Why modern retailers and grocery stores can coexist

March 26, 2007 12:31 IST

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Modern format retail is witnessing phenomenal growth, driven by the impact of increasing urbanisation, the new
well-travelled, knowledgeable Indian consumer and a youth-driven culture. In its official estimate for the current
fiscal ending in March, the government said that the economy, Asia's fourth-largest, was expected to grow at 9.2
per cent.

India [ Images ] once again topped the world in the ACNielsen Consumer Confidence Index for the third time in a
row since the index was established in early 2005, with the highest score of 131 in the last leg of the survey,
conducted in November 2006.

Strong economic growth has brought with it new sets of Indian consumers. The booming young adult population
with unprecedented levels of disposable income is more conscious of the latest trends and fashion. Enhanced
media penetration and greater connectivity also are making consumers more knowledgeable and discerning.

All these factors are rapidly changing the needs and aspirations of consumers. Schedules are also getting tighter,
with the time for professional commitments and regular chores getting limited. Hence, the "convenience" factor
has a major influence on purchase decisions.

Modern trade, the characteristic of which is having everything under one roof and with a great array of products
displayed in an uncluttered fashion where the touch and feel factor prevails, is providing an environment to
access products driven by convenience and fashion.

Modern trade in India

is an old saga in India with about 7.8 million retail stores, but most of those are traditional ones, which only
recently started making way for hypermarkets, supermarkets and specialty stores. Modern trade in India is
witnessing tremendous growth, especially in Tier I cities.

It accounts for 4 per cent of urban FMCG sales but for the top 15 metros it is about 9.7 per cent of the total
FMCG sales. For South Indian metros it touches about 16 per cent, because modern trade started there a little
earlier. There are more than 3,430 modern trade stores in India now.

Impact on FMCG

Looking at the kind of consumer patronage a modern trade format store has in terms of an urban population
growing rich, there are a few segments in the FMCG range of products that have experienced good growth from
the modern trade format. In the food segment, processed food products (23 per cent), impulse food products (32
per cent) and packaged grocery (38 per cent) are the segments that have witnessed immense growth from urban
Indian modern stores.

Similarly, in the home and personal care segments it is household cleaning products (38.1 per cent), fabric care
(23 per cent) and categories related to grooming, viz. hair care (28.3 per cent), fragrances (26 per cent) and
skin/body care (23 per cent) that have recorded considerable growth from urban modern format stores.

An increasing number of working women and nuclear families are some reasons behind the growth in the food
categories. Packaged grocery is a very convenient product for people who are busy and hence we see it doing
so well. Again the young adult population of India is ambitious and hard-working, and has the money to spend on
lifestyle. They are brand-conscious and aware of what their counterparts in the West are wearing and buying.

No wonder products related to grooming like like skin care, hair care, and fragrances, or, for that matter, products
like household cleaners are witnessing growth. These consumers represent the target for manufacturers and
retailers, who want to capture a share of the booming consumer markets in India. Manufacturers, on their part,
are investing aggressively to capture the minds of today's and tomorrow's generations.

With more modern format stores setting up shop in the country we are also witnessing an expansion in these
segments in terms of availability of innovative packaging sizes, product innovation and overall ranges.

Modern trade and food as a category: Food accounts for about 48 per cent of FMCG sales in the country and for
modern trade the number is even higher, at 51.3 per cent. Like other Asia-Pacific markets, in India too, among
the processed food segments, the breakfast cereals category is exhibiting a stupendous 40 per cent growth rate.
Other growing categories are biscuits (26 per cent), vermicelli & noodles (28 per cent), beverages (24 per cent)
and ketchup and sauce (29 per cent).

Indians have an old fascination for home-cooked food, especially when it comes to lunch and dinner. With the
changed lifestyle, the trend is changing and people have started showing interest in ready-to-cook foods.
However, even today a majority of these consumers are willing to restrict the experiment to packaged foods and
accompaniments meant for breakfast and snack time.

Chocolates (28 per cent) and namkeens (37 per cent) are two major categories of impulse food products showing
good growth, along with packaged rice (92 per cent) in the packaged grocery segment.

Modern trade and home and personal care products (H&PC): As far as H&PC is concerned, from modern trade it
has witnessed a growth rate of about 23 per cent, which is at par with the overall growth. Modern trade brings
with it a great shopping experience, with good product displays, making selection far easier.

Under household cleaners it is floor cleaners (88 per cent) and toilet cleaners (37 per cent) that are growing well;
in hair care, it is hair conditioners (43 per cent) and hair oil (35 per cent), and for the skin care segment, it is skin
creams (35 per cent) that are driving the H&PC sales in modern stores.

