Modern Retail segments

In my previous article I had mentioned how structurally the kirana/mom & pop store are there to stay in Indian landscape.

Today I will try to segment the organized retail into sub-categories and try to find out what it takes to succeed in them.
1. Perishables:
2. Branded FMCG
3. Unbranded FMCG
4. Non-Consumables

As we can see that the dynamics of the business in these areas vary quite drastically.

Eg. Non-Consumables include apparels, furniture, appliances and items that are not bought on a regular weekly/monthly basis. The customers look for variety/choice/selection and it helps to be in an uptown location with a huge store and fancy/modern display. Because of these reasons modern trade have an inherent advantage in this category. Also it is important to manage the inventory because a lot of these items tend to have seasonal demand and also get obsolete rather fast. Big chains are able to manage these inventories because of economies of scale. Also they can shift the product from a slow moving outlet to a place where there still is some demand.

Branded FMCG: Chips, cold-drinks, soaps, shampoos… increasingly the purchase chart of average Indian has more and more Branded items. Most of these brands have their own distribution and marketing network (which is quite efficient). Many of them also do inventory management for the stores hence eliminating most of the advantages which modern trade boasts of. Simply put it is hard to imagine that a chain of store can have more efficient supply chain/distribution than HUL and P&G of the world.

Unbranded FMCG: Unlike their branded counterparts, it is in this section where majority of the high margins and growth of the new retails are coming. The margins of these products are high because they don’t invest in advertisements. Kirana stores also try to push the local brands, but in absence of quality control, these products don’t have much acceptance. Big retail chains however eliminate this problem (a lot of Wal-Mart’s success is attributed to its ability to push unbranded Chinese products through its chains. Products that otherwise never had a chance of being widely accepted. One thing that strikes me always is that Big Bazaar would keep its own private label ‘Tasty Treat’ next to the branded ones and even price it at par. No wonder a lot of people do pick it up.

Perishables: Now this is one area where a lot of improvements are possible. In short the way most of this business operates has not changed much over the last 50 years or so. Inventory and supply chain management is the key to this business and surprisingly any efficiency that the new system will bring will not only benefit the consumer but also the farmer. Possibly this could be the next giant step in controlling food inflation.

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