operations are, unfortunately, modelled on business processes and merchandise calendars that are more suited to the western retail environment of the 1980s than on best-practice as needed in the Indian retail environment of 2011! The “organised” apparel brands are weighed down by too many reviews, too many batch processes, too little merchant entrepreneurship. There is far too much time and resource wasted at each stage. Decisions are deliberately bottle-necked, under the label of “organisation” and “process-orientation”. The excitement is taken out of fashion; products become “normalised”, safe, boring which the consumer doesn’t really want! Shipments get delayed, missing the peaks of the season. And added cost ends in a price which the customer doesn’t want to pay.
The Indian apparel industry certainly needs a transformation.
Whether this will happen through a rapid shakedown or a more gradual process over the next 10-15 years, whether it will be driven by large international multi-brand retailers when they are allowed to invest directly in the country or by domestic companies, I do believe the industry will see significant shifts in the coming years.
admin
February 28, 2011
Business
Standard, Mumbai, February 28, 2011
Sayantani
Kar (with inputs from Preeti Khicha)
When some of India’s big retail chains banded together recently to substitute Reckitt Benckiser’s products with private labels to protest the latter’s decision to cut sales margins on its products, they were doing something many global retailers have done with great success. Part of their overall strategy, especially for large chains in the US and Europe, is to develop quality private label products that complement other pieces in their marketing mix. While this is one way retailers can differentiate their firms from competition, it also helps them flex their muscles in their relationships with brand manufacturers. Indeed, retail giants Tesco, Walmart and Carrefour have a significant portion of their sales coming from private labels — ranging from 10 per cent for Costco and 50 per cent for Tesco.
India is a back runner in the private label race, but it is
catching up. A Shoppers Trend Study by Nielsen found awareness
about private labels has gone up from 64 per cent in 2009 to 78
per cent in 2010 across 11 cities in India. Nielsen Director (retail
services) Siddharthan Sundaram says, “Over the last three
to four months, we found an increased awareness of private labels
in categories such as staples, household products, personal care
products such as soaps, biscuits and packaged groceries.”
Thanks partly to the recent economic downturn, there is greater
acceptance — and even loyalty — to such brands in India,
say marketers. Future Group Business Head (private brands) Devendra
Chawla reasons, “A label on the shelf becomes a brand by
covering the two feet distance from the shelf to the trolley.
After all it is the consumer’s choice.” Even in the
toughest segment for private labels to crack — fast moving
consumer goods including food and personal care — store labels
claim share of 19-25 per cent.
Low-involvement categories such as household cleaners were among the first to see the entry of private labels (17-44 per cent of sale in modern trade), bringing in huge margin-lifts for modern retailers. In categories such as food products — jams, biscuits and staples — private labels today contribute more than 25 per cent of modern trade sales. Little wonder, retailers are now mining shopper data to make private labels shed their ‘low’ly tag — low involvement and low cost. Store chains are segmenting their brands according to consumer needs, combining more than one brand according to consumer behaviour, besides launching high-involvement premium products and innovative packaging to give national brands a run for their money.
Innovate or die
Retail innovation has had a big role to play in speeding up the
process of consumer acceptance. Future Group’s retail arm,
which includes Big Bazaar and Food Bazaar, calls its in-house
products ‘private brands’ not labels. It has a separate
team, headed by Devendra Chawla, to research and test FMCG products
before launch. The team has a range of private brands — Tasty
Treat, Fresh and Pure, Cleanmate, Caremate, Sach, John Miller,
Premium Harvest and Ektaa. Look at how it is using shopper data
to improve its products. The insight that kids found ketchup bottles
cumbersome and had to be served — making it inconvenient
if an adult was not around — led it to change the packaging
that in turn gave the brand a margin advantage. By offering ketchup
in pouches, it saved on the price of the glass bottle and freight
(pouches take up less space in a truck, hence more can be fitted
in). While ketchup in glass bottles continue to be Rs 99 for a
kilo, its Tasty Treat ketchup pouches come in Rs 59 packs.
By working with vendors it has also come up with interesting combinations — for example, its Tasty Treat jam has three small tubs packed as one unit, each tub containing a different flavour to offer consumers larger variety.
Retailers have now donned the hats of “product selectors” and “product developers” at the same time, points out Third Eyesight CEO Devangshu Dutta. “So far, most of the retailers were just selecting products from vendors which are mostly lower-priced knock-offs of manufacturer brands,” he says. Not any more.
