FMCGs sell more via large stores

The rapid growth of organised retail means higher sales for the firms through these outlets

With the organised retail sector growing at 30 per cent, the contribution of large-format retail stores to the turnover of fast moving consumer goods (FMCG) firms is set to more than double in 2008. The FMCG sector has taken some steps to match the pace of growth in the organised retail sector. Companies have launched dedicated sales personnel for modern trade channels and taken initiatives to boost point of purchase (POP) management at the large stores. Modern trade refers to retailing through large-format stores whereas general trade refers to retailing through kirana stores.

V S Sitaram, executive director, marketing (consumer care division) Dabur India said, "The servicing needs of modern trade are vastly different from the traditional stores and it requires a 'sell through' approach. The exciting new formats also open up immense opportunities for "brand activation" at the point of purchase. The selling skills are vastly different and are of a higher order. A team with appropriate skill sets has been put in place within Dabur India to respond to the requirements in modern trade and the results are most encouraging. It has initiated a programme titled "DARE "� Driving Achievement of Retail Excellence" aimed at improving Dabur's distribution effectiveness in organised retail sector.

Industry experts say that while the emergence of modern trade has surely altered the retail landscape in India, the fact remains that a bulk of FMCG sales still comes from traditional trade. On an average 95 per cent of the sales come from kirana stores with a meagre 5 per cent coming from large format retail stores. For Dabur, about 3 per cent of sales come from modern trade and it expects it to grow up to 7.5 per cent in the near future. For some categories of products like premium skin and hair care, organised retail contributes a higher percentage of up to 50 per cent. Secondly, the main fear of FMCG companies that modern retailers will squeeze their margins was dispelled by the head of a leading retail chain who said in a seminar on retail that "Unlike developed countries where FMCG companies are pressed on margins by retailers, in India since the retail sector is just picking up, retailers tend to not pressurise companies for margins."

This year, FMCG major Hindustan Unilever (HUL) also announced a joint venture with South-Africa based Smollan Holdings to provide "in-store" services to its customers and point-of-purchase management at large format retail stores. Sanjiv Kakkar, executive director, sales and customer development, HUL, said , "Modern trade in India is growing and evolving rapidly and our strategy for winning in this growing retail market is to win at point-of-purchase with our shoppers and by delivering best-in-class service to our modern trade customers.

This JV will bring in world class execution excellence in the market and build the right capabilities to deliver the company's marketing strategy in modern trade". Market research reports say 25-40 per cent of consumers switch brands at the point of sale driven by display or promotion.

Other companies that have a dedicated team for modern trade include Colgate-Palmolive, Procter & Gamble India and Marico. However, the companies cannot afford to neglect kirana stores as they still remain the biggest source of revenue. Along with forming the JV with Smollan, HUL also went fast-forward this year with its Super Value Store (SVS) programme which is aimed at enhancing the customer experience at select kirana stores in urban areas.

Similarly, Marico and Dabur launched Mera and Parivaar programme were aimed at activating the general trade channel by giving consultancy to mom-and-pop shop owners. In retail, consumers need convenience. The neighbourhood kirana store, by virtue of being the nearest store to the consumers, will always occupy that position of convenience. Unlike a developed market where consumers need to travel some distance for shopping, Indian consumers in most parts of the country have the kirana stores to service them on all days, all through the year.

The companies hence are expected to follow a twin-focus in 2008 to get the most out of retailers. Organised retail will give the companies access to high-income consumers and kirana stores will give much greater volume, say analysts.