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

How safe are our Malls?

The recent dastardly attacks in the Westgate shopping mall in Nairobi have sent shivers down our spines. Moreover, they have shaken up the entire shopping centre management community across the world. They have sent a warning signal to every mall management to keep tighter controls to ensure safety.  No sooner did the attacks happen in the Eastern African region, than immediate steps have been taken to beef up security in malls and public places on a war footing in many parts of the world. The US Federal government according to NBC reports was to hold discussions with security agencies to beef up security in the US malls. Notwithstanding events of this kind, India has always been a target of terror. But yet the steps that are taken to safeguard and insulate our malls from such attacks are clearly inadequate by any standards of safety.

In the last few years, after the 26/11 attacks in 2008, our malls are guarded and for the first time a few steps towards ensuring security were taken by all organizations that manage malls.  We see the electronic security gates in every mall. The security staff screen and search every visitor in the mall. Some basic measures are put in place to safeguard our malls. But the entire security system is quite weak in many a mall in India. It’s not enough if electronic screening of visitors is done but it needs to be done with all proper security measures in place.

Though in many malls a security team may be pressed into operation, there is yet no measure followed on how many should be the minimum number of security staff employed either in relation to the space of the shopping mall or in relation to the number of customers who visit the mall. A minimum number of adequately trained security staff in malls is essential to carry out the implementation of personal safety measures in malls. The Central Industrial Security Force (CISF) does a very good job of ensuring security at our airports. They are trained well to have a hawk’s eye on the entire environment and carry out all the specified safety processes properly. The quality of the team and their training levels with certification to every member from the various relevant departments like fire department and police (not just to the mall management) should be specified and made mandatory.  Daily security walks and mandatory parades for every security team ensured by the mall management could address safety issues if any, on a daily basis. Security training must be taken up seriously by security agencies. Each security staff employed as guards in establishments should have undergone qualifying training requirements (on the lines of The Indian Home Guards) under certification by the state police department or by the Central Civil Defense Training Centres in each State.

Whenever special security beef up is required, say consequent on VIP visits, we see the mall security team engaging security dogs. The security screening of vehicles and parking areas may need the service of sniffers all the time. There are special breeds of dogs and there are special training needs for them to be efficient. All these have to be specified and made compulsory for every mall management to follow in India. Further the bag screening is also done only in a very few malls sincerely. Efforts have to be taken to ensure that every bag and every item shoppers might bring into the mall is screened for safety.  Every mall must follow a common policy on what items could be carried into the mall for reasons of safety.  The whole list of safety equipment to be carried in a mall should be made mandatory and certified for the trained and demonstrated operating capabilities of the security team in charge of the mall in a single security window by an authority like the state police force.

It is suggested that the security team of the mall works in tandem with the local police. The local police also needs to be in touch with the security agencies and the chiefs of every security team in order to ensure that the safety measures are in place. Local police, security agencies that malls work with and the mall security personnel have to work together to take a security audit of every mall and come up with the implementation of stringent measures to ensure safety.

The safety of visitors to a mall is directly proportional to the degree of seriousness the mall management may evince to ensure safety to all. Currently specified mandatory compliances are only routine safety certifications from a few departments to ensure basic safety. These are squarely inadequate in terms of the safety standards to follow in order to guarantee total security. One can ensure the serious guarding of our malls only when the safety responsibilities are co-owned by the mall management and the state police authority, who should not hesitate to deploy police presence in malls, whenever needed.

After all, safety is a matter of life and death, not to be taken for granted, any way!

- Dr. Gibson G. Vedamani

FDI in Retailing in India: Possible Effects of Cabinet Decisions taken on 1st August 2013

 The further easing of FDI conditions by the Government of India in multi-brand retailing, especially the most significant one of relaxation of 30% sourcing from micro, small and medium enterprise sector is a welcome move. This will give the required impetus for foreign retailers to revise their strategy to think of the Indian retail market as an immediate opportunity to invest in. It was this sourcing condition that was so far perceived by foreign multi-brand retailers as stringent and difficult to comply with. The liberalization proposals have come in at the right time. UK based retail consultant, Joseph Leftwich puts it this way, “Many foreign retailers had nearly relegated India to a mid-to-long-term ambition and mid-to-long-term means entry into India was completely off the radar.”

The cabinet also has made it clear that it's enough if the first tranche of 50% of investment is made in back-end infrastructure out of the 100 mn US dollars investment required mandatorily on the part of multi-brand foreign retailers to invest in India when they set up shop.  This clears the investment condition absolutely off any ambiguity, for enabling them to plan their investments in India.

As only 12 states are currently embracing the new FDI policy in multi-brand retailing, a decision was made by the cabinet to allow states to let foreign retailers to set up shop even in cities with less than 1 million population, which was not allowed earlier. This is considered to help foreign multi-brand retailers to spread wider into various potential smaller towns. But, it may take time for them to spread wider as we find even domestic retailers not being able to scale up their expansion into smaller towns.

