India likes buying certain products only at organised outlets

Neighbourhood kirana stores may have a vice-like grip on the Indian retail industry (see accompanying table) but the winds of change are altering patterns in purchase of certain categories of products. For instance, nearly half of India now buys its breakfast cereals at large-format modern retail outlets (where 60% of body-wash sales also occur).

Nielsen’s Research estimates that most of emerging categories among fast moving consumer goods (FMCG) industry post healthy double-digit sales (in percentage terms) from organised retail. For instance, breakfast cereals, cheese and olive oil derive over 40%, 37% and 32% of their sales from modern retail, respectively. Fabric-care products, body-wash and toilet cleaners get 62%, 60% and 34% of their sales from the large-format stores.

If any more proof of the rising popularity and significance of modern retail were needed, Dabur India gets 60% of its Activ Fiber juice sales from organised retail stores. Its honey, which has typically been a product used in home remedies, is now gaining share and shelf space at retail stores as the company tries to position the good old honey as a breakfast spread. The company also has made a separate dedicated production line for supplying to modern trade.

Coca-Cola has been partnering with retailers with clear targets and strategies to grow consumption of its colas and juices. Hindustan Unilever (HUL), the largest consumer goods company in the country, derives much of its revenues from soaps and detergents, and is now focusing on creating ‘categories of tomorrow’. These it hopes to grow primarily through modern retail. In other words, kirana stores may not get to sell too many of HUL’s packaged foods, premium hair care and skin care, facial creams, high-end coffee and fabric conditioners.

For products that companies invest heavily in creating and branding but do not yet truly exist in consumers’ lives — think dental floss or mouthwashes — modern retail is the only propeller of growth as consumers walk the store aisles to discover and experiment.

Though at extremely low penetration, processed foods categories like instant noodles, pastas, soups and pastes, and deodorants, anti-ageing creams are all growing in double digits and largely being driven by consumption from modern retail, industry experts say.

All this when organised retail has only an 8% share of the total retail market in India. But the figure jumps to nearly 30% of the retail market in key cities as hypermarkets and supermarkets have gathered steam over the years. Future Group, the largest retailer in the country by size, managed to increase penetration of a category like glass cleaners by 200% within a month by combining the product in a kit. “From selling 4 lakh bottles a month, we started selling 8 lakh bottles. So an additional 4 lakh new consumers got converted to the category by a simple exercise we did. This is only possible in modern retail,” says Devendra Chawla, president, food and FMCG, Future Group, while speaking in a panel discussion at an industry event.

Several other FMCG majors and retailers say they bank more than ever on large-format modern retail to grow consumption. “Consumers are demanding products that have not even been launched in the country - a particular variant of Coke, a particular variant of pasta, variants of teas.... It may be a small segment, it may be a niche category, but the fact of the matter is that there is demand. If anybody is meeting that demand right now, it’s retailers like ourselves. Now it is up to the FMCG companies to take these cues and innovate,” says Mohit Khattar, managing director of gourmet retail store Nature’s Basket. It sells premium international products that Khattar says are not familiar but which Indian consumers readily buy.

Naturally, the large-format retail channel is getting increasing attention from consumer goods companies, multinationals or homegrown, big and small. From HUL, Coca-Cola to Jyothy Laboratories, Godrej Consumer Products and Dabur India, all are investing in growing a presence in modern retail or in partnering with retailers on product launches and creating modern trade-specific packs. In the last three years, companies have added a new senior management role in their hierarchy — that of modern trade heads. And from being happy with a 6% contribution from the channel, they are all aiming for not less than 15-20% in the coming years.

Kartik Kaushik, head of modern trade at Dabur India, says a lot of companies that earlier shied away from investing in the channel due to lack of scale, have now started to invest heavily as most key cities have a fair representation of organised retail stores. Modern retail is “a channel which is here to stay”. A lot of companies are paying attention to this channel. Modern trade is the harbinger of new product launches. We are doing a lot of promotions and launches jointly” with modern retail chains, he told an industry event.

Ajay Gupta, managing director of Capital Foods, says, “Modern retail is a catalyst of food consumption and a creator of foods. This is where the housewife is going to come to discover all kinds of foods. This is the only way, consumption is going to grow.”

Critics feel large retail chains still have a long way to go as they lost out on their initial years running behind topline and promoting ‘buy one get one’ selling to gain customers. FMCG companies on the other hand have been reluctant to offer higher margins to retailers. Wisdom lies in joint efforts towards creating value for the consumer and thereby growing consumption. What are niche categories now will become part of the mainstream five years hence, they say.