Getting personal - ITC (ET-30/9/07)

The firm can leverage its distribution network as it takes on well entrenched players in the personal care space.

There are already about half a dozen players in there. But that hasn’t deterred ITC from entering the Rs 2,000 crore plus shampoo market. The Rs 16,510 crore cigarette major has forayed into the personal care segment with three variants of a shampoo branded Fiama Di Wills.

Notwithstanding the fact that market leader Hindustan Unilever controls an enviable 48 per cent share, the Kolkata-based company is ready to give it a shot. Industry watchers say soaps, shower gels and skin care products are next on the cards.

Priced at Rs 99 for a 200ml bottle and Rs 54 for a 100ml bottle (six Stock Keeping Units in all), the product is positioned at the premium end and will compete with brands such as Garnier’s Ultra Doux, Procter & Gamble’s Pantene and Hindustan Unilever’s Dove.

Says Sandeep Kaul, general manager, new businesses, ITC, “We believe there’s purchasing power for premium offerings and are targeting the SEC A and SEC B1 segments.”

It’s not just the premium end, the overall market for personal care appears to be seeing good growth with most categories clocking 15 per cent plus except for soaps. The shampoo space has seen a compounded growth rate of about 20 per cent over the last five years, says Kaul.

Moreover, the penetration as he points out, is not very high especially in the hinterland. But it’s not going to be easy for ITC because the competition is keen.

The relatively small share of just about three per cent that Garnier has managed after so many years is an indication of the kind of challenge that ITC is up against.

Says Unmesh Sharma, who tracks the FMCG space at Macquarie Securities, “Given that two-thirds of the market is controlled by two players, it’s not going to be easy for ITC to create some kind of niche for itself.”

What ITC has going for it though is a strong balance sheet. Says Arvind Mahajan, executive director, KPMG, “Personal products is not an easy category to be in and requires staying power. Players like ITC have the ability to invest, stay there and give the business five to six years to make money. The investment will be made from a long-term perspective.”

The other asset that ITC can leverage is its distribution reach, given that it already sells packaged foods. Says Macquarie’s Sharma, “ ITC is far better positioned than a foreign player or a new entrant because it already has a distribution network.”

Sharma explains that that ITC’s web of distributors will allow it to access even remote areas, even if the firm doesn’t have too many retail outlets. Adds Yasmin Shah, analyst at Alchemy Securities,” ITC is building a rural distribution network through its Choupal Sagars which they can use to sell personal care items.”

In fact, the rural network (of both distributors and retail outlets) will be put to good use when ITC launches sachets which it needs to do because they comprise 60 per cent of the market (in value terms).

Says Kaul, “You will see the sachets very soon because there is a very large franchise for them and we need to give consumers as many options as possible.”

Kaul, however, is reluctant to discuss whether the company will have a presence in the economy segment. Nonetheless, say analysts, the new business is a good way for ITC to de-risk its business model.

Today, cigarettes account for 68 per cent of gross revenues and about 84 per cent of the PBIT (profit before interest and tax). Others such as hotels, paper, food and other FMCG products are growing but are not too profitable. Losses from the FMCG businesses were close to Rs 60 crore in the June quarter.

Says Alchemy’s Shah, “More new launches mean that the division will stay in the red for a while. But the investment is worth it because, at the end of the day, India is a consumption story.” All ITC needs to do is give it a personal touch.

FMCG firms ally with kirana stores

The corner shop, as it grapples with the onslaught of big retail, has found formidable allies. At least three fast-moving consumer goods companies — Mumbai-based Hindustan Unilever and Marico and Delhi-based Dabur — have developed new brands and attached them to mom-and-pop stores and given them the same deal as large retail outlets.

In return, the companies get high visibility and dominant display for their products which, according to claims, has led to a 20 per cent rise in sales in some cases.

Hindustan Unilever is associating with small-format retail through its Super Value Store, Dabur with Parivaar and Marico with Mera. At many shops, the counter has been modified into a U or L shape so that the shopper can move and pick items, just like in large retail stores.

Market research reports say 25-40 per cent of consumers switch brands at the point of sale driven by display or promotion. As much as 95 per cent of FMCG sales in the country are through small shops.

In Mumbai, Marico has covered its top 10 per cent of sales points under Mera. “The sales of Marico’s products have improved by 20 per cent as they get preference in display,” said a retailer associated with Mera.

HUL, under its Super Value initiative, is providing consultancy to retailers on how to morph into self-service stores. In case a store does not have enough space, it is given advice on prioritising product display, inventory management, etc.

"The purpose of this programme is to activate the general trade channel keeping shopper behaviour in mind,” says Ishmeet Singh, general manager, customer marketing, Hindustan Unilever.

Put simply, general trade is sale through small shops while modern trade is through large retail stores.

"Under the Mera programme, we ensure that our small retailers get the same benefits as modern trade or more,” says Saugata Gupta, chief executive officer, consumer products, Marico.

Dabur, through Parivaar, is aiming at building long-term relationship with grocery stores across major cities. Special discounts, higher margins and rewards are part of it.

“We are rolling it out in a phased manner and around 5,000 key grocery outlets across 15 major cities are being covered in the first phase. By the end of the current fiscal, we intend to take it up to 12,000 outlets,” said a Dabur executive.

Retailers’ home runs

Are organised retailers finding it difficult to emulate the local kirana stores with their home delivery models? Considering the largest retailer, Pantaloons (through Food Bazaar), does not think it a bright idea to compete with th em, discount retailer Subhisksha still fine-tuning its format and even the largest FMCG player, Hindustan Unilever Ltd (HUL), selling off its home delivery brand Sangam Direct, is door delivery not an attractive business proposition for retailers and manufacturers in India?

Argues Sadashiv Nayak, Chief Executive Officer, Food Bazaar, Pantaloon Retail, “We have to recognise the fact that mom-and-pop grocery stores already have efficient delivery, while for us home delivery is an added experience that we want to give our consumers. It is certainly not our core proposition and has always been part of the optional service that we provide.” In fact, today home delivery services comprise a mere 5 per cent of the leading food retailer’s turnover and there are slim chances of it being viewed as an attractive business proposition. Besides, the retailer insists consumers prefer to come and shop and carry home the goods themselves. As Nayak claims, “Consumers prefer to shop and carry back the goods. There is still little demand for such services.”

At the same time, there are other retailers who don’t seem to agree. Take the case of Wadhwan Foods which decided to buy HUL’s Sangam Direct. Having added a non-store delivery format through HUL’s Sangam Direct, Wadhawan Foods Retail is planning to introduce the concept before it launches its Spinach stores in the new markets. Dippankar Halder, CEO, Spinach said, “We may first start with the doorstep delivery format through Sangam Direct before we launch our Spinach stores in the new markets that we enter.” Post acquisition of Sangam Direct from HUL, Wadhwan Foods would be adding to the list of its doorstep deliveries. It intends adding categories in wet groceries, such as frozen foods and fruits and vegetables. “Today there are no wet categories present under Sangam Direct and we would be adding new products such as fresh fruits and vegetables which already exist at our Spinach stores,” says Halder.