The clarity of definition made by the Government in the context of control and ownership norms of governance of foreign organizations today, will also help foreign retailers to allay any fear relating to ownership, directorship and control issues.

FDI through the automatic route approved by DIPP for foreign direct investment in single brand retailing up to 49% will undoubtedly help many more foreign brands who are keen to set up joint ventures with partners in India.

Though it has been perceived to have come quite late in the day, the cabinet decisions made relating to FDI in multi-brand and single brand retailing will make a positive impact on intending foreign retailers to hasten their plans to invest in India soon. It is estimated that an investment of about 2.5 billion to 3 billion USD will be made in India by multi-brand foreign retailers over a 4-year horizon. It may take such a long time for investments to come into the country as foreign retailers may take considerable time to understand the Indian market and its unique and diverse consumer tastes and preferences before they expand with full throttled ease.

- Dr. Gibson G. Vedamani

Walmart's Waterloo!

Walmart hit the headlines in Chennai, Tamil Nadu last week when the site under construction for its wholesale business 'Best Price Modern Wholesale' by an independent developer was sealed by the Chennai Metropolitan Development Authority (CMDA). The action was taken by CMDA following agitations by those who oppose FDI in retail - a section of traders and others belonging to some political parties. The reason cited for such a drastic step taken by CMDA was lack of permission for carrying out construction activities in the premises.

One wonders why Chennai's political parties have this 'kolaveri' - murderous rage - against any of Walmart's activities in the state, even though the proposed wholesale format is allowed by the Foreign Investment Promotion Board through the automatic route! The seal on the premises is said to be for want of permissions though, everyone knows that the rage is against Walmart! Metro Cash & Carry of Germany, the pioneering foreign wholesale format to enter India is present in more than 15 locations in India. It is worthy to note that Metro Cash & Carry is present with multiple number of stores in the states of Karnataka, Andhra Pradesh, Maharashtra among other Northern and Eastern states. However the company has carefully stayed away from Tamil Nadu till now, even after almost 10 years of the company's operations in India (the first store opened in Bangalore in 2003).

Rumor mills work overtime in Chennai with the news that the opposing parties are planning to engage a whole train exclusively to travel from Chennai to Delhi and back soon to voice their opposition to the Union Government  further vociferously. The issue has been politicized to assume alarming proportions now! One is urged to ask oneself the question of how these traders - if they are the real ones who agitate at all - have the time or the capability to sustain consequent business losses as they spare all their energies and time to participate in such activities tirelessly!

A wholesale format of Bharti Walmart means that the Best Price Modern Wholesale offers products and services to its member retailers at wholesale prices which render clear retail margins that are said to be more than what the wholesale markets and distributors offer. This benefits those small retailers who currently buy from unorganized and semi-organized wholesale markets and distributors of Fast Moving Consumer Goods (FMCG). These wholesale markets and distributors operate with a differential pricing strategy, charging more  for those who avail unsecured credit and charging less for those who pay cash for their purchases. Often credit customers may not be able to avail of FMCG company initiated quantity purchase schemes and they are usually offset by the wholesalers for the interest costs they would incur on credit supplies/sales. The B2B model of Bharti Walmart is a distributing wholesale format that comes with a mock-store in the premises for training small retailers on stocking, shelving, planograms, etc. Walmart has also enabled credit purchases via a tie-up with a bank to offer credit and the retailer can use the authorized credit card. It has a 3PL (3rd party logistics) arrangement which helps the small retailers to avail of door deliveries at less than the standard transportation costs.

The organized B2B wholesale model may soon become commonplace across India with even domestic retailers from India, getting into it. The format is being set up by a dynamic retailer in Tamil Nadu,  Shri Kannan Departmental Stores (www.shrikannan.com) with the first large wholesale format already established in Singanallur, Coimbatore in Tamil Nadu. The extended format of Big Bazaar, the Big Bazaar Wholesale Club offers customers bulk deals at wholesale prices operating in a membership model. The bulk of the wholesalers in the Indian towns yet deal with small retail buyers in an unorganized manner that often results in higher landed costs and the resultant squeezed margins. If small and medium retailers have to grow in India, a modernized wholesale set up could support it undoubtedly.

Small retailers can focus their energies to get cost advantages through alliances, collaborations and obtain the needed scale in purchasing power by forming retailer cooperatives. The Government can support small retailers by providing exclusive infrastructure support like building strip malls and organized municipal markets in small towns. The creation of special bazaars in Hyderabad by the State's tourism department to promote arts and handicrafts through a 'night bazaar' is a typical example of what a state government can do in terms of infrastructure support for small artisans, traders and retailers. In large cities the need of the hour is exclusive parking facilities to enable customers to walk the high streets peacefully when they shop!

Each State in India can have its own say with regard to allowing foreign retailers to operate and in that scenario it should prevail on the minds of those intending companies like Walmart to focus first on the favourable ones, which is a no-brainer. Why the heck does one have to invite trouble even with a wholesale format, when one has enough ground to cover and operate peacefully?

                                                                                                   - Dr. Gibson G. Vedamani