Ashutosh Chakradeo, head (buying, merchandising and supply chain), HyperCity Retail, explains the process his company follows: “To develop food products, we identify vendors, tie up with food laboratories, chefs and consumers to be part of the tasting panels. Before launching a private label we do at least a month of consumer testing. We identify customers from our loyalty programme called Discovery Club, which tells us who buys a certain category of product. We give the relevant consumers our private label products for trial for a month. We meet the customers at their homes, take their feedback and these changes are incorporated into the private label brand.”
“Our stores act as research labs and are a constant source of feedback,” points out Chawla of Future Group. Chawla estimates 3-4 per cent of the sales of private labels are ploughed back into packaging and design innovation. Reliance Retail CEO Bijou Kurien says, “The teams are our main investment in private labels. Our 100-strong designers across all the formats help in coming up with product designs that fill a need gap or offer a few more features at the same price as national brands.” Reliance Retail has recently launched its own brand of watches priced Rs 149-199 which “no national player can offer” points out Kurien.
The edge
Most vendors directly supply to retailers’ distribution centres,
cutting out cost leakage at the distributor’s and carrying
and forwarding centres. Direct access to store shelves and aisles
also cuts out the high mainstream advertising costs that brands
have to bear. By clever product arrangements and in-store promotions,
retailers can sway the shopper and draw attention to the price
advantage. Chakradeo says, “We display private labels in
heavy footfall areas in the store. We complement displays —
so we keep our private label ketchup near the bakery.”
To tackle the tricky personal care category of face creams and shampoos that Aditya Birla Retail’s More chain has entered, it plans to communicate promotional offers straight to its loyalty programme members. “It will help us induce trials,” says Thomas Varghese, More’s CEO.
Bundling products is another way to woo the value-conscious consumer. Six months back, Future Group started bundling its private brands. Chawla says, “Take home-cleaning, which requires a floor cleaner, glass cleaner, toilet cleaner and utensil cleaner which we combined as a shudhikaran solution of our Cleanmate brand.” The combi-pack costs Rs 125, which would come to around Rs 220-250 if shoppers bought a la carte. The margins are still high at 26 per cent. “Vendors are assured of volumes,” points out Chawla.
What it also does is convert the fence-sitter who has not yet bought into a category. For example, consumers who avail of the shudhikaran solution also get into the habit of using glass cleaners — a category which has a small base and gets most of its sales from modern trade. Similarly, Future Group saw a 25 per cent spurt in the sales of soups when it clubbed soup mugs with its Tasty Treat soup packets based on the insight that Indians preference to sip their soup out of a coffee mug.
Don’t be surprised if you see MNC brands coming out with combo-offers for their products, way bigger than the occasional bucket with a detergent!
Growing up
There are signs the industry is evolving. Private labels in FMCG
are shedding their low-cost tags. But retailers know better than
to vacate low price-points altogether. Instead, they are segmenting
their brands just as a manufacturer brand would do. Chakradeo
of Hypercity says, “Over a period, we hope to increase the
stickiness and the differentiation our brands bring to our stores.
Particularly, in staples where we have seen our private label
business grow rapidly. This is a very quality and price-sensitive
category. We started with basic products but now we have premium
daals (lentils) and basmati rice as part of our portfolio.”
Future Group too has its ‘good, better, best’ policy firmly in place. In staples, the stores offer some products ‘loose’, such as rice, wheat, lentils, which is at the bottom of the ladder. Its Food Bazaar version of the products straddle the middle category, and above the two is its brand, Premium Harvest, which retails at a price higher than some manufacturer brands.
Stickiness may also result from the manner in which retailers are positioning their brands. Future Group’s brand Ektaa will retail regional food and staples across its stores in the country so that migrants can buy supplies they are comfortable with. Be it Govindbhog rice and kasundi (a rice variety and mustard sauce preferred by Bengalis), khakra (Gujarati snack) or murukku (loved by Tamilians). Boston Consulting Group Partner & Director Abheek Singhi says, “Indian retailers are not cut-pasting private label products from other markets but adapting them.”
Are private labels a risk worth taking? Chakradeo says, “The entire product formulation for our cleaners was done in partnership with Dow Chemicals, USA. We did not make any investment and we gave them a percentage of sales as fee. Investments are not huge in making private labels as in most cases it is partnered with vendors. It is more of operating expenses than capital expenditure.”
Future Group brought down logistics costs further by 6-8 per cent by appointing vendors in more than one region for 10 of its product categories to fill its distribution centres. Chakradeo adds, “As the volumes go up, we will be able to put up for backend infrastructure facilities for development and R&D.”