Having set up multi-channel distribution systems, Wadhwan Foods would be exploiting the synergies between its store and non-store formats. For instance, it would now have the call centres operating on behalf of Sangam Direct or to direct calls to its nearest Spinach outlets to service customers. “Instead of contacting the warehouses, the call centres would be contacting the nearest Spinach stores and thereby saving on delivery time,” claims Halder.

However, there are other challenges in the non-store formats. Elaborates Halder, “The challenges are mainly internal and it is issues such as scale and competencies which are required in this business.” Considering stalwarts such as the Future Group’s Food Bazaar is reluctant about this model of retailing, managing costs remain critical to the success of the business. HUL’s best practices in managing the business have come in handy for Wadhwan Foods, though. As Halder says, “HUL has introduced us to some of its best practices which has helped in understanding warehousing systems and merchandising processes in the non-store formats.”

With Rs 600-crore turnover in Mumbai, Wadhwan Foods is now rolling out its stores in the rest of Mahashtra and in cities such as Kolkata and Delhi. The company has 23 stores in Mumbai where Sangam Direct also has its limited operations. “Today we have covered a larger geographical area through Sangam Direct and expect about 15-20 per cent of our turnover to come from our non-store operations in the city of Mumbai,” adds Halder.

Then there is Pyramid Retail’s Trumart which is also eyeing this model. Pyramid Retail is planning to introduce a home delivery format for its TruMart stores. With intentions of graduating to an e-commerce model, the retailer is targeting 20 per cent of its total grocery and general merchandise turnover through the home delivery format.

Upamanyu Bhattacharya, Chief Executive Officer, TruMart, says, “Direct home deliveries would be integrated into the existing retailing model. We expect to start this service in the second half of this year.”

The retailer would be directly servicing its customers from its stores. Explains Bhattacharya, who had been heading HUL’s Sangam Direct, “We will ensure that the deliveries take place from the stores, unlike the warehouse sourcing model adopted by Sangam Direct. In the warehousing model, costs are usually high and such operations cannot be housed on a stand-alone basis.”

Servicing establishments within a radius of two km, TruMart, with its supermarket format, expects to compete with the local kirana stores in the area. There are also plans to introduce a credit card for its shoppers to give the bene fit of buying goods on credit. The purpose is to emulate the services provided by the local kirana store, which also tends to sell on credit.

Realising the intricacies of food retailing in the direct delivery format, Future Bazaar, the e-commerce portal belonging to the Future Group, has so far not entered this category. “The supply chain is fractured in the case of home food deliveries since all the food has to be sourced and sold locally. It has to be planned in different way,” says Sankarson Banerjee, Chief Executive Officer, Future Bazaar. Realising a central warehousing model cannot work for the home delivery format in foods, the strategy is to have a local sourcing model to satisfy the regional preferences of its customers. With intentions of adding foods to its list in the near future, Future Bazaar intends overcoming the hurdles associated with food retailing. Adds Banerjee, “We think it can be a viable business as there is a market for it. The challenge lies in making a success of the back end processes of this business.”

Creating a USP is Subhiksha Retail, which is already facing stock-outs in the Mumbai market. “There is a huge opportunity in home deliveries and the trick is to beat the kirana stores at their own game,” says R. Subraman iam, Managing Director, Subhikhsha Retail. Claiming to grow at double-digits in the business, Subhiksha’s USP is its discounted pricing, making it an attractive proposition for housewives. Giving estimates about the business, Subramaniam says almost 30 per cent of the Mumbai market is taking advantage of home deliveries. “Everybody wants to do it. At the same time some retailers are doubtful as they still believe in getting footfalls at their stores rather than send the groceries home,” observes Subramaniam. The home delivery format is big for the retailer — 30 per cent of value sales. “It works for us, better than other organised retailers as we sell on price, so the consumer has reason to ask for delivery from us. Others sell on ambience but on deliveries that is no consideration. Also, for us proximity is a big advantage,” he elaborates.

So while Food Bazaar is not enthused about the format, Future Bazaar, Pantaloon’s recently floated subsidiary in the e-commerce space, is gearing up for this service. But kiranas will continue to pose a challenge for the organ ised big retailers. “We have to match up with the kiranas to meet consumer’s expectations. Kiranas are already offering this programme which includes stock rotation and loyalty programmes, along with cred it and discount policies. We still have a lot to learn from them,” states Nimish Shah, Vice-President, West Zone, Spencer’s Retail.

In fact, small-sized convenience stores are likely to be the ones to crack the home delivery format more than anybody else. Kiranas might be restricted to serving the immediate neighbourhood while organised convenience store retaile rs might have better logistics to cover a bigger area. Ashutosh Chakradeo, Head (General Merchandise), Hypercity Retail (India), observes, “Home delivery is not one of the easiest businesses to be in. At the same time, the future will see a lot of convenience stores such as Reliance Fresh and More being in this business as these players might be able to cover a larger area than the present kirana stores. As for Hypercity, we have yet to enter the direct home delivery in the food s business although we have entered this business for our general merchandise.”

All in all, big retailers with their hypermarket formats need not fret. “It is the smaller retailers who are likely to face competition from the local kiranas in their home delivery services. The impact on hypermarkets on the other hand will be less direct if they were to give this service,” observes Mehul Maroo of KSA. Unlike the more evolved retailing markets where hypermarkets served as weekly destination for shoppers, in India it is still local kiranas who would continue to serve the daily requirement of shoppers till such time the smaller retailers learn to crack the home delivery model.

The power of private labels

BRANDLINE-27/9/07
When Pepsico’s Frito-Lay decided to boycott Pantaloon’s Food Bazaar due to differences in terms of trade, it was the latter’s private label which got a boost in shares. Today Tasty Treat, the ready-to-eat private label of Food Bazaar, is leading with a 16 per cent share among the rest of the snack brands.

Sadashiv Nayak, CEO, Food Bazaar, Pantaloon Retail, claims, “In the past few months our private brand in the snacks category has been dominant with a 16 per cent share. In fact, the second largest selling snack brand, ITC’s Bingo, is way behind it.”

Today Pantaloon Retail has 80 products comprising 350 SKUs with five private labels. Since Pepsico’s rejection, it has promptly approached local manufacturers such as Prakash Snacks in Indore and Pogo Chips in Kolkata to manufacture its snacks brands. Arvind Chaudhary, CEO (Foods Business), Pantaloon Retail, adds, “The purpose of our private labels is to grow the category and fill the gaps between demand and supply. Today we have upgraded our suppliers with better quality systems and processes for the snacks category, where there was a gap.”

