Selling is as old as the hills. It started with Eve persuading Adam to eat the forbidden apple. This ancient art, at first so simple, has turned into something complex in a complicated country like India. In India, selling is a science – one which requires a deep understanding of trade dynamics, consumer behaviour, retailer psychology, and markets. It is a very challenging profession in the Indian market where millions of consumers enter daily.
This article elucidates how FMCG companies should go about cracking the challenge of ‘selling’ in a complex retail market like India.
Patricia and I went shopping last week. We bought some apples and cauliflower, from street shops in Colaba, Mumbai. The fruits and vegetables were laden with dust. Now, Patricia after a decade in Dubai, is habituated to shopping in air-conditioned hypermarkets, where 11 varieties of apples, 8 varieties of oranges and 7 varieties of tomatoes sell after cleaning, grading and packing. “Where is the supermarket in Colaba?” she laments. I explained to her that the high real estate prices make supermarkets not viable in South Mumbai. Patricia was confused.
A month ago, on a drive from Delhi to Muzzaffarnagar in west UP, we had stopped at Lal Kisan Hatti, in a village to buy some bottles of mineral water. The shop overflowed with consumer products viz: hair oils, shoe polish, ball-points, washing powder, razor blades, biscuits, savouries and snacks. They were piled on shelves and floors, haphazardly. But Lala Lal Krishan did not have the inclination or time to arrange all stocks systematically. “Does he not realise his sales will increase if he operates more systematically?” asked Patricia.
The sales of fast moving consumer goods like toilet and laundry soaps, dish wash liquids, detergents, shampoos, tooth powders and toothpaste, snack and packaged foods, shaving products, shoe care products household accessories and electronic goods are booming in India thanks to its vast and diverse market.
India’s complex retail market
This voluminous market is scattered across 5,000 towns, urban conglomerates and 6,38,000 villages. Therefore, to reach the 1.2 billion Indian consumers, through approximately 10-12 million grocers, is a daunting challenge. No other country in the world offers such boundless opportunities, accompanied by knotty complications. Every day is a challenge, despite good systems, due to poor infrastructure, logistics, untrained manpower and short-term gain mind-sets of traders.
Selling to India is also complicated by the massive variances in culture, consumption habits, income differentials, etc., within the vast country. The Gujaratis flavour all their dishes with sugar, Andhraites love chillies, Punjabis love all things made of paneer or in the tandoor! Income and wealth disparities in India are mind-boggling. About 25 per cent of Indians subsist on 1-2 US$ per day, but the rich Indians in cities have life-styles, which cost US$ 20,000 and above per month.
Translating sales vision into reality
The vision of any bright company should be to render excellent customer service and ensure its products reach every customer in the shortest time and lowest cost. Sales is one of the most important activities in any organisation.
Sales management converts the finished products of the company into money. This money enables the company to buy fresh raw materials to produce more products. Sales is like the ignition key of a car. The car moves only when the key is switched on. Similarly a company runs as long as people buy its products.
Here are 11 building blocks to convert the sales vision into reality. I will discuss five of these building blocks now and the rest in my next write-up.
Build a strong distributor system
The distributors are the first customers of the company. They buy products from the company to distribute them to over 10 million grocery shops in India which sell tooth powder and salt to 1.2 billion customers in India. About 70 per cent of the country’s population, i.e. 840 million people, live in about 6,38,000 villages. Another 360 million Indians live in urban areas, scattered in about 5,000 towns and cities. Modern trade, i.e. hypermarkets and supermarkets are at a nascent stage of growth, accounting for about 4 per cent of the business.
It is impossible for any company to cover these scattered markets on its own. Consumer product companies rely on a robust distributor system to supply products to the eventual consumer. Company depots supply stocks to distributors, who in turn feed wholesalers and retailers in the urban and rural markets.
Distributors are long-term partners of the company. It is wise to choose them prudently and then keep them with you. Companies that have a track record of keeping their distributors with them, over decades, always prosper. Over the years, distributors imbibe values of the company and master the operational practices. They are thus able to operate independently, without inordinate supervision. A strong distributor network is like a strong steel framework for any company.
When I commenced my career with Hindustan Lever as a young Sales Manager for foods, in 1975, Dalda vanaspati was also in the portfolio. It was a highly sensitive product. It was frequently subject to central and State government price and supply controls. Therefore, during the festival periods like Diwali, when demand was at its peak, the product was often in short supply. I had a massive spreadsheet in front of me allocating Dalda to distributors, based on past sales patterns and demand forecasts.
