Meaning
of CPG brands: CPG stands for Consumer Packaged
Goods and is used to describe products that have to be replaced
every so often due to their daily/weekly use. Examples include food, clothing,
apparel, and beauty products. Now this definition goes a little refined as many
food brands are now available in consumer packing which means they are
fast-moving in the hands of retailers’ / end consumers. We will consider this
topic a little bit centric on Food & Grocery brands under the CPG regime.
Fast-moving consumer products basically referred to products available in
consumer packaging which move fast from the retailers/ commerce platform and
are consumed fast by the consumers. I have my views on the CPG market and how
it will change the new shape in near future.
of CPG brands: CPG stands for Consumer Packaged
Goods and is used to describe products that have to be replaced
every so often due to their daily/weekly use. Examples include food, clothing,
apparel, and beauty products. Now this definition goes a little refined as many
food brands are now available in consumer packing which means they are
fast-moving in the hands of retailers’ / end consumers. We will consider this
topic a little bit centric on Food & Grocery brands under the CPG regime.
Fast-moving consumer products basically referred to products available in
consumer packaging which move fast from the retailers/ commerce platform and
are consumed fast by the consumers. I have my views on the CPG market and how
it will change the new shape in near future.
The FMCG market in India is expected to increase at a CAGR of 14.9% to reach US$ 220 billion by 2025, from US$ 110 billion in 2020. (As per Brand Equity Foundations). Here we have to understand which companies /brands are representing the Indian FMCG market so far, $ 110 billion market is like
a tip of the iceberg. " We have to include the full iceberg" in the definition of CPG.
size of Indian retail is expected to be around $1.2 trillion by 2025 so we can
see the share of the CPG market, as on today market size of CPG is $110bn which
is almost 12% of the total present retail size and 50.9% of total Food &
Grocery retails which is somewhere around $611 billion and will have $978
billion size by 2025. CAGR growth is estimated to be around 14.9% by 2025
recovery and promising macro factors indicate a double-digit growth for FMCG in India, in 2022”
per the data available on websites or open source more than 5000 brand
companies are active in India, among them 345 companies have national level or
regional level presence and those are the highest contributors in terms of
business volume.
Top 50 FMCG national-level brands:
this list only covers 30+ brands.
etc...... These include major 50 brand companies at the National level.
30+ brands in the CPG segment contribute 20-25% of total CPG’s $110
billion-plus some portion of staples like branded staples Aashirvad, India gate
/Fortune as national brands. These brands cover major categories like Personal
care, confectionary & snacks, Beverages, Home care & Staples. I have
not taken the Dairy & Frozen, F&V segment in this article. We are
talking about CPG’s contribution in India, it is widely driven by the top 50+
brand companies. What about the rest of those who are either active at the
regional level or local? Even some other medium size players are waiting to
explore the Indian CPG market as Joy brand did. Like Patanjali came
aggressively in this segment and now giving tough competition to national-level
CPG companies.
like Adani, Reliance Jio, Tata consumers, and others are planning to introduce
themselves as big CPG players. Reliance Jiomart already started working in this
segment and started setting up distribution channels aggressively. Last few
years they have been working across categories and succeed to develop their
private label in various categories. the purpose was to go with their private
label in a big way in general trade. Same way, Adani Wilmar is working in this
segment and also other big box retailers are going to join the FMCG drive. The
near future era is going to be a battlefield in the General Trade (GT) market
stream and there they will try to establish themselves as CPG brand owners. The
Axis of the change is the consumer's changing preference and the consumer's
behavior of changing the product is supporting it. Today’s consumer
does not mind trying different brands, especially in the
Food category.
5000+
companies in Personal care, Confectionary & Snacks, Beverages, Dairy &
Bakery, and Home Care are prevalent in India. They are among the brands
contributing 80% to this segment. I don’t have a relevant data source from
which I can get the brand-level penetration of food products as this segment is
a highly unorganized sector but soon going to become part of CPG in
India. How it will happen? The answer to this is "Change in
consumer preferences", Brands evolved themselves according to the need of
end consumers, and keeping in mind the buying behavior of the medium to lower
class they are coming up with product innovations in terms of quality and
packaging in a fast-paced manner.