The power of private labels is being explored by most retailers today as they do not want to be at the mercy of the big manufacturers. At the same time they also realise that it’s not going to be easy as it takes time and money to build private labels. Observes K. Radhakrishnan, Chief Executive- Hypermarkets, Reliance Industries, “While it’s our strategic intent is to build private labels, it is more difficult and takes longer to build these brands. However, in categories such as commodities, it is easier to build private labels. At present, nearly 15 per cent of our hypermarket brands comprise private labels.” On the advantages of owing private labels, Hemant Kalbag, Principal, Consumer Industries & Retail Practice, AT Kearney says, “Private labels are generally introduced to get higher gross margins from branded products. Besides, they place the retailer at a competitive advantage over the branded FMCG players who have historically been arrogant with the retailers. It gives the retailers a platform to negotiate with such branded players.” At the same time, in India, there are not enough branded products to fill the retail shelves. Tapping into the lacunae in each category gives retailers a chance to launch their private labels in that space. Take the case of the Spinach brand from Wadhawan Foods Retail which is now exploring private-label ground spices. Claims Dippankar S. Halder, CEO, Wadhawan Food Retail, “Private labels help in bringing in a range by fillings in the gaps in the category. Besides, they also give retailers a chance to bring in unique products that have not been branded before.” Spinach’s private labels in foods comprise 10-12 per cent of the food brands it stocks. “Today we have kirana stores which come in as customers and buy our private labels to sell them at their stores. Branded foods have an assurance of quality, something which is not necessarily available at a kirana store,” says Halder. Pitching its private labels on quality assurance, especially in commodities which have been unbranded, is an opportunity being explored by retailers. TruMart, the supermarket chain of Piramyd Retail Ltd, recently announced the launch of its private label in the grocery segment under the brand name Uttam. Uttam will be available in pulses, cereals, flour, sugar, whole spices, masala powder and dry fruits. Upamanyu Bhattacharya, Chief Executive Officer, TruMart, said, “The launch of Uttam will be an extension of our quality offerings to our loyal customers.”

In fact, branding in commodities is an easier proposition compared to other categories where there may be relatively more brands to stock the shop shelves. Drawing attention to the Indian scenario, Kearney’s Kalbag says, “In India, about 20-30 per cent products are branded. This makes it difficult for retailers to fill up the shop space. Private labels can accomplish that but at the same time they must have a strategic positioning more than merely developing a product.” There are others like Trent from the Tatas who have developed a business model purely on private labels, especially in apparel. “The Tatas through Trent are trying to build a store brand under the Westside label. It all depends on the kind of price the customer is willing to pay. The question is whether a customer is willing to pay the same amount for a private label compared to a well-known brand in the same category. It all depends on the kind of sales and the kind of margins that the retailer can drive in this business,” observes Kalbag.

While store brands have the onus of trying to build their equity, they also have cost advantages (which can help in driving down prices) compared to the rest of the branded players in the respective categories. Pointing out the objective of having a private label, Sophie Joseph, Executive Director, AC Nielsen, says, “One of the reasons is higher margins, but the other objective is to maintain and increase footfalls through the lower-priced offerings at the same, if not higher, quality levels as that of the established brands. The ‘store equity’ in the mind of the consumer decides the fate of the private label. It denotes the trust that a consumer has in the store.”

In the apparel category, sourcing would play a key role in differentiating the products from the rest of the retailers. As Sriram Srinivasan, President & Chief Executive (Apparel), Reliance Industries, says, “It is our sourcing skills which will hold us in good stead in the apparel category. Today we have 50 per cent of private labels in our present stores.” There are others like HyperCity Retail, which has dominated its apparel category with its private labels. According to Andrew Levermore, Chief Executive Officer, HyperCity Retail, “In the case of private labels there are no restrictions on MRP and this makes it profitable for the retailers who in turn can offer better value to its customers. Private labels help retailers in controlling their destiny.” In fact, in the apparel category it is possible for a retailer to have its business entirely driven by its private label. Recently, a multibrand retail chain such as the $1.5-billion Rajan Raheja-promoted Globus Stores Pvt Ltd decided to become a single store label brand under its own name. Discontinuing its previous formats, Globus will now launch smaller stores under its private label. “At present, 90 per cent of the merchandise that we have is under the Globus brand but with time we plan to convert the balance into our private label brand. Globus will be our mother brand,” states Vinay Nadkarni, CEO, Globus Stores. Globus plans to build its brand by roping in a new brand ambassador – Kareena Kapoor. On the new business model, Akshay Raheja, Vice-Chairman, Globus Stores, says, “There are higher margins in private labels but at the same time it is a harder model for retailers. It is going to take additional effort to build the private label business but that is the new business strategy we have decided for our stores.” On the other hand, there are others like Shoppers’ Stop which believe in capping the percentage of private labels in apparel in spite of being one of the pioneers in this concept. Claims B. S. Nagesh, Managing Director, Shoppers’ Stop, “Today almost 20 per cent of the apparel section is driven by our private labels. We may take it up to 25 per cent. While having private labels might be a better business model, our consumers want a choice of at least 4-5 exclusive brand options and that is not going to be possible under private labels.” In the consumer durables category, it is still the known brands in the category which continue to drive the business for retailers. The Tatas-promoted Infiniti Retail, with its Croma stores, is on the threshold of bringing in private labels with caution. Ajit Joshi, CEO & Managing Director, Infiniti Retail admits, “There are plans on the drawing board to bring in our private labels but we are still waiting for infrastructure to improve in this business and this is mainly in the area of after-sales service.” Building equity for a consumer durables brand is based on after-sales services and Croma well realises the importance of this service before it decides to launch its own label in this category. However, Indian retail still has a long way to go before private labels become a successful model. Claims Mehul Maroo of KSA, “In the US, private label in food/FMCG is about 20 per cent by volume and about 15 per cent by value. But in the UK, it’s even higher.” According to him, how strong private labels become in India will depend on several factors. These would be:

The private label product proposition: Quality and price, primarily, relative to branded alternatives

How strong supplier brands are in the minds of Indian consumers: Many supplier brands are relatively new in India, so potentially have less awareness, and therefore, easier for private label products to supplant supplier brand products

How effectively suppliers innovate: Supplier innovation is often what allows them to stay ahead of retailer private label. Innovative suppliers can come out with new products that retailers haven’t necessarily thought of.

How consolidated Indian retail eventually becomes: The more market share a retailer has, the greater the opportunity to create a strong private label offering, and the greater the leverage a retailer can put on a supplier. This may be one reason why the UK has greater PL penetration than the US – UK retail is more consolidated than US retail. Right now, India retail is highly fragmented, so there’s a long way to go, as KSA’s Maroo observes.

Give it its Dew

How a clear lemon drink justified its existence in a cola portfolio.

The folks at PepsiCo India may well remember 2007 as the Year of Mountain Dew. This year, the clear lemon drink’s share of the carbonated soft drink market went up to 5 per cent — the brand’s highest-ever since its 2003 launch. Granted, that’s hardly a reason to uncork the bubbly, or even some flavoured fizzy water.

But there are other reasons why PepsiCo is raising a toast to Mountain Dew. In the past nine months, the brand has changed its product formulation, its brand positioning and its communication. Perhaps the only feature left of the original Dew is the name.

That’s quite a change from the past couple of years. Within a year of its launch, Dew had narrowed the gap with market leader Coca-Cola’s Sprite. But it was equally quick to lose all the ground it gained and by 2006 marketshare was at an all-time low. How did PepsiCo turn around its neon cola? the strategist does a case study.

