Food for thought

Lately, the food category within FMCG has been the centre of a lot of action. The kind of innovation seen in packaging, tastes, and even in the complete product category has been mind-boggling. What is heartening is that both the customer and the consumer have taken to most of these in the most positive ways. However, along with the opportunity comes a certain set of challenges. Let us take a look at some of them:

Diverse tastes

Varied eating habits and preferences in India make it a challenging but lucrative terrain for vendors and retailers alike. While consumption of milk and milk based products is extremely high in northern states, it is rice which takes the cake in southern part of the country. Such variations call for retailers to be extremely nimble-footed and alive to the local demands. At the end of the day, for a customer, a national retailer is only as good as the range and availability it offers on daily basis.

Preference for home-cooked food

This one can be a nightmare for “ready-to-eat” food makers!! The Indian customer, as opposed to his counterpart from more developed nations, still prefers home-cooked fresh food and avoids ready to eat and packaged offerings. Over the years, dietary patterns and poor electricity supply have resulted in these preferences. Further, there is also resistance to paying a monetary premium for the packaging and brand.

Low acceptance of private labels

Even though private labels have been around for 4-5 years, they are still an evolving concept. While the potential for profits to retailers is huge, strong loyalties in food category might act as a deterrent.

Possible solution for retailers:

• For each category, begin with a single facing in the category shelves and keep increasing the same over every 3 months.
• Retain eye-level shelves for private labels

The chances of success in private labels are higher in case of non-food products where the customer might be willing to compromise the quality-angle for a better price, packaging or promotion. Retailers often back their private label offerings in foods with aggressive promotions like a 2+1 on cheese. However, here again there is a limitation on how much of a food product like cornflakes, cheese, etc. can be stored in a household without compromising the freshness.

Demanding product knowledge

Food category has been at the forefront of innovation which has led to emergence of new concepts in packaging and labeling, eg, non-veg products carrying a red mark, sugar-free products, etc. This has further led to the need for store staff to be well acquainted with the features of products placed under his/her purview. Lack of adequate knowledge can lead to dissatisfaction of customers, eg, a pure vegetarian might feel offended if he/she is handed an instant noodles pack with chicken flavour (even though by mistake!).

Strong loyalties

As compared to non-foods, sub-categories within the food category are characterised by extremely strong loyalties and hence, new entrants face trial resistance. Two classic examples are tea and baby food. Loyalties to tea are so strong that customers would not even want to go for “in-store sampling” as it might spoil their taste. Similarly, in case of baby foods, one would stick to the tried and trusted offerings instead of experimenting with some of the new launches or the existing “also-rans” in the market.

Categories where customers are willing to experiment are more impulse-driven, like chocolates, confectionery, biscuits and chips/snacks. The sheer variety and flavours attracts customers of all ages, especially kids.

A 2+1 or a Rs 10 off might work wonders at attracting new customers to a newly-launched toilet cleaner, but not so much in case of butter.

Shelf life

All food products carry a “best-before” or expiry date. The time period from manufacturing date to the expiry date signifies the shelf life of each product. One of the key challenges for food retailers is to ensure freshest possible stocks on the shelves and hence, each chain has a remaining-shelf-life norm for food products which ranges from 50 per cent to 80 per cent freshness. On the flipside, it also affects fill rates at times, as fresh stocks of some of the SKUs which are popular in modern trade may not be readily available as they are not popular in general trade.

Possible solutions which can be looked at include:

• Retailers accepting direct store deliveries (especially for hyper/super market formats),
• Vendors keeping separate stocks for modern trade
• Adopt flow-through system of inventory management which means stocks are not stored at the retailers’ warehouse and instead, dispatched to the stores instantly

Further, it makes life easier for both vendors and retailers if the clause of shelf life norm is incorporated in the terms-of-trade or agreement.

Low fill rates

It has been observed at two mid-sized retail chains that the fill rates offered by food vendors are significantly lower as compared to non-foods vendors. We have already covered the case of shelf life norm above, which is one of the important reasons for low fill rates.

Pilferage

Food products like chocolates, confectionery, instant popcorn, etc. are impulse driven items, and hence are prone to pilferage at cash counters. This is a worldwide phenomenon and there is precious little that can be done here, besides having effective display units.

Despite these challenges, foods category remains exciting enough to lead the next phase of growth in the organised retail.