The
way non-food came in sachet packaging like shampoo, hair oils, and other
personal care products we can expect that one day we will have edible oil,
sugar, tea, and mixed spices in the same way. We have more than 300
million people living below the poverty line and a majority of consumers are
buying their food/staples on daily basis. They don't have a budget to buy the
ration for the whole month. I believe, soon food will be available in sachets
or small consumer packaging, so the definition of CPG is going to evolve.
CPG
definition seems narrow when we talk about the products. A standalone
brand in a consumer packaged product that moves fast in the market or is
heavily demanded by the consumers is something called FMCG/CPG but in India’s
scenario we need to enlarge the coverage of this definition, soon you will find
that regional food brands will also come in this definition.
We
have seen how the main staples/ food were sold in India in earlier days. We
don't need to go back much but 15-20 years back food like main staples used to
sell in loose by the retailers. RATIO was 70-30% i.e. 70% bought by the
consumer in loose and 30% was the contribution of Packaged food. Major staples
like Rice, edible oil, Sugar, spices, Dal, etc were sold loose to the consumers
but now these come in consumer packs. However, one thing, we need to
understand, India’s population lives in rural areas, and still, there 50%
market in the main staple is largely dealt with in the loose form. Here we are
covering the study up to Tier III.
Logically, we have to include them under
CPG brands, and if we do this what will happen? The market size of CPG brands
will increase to $ 600-700 billion from its existing $110 billion because of
the contribution of the packaged food segment. Food is contributing 60% of
total grocery retail. The current size of food & Grocery is around $611
billion as per https://www.researchandmarkets.com which is expected to grow to $ 978
billion by 2025.
Taking
this figure of $978 billion out of which the $ 220 bn market will be catered by
the pure play FMCG brands by 2025 majorly contributors of those were the top 50
national level & top 100 companies of regional level under the segment of
CPG/FMCG. As per the market data CPG market will have a $220 billion size by
2025, i.e. 23% of total grocery retail, but, we will have 78% market
which is full of opportunities for our new regional & local players. For ease of my write-up, I am taking Food
& Grocery in the CPG which will have $978 bn market by 2025, and
accordingly will talk about it here. Again refining it to a digestive level I can
forecast that 30% market will be driven by Staples in Bulk, upto this size let
me be conservative.
we will have a $685
bn evolved CPG market size by the end of 2025.
( $978bn - 30% of $978bn= $685bn).
Who will be the contributor to this rally?
Interestingly,
in recent years, we have seen tremendous development in this segment. The
startup ecosystem is also giving acceleration by way of bringing technology-led
disruptions. We have seen brands directly approaching consumers, these D2C
brands are creating a big funnel. Brands like Mamaearth, beardo, Nykaa,
and Sugar cosmetics are doing wonderful, as per market sources more than 800+ D2C brands are available in the Indian grocery
market. Likewise, regional players are introducing their
products in various categories. On the other side, eB2B startups are working
directly with retailers and claiming to give direct reach to brands. As per the
eB2B startups, Brands do need not to work for the development of their
distribution channel. Startups like Udaan created a big platform of retailers
through their 35+ state-level hubs. More than 1000 eB2B startups are working in
bits and pieces across the country but still, they are not able to place new
brands at retailer’s stores i.e. offline/GT. Traditional distribution plays an
important role when we talk about wide coverage and penetration. Here
would like to mention that we should not take the success of D2C brands as they
are penetrating through e-Commerce marketplaces but, has limitation in scaling
business volume in the short run. D2C brands also start facing problems in
terms of visibility which customers want to physically check, look and feel. I
will cover their problems in my next write-up.
So
far 5000+ brand companies already working in various segments. Some of them are
at the regional level but most have a presence in their local territories. During Covid i.e. the year 2020 and post-Covid it is said that more than 10000 FMCG & food brands came but 90% of them could not do much or could not make them sustainable, resulting in leaving the market before taking their first breath. (it is an estimate, however, there is no reliable data available)
Why did this happen to them? What
are the challenges they have to face or they could not make their way
long?
It
is very imperative to understand the root cause. If I am a manufacturer or
a brand owner my aspiration will be totally to create a brand that will give me
a good name, fame, and profit. I will go with the traditional and modern
distribution system in the country and will make my brand available at each
Kirana store/ standalone supermarket and online availability i.e. will have an
Omni channel presence in the market.