Over the hill
In 2003, Mountain Dew was launched with the high decibel “Cheetah bhi peeta hai” advertising campaign where a group of adventurous boys conveyed the message that the caffeinated beverage delivers a high level of energy: something even a cheetah would find hard to resist.

“The execution was humourous, yet over the top, to exhibit the high energy positioning,” recalls Pratik Pota, vice president, flavours, PepsiCo India. Within a year of launch, Dew had gained 4 per cent of the market, compared to Sprite’s 6.5 per cent.

The action theme continued the following year as well, with commercials of the boys head-butting a wild ram in a fight for their drink. The campaign was clearly targeted at a youthful, masculine audience, what Pota calls the “dew style” of customers.

Meanwhile, the brand brought in the California-based Crusty Demons group to perform extreme stunt biking in Bangalore — the city was selected keeping in mind its cosmopolitan youth. The event was promoted through SMS and online games and contests, apart from on ground events called “Dew Dares”.

The games were held at malls, at a time when large format retail in its infancy attracted a lot of attention.

Whose drink is it, anyway?
The initial effort was to distinguish Dew from other lemon drinks and establish a distinct, adventure sport-themed, youth-centric identity for the brand. While analysts still consider Dew a flanker brand for PepsiCo’s 7Up, Pota explains that Dew targets a completely different customer group.

“In terms of imagery and appeal, Dew is more of a cola. Its source of business is from the cola category. It’s a neon cola,” he declares.

That approach did seem to be working. Dew was clocking double-digit growth (14-15 per cent) in key markets in North India, including Punjab, Uttar Pradesh, Rajasthan and Haryana, areas that were perhaps culturally more tuned into the aggressive brand image.

Across the rest of the country, too, the drink was growing at 7-8 per cent compared to the cola category’s 4-5 per cent. Mountain Dew seemed to be well on course to be a powerful player in the PepsiCo portfolio.

End of the adventure?
That changed by end-2005. The key North markets were growing slowly, dropping more than five percentage points to under 10 per cent. Worse, Mountain Dew’s sales had actually dropped in the other three regions. Dew’s marketshare was down to 3 per cent.

A consumer insight study revealed the not-so-pleasant truth. Dew’s strengths — its brand image and communication — were becoming a liability. Consumer empathy was extremely low for visuals like head-butting a ram, locking horns with a bull and so on. “Consumers found it unbelievable as the commercials were a suspension of belief to some extent. Dew was flirting with those boundaries,” says Pota.

The brand communication had also settled into a predictable format — the commercial beginning with a high adventure scene and signing off with a joke. Importantly, the overt show of masculinity and aggression did not find acceptance across the spectrum.

“The communication was rejected by a set of consumers, particularly from South India,” says Pota.

It didn’t help that the product delivery failed to match up to the expectations built up by the communication — high adventure and energy. “Consumers complained that they didn’t get the same ‘kick’ from the product that they got from the commercials,” says Pota.

Scale the peak
Over the next few months, PepsiCo began salvage operations on Mountain Dew. It needed to work on the product and the communication and the relaunch had to gain credibility on two fronts: with the consumer and within the company.

“We had to go out and change the communication from mindless exaggeration to getting close to the consumers. However, we had to ensure that the brand did not lose its character and we had to carry core consumers along,” says Pota.

The marketing task for 2007 was to widen the franchise of Mountain Dew consumers and build brand empathy across the country. Consumer insights revealed that young consumers in India by and large couldn’t connect deeply with extreme adventure sports — access and affordability being two reasons.

Creative agency JWT, therefore, moved away from the thrill of adventure theme to one that seemed more believable: conquering the fear within.

Working on the concept that fear holds back even confident, capable people, the campaign went to say that those who overcome fear get success, recognition and adulation.

The new tagline, therefore: “Dar ke aage jeet hai (beyond fear lies victory)”. “Few brands acknowledge vulnerability. The theme gave a powerful philosophy to the brand,” says Pota.

The new campaign, which broke in March 2007, stood out for more reasons. It showed older teenagers riding a vehicle over a dangerous terrain, striking a fine balance between believability and thrill. More importantly, it heralded a new, punchier product formulation and a new green-black logo.

To support the action on the ground, Reliance Web World outlets had special corners for consumers to play 30 minutes of customised adventure computer games to experience the brand.

There were other alternatives like co-promotions with youth magazine JAM, a viral marketing campaign for youth to e-mail links of the “Dew Dares” website and so on. The promotion was held from April-June. The relaunch has resulted in a growth rate in excess of 20 per cent, claim company executives. At present, Dew’s marketshare is its highest ever.

“It is much more difficult to turn around a smaller brand that’s declining, than reviving a bigger brand that’s losing share,” says Pota. He adds that consumers and even the brand owners are willing to give larger brands a decent second chance.

Perhaps Dew would have revived itself, but it still has a long way to go before it becomes a worthy challenger to Sprite. The clear lemon drinks segment makes up 35 per cent of all carbonated soft drinks sold in India. Dew certainly has a lot more to conquer than just fear.

Retail detail

Your access to the future of retail’ was the promise to the delegates of the three-day India Retail Forum held at Mumbai recently. Participants, ranging from retailers to FMCG companies, logisticis players and anyone even remotely dabbling in retail, grappled with issues plaguing the industry in the areas of logistics, trained manpower and escalating real estate costs, among other issues.

V. Vaidyanathan, Executive Director, ICICI Bank and Chairman, India Retail Forum, kickstarted the forum on an optimistic note, though. Said he, “The size of the retail industry in India is estimated to be Rs 12 lakh crore and is expected to triple in the near future. Retail will create 3.5 million job opportunities and therefore, it is imperative to support the retail momentum.”

For Kishore Biyani, CEO, Future Group, the retail evolution is still in its nascent stage and is a learning process. “We are experimenting with different formats and learning new things every single day. Nobody has perfected the art of retailing, so to say,” he said.

With this statement, Biyani summed up the experience of every retailer in the country. The forum fuelled interesting discussions on the nature of the challenges faced by the retail sector and how best to formulate a win-win situation for all attached to it. For once, competition took a backseat as retailers endeavoured to find solutions to problems the industry faces as a whole.

From retailers to real estate to FMCG players, everybody debated the future of retail in India backed by their personal business experiences.

Focussing on the future of consumer spending, Vinod Sawhney, President & COO, Bharti Retail Group, said, “Private consumption will reach 62 per cent of the economy in the coming years. As the prices will become lower, volumes will increase, leading to improvement in the quality of products sold.” He stressed that the sector will grow on the strength of the rising purchasing power of the consumer, which will mainly come from the service sector. As retail activity intensifies, it will spur a boom in malls, which will create a unique shopping experience for the Indian consumer, he added.

Abraham Rami Goren, Executive Vice-Chairman of the East Europe-based Elbit Imaging Group, recently in the news for announcing its plans to foray in India with its mall - Plaza Centres, said, “Retail in India is on an upward incline, but there are three aspects which need to be taken care of. Firstly, the interest rate policy should be normalised, issues in real estate like title registration improved, and a physical infrastructure put in place.”

