From the pages of Images Retail (May 2009)

Retail (oring) Differentiation
By Nishi Roy

Should manufacturers roll out the red carpet for modern trade? In the recently concluded Food Forum in Mumbai, one of the aspects that were discussed was whether modern retaiIlers need to be treated differently as compared to the traditional channel by F&G/FMCG manufacturers.

Innovation was one of the aspects that was discussed by the various panellists present at the forum; and not just on product innovation by manufacturers, but innovation in terms of communication with customers and in promotions imperative for new categories to emerge and grow. As Kishore Biyani, founder and CEO of Future Group put in very succinctly, for any business to survive and grow, it has to be a win-win for both the retailer and manufacturer; business at the end of the day can only succeed if the productivity is good.

Compared to local kirana stores, there is no doubt that modern retailers play a very significant role in launching new products in the market, in making new categories grow and in up-selling.

Sharing his views of whether modern retailers need better benefits from FMCG companies in comparison to traditional retailers, Thomas Varghese, CEO, Aditya Birla Retail Limited, says, "Modern Retailers do much more for the FMCG companies than just sell their products. The benefits that accrue are: Exposure to the entire range of products, tactile interaction with the products, ability to interact with the consumer at the point of sale, ability to influence the purchase at the most important stage of the buying process. Also, from a distribution perspective, the FMCG manufacturer can supply directly to the modern retailers warehouse facility thus not incurring costs in the traditional distribution channels."

"All these come at a higher operating costs for the modern retailer and hence the higher compensation by way of higher margins. Consumer promotions lend themselves to a better execution in a modern retailing environment where the customer is able to see the competing products and make purchase decisions. And at the end of the day, an FMCG manufacturer will look at his ROI on investments in promotions,’ he adds.

Varghese points out that the modern retail trade and the FMCG companies today in India are at very nascent stages of collaborative working.

"FMCG companies spend millions of rupees on consumer research, understanding how the consumer is buying, what she is buying, when she is buying, what influences her buying behaviour and so on. The retailers, on the other hand, hold key consumer data in terms of actual buying behaviour as demonstrated in POS (point of sales) data. This collaborative working between the two to understand the consumer can go a long way. On the commercial side, the FMCG companies must understand that until the time store throughputs justify the investments in stocks by the retailer, the pressure in credit days will exist."...

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