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The opportunity in digitalization for India’s food retail sector

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The opportunity in the digitalization drive on hospitality and retail trade” was an apt session at the India Food Forum 2017 to discuss the effects of demonetization on different segments of India’s food retail sector over the short, medium and long term and the potential of this unprecedented move to benefit many sections of the industry.

The opportunity in digitalization for India's food retail sector
The panel discussed the effects of demonetization on different segments of India’s food retail sector over the short, medium and long term and the potential of this unprecedented move to benefit many sections of the industry

Panelists at the session were: , Category Head, Godrej Nature’s Basket; , Director Procurements, ; , Mumbai; , ; , Founder & Gen Secretary, Hospitality Purchasing Managers Forum (HPMF) and Vice President – Materials Management, . The session was moderated by , MD, Max Foods and Convener, Forum of Indian Food Importers (FIFI).

Kicking off the session, Amit Lohani said: “Demonetization disrupted our buying pattern in a big way. We have a panel here that comprises representatives from diff erent strata of the food sector and who will tell us how they were impacted.”

Category Head, Godrej Nature’s Basket, Avinash Tripathi, was of the view that digitalization has helped modern grocery chains in terms of providing an overall retail perspective for a bigger business opportunity. “So if you look at our store, we have seen 20% same stock growth during the initial stages of demonetization and sales are now stable. We are at 13 to 14 per cent of same stock growth, which is much higher than what we had before demonetization. Thus demonetization and the consequent push toward digitalization have impacted us big time and on the positive side. The categories that have done really well are those in the fresh segment like fresh vegetable and delicatessen. The only area where we have seen a slowdown in our business is the cash and carry sector where most retails are dependent on small traders. That is the only area in the organized sector that has been impacted.”

“We have seen some slowdown in the impulse categories like biscuits, confectioneries, and snacking. Gifting is also one of the areas that were impacted in the month of December, which is normally our best month for this category. We have seen a reduction of around 50% in gifting during that phase. But now things are getting stable and we have seen a positive and stable trend in the month of January,” he added.

He was also of the view that digitalization will bring a lot of transparency in the system and help to stabilize the prices of lot of imported products across all retail channels. “Price stability will help in the overall sales growth. Another important point is the cash-to-card ratio impact. Before demonetization, 60% of our sales was by cash transactions and 40% was by card. But during the initial phases of the demonetization, we saw a shift to the tune of 20:80 in the cash-to-card ratio with only 20% as cash transaction. Now, since the last one and a half month, we have seen a trend of 45% is to 55%. We have seen a stronger growth in the online sales as well. We have seen a lot of new customers come to us during this time and who continue to come even now and have become our regular customers. Even though there was an initial drop in the gourmet food section, people are now coming back and gourmet food sales have stabilized with time.”

Director, Dabon International, Sanjay Tandon, noted, “When demonetization happened, the first thing we did was to make sure that all our employees had bank accounts. I am a firm believer that digitalization is the way forward and that organized trade stands to gain a lot from this in the times to come. We took a temporary hit with demonetization because it was our peak season and the impact for us was quite drastic in terms of our sales for the last quarter of the past year. We had a -10% sales impact, which was quite significant for us.”

Striking a positive note Tandon said that sales are now recovering and start of the year has been very decent. “So, in my view, demonetization will help us to gain in the long run. It has created a level playing field for all the right people, and we are pretty hopeful that it will clean up our system and bring better transparency towards work for all of us. Sales did have an impact, but I think the major impact was on mom and pop stores, especially in north India rather than in the west and south where there is a reasonable presence of modern trade.”

Lohani added that the demonetization move came in the thick of the peak tourist season in India. “This was a tourism season and also the marriage season and many people had to abandon their travel plans and cut down on the wedding expenses.”

Lohani then asked Director Procurement Marriott Hotels, India, Bharandharan Ramaswami what the impact of demonetization on the hotel business – that gets a big chunk of its revenue during the season from holidaying tourists and bookings for weddings – had been.

Ramaswami responded saying: “What I would like to say is that I only represent one part of the hotel sector. But when I look at the overall scenario of the hotel industry, I don’t see any difference because there are hardly any cash transactions in hotels. There are certain parts where cash transactions happen and those areas saw an impact, which was temporary for a period of 50 or 90 days. Some hotels did not fit the budget of tourists during that period because of the money constraint, and some bookings had to be cancelled or rescheduled. Our hotel did not feel any impact however because most of our transactions are electronic as they come in form of paychecks, credit cards or debit cards.”