Every emerging industry faces infrastructure issues and retail is no exception. Supplementing Goren’s views on infrastructure inadequacy in India, Arun Nanda, Executive Director, Mahindra & Mahindra, said, “Forty per cent of our produce dies in transit. We need to invest in warehousing needs and build a proper supply chain to ensure that the back-end is in place for the growing requirements.”

Citing this as an opportunity for ancillary industries to grow alongside, Bharti’s Sawhney said, “Growing retail will ensure benefits to ancillary industries. It has already created a huge demand for real estate, as it is.”

Real estate and logistics were identified as the main challenges faced by the Indian retailer today. If these were not taken care of, they could single-handedly lead to the decline of the sector, felt many.

In the space of back-end logistics, where procuring from the farmers directly is concerned, Reliance is perhaps the only retailer who has been able to build a proper logistical support for the purpose. RPG and some of the other retailers have begun to procure fruits and vegetables from the farmers in States where the Agricultural Produce Marketing Committee Act has been amended, but it will take some time for a full-fledged back-end system to come into place.

“The business has to reach a particular scale, after which retailers can set up their back-end operations. Where is the scale today for most of the retailers to do that?” said Ireena Vittal, Principal, McKinsey & Co. The marketing head of a leading logistics company said on conditions of anonymity, “The retailers are riding high on the boom and aggressively building their front-end without the back-end support. If they continue to do that without a reality check, in two years’ time they will feel the heat.”

The reason why most retailers have been unable to put a back-end in place is also due to the geographical complexity of the country, but third-party logistics with regional players seems to be the best way out for retailers looking to enter retail in a big way, he said.

Commenting on the unrealistic real estate rates existing in some cities today, Sumantra Banerjee, President and CEO, RPG Enterprises, said, “The land prices of Delhi and Mumbai today are comparable to or even greater than in Manhattan. This boom in malls across the country, wherever you get space, is going to lead to super-congestion. Growth will happen, but without profit or margins. This hankering for property by the retailers is going to hike up rentals, thereby transferring the opportunities to rural and semi-rural towns.”

The real estate boom was likely to be taken over by “vulture capitalists” and not “venture capitalists,” said B. S. Nagesh, Managing Director, Shoppers’ Stop. “At the current market rates, no retailer can have a share of the pie,” he said.

While Shoppers’ Stop said it does not immediately plan to expand its malls in 500 cities of the country but would like to take one step at a time, many retailers are eyeing the tier-3, -4 and even -5 towns to expand their retail outlets.

Prominent among rural retailers are Godrej Agrovet, ITC Chaupal Sagar, Indian Oil and Hariyali Kisaan Bazaar. They have penetrated markets at taluk levels and though they operate on low margins, like urban retailers, they are instrumental in expanding the scope of retail in India, reaching out to the villagers.

Rural retailing faces similar problems as urban retailing, but the nature of its problems differ. C. K. Vaidya, Managing Director, Godrej Agrovet, said, “In real estate, here the issues are of multiple ownership where four out of five owners of the same plot of land are untraceable. Moreover, there is an acute lack of trained manpower for these stores. Again, we sell our wares only at MRP, not lower in order to recover our margins.”

The opportunity in rural retail tempts even the Department of Posts & Telegraphs to venture into it. “We have 1,800 plots of half- to two acres area across the country, which we might use for retail purposes through Public Private Partnership initiatives,” said S Samanta, Chief General Manager, Department of Posts.

The forum proved beyond doubt that retail as an industry was growing in the country but needed to be dealt with cautiously. The charged atmosphere of the three-day forum culminated in the Images Retail Awards, where Kishore Biyani was given the Retail Face of the Year 2007 award.

A change of face

Coca-Cola’s run in India can well be equated with that of the ever-so famous obstacle race. Having been ousted from the country in the Seventies, it made a ‘comeback’ in 1993 with a vengeance, when it went on a buying spree, taking over the country’s most popular aerated drinks brands Thums Up, Limca and Gold Spot, to emerge as the single largest beverage player in the Indian market. Although it was not smooth sailing after that, things really turne d sour with the entire pesticide issue cropping up in 2002 and 2005, tainting the image of the global heritage company.

Since then, Coca-Cola India has gone into overdrive trying to undo the damage, and recently, launched a re-branding and repositioning exercise for the Indian market. Prasoon Joshi, Executive Chairman and Regional Creative Director, South and South East Asia, McCann-Erickson, Coca-Cola ad agency, says, “It is an umbrella campaign that features all the brands, a goodwill exercise to remind people what Coca-Cola is all about. The campaign’s tagline - boond boond khushi khushi, or ‘Little Drops of Joy’ - reaffirms what Coca-Cola in India stands for, which is being part of little moments of joy in the daily lives of consumers. The communication reminds us that the best things in life can only be experienced. For instance, a sip of the drink is a moment of truth, a second of satisfaction, an instant of happiness and a bubble of hope. What is very real about the entire campaign is that it goes hand in hand with the company’s philosophy – we don’t claim to transform lives but simply envelop one moment with joy,” says Joshi. For a company that has always been an aggressive advertiser, it is the first time that it has undertaken a campaign that does not brand just one individual product but acquaints people with the entire portfolio that the company has on offer. “We are not promising to change the world, but to add just a little drop of joy,” says Venkatesh Kini, Vice-President (Marketing), Coca-Cola India.

Coca-Cola’s advertising strategy, right from the time it re-entered the country, has been that of establishing the brand through socially relevant messages. Explains Joshi, “Advertising always in some way or the other reflects the social issues of the time. One has to understand what the need of a product like Coca-Cola was at the point of time when a campaign was being conceived. When we made the ‘Thanda matlab Coca-Cola’ ads our idea was to drive into the heartland of India, as the company realised the need to establish contact with the masses. Then we had the ‘Thande ka tadka’ campaign where film stars like Aishwarya Rai and Aamir Khan gave out socially relevant messages ab out eve-teasing and the treatment meted out to foreigners in India. With the current campaign, the people in the company thought it was time for people to know the company as a whole and realise the iconic brands that it has created.”

GROWTH STRATEGY

Also, as part of its re-positioning strategy, Coca-Cola revealed its five-pillar growth strategy, that of people, planet, portfolio, partners and performance.

“Each of these is a drop of a larger vision aimed at mutual growth and development. Over the last few years we have continuously engaged with a large number of stakeholders and incorporated the learnings in refining our strategy for India. The integrated communication platform is a tribute to their valuable inputs and truly depicts what the company has always stood for,” said Atul Singh, President and CEO, Coca-Cola India.

Coca-Cola, as part of its focus on the country, intends to set up a university that will help people learn to enhance business performance, set up an equipment testing facility in Hyderabad to test coolers from India and the Asia-Pacific region and provide global services such as engineering, finance, marketing and technical R&D.

The beverages giant plans to set up a retail university to provide Indian retailers with the right techniques, tools and knowledge to operate in the new retail environment. As part of its plans, the company aims to provide drinking water solutions to 1,000 schools by 2010, commission a study on ten watersheds by 2009 and implement interventions accordingly.