With the overall economy doing well and basic necessities mostly taken care of, people are now more keen to
look and feel good and are ready to devote time and money on that. Unlike in the past, when there was one
product used for all household cleaning, people now are willing to experiment with specific products meant for
cleaning glasses, utensils, floors, etc.
Modern stores and their challenges

It's a very competitive situation with more and more new players entering the market. There are Reliance [ Get
Quote ], the Tatas, the Birlas, ITC, and foreign players like Wal-Mart now. India is a market where from time
immemorial existed the mom and pop grocery stores and I don't see them going away so soon.

Looking at our vast consumer profiles, both traditional grocery stores and modern format retail stores will exist
side by side. People with low incomes will keep visiting local grocery stores for the credit facilities they get and
the frequent top-up shopping they do whereas the middle and upper income households would love to do their
monthly shopping from the modern format retail stores with occasional top-up shopping from the local grocer.

The other end of the spectrum would be rural India, where again a lot is happening but it will take time for its
effect to be felt.

The author is Associate Director, Client Services, The Nielsen Company, India.

Modern Trade in India Retail is worth about 7.8 million retail stores, but most of those are traditional
ones, which only recently started making way for hypermarkets, supermarkets and specialty stores.

Modern trade in India is witnessing tremendous growth, especially in Tier I cities. It accounts for 4 per
cent of urban FMCG sales but for the top 15 metros it is about 9.7 per cent of the total FMCG sales.
For South Indian metros it touches about 16 per cent, because modern trade started there a little
earlier.

There are more than 3,430 modern trade stores in India now.

There are a few segments in the FMCG range of products that have experienced good growth from
the modern trade format. In the food segment, processed food products (23 per cent), impulse food
products (32 per cent) and packaged grocery (38 per cent) are the segments that have witnessed
immense growth from urban Indian modern stores.

Similarly, in the home and personal care segments it is household cleaning products (38.1 per cent),
fabric care (23 per cent) and categories related to grooming, viz. hair care (28.3 per cent), fragrances
(26 per cent) and skin/body care (23 per cent) that have recorded considerable growth from urban
modern format stores.

Modern trade and food as a category: Food accounts for about 48 per cent of FMCG sales in the
country and for modern trade the number is even higher, at 51.3 per cent. Like other Asia-Pacific
markets, in India too, among the processed food segments, the breakfast cereals category is
exhibiting a stupendous 40 per cent growth rate. Other growing categories are biscuits (26 per cent),
vermicelli & noodles (28 per cent), beverages (24 per cent) and ketchup and sauce (29 per cent).

FMCG & modern stores

Sapna Shetty / New Delhi March 25, 2007

Both traditional grocery stores and modern format retail stores will exist.

Modern format retail is witnessing phenomenal growth, driven by the impact of increasing urbanisation, the new
well-travelled, knowledgeable Indian consumer and a youth-driven culture. In its official estimate for the current
fiscal ending in March, the government said that the economy, Asia’s fourth-largest, was expected to grow at 9.2
per cent. India once again topped the world in the ACNielsen Consumer Confidence Index for the third time in a
row since the index was established in early 2005, with the highest score of 131 in the last leg of the survey,
conducted in November 2006.

Strong economic growth has brought with it new sets of Indian consumers. The booming young adult population
with unprecedented levels of disposable income is more conscious of the latest trends and fashion. Enhanced
media penetration and greater connectivity also are making consumers more knowledgeable and discerning. All
these factors are rapidly changing the needs and aspirations of consumers. Schedules are also getting tighter,
with the time for professional commitments and regular chores getting limited. Hence, the “convenience” factor
has a major influence on purchase decisions.

Modern trade, the characteristic of which is having everything under one roof and with a great array of products
displayed in an uncluttered fashion where the touch and feel factor prevails, is providing an environment to
access products driven by convenience and fashion.

Modern Trade in India Retail is an old saga in India with about 7.8 million retail stores, but most of those are
traditional ones, which only recently started making way for hypermarkets, supermarkets and specialty stores.
Modern trade in India is witnessing tremendous growth, especially in Tier I cities. It accounts for 4 per cent of
urban FMCG sales but for the top 15 metros it is about 9.7 per cent of the total FMCG sales. For South Indian
metros it touches about 16 per cent, because modern trade started there a little earlier. There are more than
3,430 modern trade stores in India now.

Impact on FMCG Looking at the kind of consumer patronage a modern trade format store has in terms of an
urban population growing rich, there are a few segments in the FMCG range of products that have experienced
good growth from the modern trade format. In the food segment, processed food products (23 per cent), impulse
food products (32 per cent) and packaged grocery (38 per cent) are the segments that have witnessed immense
growth from urban Indian modern stores. Similarly, in the home and personal care segments it is household
cleaning products (38.1 per cent), fabric care (23 per cent) and categories related to grooming, viz. hair care
(28.3 per cent), fragrances (26 per cent) and skin/body care (23 per cent) that have recorded considerable
growth from urban modern format stores.

