The Role of Modern Retail in Foods Retailing

                                                                 Some Myths ...
What we all know by now




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                  ...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
Then




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2...
Now




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 20...
Then




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2...
Now




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 20...
Then




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2...
Now




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 20...
So what’s new?




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th N...
• Store Ambience
                  • Better Lighting
                  • Better Ventilation & Sanitation



      • Better...
What the reports would like you to believe

   • Modern = Better & Cheaper


   • Shorter Supply Chain = Saves Money


   ...
But is it all hunky dory?




Modern Retail Myths Explored.        AIFPA Conclave, New Delhi
                             ...
Let’s Examine some of these myths




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                        ...
Myth 1: Modern = Cheaper Cheaper
                         Myth 1: Modern = Better =

     • Did you know that India has so...
How does that obtain?


    • Our traditional distribution systems are
      driven by self-employed people

    • Often o...
A Typical Distributor
                                          His home




                                    His Garag...
A Typical Retailer




Modern Retail Myths Explored.          AIFPA Conclave, New Delhi
                                  ...
Our Findings- Price stackup
            Traditional Grocers & General Stores
MRP                         100.00           ...
By comparison, Modern trade takes out 25% of MRP
                 Excluding Freight, C&F Agent charges / CST
             ...
Implication?
  If
  • Cost of Manufacturing is given
  • And if Modern Trade takes larger margins



  Then
  • As % of sa...
Myth 2: Shorter Supply Chain= VFM

   • Typical Freight cost in most FMCG/ Processed
     foods companies is less than 5% ...
Siemens/ IIM Bangalore Study of Grocery Chain




 Value is added only on wastage & handling losses!
Modern Retail Myths E...
Myth 3: Bigger is Cheaper

    • Most traditional Indian stores are owner run
    • Staff are often relatives & home-town ...
Our Survey Comparison

                                             Traditional Grocer
      Modern Trade
      • Better R...
Myth 4: Consolidation is Better
• Even Metro SEC A and A+ working women
  (Who count only for 6% of Metro audience) do not...
Implications for Marketers & Consumers




Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                   ...
People can eat only that much
                  even as they become more affluent!
Modern Retail Myths Explored.     AIFPA...
So is all this hype about the top?


     Top 3 : 6 m HH
     3% of Population




Modern Retail Myths Explored.          ...
Food for Thought


      • If Retail rental rates stay crazily high
                        – As they are in India right n...
In short-shelf life products , wastage reduction may
            move consumers from traditional retail
Modern Retail Myth...
But in ambient temp, shelf stable products,
                        Kirana will remain king

  • For most FMCG / processed...
Time to Question,
                                        Validate,
                                      Or Repudiate
   ...
Modern Retail Myths Explored.     AIFPA Conclave, New Delhi
                                     16th November, 2007
©Coll...
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Some Myths In Food Retailing - India Explored

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Presented in Dec 1997, before the retail meltdown commenced.

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Some Myths In Food Retailing - India Explored

  1. 1. 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
  2. 2. What we all know by now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  3. 3. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  4. 4. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  5. 5. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  6. 6. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  7. 7. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  8. 8. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  9. 9. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  10. 10. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  11. 11. Then Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  12. 12. Now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  13. 13. Then Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  14. 14. Now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  15. 15. Then Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  16. 16. Now Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  17. 17. So what’s new? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  18. 18. • 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
  19. 19. 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
  20. 20. But is it all hunky dory? Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  21. 21. Let’s Examine some of these myths Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  22. 22. 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
  23. 23. 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
  24. 24. A Typical Distributor His home His Garage Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  25. 25. A Typical Retailer Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  26. 26. 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
  27. 27. 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
  28. 28. 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
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. Implications for Marketers & Consumers Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
  35. 35. 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
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40. 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
  41. 41. Modern Retail Myths Explored. AIFPA Conclave, New Delhi 16th November, 2007 ©Collabrant Incubators Pvt. Ltd
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