Should national brands be worried? Devangshu Dutta says, “As long as retailers have access to the production and development and have customers for it, the private labels will remain profitable.” India Equity Partners Operating Partner V Sitaram sums up, “In modern trade, though the market leaders will face some slip in market share, the number 3 or 4 brands might have a bigger problem in certain categories thanks to private labels.”
As retailers leverage consumer insights to deploy private labels more effectively, national brands are aggressively fighting the challenge. From sprucing up supply chains to galvanising in-store promotions, they are covering all bases. KPMG Executive Director Ramesh Srinivas says, “Earlier brands had to adjust between a modern trade and a general trade supply chain. The former had to be serviced directly at the stores or had their own supply chain while the latter used the manufacturer’s supply chain. Now, some brands separate modern trade teams and even distributors.”
Britannia Category Director (delight and lifestyle) Shalini Degan says, “We have divided our portfolio into three categories, A,B,C, each having its benchmark fill-rate. We don’t allow fill-rates to drop below those levels. Why the segmentation? We need to focus on brands which have a higher traction in modern trade when servicing it, else we might end up focusing on brands that are not modern trade-led.”
Fill-rates denote how often and to what accuracy the retailer’s orders for a product are supplied by the manufacturer. Low fill-rates could mean lost opportunity since the shopper sees an empty shelf or a private label instead of the brand she might have thought of picking up.
Samsung Vice-President and Business Head (home appliances) Mahesh Krishnan says, “We have gone in for central billing system 4-5 months back with all large-format retailers. Orders are tracked on a daily basis giving retailers more control over the chain.”
In other words, private labels are here to stay and will evolve as more and more chains gain national footprint and the economies of scale kick in. Dutta of Third Eyesight says, “Gross margins for organised retailers are still low compared to global standards: So, margin fights will continue for some time till retailers gain a bigger share of the pie.”
(Also read: The Private Label Maturity Model.)
Devangshu Dutta
March 13, 2009
The Indian consumer market remains one of the most attractive and sustainable markets for international companies. It has even been described as a market of a lifetime by some, meaning that a brand can live through a whole lifecycle of decades if it launches in the market today. The last decade has made the Indian consumer even more visible and desirable to consumer goods companies from around the world.
So it is hardly surprising that many international food and beverage brands have entered the market in the last few years, either by appointing wholesalers as their distributors in the market or, occasionally, establishing a more direct presence through joint ventures or subsidiaries.
These companies have been helped along by the growth of modern retail chains. These offer a familiar sales environment to most of these companies who sell through supermarket and hypermarket chains in other countries.
However, the market presents international brands and their distributors with two challenges.
First, the question whether they should stick to only selling through the more “organised” retail chains. If they do so, they could focus commercially on a limited number of larger business accounts, and service them efficiently as they do the large retailers in other markets. It would also provide them – in the Indian context – an upmarket environment where the display and promotional means allow a more premium positioning.
However, even the largest store chain has a limited footprint, while India’s vibrant mom-and-pop retailers form a much larger platform and continue to reach out to a much larger market than the modern traders. So by focussing on the chain-stores alone, international brands would miss out on the majority of the Indian consumers who do not have a chain store near them, or choose to continue shopping at the traditional stores.
On the one hand you might think that it is logical to reach out to as many customers as quickly as possible. On the other hand, “foreign” equals “exotic” in the dictionary, which equals mysterious, interesting, glamorous and so on. So some of these brands actually benefit from maintaining an aura of exclusivity, and it helps if their distribution is limited.
This challenge, therefore, needs to be addressed by each company specifically, keeping its brand and business objectives in mind.
The second concern is more widespread and includes both the branded supplier as well as the retailer, whether chain-store or traditional mom-and-pop. It is a given that the international brand will share a store environment with local brands. Unless, of course, an international brand creates a separate exclusive branded store (easier to do in fashion and lifestyle products than in food and grocery), or it is only sold in stores which sell only foreign merchandise (of which there are very few).
So the second question is: in the shared retail environment, should the international brands be mingled with local brands and products, or should they be displayed apart from local brands? This question is relevant even if a brand is only present in the modern Indian supermarkets.
Prices of imported merchandise of international brands tend to be high, because the base price can be high to start with, and import duties and other costs push the price up further. So a popular option so far has been to bunch imported brands together at the retail store on one or a few shelves. The reasoning is that these are speciality products, expensive and with a limited consumer base. Shoppers who know about these brands will seek them out, and they are likely to also shop for other imported brands at the same time, so it makes sense to display them together.
Some brands are happy with this display strategy, because it makes a clear statement that their brand is a premium “exclusive” brand, and it prevents a one-to-one comparison with lower priced local competitors.
