The Hindu Business Line : Turning rivals into allies

With the burgeoning Indian retail industry now placed at $320 billion and expected to cross $600 billion by 2010, the race has just begun. So much so that apart from the raging debate on whether traditional mom-'n-pop stores are being suppressed by the emerging modern retailers, there is a whole new battle in the retail sphere that is ready to erupt — modern retailers, who account for five per cent of the retail market, are planning to start selling their private labels at traditional, neighbourhood kirana stores in competition with prominent fast moving consumer goods companies.

A number of the modern organised retail chains such as Spinach, Reliance and Food Bazaar are gearing up to start supplying products under their private labels, sold through their own retail chain until now, to their older, unorganised counterparts, the neighbourhood mom-'n-pop stores. "We have started the process of supplying our private label products based on demands from certain local grocers. Though we plan to supply the products under the Spinach brand name at present, we are definitely not ruling out the possibility of creating a different brand name once we have created a strong enough brand equity for our products that are being sold through these neighbourhood outlets," said Mr Dippankar S. Halder, CEO of the Mumbai-based Spinach. Spinach, which plans to enter 93 cities with 1,500 outlets by 2011, says that though the game would not be easy, it would be powered by economies of scale, whereby both the FMCG companies and retailer-owned private labels will learn to co-exist.

Food Bazaar, the Future Group-owned supermarket chain, has similar plans, but not for the immediate future. "Selling private label products to local kirana stores might be an option in the future, depending upon the acceptance of these brands by consumers in the company-owned outlets," said Damodar Mall, Head - Food Bazaar Category. Food Bazaar, which has three private label brands — Fresh 'n Pure for products such as atta, ghee and butter, Tasty Treat for jams, pickles, sauces and namkeens (savouries) and Clean Mate for homecare products — said selling them through kiranas would not put the larger FMCG companies into any real trouble , as only a fraction of India's consumption is branded and there is much scope for more brands to enter and build up base in the retail sphere.

Gibson G. Vedamani, CEO, Retailers' Association of India, said, "The future has some very tough times in store for the FMCG companies. These retailer-owned private labels will more often than not have lower prices than what is being offered to the consumers by the established FMCG players. That will compel the big companies to scale down their prices in order to remain in the competition and attract consumers."

According to Vedamani, the right thing for the FMCG companies to do now would be to focus on below-the-line campaigning to reach out to consumers rather than spend huge amounts on brand endorsements. For retailer-owned private labels, their own retail stores will act as billboards that will give them an added advantage in terms of creating brand awareness.

Asitava Sen, Retail Specialist, PricewaterhouseCoopers, said, "Although organised retail is growing at 30 per cent per year, it will take time for modern retailers to establish the presence of their private labels. Brand creation is a time-consuming process and is based on the scale or size of the retailer. Thus, the job at hand for the modern retailers would be to establish themselves before they start rolling out their private labels through local kirana stores." He went on to say that retailers ideally start supplying their private labels to traditional stores only when these brands achieve a level of saturation within the modern retail outlets. By selling to kirana stores, the retailers might gain profits but would lose the distinction created in their own retail outlets. But all said and done, the FMCG companies are not taking any chances, either. Giants of the trade, like Hindustan Lever Ltd (HLL) and Dabur, recently kicked off their promotional offers or `retail initiatives' to attract consumers and retailers alike. HLL, for one, has launched its `Supervalue Store' initiative whereby the company will exclusively target mom-'n-pop stores by refashioning them to look like modern retail outlets.

Apart from buying shelf space and in turn giving the retailer a three per cent discount on its products, HLL will also impart retail training and solutions to help shopkeepers add value and keep pace with changing times. In an e-mailed response, HLL said, "The point of purchase is fast becoming an influential and critical step in the purchase process. With more and more choices available to the shopper, the battle in the market place is heating up. In such a scenario, it's very important to have the right interventions to win at this last marketing mile. The programme, created as an effective intervention at the point of purchase, partners with the retailer to reach out to customers through special targeted promotions."

On the other hand, Dabur, in an attempt to get a larger share of the pie, rolled out its initiative, Dare, which targets not only the consumers through studying their requirements at the point of sale, but also wholesalers and small retailers through greater channel focus and special incentives to well performing wholesalers. Dabur has identified six States — Bihar, Punjab, West Bengal, Uttar Pradesh, Maharashtra and Madhya Pradesh — for greater rural penetration. "We also plan to focus on trade marketing capability. For this, we have tied up with modern retail players like Big Bazaar, Reliance and Spencer for better visibility of our brands. For instance, we have Vatika Beauty Zones at each of these retail outlets that sell all the Vatika brands under one shelf section, apart from their being displayed in their respective category shelves," V. S. Sitaram, Executive Director - Consumer Care Division, Dabur India Ltd, said.

RAI's Vedamani said, "The future will bring with it a deluge of competition in the retail sphere where there will always be a fear of modern retail outlet owners creating their own brands. The cash-and-carry format will also create a huge pull for products at cheaper prices. So, though, these FMCG players will continue to grow aggressively, the fact that they are rolling out various initiatives is a sign that they are gearing up for the war ahead."

War or no war, the law of the trade has always been survival of the fittest. But in this case, there is another law that shapes the future of the retail industry, which is that the consumer knows best. So, keeping that in mind, most initiatives undertaken not only by FMCG companies but also retailers will continue to be in tune with the requirements of the consumers.