BEYOND FIZZY

The initiatives don’t end here. In fact, one of its major activities in India would be to enhance its product portfolio.

As an industry expert who did not wish to be identified said, “Coca-Cola realises that to retain its leadership position in India and to keep away its competitors from capturing its position, it has to do better than what it was doing so far. Now that it has established its name in the market well enough, it has to focus on expanding its portfolio, which would also mean stepping out of the ‘aerated beverage brand’ tag that it so far carried, more so because of the huge wave of health and wellness that has engulfed the entire country. People are turning towards healthier, low-fat options, and Coca-Cola has to follow.”

Actually, the company has already started the process of breaking away from the ‘fizzy drink’ image with the launch of its juice, Minute Maid.

According to Atul Singh, “We are looking at expanding our current portfolio. We want to be seen as a total beverages brand. So we are testing options and our future launches can be in any format that is non-alcoholic and ready-to-drink suitable to Indian tastes. We will, however, continue to invest in sparkling beverages.”

Product expansion

Says Kini, “We are actively looking at expanding our product portfolio in India through a three-pronged approach. The expansion could be through variant addition, launching brands from our global portfolio and foraying into new territories. It could be from a wide variety of beverages such as energy drinks, sports drinks, flavoured water and juices, with most of them being developed in India.”

The company is testing a foray into dairy-based products as well as introducing in India energy drink major Glaceau’s brands that it recently acquired for $ 4.1 billion.

Coca-Cola, which has invested around $1.2 billion in its Indian operations so far, plans to invest an additional $250 million over the next three years. The money will be used to create bottling capacities for new products, execute marketing strategies and devise distribution models to meet consumer demand and also to ensure value creation for all its partners.

Coca-Cola India witnessed a 12 per cent increase in unit case volume in the second quarter of 2007, and aims at achieving a better growth rate through its several initiatives in India.

Whatever be its fate, what is clearly visible is that the domestic beverages market is hotting up more than ever, with players both big and small gearing up to rough it out, and consumers emerging as the clear winners, almost spoilt for choice.

Fanta’s new youth-oriented campaign

Coca-Cola India, having recently announced its vision for 2010, which includes major focus on further strengthening its fizz brands in the country, is to unveil its latest campaign for the orange bubbly Fanta.

The new integrated marketing communication campaign ‘ghoonth bhar sharart kar ley’, featuring actor Trisha is set to go on air across the country by the fourth week of September.

“The objective behind this initiative is to create a stronger connect with the consumers, especially the youth. After the recent launch of the bolder Fanta in Chennai, this will be the company’s first campaign with Trisha, and we are sure that youngsters will surely find this ad extremely exciting,” said a Coca-Cola spokesperson.

Mr Titus Upputuru, Creative Director, Ogilvy& Mather, the ad agency for the campaign, said: “The task was to add a new dimension to the taste of the bolder Fanta, thereby making it more fun and buoyant. The bold orange flavour and colour of Fanta lends itself to fun and mischief. The way the campaign has shaped up, I am sure the youth of today, at whom the entire campaign is targeted will find it extremely exciting.”

Coca-Cola will follow up the campaign with a 360 degree promotional activity that will include roadshows and contests across all key markets, as a part of the consumer activation programme.

On expectations from the campaign, the company spokesperson said, “Fanta is a leader in the orange flavoured sparkling beverage segment. We feel this campaign will drive a stronger connect with our consumers and our plan is to further strengthen this leadership position.”

Life on the margins- Brandline 4/5/06

Turning the tables on FMCG players who have so far dictated margins that retailers earn, the country's biggest organised retailer, Pantaloon Retail, is making a case for better margins from the top companies in the business.

Trying to replicate Wal-Mart's model of determining margins, the country's largest retailer recently decided to demand 5 per cent higher margins from FMCG companies for its Big Bazaar and Food Bazaar outlets.

Considering modern trade still comprises a fraction of FMCG sales, some of the players have been opposing the move while others see it as an opportunity to get better service with assured volumes, resulting in a win-win situation for both.

Justifying the move to hike margins, Damodar Mall, President, Food Bazaar, Pantaloon Retail, claims, "The FMCG companies have been enjoying higher profit margins in the modern trade format since we are giving them benefits accruing to their brands. But our cash expenses are not being met. All this time, the trade margins were lower and realising the consumption patterns of tomorrow, we have decided to hike our margins from FMCG players." Considering Mall himself has moved from Hindustan Lever, he should be equipped to pass judgement on the terms of trade imposed by both the parties involved.

Pantaloon, the largest retailer in the country, reportedly has asked 20-odd FMCG players, including HLL, Procter & Gamble, Marico, Colgate Palmolive and CavinKare, to immediately hike the retail margins by 5 per cent or face the consequences of their products being debarred from its stores.

Not wanting to be equated to kirana stores by earning the same margins, Pantaloon's move is seen as a growing trend in which modern retail brands are calling the shots instead of the companies which are supplying to them. The roles have been reversed from the days the brands were perceived to be stronger than the kirana stores and they were almost bullied into accepting stipulated margins.

Observes Arvind Singhal, Managing Director, KSA Technopak: "While a retailer is justified in commanding higher margins since the operating costs are higher, FMCG players have all this time been commanding higher margins than their counterparts abroad. The fragmented nature of the retail distribution network does not exist in other parts of the world where brands have conceded to part with higher margins to retailers. Not that all the FMCG retailers are doing it willingly, but most of them realise they cannot do without the shelf space given by such retailers. In India, this is beginning to happen and retailers have begun to flex their muscles and get stronger. At the same time, the share of traditional trade is still much higher today and companies such as ITC and HLL still have a small percentage of their turnover coming from modern trade."

Pantaloon has gone ahead and signed deals with eight FMCG companies which include the likes of Amul, Rasna and Nirma. Assuring such companies more business, Pantaloon recently signed Memoranda of Understanding (MOUs) at a two-day vendor fair in Ahmedabad. For instance, the deal with Amul would mean Pantaloon Retail would generate business of over Rs 50 crore against the current Rs 15 crore - Rs 20 crore.

Even regional players such as Ankur Salts, Bharat Vijay Mills and Jindal Worldwide have struck alliances with Pantaloon to make the most of the hiked margins. After Ahmedabad, Pantaloon expects to strike similar deals in Delhi, Kolkata and Bangalore.

In fact, the companies which have signed the MOUs see it as a strategic fit. Piruz Khambatta, Chairman, Rasna, says, "It is a matter of give and take. As long as they take and give something in return in terms of shelf space and visibility, we don't mind. Margin increase is going to happen and store brands are getting powerful. Nobody is really getting stronger as both are likely to gain."

Adds Sunil Duggal, CEO, Dabur, "We are open to negotiations. Modern day retailers have the right to enhance their margins. As long as it is a win-win situation for both the parties we don't mind the higher margins."

Certain FMCG companies have been finding it difficult to accept the new terms of trade. Claims an official at HLL, "If such retailers are assuring us a fixed sum of business, maybe we will consider these raised margins. At the same time, they should realise that they cannot do without our brands and we still have some amount of bargaining power."

