Some Myths In Food Retailing - India Explored

The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators Private Limited Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

What we all know by now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Then Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

So what’s new? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

• Store Ambience • Better Lighting • Better Ventilation & Sanitation • Better Displays • Organized Racks • Better Inventory availability • More Branded options • Including private and store labels Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

What the reports would like you to believe • Modern = Better & Cheaper • Shorter Supply Chain = Saves Money • Bigger = More Efficient • Consolidation Better than Fragmentation Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

But is it all hunky dory? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Let’s Examine some of these myths Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Myth 1: Modern = Cheaper Cheaper Myth 1: Modern = Better = • Did you know that India has some of the cheapest distribution systems in the world ? • Where part carton pack is the standard • Where you can buy a single stick of cigarette or a sachet • Did you know that in traditional stores, the margins from Factory to Customer are still less than 20% ? • Including Freight, C&F Agent charges/ CST, where applicable Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

How does that obtain? • Our traditional distribution systems are driven by self-employed people • Often operating from home servicing about 400- 500 stores in a small 5 kilometer radius • Operate on low overheads Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

A Typical Distributor His home His Garage Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

A Typical Retailer Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Our Findings- Price stackup Traditional Grocers & General Stores MRP 100.00 Basis Retailer Margin 9.09 10% Mark up VAT 1.14 12.5% on Retailer Margin Retailer Landed Cost 89.77 Dist Mrg 5.08 6% Mark up VAT 0.64 12.5% on Dist. Margin Dist Landed Cost 84.06 Company VAT 9.34 12.5% Mark Up Gross Sales Income (GSI) 74.72 C&F Agent / Frt Charges 3.74 5% on GSI Net Sales Income(Incl ED) 70.98 Excise Duty+ Edu Cess 9.79 16.32% of 60% of MRP Net Sales Income 61.19 200 Stores/ 3 Cities Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

By comparison, Modern trade takes out 25% of MRP Excluding Freight, C&F Agent charges / CST Modern Trade MRP 100.00 Basis Retailer Margin 25.00 25% Margin VAT 3.13 12.5% on Retailer Margin Ret Landed Cost 71.88 Dist Mrg 0.00 VAT 0.00 Dist Landed Cost 71.88 Company VAT 7.99 12.5% Mark Up Gross Sales Income (GSI) 63.89 C&F Agent / Frt Charges 3.19 5% on GSI Net Sales Income(Incl ED) 60.69 Excise Duty+ Edu Cess 9.79 16.32% of 60% of MRP 50 Stores/ 3 Cities Net Sales Income 50.90 Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Implication? If • Cost of Manufacturing is given • And if Modern Trade takes larger margins Then • As % of sales from Modern trade goes up, Surely MRP will go up? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Myth 2: Shorter Supply Chain= VFM • Typical Freight cost in most FMCG/ Processed foods companies is less than 5% of ex-factory price – At current prices, India works on 0.75% per day of transport. – No part of this country is more than 7 days from any other part • Shrinkage of chain in processed foods ??? – Too many regional variations in cuisine for 1 national supplier – Not enough volumes to justify consolidation of capacity with national supply chain – No national supply chain can improve on the ability of the local distributor to predict the requirements of his locality Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Siemens/ IIM Bangalore Study of Grocery Chain Value is added only on wastage & handling losses! Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Myth 3: Bigger is Cheaper • Most traditional Indian stores are owner run • Staff are often relatives & home-town folk – Both result in lower overheads • Most Indian grocers are operating out of owned, not rented premises – Lower cost of operations • By Comparison, Modern Format retailers spend upto • 7% on Rent • 3% on Salaries & Admin Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Our Survey Comparison Traditional Grocer Modern Trade • Better Refrigeration • Less Inventory • Better Lighting • Less Display and Lighting • Better Hygiene • More Personalized – Rent: Negligible – Rent: 5-7% – Salaries: 2% – Salaries : 3-4% – Overheads: 0.5% – Overheads: 2% Who’s going to pay for this additional cost? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Myth 4: Consolidation is Better • Even Metro SEC A and A+ working women (Who count only for 6% of Metro audience) do not bother – 70% still shop at traditional grocer – On an average, make 4 visits to the store, – Over 50% keep monthly “khata”- Credit • If Urban infrastructure / travel is becoming more congested Would you rather travel 2km or 200 yards? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Implications for Marketers & Consumers Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

People can eat only that much even as they become more affluent! Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

So is all this hype about the top? Top 3 : 6 m HH 3% of Population Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Food for Thought • If Retail rental rates stay crazily high – As they are in India right now • If there is herd mentality in rush to retail – As evidenced in India right now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

In short-shelf life products , wastage reduction may move consumers from traditional retail Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

But in ambient temp, shelf stable products, Kirana will remain king • For most FMCG / processed product companies, price-value economics require to keep addressing the base of the pyramid • To address even the middle of the pyramid, wide-spread reach and availability at the nearby grocer at low costs of supply chain will remain critical Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Time to Question, Validate, Or Repudiate some of these Myths ? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd

Some Myths In Food Retailing - India Explored

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