A particular distributor however wanted a full truck of the product, i.e. 10 tonnes, which was unheard of. I stood by my youthful idealism and professionalism and would not dispatch more than a tonne to him. Finally, the Marketing Director JC Chopra summoned me to his room. I went with a dozen spreadsheets to explain my intransigence! He made me sit down and then counselled me very gently about how to service sensitive markets. “Our distributions are under severe pressure from local authorities, the trade, and from consumers. You should heed these concerns. You should travel to these markets, talk to the distributors, understand their problems and help them to resolve the inconveniences. Treat them like your partners, take them into confidence,” he advised me.
I took his counsel to heart. Since then I have always spent ample time in the markets with distributors and shopkeepers and learnt many valuable sales and marketing lessons from them. They have taught me more than an MBA in marketing could.
Most distributors in India are family-based firms, with medium sized turnovers, ranging between US$ 100,000 and US$ 200,000 per annum. The advantage of family distributors is that the distributorship/business passes smoothly from one generation to the other. In countries in Latin America and the Middle-East, most distributors would have a turnover of US$ 5 to US$ 50 million. The distributors in these countries run their operations like professional companies. Indian distributors are smaller than their foreign counterparts and are hence more manageable.
To gain the respect of the distribution system, it is critical to maintain high levels of professional integrity in the entire system at all levels. One of the first lessons imparted to us at Hindustan Lever was not to have any personal financial dealing with the distributors.
The then Chairman T Thomas was on a tour of the Raipur-Bhilai region in 1977. I was responsible for the arrangements for the trip. On arrival at the hotel in Bhilai, I noticed that the bathing soap offered by the hotel was unsatisfactory. I therefore replaced it with Lux in the rooms to be occupied by the Chairman and the board members. On checking into his room, the Chairman took me aside and asked me how Lux soap had made it to his room. I explained that I had it done. “Who has paid for it?” he asked me. I told him we had. The Chairman was concerned that we should have paid the distributor for the 5 tablets of Lux toilet soap that we had used. I was very impressed! Here was the Chairman of the largest soap company in India, selling some billions of tablets of soap every year, checking whether we had paid the distributor for the five tablets, we had taken from him. Such professionalism in dealing with the trade builds the long-term reputation of the company.
Later, during a rural market visit in Jalgaon, R Gopalakrishnan (the then Sales and Marketing Manager, Foods, and my boss, and later Director, Tata Sons), told me that when Lever was run by British managers they were so fastidious about integrity, that they would pay for the tea that they had at the shop of the distributor.
Comprehend the wholesaler-retailer matrix
The wholesaler is the fulcrum of the Indian distribution system, as in most developing markets. India has about 2-3 million wholesalers and semi-wholesalers scattered across the country. Wholesalers buy in bulk from the company or from the distributors and then re-sell to scores of sub-wholesalers and retailers in the urban and rural areas. They break bulk, lubricate the market by providing credit, and ensure widespread availability of products.
Wholesalers have a fiercely loyal clientele of retailers. Many retailers deal with the same wholesalers for generations. No company can distribute stocks directly to 10 million retail outlets. At best, the largest of companies can hope to service 2 to 3 million outlets at weekly, fortnightly or monthly intervals. Hence, wholesalers service the bulk of outlets in any developing economy. Smaller companies that do not have the infrastructure to service rural markets on their own, depend on wholesalers in urban markets to reach their products in the villages. No company can thus afford to ignore or annoy the wholesalers.
Wholesalers, being a powerful force, buy in bulk and can then offload stocks at inopportune times and disturb market prices. They also sell across the country. So, whilst they ensure supplies across the country in urban and rural areas, they can also destabilise market prices. Wholesalers chase rapid turnovers (rotation in local parlance), hence they sell even at low margins, if they can rotate their capital and stocks quickly. Thus, sales to wholesalers and their selling prices have to be monitored tightly by companies to ensure price stability in the markets.
Rule the rural markets
A consumer product company that does not operate in the rural markets of India is doomed. More than half the market for most consumer products now exists in the villages in India. Moreover, the share of the rural markets is growing.
However, tapping the rural markets of India or any developing country in Africa, the Middle- East or Latin America is tedious and expensive. It requires management commitment, a mind-set through the company’s management and field force and a clear budget. A foray into the rural markets also requires patience because sometimes the results are slow in coming.
Moreover rural marketing efforts have to be focused. For instance, 2,36,004 Indian villages have a population less than 500, while 3,976 villages have a population of over 10,000. The investment required to reach villages with a population of less than 500, is significantly higher than to reach villages which have more than 10,000 inhabitants. Most FMCG companies do not build systems to service villages with a population of less than 500. The cost of servicing them by vans or motor-cycle is very high and they are best serviced by wholesalers in larger villages, also known as “feeder markets”.
An entry into rural markets thus involves constructing numerous building blocks. The major building blocks are:
• Study of buying habits and usage patterns of company brands among consumers.
• Review of products and packs for market suitability.