Still,
there is a long list to outline the problem side but I will start with the
following points how these issues make a stuck in dealing with these problems
and what is next with them as a solution. Making a product market fit always remains a challenge for new brands but it is going tougher day by day because of new developments by the big corporate houses, startups, and emerging corporates. The Challenge of competition is good but if big fishes are in the pond then we will have to
understand the situation of small fish also. This will have happened to them and it will remain there.
It is up to the brand to choose the best distribution channel for their products but sometimes it depends on the nature of the products and how strongly it is placed in the overburdened category. It is always advisable to go for a thorough market survey before a manufacturer introduces their products to the market. Many marketers now talk about working with Omni channel, i.e. brand has to be everywhere from offline to online and vice versa. That’s why I mentioned that market fit should cover all these topics well before introducing the product in the market.
Let’s put some focus on the problem side faced by the brand manufacturers or brand owners in making their product-market fit.
·
Challenge in creation of traditional distribution channel – Business / ROI
·
Indifference mood of retailers is a placement obstacle – Space & competition
·
Conflict between market channels – GT/MT/E-com
·
Manpower is one of the big issues – retention
·
High demand creation cost – Pull strategy
·
No call for action medium available in an initial marketing campaign – Focused marketing strategies
·
High cost of Technology intervention - Sales order application & Data Analytics
·
Impatience behavior of brand owner - Valuation, aspiration to make the venture successful in a short time.
The
first challenge is when we are going to identify the potential distributor(s)
for our brand/product. There you will find that the selection process is very
time-consuming and it needs rounds of meetings and getting into the boat of
distributors. Since the distributor is facing their existence issues working
with the existing brands, Struggling to match up the ROI, somewhere insecurity
is there in their mind. As a brand owner first of all you need to download the
brand vision to your potential distributors and should assure them that your
brand is going to add value to their business and you will work on streamlining
the processes and will bring ease of doing. You are there with them, may
talk to retailers and convince them to provide space at the retailer’s stores
and further will assist them in demand creation. More than product retailers
need commitment From you. In this, do not create channel conflict in the first
go. Go one by one.
Omni
channel no doubt is an opportunity for you but your hurry will make your brand
out of the market sometimes so there you have to go wisely. Follow the steps:
The
journey of any new brand starts with the native city of the promoters. As a
businessman or entrepreneur, you are following the business process and
marketing practices and accordingly did the pilot run. If your product is
a 'minimum
viable product' and passed all the necessary market fit exercises then
definitely you are working in the right direction. Earlier say 15 years back,
brands have to go with GT stream because there was no modern trade/ E-comm
penetration available. Don’t copy others, copycat always lags behind while
making their strategies.
Firstly:
If you are doing general trade (GT) in the open market in your native city,
then you should not go there for channel conflict i.e. not go with modern trade
placement or e-com platforms like Amazon/ Flipkart. Do not place your product
with supply chain aggregators eB2B platforms however, it depends on the volume
of business. Everything depends on the pace of executing things as per the
strategy.
Second: You should not be like the frog in the Well. If you are working great in the GT market, then you don’t need to go with other channels with the same product SKU size & pricing. If your same product is available everywhere but there is price variation at the end of consumer, then you are going to cannibalize your brand. Try different product sizes and MRP if you want to place your product in modern trade or e-commerce platforms or other marketplaces. This will help you to maintain the pricing and your large market i.e. GT will not face price conflict. Always avoid conflict between market
channels.
Third:
My suggestion, is don’t be part of the crowd, go out to another market, and try
your product in an e-commerce platform or modern trade. The same is for small
brands to go with selected A/B retail stores and standalone supermarkets in
said market. If you have good liaising and you can convince modern trade
retailers or e-commerce platforms you can place your product there. This will
help new brand owners to create awareness among consumers. Centralized marketing
expenditure will help you to leverage from there. Don’t be frog of the same
Well.
Lending: Another
main key driver of distribution is lending and logistics which the distributor
has to do, in the current scenario, his main job is lending and logistics. But,
the market took a different shape post covid in a different direction.
Distributors are not interested to take credit exposure from retailers anymore.
I have seen it in tier I & II cities. Almost 50-70% of sales are happening
against COD or PDC maximum of 7 days. This is going to be a hurdle for new
brands because without credit exposures Retailers are not going to entertain
them by not giving space in their stores/shops, and even personal relationship
of distributors is not going to work, hence the placement of these brands will
not happen. Here you have to take a calculated risk on account of providing
adequate credit to distributors so that the same thing they replicate with the
retailers while making sales. However, again time will come for old practices
to follow. The distributor has to follow the SLL ( Sale, Lending &
Logistics) process if they want to remain in this line of business otherwise
soon companies will go with the eB2B startups but still it will take a minimum of
ten years or more to have such changes. Expanding by 2030 50% of traditional
distributors will emerge as organized distributors and big organizations will
come as distribution aggregation platforms.
