| A news item a few days ago reported that Gujarat Television and Appliances Traders Associates has been upset with select leading consumer durables manufacturing and marketing companies on account of such companies reportedly giving better margins to modern, large-format stores, and therefore the members have decided to boycott indenting the products of such companies for a limited period. In the recent past, there have been reports of similar skirmishes between FMCG and pharma companies and their traditional retail channel partners in other states such as Tamil Nadu and Kerala leading. |
| It is, indeed, a sign of things to come. With as much as Rs 100,000 crore slated to be invested in modern retail in the next five years, and with the likely entry and emergence of many multi-thousand crore revenue retail chains having operations all over India and covering all major consumer product categories, the stage is now set for a serious conflict between the traditional retail channels comprising the independent, so-called mom and pop stores such as grocers, chemists, general merchants, and electrical/electronics retailers versus large-scale, organised modern retail enterprises. Of course, this conflict is likely to be an urban India phenomenon for many years since serious penetration of modern retail in rural India is still many years away. |
| There are no surprises as far as this development is concerned. As anyone who has any serious understanding of distribution and retail channels would agree, India has very primitive systems in place. Tens of millions of small, independent retailers representing a single "convenience" format continue to be the primary interface with the hundreds of millions of Indian consumers carrying out their trade as they have done for generations and centuries, even as new product categories have come up and even as consumer preferences and buying behaviour have been undergoing marked changes. |
| The modern consumers' buying behaviour can be segmented today in three broad, distinct patterns. The first pattern of buying behaviour is for frequent, need-based purchases that are seen more as chores that have to be performed. Shopping for food, grocery, personal care products, and medicine comes under this genre. Formats that offer "access-based" convenience and quick response in terms of time taken for the fulfilment of the purchase need are still the most preferred ones. |
| The second distinct buying pattern is exhibited for products that are occasional, planned purchases such as consumer durables and electronics, furniture, furnishings and a few others. Availability of all the options, i.e. wide assortment, knowledgeable sales staff, options for credit financing, post sales service, etc. is the prime need of the consumer and this is where the traditional mom and pop stores fail to meet consumer expectations. |
| The third buying pattern is exhibited for indulgence-led purchases, e.g. clothing, jewellery and adornment, books and music. Here the consumer is looking for an overall experience, including some seduction, that can lead to impulse purchases and thereby offer the gratification of "shopping". |
| Entrepreneurial organisations and individuals have now become sensitised to these changes and thereby investing in creating an unprecedented array of shopping options for different genres of buying behaviours. New "markets", e.g. shopping malls, are being created and they offer indulgence but rarely convenience. New formats are being created such as hypermarkets and large footprint specialty stores that offer "widest assortment and value", though not always convenience in the sense of proximity. |
| Under this situation, I believe that the most vulnerable retailers are those dealing in consumer electronics and durables, furniture, and books and music. Partially vulnerable (traditional) retailers are those who are dealing in clothing and footwear, and home decor and furnishings. Least vulnerable retailers are the neighbourhood kirana stores, chemists, general merchants, and sellers of fresh vegetables, fruits, meat, and dairy. |
| Hence, both manufacturers and retailers have to carefully reflect on the changes in the future with a sense of inevitability. Those retailers that are in the most vulnerable channels will have to either morph into an appropriate modern format (e.g. in the case of consumer durables""all under a one-roof format carrying durables, electronics, entertainment, communication, and IT products and accessories or furniture to morph into large format furniture and furnishings stores) or else be prepared for an exit. Retailers that are least vulnerable on account of their proximity/convenience should stay confident""they of course have to modernise and improve the layout, general appearance and service offered from their stores. They need not be unduly perturbed even if their large competitors (hypermarkets) offer value pricing""there are enough consumers who would prefer convenience over just pricing. The game, of course, could change if some of the large players enter the convenience format as well and offer value pricing across the formats""in which case, many of the current small, independent retailers could consider a franchise option. In all circumstances, based on the relative importance of different channels for different product categories, manufacturers will inevitably have different trade terms for different types of partners and hence the earlier this is understood by the parties concerned and adapted to, the better it would be for them. |
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