An increasing number of working women and nuclear families are some reasons behind the growth in the food
categories. Packaged grocery is a very convenient product for people who are busy and hence we see it doing
so well. Again the young adult population of India is ambitious and hard-working, and has the money to spend on
lifestyle. They are brand-conscious and aware of what their counterparts in the West are wearing and buying. No
wonder products related to grooming like like skin care, hair care, and fragrances, or, for that matter, products
like household cleaners are witnessing growth. These consumers represent the target for manufacturers and
retailers, who want to capture a share of the booming consumer markets in India. Manufacturers, on their part,
are investing aggressively to capture the minds of today’s and tomorrow’s generations.

With more modern format stores setting up shop in the country we are also witnessing an expansion in these
segments in terms of availability of innovative packaging sizes, product innovation and overall ranges.

Modern trade and food as a category: Food accounts for about 48 per cent of FMCG sales in the country and for
modern trade the number is even higher, at 51.3 per cent. Like other Asia-Pacific markets, in India too, among
the processed food segments, the breakfast cereals category is exhibiting a stupendous 40 per cent growth rate.
Other growing categories are biscuits (26 per cent), vermicelli & noodles (28 per cent), beverages (24 per cent)
and ketchup and sauce (29 per cent).

Indians have an old fascination for home-cooked food, especially when it comes to lunch and dinner. With the
changed lifestyle, the trend is changing and people have started showing interest in ready-to-cook foods.
However, even today a majority of these consumers are willing to restrict the experiment to packaged foods and
accompaniments meant for breakfast and snack time.

Chocolates (28 per cent) and namkeens (37 per cent) are two major categories of impulse food products showing
good growth, along with packaged rice (92 per cent) in the packaged grocery segment.

Modern trade and home and personal care products (H&PC): As far as H&PC is concerned, from modern trade it
has witnessed a growth rate of about 23 per cent, which is at par with the overall growth. Modern trade brings
with it a great shopping experience, with good product displays, making selection far easier.

Under household cleaners it is floor cleaners (88 per cent) and toilet cleaners (37 per cent) that are growing well;
in hair care, it is hair conditioners (43 per cent) and hair oil (35 per cent), and for the skin care segment, it is skin
creams (35 per cent) that are driving the H&PC sales in modern stores.

With the overall economy doing well and basic necessities mostly taken care of, people are now more keen to
look and feel good and are ready to devote time and money on that. Unlike in the past, when there was one
product used for all household cleaning, people now are willing to experiment with specific products meant for
cleaning glasses, utensils, floors etc.

Modern Stores and its challenges It’s a very competitive situation with more and more new players entering
the market. There are Reliance, the Tatas, the Birlas, ITC, and foreign players like Wal-Mart now. India is a
market where from time immemorial existed the mom and pop grocery stores and I don’t see them going away so
soon. Looking at our vast consumer profiles, both traditional grocery stores and modern format retail stores will
exist side by side. People with low incomes will keep visiting local grocery stores for the credit facilities they get
and the frequent top-up shopping they do whereas the middle and upper income households would love to do
their monthly shopping from the modern format retail stores with occasional top-up shopping from the local
grocer.

The other end of the spectrum would be rural India, where again a lot is happening but it will take time for its
effect to be felt.

(The author is Associate Director, Client Services, The Nielsen Company, India)