RTV
Policy: The third one is dealing with the RTV (return to
vendors). Retailers don’t want to entertain those brands having no RTV
policies. They don't want to be the shit cleaner in case brands have no demand
or it gets expires on the shelf. In the current era, distributors are not in
the mood to test the market and suffer losses due to the goods' returns from
retailers. Here brands have to come with open minds and should clearly
communicate the RTV policy to their distributors and retailers. Take risks, and
build margin in your products so that you as a brand can sustain the setback of
expiry products.
Inventory
burden: Forth major pain distributors have to suffer from is
carrying stock levels at their warehouses. They are working with various
brands, and as per the nature of product and consumer demand, they have to
maintain a minimum stock level at their warehouse. Sometimes they have to
work with 15 days’ inventory cycle which is high if the said distributor is
doing a sizeable business in the territory. As a brand owner, you will have to
understand the pain point of the distributor. Hence try to maintain an
on-demand stock replenishment system and how quickly you can build a robust
supply chain.
Dealing
with various stakeholders: Though this is related to the
personal issues of distributors we have to understand how this is going to
affect the external stakeholders or also to distributors in a big
way. Sometimes we don’t evaluate the time factor but it matters a lot when
it is related to a businessman or entrepreneur. After all, time is money.
Distributors are working with 5-10 brands because without if they are not able
to maintain their ROI, they will be out of it. They are dealing with say 8
brands. Naturally, the Area sales manager/ ZSM/brand owner/ Salesmen of these
eight brands stay in touch with him on a daily basis because each one has their
own interests, market developments, and interactions with business prospects.
Dealing with various company personnel and sometimes they involve in BTL
marketing activities like POP deployments at retail stores and arranging market
visits for company officials. I will request you to sit for at least 3 hours to
4 hours at your distributor’s office. You will see, he is only communicating
with the officials where they only talk about the target, scheme, and beat-wise
sales strategy. So, hardly they don’t spare time to think about their business
and its future development. I mentioned this thing here so that at the
time you are going to select your distributors you must know how many brands he
is dealing with, and go with small & mid-size distributors. Instead of
daily follow-up with the Distributors go with a weekly session if you are an
ASM/ or working as RSM. Or you have to go with aggregators who are doing DTR as
organized distributors.
Marketing
Support: Placement of products either at the distributor’s
warehouse or retailer’s store by the distributors can be done initially using
the personal reputation/relationship of your distributors but what is
thereafter. As brand owners, a few companies are working on aggressive
marketing support which they provide to their distributors and helping them
wisely. But, many distributors go out of sight just because some brands do not
understand the importance of marketing/demand creation/awareness in the focus
market. Forget about building a brand if you are not doing demand-creation
activities. In this dynamic era of marketing, everyone has to spend 50% of
capital/ share of profit doing various activities. So plan your marketing
wisely. Hire a good marketing agency that will guide you and will do the
required PR activities at a marginal cost. Don’t hesitate to do this even at a
low cost or being low profile.
Retailers are playing an important role in
grocery retailing. Retailers know everything about their consumer, their
shopping habits, customs, rituals, festivals, and financial status. As per
open market data, 14 million retailers are part of Kirana retail in India.
These mom & Pop stores/ Kirana stores are BIG contributors to our
national GDP, something around 11%, and also one of the largest employers,
contributing up to 8%, thus, we can understand the importance. Still,
Indian grocery retail is dominated by these unorganized retailers, 95% market
is in the hand of these Kirana retailers (for overall retail it is
85%). This would be an irony if we talk about their poor infrastructure,
have you seen them working in a 150-200sqfeet shop, filled with 350-500 SKUs
and so much unorganized in terms of merchandising of goods?
We can see the development happening in
other formats of retails but why Kirana retail is still so
unorganized? Various Eb2b STARTUPS are claiming to empower them in various
ways. The retailer is running his store in the same space which he
was running 20 years back or 15 years back when there were limited assortments
and limited brands. Now, after the emergence of technology and tech-driven
marketplaces, and globalization of the supply chain, there is a change in
consumer preferences and habits. Brands emerged and evolved
themselves as per the need of end consumers but the main partner of the whole
supply chain i.e. Retailers is still living in the old era.
