The foods category within FMCG has been the centre of a lot of action in recent times. The kind of innovation seen in packaging (Maggi), tastes (in snacks), and even complete product categories has been mind-boggling.
What is heartening is that both the customer and the consumer have taken to most of these in the most positive ways. However, along with the opportunity comes a certain set of challenges. Let us take a look at some of them:
Diverse tastes – the existence of varied eating habits and preferences in India makes it a challenging but lucrative terrain for vendors and retailers alike. While consumption of milk and milk based products is extremely high in northern states, it is rice which takes the cake in southern parts of the country.
Such variations call for retailers to be extremely nimble-footed and alive to the local demands. At the end of the day, for a customer, a national retailer is only as good as the range and availability it offers at a daily next-door.
Preference for home-cooked food – this one can be a nightmare for “ready-to-eat” food makers!! The Indian customer, as opposed to his counterpart from more developed nations, still prefers home-cooked fresh food and avoids ready to eatand packaged offerings. Over the years, dietary patterns and poor electricity supply have resulted in thesepreferences. Further, there is also resistance to paying a monetary premium for the packaging and brand.
Low acceptance of private labels – even though private labels have been around for 4-5 years, they are still an evolving concept. While the potential for profits to retailers is huge, strong loyalties in foods category might act as a deterrent. Possible solution for retailers:
For each category, begin with a single facing in the category shelves and keep increasing the same over every three months.
b) Retain eye-level shelves for private labels
The chances of success in private labels are higher in case of non-food products where the customer might be willing to compromise the quality- angle for a better price, packaging or promotion. Retailers often back their private label offerings in foods with aggressive promotions like a 2+1 on cheese. However, here again there is limitation on how much of a food product like cornflakes, cheese, etc. can be stored in a household without compromising the freshness.
Increasing importance of product knowledge – the foods category has been at the forefront of innovation, which has led to emergence of new concepts in packaging and labelling, for instance, non-veg products carrying a red mark, sugar-free products, etc. This has further led to the need for store staff to be on top of the features of products placed under his purview. Lack of adequate knowledge can lead to dissatisfied customers – a pure vegetarian might feel offended if handed a chicken instant noodles pack (even if by mistake!).
Strong loyalties – as compared to non-foods, sub-categories within the foods category are characterised by extremely strong loyalties and hence, new entrants face trial resistance. Two classic examples are tea and baby food. Loyalties to tea are so strong that customers would not even want to go for “in-store sampling” as it might spoil their taste. Similarly, in the case of baby foods, one would stick to the tried and trusted offerings instead of experimenting with some of the new launches or the existing “also-rans” in the market.
Categories where customers are willing to experiment are more impulse- driven, like chocolates, confectionery, biscuits and chips/snacks.
The sheer variety and flavours attracts customers of all ages, especially kids. A 2+1 or a ‘Rs 10 off’ might work wonders at attracting new customers to a newly-launched toilet cleaner, but not so much in the case of butter.
Shelf life – all food products carry a “best-before” or expiry date. The time period from manufacturing date to the expiry date signifies the shelf life of each product. One of the key challenges for food retailers is to ensure freshest possible stocks on the shelves and hence, each chain has a remaining-shelf-life norm for food products, which ranges from 50 to 80 percent freshness. On the flipside, it also affects fill rates at times, as fresh stocks of some of the SKUs that are popular in modern trade may not be readily available as they are not popular in general trade. Possible solutions that can be looked at include:
a) Retailers accepting direct store deliveries (especially for hyper/super formats)
b) Vendors keeping separate stocks for modern trade
c) Adopting a flow-through system of inventory management, which means stocks are not stored at the retailer’s warehouse and instead, dispatched to the stores instantly.
Further, it makes life easier for both vendors and retailers if the clause of shelf life norm is incorporated in the terms-of-trade or agreement.
Low Fill Rates – it has been observed in at least two mid-sized retail chains that the fill rates offered by food vendors are significantly lower as compared to non-foods vendors. We have already covered the case of shelf life norms, which is one of the important reasons for low fill rates, Earlier.
Pilferage – food products such as chocolates, confectionery, instant popcorn, etc. are impulse-driven items and hence, are prone to pilferage at cash counters. This is a worldwide phenomenon and there is precious little that can be done here, besides having effective display Units.
Despite these challenges, the foods category remains exciting enough to lead the next phase of growth in organised retail.