However, brands that want to be visible to a wider set of consumers would be unhappy with this arrangement. Their take would be that by bunching high priced merchandise together, the retailer is creating an area which becomes a dead zone that is avoided by most shoppers. Thus, a brand that could be otherwise sold to more consumers is forced to become a niche product due to the limited visibility.
Regular readers would know that our approach to creating or judging strategy is dogmatic only in one aspect: “to avoid the cookie cutter”. Whether you’re selling meat snacks, exotic meal packs, kettle chips or iceberg lettuce, multiple factors determine whether a particular international product should be segregated or displayed alongside local brands. And that strategy needs to be dynamic.
The first factor to consider is how familiar is the product itself to the customer frequenting the store. Let’s take an imported salsa as an example. In a location where the customers may not be familiar with Mexican cooking, it makes sense to not just display tortillas, salsa, sour cream and beans together, but also to offer samplers and give away recipes. While the salsa may be of an imported brand, the beans may be of an Indian brand, and the tortillas and cream may be from a local supplier.
In this case, where each component of the meal originated is less important than the fact that the complete meal needs to be presented together to the customer. Putting the imported salsa with other imported products when most of them may not be sure how to use it does not encourage customers to buy it.
In any case, as familiarity increases with time, the product may become more widely available, other international and national brands may also appear on the shelves, and segregation becomes a non-issue.
The tendency of the store’s consumer to compare and decide on the basis of price – as mentioned earlier – can also be an important factor. In some cases, the product may need to be insulated from this comparison, and placed in a defined area with other high-priced imported brands. In other cases, if the brand is strong enough to stand on its own, it could be placed in high-traffic locations with higher-volume lower-priced brands.
The overall store positioning and product mix have a very large role to play in the decision about segregation. If a supermarket has an upmarket catchment, and carries a higher proportion of premium products, intermingling may be the norm rather than an exception. The customer who is serving herself would probably find it most convenient to have the local and imported baked beans or olive oils displayed together. The price premium may even play to the imported brand’s advantage in such upmarket environments and catchments, conveying some form of qualitative superiority.
If a store has a wide enough assortment of imported products which are significantly higher priced than local variants, then it may make sense to do an “international corner”. But for this to work, the customer base must already be reasonably aware of the individual products being sold. The international corner also needs to be kept fresh, with new brands and new varieties of product to keep the foot traffic alive and the products moving. Even then, “packaged solutions” and demonstrations are needed to maintain visibility.
Let’s understand one fact – people adapt exotica into their consumption culture so deeply until it you can’t differentiate between the local and the international. Indian cuisine would be incomplete without potatoes, chillies and mangoes. However, the varieties of all three crops available in India today are reported to have been brought from the Americas and west Asia a few hundred years ago. Among companies, Colgate, Vicks, Horlicks and Bata are all international brands that Indian consumers commonly accept as their own.
Most international companies want to target the millions of Indian middle class households, but their pricing, distribution and retail strategy is too exclusive, conservative and totally contrary to this objective.
Our suggestion would be: go out as wide as you believe is appropriate, because being invisible does no good to the brand. Put your exotica within the reach of the consumer, alongside competing local products.
As long as you’re prepared to support the brand, and sustain efforts to encourage consumers to try the product, there would be a time when your brand is no longer treated as exotic. And that would be a good thing, if you’re looking for large numbers.
admin
June 10, 2008
The Third Eyesight Knowledge Series© comprises of workshops designed and developed to help functional heads, line managers and executives refresh and upgrade functional and product expertise.
The Soft Goods Series is specially focused at the Clothing, Textile and the Fashion Industry. Within this, the Textile Facts & Fabric Sourcing module is aimed at developing a working knowledge of fabrics commonly used by the apparel industry; identifying the domestic and international source markets for these textiles; understanding the costing of textiles based on the value add and finishing processes; and familiarizing participants with the common and varied end uses of these fabrics.
Dates: 4th & 5th July 2008
Duration: 10 a.m. to 5 p.m.
Venue: PHD Chamber of Commerce
August Kranti Marg, New Delhi.
Workshop Fee: Rs. 5,500 per participant (plus service tax)
Other modules in the Series cover topics related to Product Development, Supply Chain Management, Merchandise Buying and Planning, Business Communication and Fashion Brand Management. The workshops have been designed as an integrated series. However, each module is complete and self contained and participants have the flexibility to select independent modules based on their training requirement.
Participant profile: Production Managers and Coordinators, Merchandisers, Retail buyers and Product Developers, Buying House Merchandisers.
For further information please contact us at +91 (124) 4293478, 4030162.