Despite various development going on in
this segment but Retailer is still in the middle of a dilemma and finding
himself surrounded by various consumer-driven developments. This has brought
some stiff competition for him and day by day losing business. The main culprit
of his unrest is the online commerce and big box i.e. standalone retail giants
like Reliance Smart, D-Mart, Local-Mart, Ratandeep, Vishal-mega mart, V-mart,
and many other standalone supermarkets, and now a big threat is coming in the form
of Q-commerce, an impulsive need base supply chain.
The main points of Retailer’s indifferent
moods are:
·
Diversion of end consumers to other platforms - Business loss due to low product assortment & unhygienic condition of the store.
·
Limited Store size – Limited Assortment i.e. not able to fulfill the evolved need of consumers.
·
Limited Working Capital cycle – Cash payments to Supply chain partners
·
Erosion in gross margin due – Not getting good deals from Brands
·
Store is unorganized – need to revamp / Facelift
The above main Five elements are making him
negative, however, a long list is there. He needs energy from the inside to do
something new. New CPG brands definitely bring good taste to his margin
but the limited space of his shop and indifferent mood is making him annoyed
all the way.
New Brands owners need to first identify a
good channel partner who can extend adequate credit with a feasible RTV policy
to retailers then only retailers will show interest in onboarding new brands
and provide product placement and visibility at their stores.
In
nutshell –
·
Challenge in creation of traditional distribution channel – Business / ROI
·
Indifference mood of retailers is a placement obstacle – Space & competition
·
Conflict between market channels – GT/MT/E-com
·
Manpower is one of the big issues – retention
·
High demand creation cost – Pull strategy
·
No call for action medium available in an initial marketing campaign – Focused marketing strategies
·
High cost of Technology intervention - Sales order application & Data Analytics
·
Impatience behavior of brand owner - Valuation, aspiration to make the venture successful in a short time.
The
first challenge is when we are going to identify the potential distributor(s)
for our brand/product. There you will find that the selection process is very
time-consuming and it needs rounds of meetings and getting into the boat of
distributors. Since the distributor is facing their existence issues working
with the existing brands, Struggling to match up the ROI, somewhere insecurity
is there in their mind. As a brand owner first of all you need to download the
brand vision to your potential distributors and should assure them that your
brand is going to add value to their business and you will work on streamlining
the processes and will bring ease of doing. You are there with them, may
talk to retailers and convince them to provide space at the retailer’s stores
and further will assist them in demand creation. More than product retailers
need commitment From you. In this, do not create channel conflict in the first
go. Go one by one.
Omni
channel no doubt is an opportunity for you but your hurry will make your brand
out of the market sometimes so there you have to go wisely. Follow the steps:
Don't be the frog of the Well.
The
journey of any new brand starts with the native city of the promoters. As a
businessman or entrepreneur, you are following the business process and
marketing practices and accordingly did the pilot run. If your product is
a 'minimum
viable product' and passed all the necessary market fit exercises then
definitely you are working in the right direction. Earlier say 15 years back,
brands have to go with GT stream because there was no modern trade/ E-comm
penetration available. Don’t copy others, copycat always lags behind while
making their strategies.
Firstly:
If you are doing general trade (GT) in the open market in your native city,
then you should not go there for channel conflict i.e. not go with modern trade
placement or e-com platforms like Amazon/ Flipkart. Do not place your product
with supply chain aggregators eB2B platforms however, it depends on the volume
of business. Everything depends on the pace of executing things as per the
strategy.
Second: You should not be like the frog in the Well. If you are working great in the GT market, then you don’t need to go with other channels with the same product SKU size & pricing. If your same product is available everywhere but there is price variation at the end of consumer, then you are going to cannibalize your brand. Try different product sizes and MRP if you want to place your product in modern trade or e-commerce platforms or other marketplaces. This will help you to maintain the pricing and your large market i.e. GT will not face price conflict. Always avoid conflict between market
channels.