Talking about the impact on the hotel’s procurement section, Ramaswami said that as most of the hotel’s payments are in the form of cheque or fund transfers, the heat of demonetization was not majorly felt. “But I think our suppliers had to go through a lot of challenges and struggles, which we heard of. We had to step in and support them in certain particular areas where they wanted early payments or flexible credit period to meet the demands of the situation. It was also an opportunity for us to educate our suppliers on turning digital. May be in the bigger perspective of Marriott as a whole, there might have been a shortfall in the revenue but it was not some major problem,” observed Ramaswamy.

To Lohani’s query as to whether the hotel industry is planning to introduce new methods of payment like e-wallets that are now much in vogue, Ramaswamy replied: “Yes, some of the restaurants are going for it but if we look at the issue, most people who come to the branded restaurants, they are carrying debit or credit cards with them. But if wallets become the current need and needs to be introduced, I am sure hotels will take the proper steps to meet the demand.”

Taking the discussion further, Chef, Palette Culinary Studio, Mumbai, Rakhee Vasvani, said: “Recently I have launched my Institute, which is the first centre of CTH, and it’s a UK affiliation in India. I think when we introduced this new system, the only effect that demonetization had on us was for a limited period. Yes, some of the students did face a problem, but you’d be amazed to know that in India – in Mumbai and in Delhi – even a small store, like that of a sandwich-wala, has a cash wallet. I think India is too fast and we adapt really fast, in any crisis. We were already abreast with CC avenues system and people were already paying online. Yes, the fact that we were not used to paying too many commitments by card and we were still used to carrying cash led to some hiccups initially. We did face a little setback in the early days, but I don’t think that it was much of a problem.”

General Secretary and Founder of HPMF, and Vice President, Materials Management, Foodlink Restaurants, Nitin Shankar Nagrale, observed that people were very happy about the change taking place. Instead of complaining about the problems, people happily embraced the change. “In fact, some of them were happy that the rich people were getting punished for what they have been doing for years.”

Responding to a query about the level of digital security in India, Nagrale said: “Most of the people who earlier used only cash are now learning to use card or other methods for payment. So if you talk about the security aspect of digitalization, I don’t have an answer yet. If we talk about trade, it did affect but people are coming back. The buying power has become normal, but I am not too sure about the spending power. I have myself stopped going to restaurants in recent months. Basically, that is to save money for more immediate priorities so that inconveniences can be avoided.”

C-founder, Farmland Foods, Rakesh Banga, recounted his company’s experience in the light of demonetization and its impact on certain government initiative like ‘Make in India’. “The Make in India story came at a very opportune time for us. We were then struggling with the import of meat with respect to the non tariff barriers and food security issues. When the Make in India initiative came, we leapt at it. We started importing premium raw materials from different parts of the world and started converting them into value added products like ham, salami, sausages, which were very premium in the market. It was our first year in the market where demand is very very seasonal. October to February is the time when these premium products see their prime sales period, most of which is to the restaurant and retail industry. When demonetization was introduced in November, we saw a big hit in sales.”

Giving further details of the impact of demonetization on sales of premium meat products, Banga added: “But the impact on sales was temporary and it was felt in certain regions more than in the others. We saw that our customers in Bangalore and Hyderabad buying regularly, mostly in retail. There, sales did not dip relative to the western or northern part of the country. Th is might be because digitalization was already there in these places as they are IT hubs. But the rest of the country needs to catch up. From us, now it is more of retail which is opening up though it contributed a small part in our initial stage. But now, the retail market is looking more positive to us. It is one sector that has given us hope that digitalization will bring more market for me.”

Talking about the challenges of digitalization, he said that state of the infrastructure raises valid concerns. “When we talk about manufacturers, vendors, suppliers, we need to look at the whole supply chain system, management, production and sourcing, all of which need to be also digitalized. Th e more we digitalize those systems, the more efficient they will become. I expect people from the other side of the trade like hotels and retails to drive more connectivity from vendors to their systems through digitalization. For instance, Marriott has digitalized its purchase and ordering systems. But now with more and more services coming up, our systems needs to be augmented and digitalized. And as far as digital security is concerned, we need to be smarter, and learn things from elsewhere. There is no other option. When we have to go digital, we better learn how to secure our wallets and credit cards. I think, that is the way forward.”

The panel discussion was followed by a Q&A session where the audience received answers to their questions from the panelists. Some of these pertained to how digital marketing and the online market is growing every day. People are choosing the convenience of ordering from home over their earlier marked preference for touch and feel. They are also choosing to pay online and go cashless in increasing numbers.