It's The Big Billion Day, Today!

We woke up this morning to a plethora of ‘GOOD DEALS’ offered by online retailers in the front pages of popular newspapers in full size, pushing both Modi and Lady to oblivion. One said that it’s The Big Billion Day. The competitor said that it’s only a big day for others and for us it’s business as usual and there’s nothing different today. All days are ‘DEAL DAYS’ where you get everything at cheap prices. But the site also offers top deals opening every hour from 7am to 10am. My daughter picked up the pages and being oblivious of her coffee fast losing its steam she began to boisterously call out the deals that attracted her most. She quickly got hooked on to her tablet like how a hungry suckling would hurriedly mouth its feed. I am sure she punched in late at office today. The day did make a big difference to all of us.

Those in the lifestyle retailing business would know that the four months - beginning from October till January - would clinch almost 70% of the year’s sales. The Big Billion Day Sales may even surpass the ‘Sabse Sastha 4 Din Sales’ put together! The onliners have just begun their business. They have tolled the knell today ushering in the festive season; my prayer is that it should not be the death knell for their offline counterparts! In some CDIT stores the mobile phone category contribution goes up even to the extent of 15% of the total sales! They’ll face a tough time. The fabulous discount of over 50% on ‘atheleisure’ and sporty footwear offered online might send shivers down the spines of footwear retailers.

In an interim conversation that punctuated our surprises of prices, we wondered how these huge discounts are offered! And how such huge advertisement costs running to crores are afforded! My subconscious thoughts bordered on how the marketing intelligence system worked. Two large online retailers hit their full pages the same day and the smarter one has known about The Big Billion Day advertisement ahead and countered its move by taking it as an advantage to position itself as a guaranteed provider of best savings everyday- on the very first page of the same newspaper! After all they all have a good pricing intelligence system and this is no big deal for them!

I remember, a friend of mine who is a supplier to a few key online retailers in Mumbai told me last week that they offer good discounts on his products and sales are soaring. To my surprise he added that he never contributed anything big to the deep discounts they offered. If he gave 5%, they would give an extra 25% more contributing to the discounts on their own! It’s perhaps a game of attaining fast valuations and augmenting them to scale, again, so that the next round of funding would even out the odds!

And in today’s newspaper we also read that there is a savior coming in to help offline retailers to find a solution to turf wars – Shastri the Saviour representing the Aam Aadmi! Divinity, help him!

- Dr. Gibson G. Vedamani

Who Tolls The Death Knell For Food & Grocery Retailers in India?

The food and grocery retailers of India are not performing well. There is a big struggle for survival every year. Casualties have been on the rise. The Subhiksha chain of supermarkets gave up the ghost when it was on its expansion spree. Rating agency Crisil recently reported that the top ten food retailers of India, viz. Reliance Fresh, Aditya Birla Retail, Bharti Retail, Walmart, Max Hypermarket, Hypercity Retail, Metro Cash & Carry India, Trent Hypermarket, Heritage Fresh and Spencer's Retail have registered accumulated losses of over Rs 13,000 crore in the last fiscal.

Who kills these retailers even when there is an increase in consumption in India? There is no dearth of footfalls and buying conversion. Analysis rightly revealed that the food and grocery retail business has the lowest gross margins. The categories that these retailers sell constitute more of Fast Moving Consumer Goods sold by national and international brands. These brands offer retailers a meager margin of 8% to 10%. That means the difference between MRP and the Cost price for the retailer is in the range of just 8% to 10%.  The operating expenses for retail stores sum up to just 14% to 15% to Sales, throwing profitability clearly out of gear. In a scenario like this, as there is a clear deficit of 7% to 8%, how could one expect retailers to make both ends meet? One may argue that gross margin returns could be more and it would yield better margin returns if stock turns were done in aggressive measures. Yes, but more often than not, suppliers in India pump up the stock levels of retailers by offering Quantity Purchase Schemes that usually amount to an offer of an additional meager 2%. The Gross Margin Return on Inventory in branded grocery and FMCG products always remain at low ebb. To increase sales and to satisfy customers, food and grocery retailers always sell at prices less than MRP.

Large retailers try to get income from visibility fee charged to suppliers by offering them the retailer’s vantage points, hot spots and end-caps, but that is not enough to make both ends meet. The merchandise mix is tweaked to the extent that an attempt is made to increase the contribution of in-store labels and private brands. But there is no bold step taken by retailers to bargain with FMCG brands to obtain gross margins equivalent to the percentage of operating expenses to Sales. National brands and FMCG suppliers can easily give better margins to retailers. If only they plan their expenses well, these brands could easily afford to help retailers not only survive, but grow as well.