• Appointment of rural distributors and sub stockists.
• Formation of detailed coverage plans for the village outlets to be covered on a regular basis.
• Determining the modus operandi/ vehicles for distribution and delivery of stocks to wholesalers and retailers.
• Initiating grass roots rural programme, deploying locals to publicise or sell small products.
• Initiating rural distribution, and propaganda vans.
The senior management of the company must signal the importance of rural markets by participating in review meetings, visiting the markets and providing adequate funds for rural operations.
Treat the retail shop as a temple
“Stop smoking! Never, ever smoke when you are making a sales call. If you need to smoke, take a short break and then resume your sales call,” counselled my boss, DB Patel, the General Sales Manager of Foods. I had been recruited as a management trainee by Hindustan Lever in 1973 and then put through six months of rigorous training in the field. At the end of this period, my boss had flown down from Bombay to work with me in the market for two days in Indore and Bhopal, and then decide whether I was to be retained or jettisoned. And, I was callously puffing away at a cigarette, as I sweated to sell 2 tins of 4 kg Dalda to a tough retailer.
I thought my goose was cooked, and I would be asked to leave the company. What ignominy, I thought, after preparing for months for this crucial contact (read: exam), I had to botch it all up by smoking during a sales call! Fortunately, DB Patel took a more generous view of my market etiquette and let me get confirmed.
The incident taught me to show complete respect to any shop I entered to sell the products of the company. The shopkeeper is the first customer of any company. Only if he buys the products, stocks them, merchandises and displays them, will the eventual consumer buy them. Therefore, we have to be extraordinarily sensitive to the feelings and needs of the simple grocer, in every village or town. He does not need the company. The company needs him. So if he offers you an over-sugared cup of tea, sip it as if it were the best cup of tea in the world.
It is a mistake to take the simple village shopkeeper for granted and try to over-sell to him or dump stocks in his shop. He knows what his consumers buy, and how much they buy. We have to listen to him and defer to his judgement. He may be illiterate or a simpleton, but he is the person who sells/delivers our products to the consumers. “It’s not the employer who pays the salaries, it’s the client,” sums up Henry Ford very eloquently.
Listen to the retailer
“If you want wisdom, visit many tents,” is ancient Arab folklore. In every tent in the deserts sit experienced men who have many lessons to impart. Thus, say the Arabs, the more tents you visit, the more will you learn. Similarly, the more shops you visit in the bazaars of India, the more will you learn.
The shopkeeper inter-faces regularly with the consumers who buy products. He is a gold mine of information about consumer preferences, buying patterns and whims. The retailer is most happy to share his fund of knowledge, wisdom and perceptions, if you are willing to listen.
“Our best ideas come from the shop-floors,” commented Sam Walton, founder of the WalMart chain of stores. Walton, as Chairman, spent a lot of his time on the shop floors talking to his sales staff that interacted firsthand with customers.
Many CEOs do not appreciate, that their primary job is to listen to their customers. They waste their time monitoring the stock markets and share prices. They should realise that if they look after their customers, the stock market and share prices will look after themselves.
Prakash Tandon, the first Indian Chairman of Hindustan Lever, regularly visited distributors and retailers, to study the health of the business. Dalda vanaspati was a focus brand of HLL in the 1950s. Now Dalda tins get dirty due to the soot from passing vehicles. Tandon would take his clean, white, neatly pressed handkerchief from his pocket and clean the Dalda tins himself in the shops, to set an example to the selling team. He also had no qualms about squatting on dusty gunny bags of sugar or wheat in the shops, despite wearing a fresh suit whilst chatting with shopkeepers.
Sometime in 1989, Susim Datta, the then Chairman of Hindustan Lever Ltd., and I were talking to a retailer in Indore on the performance of Lux toilet soap. The retailer launched into a major advocacy of why the company should introduce a white variant of Lux, on realising that he had the opportunity to make his voice heard at the highest level in the company. After 45 minutes, I was restless because the retailer had thrown our entire itinerary out of gear. However, the Chairman was very pleased. He was convinced that we needed to launch a white variant of Lux toilet soap.
Within a few weeks, the soap was launched! Susim Datta called me to his room, and asked me to visit the shopkeeper in Indore and present him with three tablets of white Lux with his compliments.
This type of sensitivity to feedback from shopkeepers and customers ensures winning brands. It also cements respect for the company. A company which listens to its shopkeepers, employees and consumers, is always successful.
It has been my practice, whenever I have managed a business, to spend every Wednesday in the market meeting customers and having face-to-face discussions with them about products, market trends, competition activity, etc. The visits kept me updated about the market, and they also kept my Sales teams sharp.
To be concluded…
(Wait for Progressive Grocer’s July issue to read why FMCG companies should root for the expansion of modern trade in India)