Thursday, September 27, 2007

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.

1 comment:

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