Third:
My suggestion, is don’t be part of the crowd, go out to another market, and try
your product in an e-commerce platform or modern trade. The same is for small
brands to go with selected A/B retail stores and standalone supermarkets in
said market. If you have good liaising and you can convince modern trade
retailers or e-commerce platforms you can place your product there. This will
help new brand owners to create awareness among consumers. Centralized marketing
expenditure will help you to leverage from there. Don’t be frog of the same
Well.
Lending: Another
main key driver of distribution is lending and logistics which the distributor
has to do, in the current scenario, his main job is lending and logistics. But,
the market took a different shape post covid in a different direction.
Distributors are not interested to take credit exposure from retailers anymore.
I have seen it in tier I & II cities. Almost 50-70% of sales are happening
against COD or PDC maximum of 7 days. This is going to be a hurdle for new
brands because without credit exposures Retailers are not going to entertain
them by not giving space in their stores/shops, and even personal relationship
of distributors is not going to work, hence the placement of these brands will
not happen. Here you have to take a calculated risk on account of providing
adequate credit to distributors so that the same thing they replicate with the
retailers while making sales. However, again time will come for old practices
to follow. The distributor has to follow the SLL ( Sale, Lending &
Logistics) process if they want to remain in this line of business otherwise
soon companies will go with the eB2B startups but still it will take a minimum of
ten years or more to have such changes. Expanding by 2030 50% of traditional
distributors will emerge as organized distributors and big organizations will
come as distribution aggregation platforms.
RTV
Policy: The third one is dealing with the RTV (return to
vendors). Retailers don’t want to entertain those brands having no RTV
policies. They don't want to be the shit cleaner in case brands have no demand
or it gets expires on the shelf. In the current era, distributors are not in
the mood to test the market and suffer losses due to the goods' returns from
retailers. Here brands have to come with open minds and should clearly
communicate the RTV policy to their distributors and retailers. Take risks, and
build margin in your products so that you as a brand can sustain the setback of
expiry products.
Inventory
burden: Forth major pain distributors have to suffer from is
carrying stock levels at their warehouses. They are working with various
brands, and as per the nature of product and consumer demand, they have to
maintain a minimum stock level at their warehouse. Sometimes they have to
work with 15 days’ inventory cycle which is high if the said distributor is
doing a sizeable business in the territory. As a brand owner, you will have to
understand the pain point of the distributor. Hence try to maintain an
on-demand stock replenishment system and how quickly you can build a robust
supply chain.
Dealing
with various stakeholders: Though this is related to the
personal issues of distributors we have to understand how this is going to
affect the external stakeholders or also to distributors in a big
way. Sometimes we don’t evaluate the time factor but it matters a lot when
it is related to a businessman or entrepreneur. After all, time is money.
Distributors are working with 5-10 brands because without if they are not able
to maintain their ROI, they will be out of it. They are dealing with say 8
brands. Naturally, the Area sales manager/ ZSM/brand owner/ Salesmen of these
eight brands stay in touch with him on a daily basis because each one has their
own interests, market developments, and interactions with business prospects.
Dealing with various company personnel and sometimes they involve in BTL
marketing activities like POP deployments at retail stores and arranging market
visits for company officials. I will request you to sit for at least 3 hours to
4 hours at your distributor’s office. You will see, he is only communicating
with the officials where they only talk about the target, scheme, and beat-wise
sales strategy. So, hardly they don’t spare time to think about their business
and its future development. I mentioned this thing here so that at the
time you are going to select your distributors you must know how many brands he
is dealing with, and go with small & mid-size distributors. Instead of
daily follow-up with the Distributors go with a weekly session if you are an
ASM/ or working as RSM. Or you have to go with aggregators who are doing DTR as
organized distributors.
Marketing
Support: Placement of products either at the distributor’s
warehouse or retailer’s store by the distributors can be done initially using
the personal reputation/relationship of your distributors but what is
thereafter. As brand owners, a few companies are working on aggressive
marketing support which they provide to their distributors and helping them
wisely. But, many distributors go out of sight just because some brands do not
understand the importance of marketing/demand creation/awareness in the focus
market. Forget about building a brand if you are not doing demand-creation
activities. In this dynamic era of marketing, everyone has to spend 50% of
capital/ share of profit doing various activities. So plan your marketing
wisely. Hire a good marketing agency that will guide you and will do the
required PR activities at a marginal cost. Don’t hesitate to do this even at a
low cost or being low profile.
