The FMCG sector is riding high on modern retail trade formats in '05. Booming business from supermarkets, hypermarkets, etc, which is growing at over 30%, has begun throwing up substantial sales volumes for the fast moving consumer goods (FMCG) industry in '05. Industry officials expect the total contribution from modern trade to cross 10% from the current 3-5% in the next few years.
In the past, urban markets have led the growth for the industry primarily on account of the mushrooming modern trade formats. Industry players say the opportunity to influence and increase shopping purchases are higher in the new retail format owing to high visibility and greater cross-selling and bundling of products. Growing urbanisation, dual incomes and rising disposable incomes with the convenience of one-stop shopping have fuelled growth.
The sharp growth rates have resulted in companies like Cadbury, Godrej, HLL and others setting up specialised teams handling such key accounts. In fact, most of these companies are sending their senior marketing officials abroad, especially to other Asian countries, to study the modern trade formats. “All our products have shown a sharp jump in sales from the modern trade. It's a booming sales channel for us and I expect the contribution to go up sharply in the near future,” said Adi Godrej, chairman of Godrej group.
FMCG companies have begun offering huge discounts on the big packs to push volumes. “The margins offered to the retailers are much higher than what we offer the kirana stores. We have begun offering SKUs that are tailor-made to suit these formats,” said the CEO of a leading foods company.
The average FMCG turnover per store per day is the highest from hypermarkets at Rs 9.7 lakh followed by department stores at Rs 68,000 and discount stores at Rs 30,000.
Apart from the convenience, modern trade enjoys huge discounts on several product and stocks a huge range of SKUs that's got the eye of the consumers. “Modern retailing has provided a platform to launch new products. We source better and pass on the concessions to the consumer. And new products are getting accepted. Because, consumers are looking at demonstration of new products,” said Ashok Maheshwari, MD, HomeCare Retail Mart.
In fact, the traditional kirana stores have begun demanding similar discounts from the manufacturers.
“Hypermarkets includes retail formats like Big Bazaar or Giant while discount stores would typically include Subhiksha and Margin-Free,” said an industry player. “I am travelling to a lot of Asian countries more than the western ones to get a better grip on this trade and try a strategy that suits us. There's a tremendous futuristic opportunity here,” said Piruz Khambhatta, CMD of Rasna.
Food, grocery and tobacco account for 72.2% of the total Indian retail market. New retail chains like Food World, Health & Glow, Subhiksha (a chain of discount stores), Giant and others seem to be offering the customer value for money, said analysts.
Wide options in everything from snacks, grocery items like atta, salt and grains and other household food products coupled with attractive discounts and free gifts seem to have appealed to the customer. ”The touch and feel factor in the formats are encouraging consumption. In fact, the exposure to a wider range of products have got them to even buy products which they do not necessarily need,” said Sanjeev Agarwal, head marketing, Pantaloon Retail (India).