Officials at other FMCG companies are not welcoming this new move either. "It's still premature to ask for increased margins. They still do not have significant scale to get the volumes that we are looking for," claims an FMCG player.

Pantaloon is also upping the ante by deciding not to stock GlaxoSmithKline's brands following the company's refusal to accept the new margins. Officials at GSK, however, did not divulge the exact outcome of this move. According to GSK officials, "Commercial discussions between two organisations are confidential business and GSK is therefore unable to provide any further information in this regard. However, GSK always has and continues to strive for a win-win relationship with all its business partners."

The fact that Pantaloon has decided to make public its decision to hike margins is in itself a surprising move.

As KSA's Singhal adds, "No retailer actually makes public announcements of its commercial terms of trade. It is surprising in Pantaloon's case. For most retailers, such negotiations are done on the side in a variety of ways with different FMCG companies. In fact, such deals are generally not divulged since there are no benchmarks. In fact, all buyers continue to strike such deals on a daily basis."

Says Neeti Chopra, Marketing Head, Trent Ltd, "There is an ongoing dialogue in such cases and no one makes such cases public. It is good for both — when you get good margins, it is possible to pass them on to the consumers who get better value. There is a symbiotic relationship in most cases where the margins of the players are offset with increasing volumes through the sales from such retailers. At the moment, such margin deals are done on a case-to-case basis but eventually it will become a norm with the retailers."

Marico's Makeover - Brandline 13/9/07

A couple is walking along a road when a man comes and runs away with the lady’s bag. Her portly husband gives chase but soon gets exhausted and is bent over panting uncontrollably. An old man sitting nearby tut-tuts sympathetically about the man’s stamina. Gasping for breath the man expresses regret for not having been able to catch the thief. The ad film cuts to a shot of the couple picking up a pack of Saffola Gold oil, with the voiceover exhorting viewers to use this brand of oil, which helps cut down on cholesterol, and keep themselves young and sprightly.

This ad is the latest in a series of television commercials (an earlier one depicted equally portly men and their battles with butter chicken and gulab jamun) that Marico Ltd, the Rs 1,556-crore consumer products company, has been screening over the years to reinforce the goodness of Saffola, its safflower oil (kardi) brand. And, if Marico’s CEO of Consumer Products Division, Saugata Gupta, has his way, the brand’s positioning on the health plank is only going to get stronger.

“Our thrust is on foods and supplements and we plan to have a range of Saffola products,” declares the dapper Gupta in a recent interview to BrandLine. Its foray into the functional foods category was with a brand extension earlier of Saffola to an atta mix, which didn’t quite take off but with a change in marketing mix, its re-launch has met with some success.

Just off a flight and having battled morning hour traffic jams in Chennai, Gupta sips a cup of decaf while talking animatedly about Marico’s brand portfolio. Marico’s focus as an organisation, Gupta emphasises, would be in the spheres of beauty and wellness. “Given the trend of lifestyle diseases, stress and so on, wellness is a key area. We have a strong brand in Saffola and we think that brand is quite a bit underleveraged,” he elaborates. The atta mix, a cholesterol management product, was test-marketed in Mumbai and has now been launched nationally. More such products will follow, avows Gupta.

He’s confident that Marico’s portfolio is on the right platform. “I think we are lucky to have a product portfolio that rides a trend. If you see, globally, it is very difficult to run a business that is against a consumer trend; it brings into question the long-term sustainability of a business. We are lucky that our products and plans fit into the trend of wellness. Today, wellness is half a leg for us — we have salt, oil, but there are a lot of products to be plugged in,” he said. And it’s this category that Marico hopes will grow its business.

However, Gupta is clear that Marico will not enter the staples game. Staples, as he explains, is a low-margin high-volume business. “And we do not want to get into that. Having moved away from branded commodities, we have moved up the value chain and wouldn’t want to undo that. We would like to give efficacious products. Any new category requires category building and investments. Growth will take time to come in, but we are in for the long haul,” he says emphatically.

Commenting on brand Saffola, the head of a national retail chain says it is indeed a strong brand and its positioning too, with the ‘good for heart’ perception, is just right, as is its extension to blended oils with Saffola Gold. The problems associated with kardi oil shortage which used to plague Saffola availability too is gone. “However, the issue for Saffola is that it is metro-centric and clearly an SEC A product. Extending the brand beyond metros would be a challenge.”

A fact Gupta is clearly aware of, as high on the agenda for Marico is to gain a higher footprint for Saffola. As of now, it is present only in about 10 cities with a middling presence in the South. “However, we have been investing in the brand over the past two years and have nearly doubled our base (in the South),” he adds.

The other trend that is helping Saffola is the growth in modern trade. The brand’s modern trade market shares are higher than the traditional trade share.

“This is because our products are slightly niche and catering to higher-end consumers. We do function at a premium. I don’t think people today are very price-conscious, though they are value-conscious,” he elaborates.

Marico’s other strong growth driver and blockbuster core brand is Parachute, which claims a 57 per cent market share in the branded coconut oil business, a Rs 1,200-crore market. With the acquisition of the Nihar brand from the Hindustan Unilever Ltd (HUL) stable, Marico has further consolidated its position and has pretty much a monopoly in most markets except Tamil Nadu where VVD is the market leader. Points out a retailer: “The product is attacked, if at all, by Dabur Vatika at the higher end. However, as pure coconut oil there is hardly any serious competition for the brand.”

As Gupta points out, it was weak in the Eastern region but Nihar gave it instant market share. On Marico’s strategy of acquiring strong regional brands, Gupta is quite clear. As he explains, “Automatically, we become strong in that region. For example, we are not so strong in the North, so if we get a brand in the UP-Bihar belt it makes sense, but having a pan-India brand with a 5 per cent market share in a category is not going to excite us because what is the long-term story in that? The other thing about acquisitions is when you already exist in a category where you are competing with another brand, with a similar footprint, it doesn’t make sense to acquire – if you’re catering to the same set of consumers, in the same space, it doesn’t make sense.”

Nikhil Vora of SSKI Securities in a research report says that Marico continues to piggyback upon multiple growth drivers that it has built over the years and continues to strengthen. Its three-pronged strategy has been to strengthen the core, identify new growth areas and take the inorganic route to growth.

With the hair oil market unlikely to expand, Marico has been extending its brand to other categories such as shower gels (Parachute Advansed and Go Get Noticed), hair loss treatment (Parachute Therapie) and soaps with Parachute Jasmine. Vora is quite bullish on the company, appreciative of its strategy of aggressively targeting inorganic growth opportunities at home and abroad. As he says in his report: “Marico continues to play out the story of transition to a pure consumer play operating on the broader health and wellness platform … it will continue to maintain its growth momentum and the growth propellers are in place. It is well on its way to becoming a full-fledged FMCG player and we expect margins to be in line with other consumer majors.”

Male grooming, with young men increasingly wanting to look good, is a high-potential category that Marico wants to grow in. Marico’s after shower hair gel has garnered a 43 per cent share of the market in just two years, Gupta claims. The market size for gels and creams is about Rs 65-70 crore, with growth at 30-35 per cent. But the market for hair gels is competitive with Brylcreem the market leader. Garnier has launched its Fructis brand as well while there’s SetWet from Paras Pharma. “We believe that this is a category that is going to grow,” he adds.

