At the recently concluded Food Forum India 2010 in Mumbai, there were discussions held on retailer-supplier relationships based on issues such as retailer’s margin, in-store marketing, category expansion, shopper data sharing, etc. Many agreed on the need for mutual respect and trust, but are all concerned prepared to walk the talk?
Unlike last year’s (‘09) session, the panel discussion started with retailers demanding for higher margins. Supporting the fact that retailers today need more margins than what they are currently getting, Sunil Sanklecha, founder and managing partner, Nuts ‘N’ Spices, said, “When you talk about the margin part, at the cost of some industry, you cannot grow. If the retailers have to work on margins between five to nine percent in a modern retail trade, it cannot survive.” Adding further he stated, “To be successful at the end of the day, it has to be a win-win situation for both retailers and suppliers.”
Both the retailer and supplier understand that it should be a win-win situation for both to survive in the industry, but the major question remains – how often do they meet each other after such discussions? And if the two are working together, why does the question of margin still arise? Some suppliers, however, point to the need for converting word to action on the ground. Among them is Saumil Thanawala, director (marketing) of Amalgam Speciality Foods, which manufactures the Keya brand of speciality foods. “I see no significant improvement in real action; these discussions need to lead to real change.”
Category expansion and category management are some of the collaborative platforms where both retailers and suppliers need to work closely to create the consumption. Gurmeet Kaur Chadha, partner/ consultant, The Partnering Group, says, “The combination of business conditions that exist today have created a need, as well as an enormous opportunity for innovative management approaches. The adoption of new ideas and approaches are high on the agenda of many leading retailers and suppliers.”
Chadha further adds, “Any retailer and manufacturer that truly desires to achieve a leadership position needs to adopt category management as a method of a ‘go to the market’ strategy. The key trends that are driving the emergence of category management are consumer changes and competitive pressures. This approach provides the vehicle to better understand and meet the needs of consumers, for retailers and manufacturers to collaborate more intelligently, to gain more advantages from investment in information and technology, to more logically allocate resources across categories and brands; and most importantly to achieve competitive advantage from the ability to attract, motivate and retain higher quality management talent.”
There are several examples of retailer- supplier collaborations leading to create new categories and manufacturers launching products which are designated for modern retail chain. Quoting one such example, Komal Anand, vice president, modern retail, PepsiCo Group, said, “In PepsiCo, we have developed channel specific packs for modern and traditional retail trade. In the carbonated soft drinks segment, we have the 250 ml pack, which is not sold at the traditional retail, it’s available only formodern retail chain. Also we have multi-packs, which is available in cans and in PT half litre. We have also imported packaging technology for this channel, which is not (yet) available for other channels.”
Providing process innovation as the beginning of category creation, Saumil Thanawala, director, marketing and sales, Amalgam Speciality Foods, said, “We always focused on process innovation, as it is the start of bringing categories, creating categories and bringing price points and making products more affordable for the Indian consumers.
We chose to be in the space of freeze dried herbs, seasonings and spices, which we exported and we saw them coming back in foreign brands which other importers used to do, to bring in at thrice the price and we have been able to bring and create the category in between the price range of Rs 75 to Rs 85 a bottle. It is a change where modern retailers such as Spencer’s, Le Marche, More, etc. have helped us to create and place this product and thereby bring it to the customers.”
Creating new categories through collaboration of retailer and supplier is another aspect of retailer-supplier relationship. We asked Thanawala to provide his views on whether modern retailers should treat Specialty’s new product categories differently from ‘commodities’/ basic products, he replied, “Retailers need to view us as a slow burn but long-term category and must encourage us by way of offers and free space.”
Speaking about his collaborative approach with Spencer’s, he said, “With Spencer’s in June, last year (2009), we collaborated and did a pilot project to launch across five to six of their hypermarket stores to build the category of freeze dried herbs, seasonings and spices. We let that go for about six month and last month we have concluded that the category had let us to blanket 55 stores. So, month after month we have collaborated, spoken to Spencer’s team.”
“For all retailers and suppliers, I would suggest, grow the category by working through the pilot projects and then scale-up,” he added. When we asked Thanawala to further clarify his point on the risk modern retailers are assuming by providing shelf space to new products by partnering with suppliers for speciality products, he politely replied, “No, not all type of retailers are willing for this kind of collaboration.”
Today, we see most retailers venturing into private level brands in a big way, be it Reliance Fresh, Big Bazaar, Spencer’s, More, etc; everyone is betting big on their own private labels. Without any inhibition of sharing shelf space with other branded products, private labels are entering the market with a cheaper price tag to provide competition to the well known branded products in similar Categories.
For a modern trade retailer, introducing private label brands has many advantages, including low prices which in turn attracts more consumers and also as these products are available exclusively at their respective retail outlets, it helps them in grabbing more footfalls inside the store.
As we asked Thanawala whether the private label investment by modern trade retailers would affect the retail- supplier relationship, as retailers are becoming more demanding, he explained, “Private label brands by retailers are in few specific products, it will not hit all the manufacturers.”
Talking about the future of retailersupplier relations, Thomas Varghese, CEO, Aditiya Birla Retail, said, “In recent years, there has been phenomenon growth for both retailers and FMCG companies. In fact, over the next five to six years, possibly retailers will be unprepared for what happens and if FMCG companies haven’t focused enough on the modern trade they will find that they are equally unprepared for the huge onslaught of demand which is going to come due to a country whose aspiration is growing exponentially, whose younger generations needs a difference.”
From higher margins to category management, retailers in India do have a bright future ahead of them as the relationships in all sectors (supplier- retailer, retailer-customer) have built a solid foundation and only require proper maintenance and nurturing to continue growing to their maximum potential.