Modern Trade in India: Changing the Landscape13 Sep 2006, 1:58 pm

At Food Bazaar, the food retail supermarket of Indian retail major in India, Pantaloon retail, a new revolution is
unfolding. Indian consumers in huge shopping malls with carts overflowing with goods match upto the their
counterparts in any part of the developed world. The rise of modern trade, which for now accounts for only 3-4 %
ofn the total trade in India, but is estimated to clip a fast growth rate of 30 % per annum has thrown many a
opportunities and challenges. Retailers such as Food Bazaar from Pantaloon, Food World from RPG group and
Subhiksha stores in Chennai have found themselves in a position of strength vis-a-vis the manufacturers. It is a
marked departure from the time when manufacturers called the shots in the entire bargain. “Now with a dedicated
shelf space which ensures a captive audience in terms of the foofalls, modern trade is slowly emerging as a new
viable channels for the manufacturers,” says Damodar Mall, head of Food Bazaar. Now the relationship between
the organised retailer and the fmcg companies is that of engagement rather than superiority. So if Nestle wants
shelfspace for Maggi, a ready to eat two minute noodle brand in India in any of the major retail formats, it knows
that engagement means sitting with the retailer and chalking out a focussed marketing strategy within the outlets.
So specific promotions and discount schemes specific to few retail outlets or restricted to one geographical area
are being undertaken by the manufacturers at modern formats. Infact many a fmcg companies are initiated
dialogue with retailers for category management, where a brand by virtue of being the largest selling brand on
the shelf takes the responsibility of managing the category. Under the initiative, the category leader and the
retailer enter into an agreement to manage a particular category. The manufacturer then undertakes activities to
promote the category and carry out various activities like shoppers analysis, customer research, merchandising
plans, floor layouts and SKU mix in an outlet. “By undertaking these activities, the category leader alongwith the
retailer undertakes marketing and promotional activities for the particular category,” explains Mall. Worldwide, the
likes of P&G conduct category management activities with retailers like Walmart. Though it is too early in India
given the nascency of modern trade, a beginning has been made as companies realise the criticality of
engagement with modern trade. So companies like Marico Industries, which sells Safolla oil brand and Cadbury
India with its portfolio of products have undertaken specific programmes under the category management
initiative. With organised retailing growing at a frentic pace of 30 % annually, retailers are rushing to expand their
presence not only in metros, but in smaller towns and cities. These retail outlets have a sizeable dedicated
catchment and therefore the fight for the shelf space is likelt to become even more competitive in the time to
come. “The mandate is to increase not only the sales of our own brands but the overall sales of the category as
we are fighting for the same shelf space as other categories are,” says senior official at Marico.
However, even as marketers concentrate on modern trade and chalk out specific programme, the grocers and
neighbourhood stores, which have been existence much longer than modern trade and form the backbone of
retail trade in the country are also figuring high on the radar of the executives. Engagement is a popular buzz
word these days with the marketers and they are using it with the conventional trade as well by carrying out
specific marketing programmes. Now it’s about building relationships with these traditional grocer stores. fmcg
major HLL has Super Value Stores (SVS) programme, Marico Industries is prototying a ‘Mera Outlet’. And
companies like Cadbury and P&G have the Purple Star programme and the Star store respectively allready in
operation. Under the SVS programmeinvolves the key retail partners of HLL across the country. The programme
which was initiated a year ago as a pilot project in Chennai today covers around 6000 outlets across 60 cities.
“We run appropriate and relevant plans for our channel partners and have been doing it for years,” says the
spokesperson at HLL. “There is a realisation that we have to be more pro-active in our approach towards the
traditional grocer stores who still constitute a vast chunk of the retail trade in India,” explains sources at HLL.
According to the sources, the company is on an over drive in its effort to expand the scope of the SVS
programme to as many key retailers across India. And HLL is not alone in the quest to forge a more deeper and
meaningful relationship with the traditional grocers. Marico Industries is prototying a retail outlet called ‘Mera
Outlet’. Once the pilot is completed, the company will roll out the initiative across the top stores in terms of
volume across various cities in India. Senior offocials at Marico say that the objective behind the initiative is to
have a partnership approach towards the particular channel. “The idea behind the initiative is to look at ways of
working together with the channel and grow their business. It’s a win win situation for both parties,” the officials
explain.
The increased focus on traditional trade and the resultant marketing activity thereof comes as companies that
even as the modern trade brings opportunities for companies, it has also brought the spectre of monopoly and
domination by the modern trade closer home in India. Globally, many a manufacturers have seen the balance of
power shift from manufacturer to retailer as modern trade has taken roots. A HLL distributor in Mumbai states
that modern trade is a threat more to HLL than us as no one can match the retailers in terms of the personalised
service that they offer. “Even as modern trade is getting more attention, there have been times when they have
indulged in undercutting, which has put the companies in a very awkward position when they visit us,” says a
HLL distributor. Globally, while there is a mushrooming of the modern trade and the traditional mom and pop
stores have either vanished or become franchisees of retail chain, in India, the picture in the time ahead will be
different. According to a study conducted by AC Nielsen, by the year 2007, the traditional stores will go upto 7.8
million, from 6.9 million in 2004. The report states that the urban stores will grow faster than the rural stores and
grocers and pan plus will exhibit high growth in numbers. “They are stocking more product categories than ever
before and such stores can contribute close to 20 % of the metro fmcg from the current 8 % in the time to come,”
the report adds. India, according to the AC Nielsen Asia Pacific retail and shopper trends 2005 is one of the four
countries which still has over 6000 grocery stores per million of population. The other countries are Sri Lanka,
Philipines and Indonesia. Infact, even in the South East Asia where the growth of modern trade is far more
mature than countries like India, 75 % of the urban population continue to use the traditional trade regularly. “In a
lot of these countries, shoppers are using the traditional trade frequently, at least once every other day, hence
their continued importance, particularly for impulse categories,” the report states.
Thus the landscape is changing at a very rapid pace and companies realise that they need to match up to the
changing tide. So new marketing strategies specific to each trade is the norm of the day. Even as manufacturers
and retailers slug it out, it’s boomtime for the consumers and they certainly are not complaining.
This article was changed on 14 Sep 2006 at 02:17 pm by Anju Rupal .

Rajiv Banerjee
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