For Gupta, there are no short-term measures. As he emphasises, “We believe that we need to stay invested in markets, drive category growth and wait for the inflexion point to arrive. Every new product will not immediately grow to a Rs 100 crore. The point is for all our new products, we need to do category creation, it’s a long haul. Consumer value concept has changed. Earlier, it was only price but today if you deliver value in terms of functionality people are willing to pay a price.”

Asked whether Marico’s strategy has been to stick to niche products and not directly compete with the big guns such as HUL and P&G, Gupta puts it differently when he says, “If you have to grow you have to participate in certain categories but we have to see if there is a differentiated space available.” It did test-market a shampoo a while ago but hastily withdrew when HUL and P&G slashed prices to fight a bloody price war.

Nor has it been able to transition from a strong hair oil player to a shampoo brand for which Gupta reasons, “If you have two MNCs fight, and the numbers are high in terms of investments, international technology needed and so on, do we have a sustainable proposition? It’s a question of allocation of resources. Without a completely differentiated product you would get squeezed out. Having said that we are not saying we will never do shampoos but we will concentrate on pre- and post-wash.” It has also launched Silk ’n Shine, a non-greasy hair conditioner which competes with Paras’ Livon. This is virtually a new market with the former cornering a 35 per cent share and Livon 38 per cent. “There are markets out there which have enough opportunities for growth. It’s in our DNA; we have been successful in creating categories and innovation as a culture.” Uncommon sense, is what Marico likes to call it.

The retailer quoted earlier in this report points out the company’s core so far has been in oils. Other products such as Revive starch and the Parachute extensions are still small, though good forays. As he points out, “Technically the margins can be under pressure if there is a competitive attach. HUL tried it but gave up too soon as it too was stuck on margins. The strength of the brand could be tested if somebody such as ITC were to enter the market.”

Hyper Market Vs Small Retail Store Format

On the occassion of Independence Day in India in 2007, Relaince Retail opened the largest Hyper-Market in India called Reliance Mart in Ahmedabad. The hypermarket is spread over 1.65 lakh sq.ft. and deals in all types of merchandise under a single roof.

However in India the Hyper Markets have not done very well in the past. There have been some attempts in the past, that have not grown the way it was planned for. Around the world, eight of the 10 biggest retail chains revolve around different variants of hypermarkets. So Wal-Mart has its Sam’s Club, Carrefour its own signature hypermark, as does Tesco, Metro, Krogers, Sainbury’s and Aldi’s. However people aware of retailing know that retailing is a country/culture specific thing and the same formats are not successful all over the world.

In 2004, RPG Retail had opened up the mega-mart "Giant" with ambitious plans for growth, that never took wings. incidetally, Raghu Pillia who is now heading the Reliance Megamart efforts was heading RPG Retail's efforts. Giant was later renamed "Spencers" and has not grown as planned. Similarly, K Raheja’s Hypercity has not grown beyond the single big-box store in Malad. It’s the same story with Star India Bazaar, the hypermarket from Trent. Magnet, another hypermarket floated by Ashok Maheshwari, a Mumbai-based entreprenuer, hasn’t done much either: it has opened two stores in nearly two years of existence.

The only success story has been Big Bazar from Biyani's Future Group. It has went from a three store operation in 2000 to a chain of 66 currently.

However, what is growing presently are the small store formats. Subhiksha, with its 1200 sq. ft. discounting format has become the largest domestic retail chain, on the verge of become the first 1000 store chain. Reliance Fresh, now close to 300 stores, Aditya Birla Retail’s More and ITC’s Choupal Fresh are all making waves as small retail formats.

The organised retail market in India has just started gaining steam. It will evolve over the years and would be interesting to find who wins the battle at the end.

Share your views on the evolution of retail in India. Where would you like to shop?

`FMCG sector to grow over 50 pc by 2010'

The Hindu

New Delhi , July 18

FAST Moving Consumer Goods (FMCG) sector will witness more than 50 per cent growth in rural and semi-urban India by 2010, according to an analysis carried out by the Associated Chambers of Commerce and Industry of India (Assocham).

In totality, it is projected to grow at a CAGR (compounded annual growth rate) of 10 per cent and increase its market size to Rs 100,000 crore from the present level of Rs 48,000 crore.

The growing penchant of rural and semi-urban folks for FMCG products will be mainly responsible for this development, as manufacturers will have to deepen their concentration for higher sales volumes.

In the rural and semi-urban areas, FMCG market penetration is currently less than 1 per cent in general as against its total growth rate of about 6.2 per cent, the President of Assocham, Mr Mahendra K. Sanghi, said while releasing the analysis.

The analysis is based on the feedback obtained from various district industry centres all over the country on the future demand-supply situation of FMCG products.

Mr Sanghi said the Indian rural market with its vast size and demand base offered a huge opportunity that FMCG companies cannot afford to ignore. With 128 million households, the rural population is nearly three times the urban.

Though the rural and semi-urban demand of FMCG products will grow, it will put a severe pressure on the margins of manufacturers of FMCG products due to cut-throat competition, finds the analysis. Companies in the sector to benefit will include known names such as Nirma, HLL, Dabur, ITC, Godrej, Britannia, Coca-Cola, Pepsi, among others.

The chamber is of the view that the rural market may be alluring but it is not without problems such as low per capita disposable incomes and large number of daily wage earners.

Some of the other problems associated with rural markets are acute dependence on the vagaries of the monsoon, seasonal consumption linked to harvests, festivals and special occasions, poor roads and power problems.

The other difficulty that FMCG companies are likely to face is that of logistics. India's 627,000 villages are spread over 3.2 million sq km. Delivering products to the 750 million Indians living in rural areas will be a tough task.

Reliance-The Big Daddy Of Retail

RIL promoted, Reliance Retail Limited which slipped its Diwali launch is now expected to go live in the next 2-3 weeks. The Meswani brothers who messed up the launch plan are out and Manoj Modi is the new chief of Reliance Retail.Relliance model is simple, embrace the Chinese. I really hope, they won't dump the seconds from chinese markets.Reliance Insiders have unveield the following blueprint for Reliance Retail.
Each store to vary in size from 3,000-15,000 sft depending on the city or town. Much smaller than Pantaloon Retail India Limited's Big Bazaar.
Sourcing of goods from China, Thailand and Vietnam. Includes food and persihable items like fruits and vegetables as well.
Reliance Retail has plans to launch its own COLA to compete directly with Coke and Pepsi.
Who cares if Kishore Biyani is the master franchisee for Starbucks in India ? Reliance Retail plans to launch private label brands in other product categories like tea, foods, dairy products, biscuits and cosmetics.
Their is lot of consumer demand and trust in private label brands which has led Reliance retail to think this way.So in short, Reliance Retail = Retail + Reliance FMCG + Reliance Micro Finance + Reliance AutoMart + Reliance Pharma. Sounds too ambitious as this is not your grandfathers India, Mr. Mukesh Ambani.