Consolidation & profitability drives FMCG business in India

FMCG or the Fast Moving Consumers Goods sector is the fourth largest sector in the economy, the FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015, according to a report by CII. The segment has a strong MNC presence, also witnessing intense competition between the organised and unorganised segments.

Creating an effective retail structure

FMCG retailers and manufacturers are poised towards a common goal of selling their products right. Today, retailers are not on an expansion spree, but the focus has largely shifted towards consolidation and profitability. And the Indian FMCG customers are in an experimental mood and setting a different pattern when it comes to consumption of products and medium to be used.

To walk together with the retailers, manufacturers are focusing on building a strong supply chain and distribution channel to give end consumer an amazing experience. Both the players are working together to create a productive retail structure globally. The sale at the retail end directly benefits the manufacturer's output and thus overall efficiencies.

Samir Modi, Executive Director, Twenty Four Seven, said, “To build a strong relationship, the manufacturers should keep a margin which should be much higher as compared to today, and backend should be managed well and supported by the manufacturer that can facilitate the modern trade in delivering product to the consumers.” 

On the other hand, manufacturers are regularly working on strategies to increase penetration in all three retail formats through innovative packaging, getting product placed and listed and ensuring continuous availability.

Commenting on the same, Shalin Desai, Deputy Marketing Manager, Parle Products, shared, “We sell 8-10 per cent of our products through direct selling and 25-30 per cent through various distributor channels.”

Deciding on promotions and discounts

The promotions and discounts in each form of retail are based on certain criteria. When a manufacturer or a brand wants to sell its best product easily in the market, it gives discounts and the new launches that hit the shelf are attached with deals and promotions. On the other hand, the retailers or the supermarket players decide promotions based on the shelf life of a particular product or brand. For example, if a particular product is unable to fetch good returns, then the retailer offers heavy discounts and promotions to move that product out of the shelf.

Likewise, shelf life is decided based on these selling points. There is no specific space for a particular segment. The top selling brands are generally kept in front and followed by the new launches.

Vaibhav Singhal, MD and CEO, Savemax, said, “We strategically allocate space to each category based on the turnover contribution and gross margins contribution. This ratio changes over stores based on catchment and category mix. Having said that we focus on our own grocery brands, our private label ‘Purani Dilli’ is the second highest in FMCG-Food.”
Unlocking the eCommerce retailing

FMCG brands hugely use social media channels, community marketing and TVCs to target their TG. But these brands being mostly non durable food brands have not seen much progress in the online platforms. However, major players like Twenty Four Seven, Food Baazar, Total Supermarkets and Savemax may explore the online medium in near future. 

Speaking on the same line, MA Tejani, MD,Gits Food, said, “eCommerce is still at a very nascent stage in the FMCG segment as this segment mainly deals with the food products. eCommerce caters to products which have shelf life and durability but FMCG constitutes a daily consumption of less durable products.”

Modi said, “As people are today focusing on home delivery options and ease of access to the products, I am in the process of setting up my eCommerce platform. But the product that we will be offering through these channels will have a long life and consumption.”

Singhal expressed, “We have not yet gone online. We are working on a right strategy to do that. We intend to tap into technology to provide a better and informed experience to our customers and intend to tap into eCommerce to augment our business in future.”

Building effective supply chain

Supply chain and its fulfillment is the major problem that is faced by the retailers today. The main challenge is about fill rates. It has been observed that the manufacturers are not able to fulfill the demand of stock made by the retailers and thus, many key items are not available during the buying cycle. Also, the manufacturers try to push stock that does not move or is in fact dead stock/old stock. This affects the retailers as the liquidation support is not available from the vendors/distributor channels.

And hence, stock out, high cost of distribution, lower margin, and same company good coming to the market- are creating difficult situation for retailers in India. According to experts, a smooth supply chain can be managed when all things are placed appropriately and evaluated correctly. Both the parties need to understand the weak nerves of the business to overcome these challenges.

Commenting on the same, Vikram Agarwal, Director, GreenDot Health Foods, expressed, “Cornitos business through general trade is growing at the rate of 50 per cent and in modern trade by 30 per cent and we are effectively building a strong supply chain for both the format.”

Entering the Omni-channel space

In the retail context, there is a preferred channel for every stage for a shopper. For example, a person may enter a store to buy a particular product but may change mind and end up buying altogether a different product due to the promotions and discounts on that product.

Thus, to understand the customer’s choice, an omni-channel platform offers retailers as well as manufacturers a holistic approach to reach consumers with a more integrated message. By integrating strategies, insights, sharing of real time data and technology across internal and external teams, retailers and manufacturers can evolve the experience that the end consumer is getting while operating in an omni-channel platform. 
       
This symbiotic relationship can be made stronger by sharing more information about the trend using sharing of data at various levels and doing real time predictive modelling for consumer demand. Thus, the retailer can plan the demand and the manufacturers will be able to optimise their production and deliver in time and in full capacity.