The retailer is
king and playing an important role in the hyperlocal & last-mile Supply
chain, he will remain king even after Indian retail turn 50% organized. Retailers shall remain forever
Retailers are playing an important role in
grocery retailing. Retailers know everything about their consumer, their
shopping habits, customs, rituals, festivals, and financial status. As per
open market data, 14 million retailers are part of Kirana retail in India.
These mom & Pop stores/ Kirana stores are BIG contributors to our
national GDP, something around 11%, and also one of the largest employers,
contributing up to 8%, thus, we can understand the importance. Still,
Indian grocery retail is dominated by these unorganized retailers, 95% market
is in the hand of these Kirana retailers (for overall retail it is
85%). This would be an irony if we talk about their poor infrastructure,
have you seen them working in a 150-200sqfeet shop, filled with 350-500 SKUs
and so much unorganized in terms of merchandising of goods?
We can see the development happening in
other formats of retails but why Kirana retail is still so
unorganized? Various Eb2b STARTUPS are claiming to empower them in various
ways. The retailer is running his store in the same space which he
was running 20 years back or 15 years back when there were limited assortments
and limited brands. Now, after the emergence of technology and tech-driven
marketplaces, and globalization of the supply chain, there is a change in
consumer preferences and habits. Brands emerged and evolved
themselves as per the need of end consumers but the main partner of the whole
supply chain i.e. Retailers is still living in the old era.
Despite various development going on in
this segment but Retailer is still in the middle of a dilemma and finding
himself surrounded by various consumer-driven developments. This has brought
some stiff competition for him and day by day losing business. The main culprit
of his unrest is the online commerce and big box i.e. standalone retail giants
like Reliance Smart, D-Mart, Local-Mart, Ratandeep, Vishal-mega mart, V-mart,
and many other standalone supermarkets, and now a big threat is coming in the form
of Q-commerce, an impulsive need base supply chain.
The main points of Retailer’s indifferent
moods are:
·
Diversion of end consumers to other platforms - Business loss due to low product assortment & unhygienic condition of the store.
·
Limited Store size – Limited Assortment i.e. not able to fulfill the evolved need of consumers.
·
Limited Working Capital cycle – Cash payments to Supply chain partners
·
Erosion in gross margin due – Not getting good deals from Brands
·
Store is unorganized – need to revamp / Facelift
The above main Five elements are making him
negative, however, a long list is there. He needs energy from the inside to do
something new. New CPG brands definitely bring good taste to his margin
but the limited space of his shop and indifferent mood is making him annoyed
all the way.
New Brands owners need to first identify a
good channel partner who can extend adequate credit with a feasible RTV policy
to retailers then only retailers will show interest in onboarding new brands
and provide product placement and visibility at their stores.
In
nutshell –
“Dhanda rahega to aatmvishvas bana rahega, Deemag open rahega aur
naye development honge”
When we write something on Kirana retail, many things cook simultaneously because various developments are going on there and the center of the axis is the Retailer who is most affected, without his intervention Brands will not go large in market coverage and will not
penetrate to the last consumers.
Stakeholders involved in the retail
distributions are:
CFA | Super stockiest |Distributors |
Vertical |Retailer | eB2B Startup | Horizontal | D2C | Quick –
Commerce | Social Commerce | Super & Hypermarket stores
| Online- Marketplaces | B2C startups | Price Cutters
| Wholesalers
Equation
Retail = 85% unorganized
+ 15% Organized
Technology Intervention and
associated cost
We can’t deny the intervention of
technology. Without it, we can’t think of scaling our business beyond the pilot
city. Choosing suitable IT tools is one of the important tasks for every
business entity. As a new brand if you are going with e-com trade then
there will be proper visibility of last mile activities, and as a new brand,
you can be benefited from the accessible data touch points and use it further
for enhancing the capabilities. But, if you are planning to go through a
traditional channel then choose a SaaS-based or proprietary solution. If
you are a new brand entrant, I will not suggest going for a proprietary
solution. The market is flooded with evolved categories of warehousing,
distribution & supply chain-driven IT tools, market leaders are Bizom,
Kirana King & many more. Efficient, evolved solutions of DMS and WMS are
already in place and competitive in terms of cost. Try to find out the solution
which provides you with complete solutions from demand creation to delivery and
inventory holding to secondary sales.