There is fear that the foreign retailers might invade the country and spread their wings in a manner that it might kill domestic retailers. But it is the FMCG organizations that kill retailers in India. We are in an MRP regime. Manufacturers have to declare MRP (Maximum Retail Price) on every product, which includes all taxes. On the one hand it is beneficial for customers to know what they should pay at the most for any product and on the other it is detrimental for retailers as it squeezes gross margins a great deal. In earlier days products used to be marked with basic prices with a mention that taxes could be collected extra. For every product it was difficult to understand the percentage of taxes to collect and many retailers were profiteering out of taxes often willfully collected more.  The Weights and Measures Act and Commodities Rules were amended appropriately by the Government of India to specify MRP on products. This on the flip side gave an edge to manufacturers to dictate gross margins to retailers.

The plight of small retailers in India is worse. Small retailers are soon becoming victims of poor performance. Respite for small retailers comes from regional and local brands that usually offer more than 20% of Sales. These products contribute a great deal to the gross margins of small stores. Many small retailers survive because of the considerable sales of local brands that offer good gross margins.

The death knell for food and grocery retailers is tolled by national brands and FMCG suppliers who advertise their products heavily to create consumer pull. These products prove to be a necessary evil to retailers, without which they cannot satisfy customers. National and International brands and FMCG suppliers are reluctant to increase the percentage of gross margins to retailers. Retailers’ expenses are huge in India. Occupancy and employment costs constitute a major portion of operating expenses of any retail store in India and they are often in the region of 10% to 12% put together. Though a few large stores are commissioned as anchors in malls at low occupancy costs initially, the tables are turned when its time for revision of rent post the expiry of lease agreements. Stores may cease to exist in these locations as new rentals may become unaffordable!

Marginalized gross margins in food and grocery retailing in India need to be relooked at with an objective to revitalize store performance in the long run and make retailers profitable! Should retailers take a hard negotiating call on gross margins with suppliers so that they may survive and grow?

                                                                                             - Dr. Gibson G. Vedamani

Moving from shelf-space to string-space in Retail

True fortune lies at the bottom of the pyramid in India.  While modern retail formats are meant for the middle, upper middle and the affluent class to visit, there are those indomitable small retailers who are always a force to recon with, given the sheer enormity of the quantum of consumers lying at the bottom of the pyramid in the country.  And small retailers cater to the needs of these consumers across India. They are widely spread with an estimated whopping number of around 15 million.  Then there are those hawkers in India who are mobile and they are innumerable.

FMCG companies operating in India struck upon the strategy of supplying their products to these retailers through a network of distributors. who would distribute merchandise to fairly big stores alone (often concentrating on those who are credit-worthy), while dumping stocks with wholesale shops in feeder-markets heavily. When I say wholesale shops, I mean small stores who buy products in bulk and resell to still smaller retailers who come to their doorstep on a regular basis, like every week, to buy. These small ‘cash and carry’ stores are estimated to be around half a million, spread across the country. These FMCG companies’ distributors often do not take pains to visit small retailers. They may not have the time and perhaps the manpower for ensuring a thorough coverage of the markets. They focus on acquiring shelf-space in these ‘fairly big’ shops. They also take space-on-hire for displaying their products prominently in an aggressive, below-the-line marketing effort. Every FMCG company has a strategy to continuously keep the distribution pipe-line full without leaving any gap. Any recess in the pipeline may prove fatal as it may open up an opportunity for a competitor to enter. Brand loyalty is definitely at low ebb and price always has the winning edge as far as mass customers in India are concerned.  And the retailer often has the last word. Customers rely more on the retailer’s recommendation, especially in towns and smaller markets. More than 70% of India’s customers live in small towns and villages and they visit small retailers who are spread widely in every neighborhood!

It’s the price-point selling that has made its mark in the Indian markets for a long time now. Many FMCG products are now sold in sachets in price-points of Re.1, Rs.2, Rs.5, etc. The game began when a small company based in Cuddalore, Tamil Nadu, launched its product - Velvette Shampoo - in sachets for Re.1 in the early eighties. The product hit the market so well that it gave HUL (then known as HLL), a big run for its money. Soon many products were sold in small quantities in single digit price points. That shows clearly that the majority of customers in India buys needs on a daily basis and does not do a monthly or even a weekly stock-up. Realization dawned upon the companies operating in India in the FMCG segment and many towed the line of the mini pack strategy leader!

And today, be it personal care products, condiments, OTC products or snacks, they are all sold in sachets that come in strings of tens and dozens. They are hung in shops and sold. For many companies, now it’s an 80:20 ratio – with 80% of the products being packed and sold in small sizes and 20% in bigger ones. The bigger ones are sold more in modern retail. Many regional FMCG companies have separate packs for modern retail and large retailers but those are small in quantity. But yet, FMCG companies focus on shelf space and those who are intelligent marketers look for acquiring maximum string space. Every small retailer has string lines in the shop at different levels. Different product strips and streamers vie with each other calling for customer attention in the stores stridently! The small retailers are innocent unlike the larger ones; strings are offered free of charge.

A time may come when FMCG companies may take to the concept of obtaining strings-on-hire! The larger retailers may offer strings on rental soon alongside their end-caps.

Who knows, they too may ‘tow the line’!

                                                                                            - Dr. Gibson G. Vedamani

Kishore Biyani: A spent force in Modern Retailing?

The erstwhile Pantaloons has a great story to tell. Originating from a meager effort to sell trouser lengths to people working in the Mumbai offices in easy installments to becoming a big corporate conglomerate is not just an easy task. Retailing was second skin to Kishore Biyani (KB) as he took to meeting customers strategically in a Direct—to-Home effort. He opened his store near the Andheri railway station, a small one in a two-tiered floor format that I have visited as a customer. It had the brand name Pantaloons, written as a brand logo in its own unique style. The story goes that Shoppers’ Stop refused to keep KB’s brands as shop-in-shops in their outlets. Outraged by the refusal, KB focused on his retailing efforts and opened his first large department store in Kolkata in 1997. The only competition coming up that time was Shoppers Stop in the department store category. Cautious expansion was the growth mantra of Shoppers Stop. Crossroads supported KB as did the Phoenix Mills by giving space on lease at Haji Ali and Lower Parel respectively in 1999 and since then Pantaloons rolled out their department stores with their own private labels in a big way in India. The expansion spree was hit upon in 1999 with the success of the establishment of Big Bazaar as a mini hypermarket with grocery and staples as core categories of merchandise. The merchandise mix was a fusion of grocery and apparel and the first store in Bangalore was promoted as a common man’s store with down-to-earth pricing. The business strategy was such that one could bring anything for exchange and a certain value per kilogram was given for redemption on the next purchase. Many Big Bazaars opened and the company Pantaloon Retail India Limited (PRIL)  was a big success. As it was already a listed company, many eyes were on PRIL and its performance. KB did a good job and expanded the Big Bazaar stores to number more than 100 soon. He was involved in the business first hand.

Strategic sales promotions were key to the success of the business at Big Bazaar. The National Holiday Sales strategies saw near-stampede in stores and it is no exaggeration if we said that these promotions were a big runway success. The January 26 sales or the August 15 sales did go down well with bargain seeking customers and they thronged the store. As the available space in the stores could not often contain the humongous footfalls store vigilance became a great concern.

KB began investing in many brands as a strategy to make money and it paid as an investment strategy. He has been only too good to create wealth for himself. As he was busy doing this, the management of PRIL went to the professionals he had hired. Managers of PRIL perhaps did not bother to work on margins that would ultimately yield gross profits to the company. And stores did not mind to focus on a regional or local merchandise mix. He is the architect of many innovations in retailing and one among them is the the seamless mall that he discovered known as Central. He spotted opportunities to co-invest with brands as  a strategy for the group as policies of FDI in single brand retailing changed in the country to favour investments in India. KB was the one who took maximum advantage of brands that took the initiative to grow. As KB distanced himself from active retail operations in the group, it showed in the resulting downtrend of same store sales and the company was forced to sell the Pantaloons department store to Aditya Birla to wriggle itself out of the mounting debts. KB still manages to run his Big Bazaar stores with his managers. For the first time, the sales figures of Reliance Retail pipped Future Group (as it is now known) at the post to emerge a big winner pushing KB’s retail business to the No.2 slot in India. And if any research report shows that modern food retailing has shown a single digit growth for the first time last year, it is consequent on the poor show by modern food retailers like Big Bazaar. I know that medium sized and small retailers in the food category showed a growth of more than 22% like to like growth in the last year – stores like Santhosh in Chennai, Kannan Departmental Stores in Coimbatore, AP Mani in Mumbai, Heritage in Hyderabad, D-Mart in Mumbai, etc…

Have some of the key modern retailers taken modern food retailing for granted? I do hope he does bounce back soon. I have worked closely with him when I was serving the retail community through the Retailers Association of India. Knowing him for his exemplary retailing talents, if only he would personally get involved in the business to turn his companies around, he would come out with flying colours. Wish him all the very best!

- Dr. Gibson G. Vedamani