Actionable
I
would say that challenges will remain for new brands in CPG segment whether it
comes from the organized trade or unorganized but the journey through retailers
is going to be tougher day by day. No doubt, new brands come with innovation
and bring a good margin spread for the entire value chain, but here we have to
understand how these channels are going to welcome new brands and what special
things they have to drive. Few things will help new brand
owners and manufacturers when they are going to market with the right GTM
strategy.
- Market centric - Start with your
pilot city. Live all the things which you are carrying in your business model
whether it is related to revenue streams, marketing & technology
interventions. Do not rush to other cities without that otherwise, it will be a
costly affair and one will go out of cash anytime in between and will be out of
the market. - Retailer’s Delight: Your direct interaction is with the Retailer so it should be in mind how you aregoing to provide the best peace of mind in your dealing. Three main things are in the retailer’s delights. Good Margin, Free Samples, Quality Assurance, Convenient availability, best RTV policy, Credit period assurance, and fast redressed of consumer complaints. If, being a new brand you take of retailer’s delight, in return they will help you establish your brand in their neighborhood
- Placement Strategy: Placement of products in the focus market always go as per the business strategy but I will suggest adopting either strategy, one is “Deep down” and the other is “Selective”. In deep-down strategy brands go with the entire market, here you need to start placement from the smallest shop, then small shop, medium shop, and then to A&B&C class shops, and start placement at each retail store irrespective of class or category. If you are driving your strategy as Selective, then you need to go with selected stores but such stores should be in strategic locations or should have a proper consumer base. Their high-end consumers will help you establish your brand in an upper segment so while selecting these shops go with the colony Kirana leaders.
- Call for Action: in Deep down placement strategy call for action become an easy tool to inform end consumers to buy your products from nearby retailers but when going with a Selective placement strategy you will find difficulties because you don’t have any uniform name where the call for action option can be exercised. To overcome this issue, you need to go with branded i.e retail chain stores. Like the Franchise store chain of kiranaking in Jaipur, Ratandeep chain in Bangalore and Hyderabad, Localmart in Gujarat, and many more standalone supermarkets like big box retailers.
- Distribution Channel: Always go with traditional distribution channels, for placement of new brands at the retailer’s store these names will be useful and they will help in cities in Tier 3rd and onward and rural areas. In Tier I, II cities many EB2B startups and logistics companies are doing DTR but they are not able to place new brands with the retailers. Before finalizing a traditional hyperlocal distributor channel partner, you need to go with a proper agreement that the distributor will extend adequate credit to retailers and shall comply with the RTV policy on time. In the same way, you need to give proper credit to your distributors. I will also advise you to go with distribution aggregation platforms that are working closely with Retailers, and distributors and have worked on unified technology platforms. You being a new brand owner don’t need to go for developing Distribution channels. Now, Startups are working, go with them, this will save you time for Go-To- market and in a short period of time will help to make your product market fit. Still, 40 % market is catered by formal channels but an informal channel of wholesalers is driving the secondary market in a big way. Though there is no direct feeding by the Brands, they buy their stuff from
distributors or under cutters and further serve the small retailers. - Marketing & PR: Wise use of social media is going dynamics these days. You don’t need to spend money on traditional marketing tools of ATL/BTL but today we can’t underestimate the uses of social media. Route your PR activities through social media. I have seen NCR-based startup ‘country delight’, they did the best use of social media and are now a well-known name in a very short period of time.
Soon
FMCG/CPG market is going horde, thousands of new brands will be visible in the
market, and they will definitely bet on their luck and will as usual try to do
their product market fit, however, some of them will be for short period, some
will struggle and few will get the best pulse of consumers and will succeed to
establish themselves as a brand.
The definition of CPG will be altered and
food &
I
am sure despite so much struggle for new brand entrants, they are going to
contribute to our GDP in a big way. This will surely help to achieve
food &
staples will be included in the new definition. Soon,
CPG/FMCG will have a one-word “Grocery”.
I
am sure despite so much struggle for new brand entrants, they are going to
contribute to our GDP in a big way. This will surely help to achieve
India would become
$5 trillion economy in the next 5 year and the contribution of new CPG brands will be
there
* Disclaimer: Data and market projections are based on the development going on in the market, however, size may vary from the given numbers depending on the actual scenario of retail at the said time frame in the future.
The article was written on : 10th, oct, 2022 in Jaipur. It will be published on Linkedin by 29 or 30th October 2022. you may get the link from here: https://www.linkedin.com/in/indiaretail
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