“E-tailing is to retail, what the steam engine was to horse-manure in Victorian England – revolutionary, not evolutionary”
Sanjiv Mehta, Chairman, HUL
In the 1870’s England faced a problem of too much horse manure – because the main means of transportation was the horse driven carriage. While urban planners were struggling with how to manage / dispose manure, James Stevenson invented the steam engine. Within a short span of 20 years, the problem of horse manure disappeared.
Pace and Evolution
Indian Retail is evolving at such a rapid pace that any discourse on its evolution is tinged with an after taste of being dated before its completion “HUL has been in India for about 80 years now, and we can safely say that the pace of evolution in recent times means that we have seen more change in the past 10 years than the previous 70 put together!” – He said.
How and where Indian’s shop
Shopping is part of life in India –in many cases, it is entertainment. Indians undertake a large no. of small trips for food and FMCG – about one shopping trip per day (27 in the month). The average cash memo size is Rs 137.
Targeting “main” shopping trips
Spends are concentrated around main shopping – 2/3rd of spends takes place 1/3rd of the total trips. For Retailers and FMCG companies alike – this is the target. Most of the “top up” trips are to smaller kiraanas, the main trip could be to large kiraana or to Modern Trade (MT).
Understanding the shopping purpose is the key to get the shopper proposition right for a retailer. The next door shopkeeper understands that and hence continues to do well.
He listed 8 change agents and 4 Trends to watch.
Change Agent 1: GDP
The story of India and the story of Indian retail are inextricably linked. Contributing 12% of GDP and employing 8% of population – Retail’s fortunes are tied to the country’s growth.
Living Standard Measures (LSM) show the existence of a ballooning “upper middle class” – with a propensity for consuming premium brands.
Sanjiv Mehta, Chairman, HUL
Change Agent 2: LSM
LSM refers to Living Standard Measure – a robust measure as compared to the traditional SEC (Socio-Economic Class).
With economic growth, the LSM composition of Indian households shifted from the usual pyramid to a diamond. A large number of consumers moved into the LSM 5+ Category, creating brand and category opportunities.
While LSM 5+ has moved from 25% of the urban population to 57% in 2004-9, LSM 8+ has moved 4.5% to 11.5% of the population.
In absolute terms the LSM 8+ HH have tripled in five years with CAGR of 25% against a CAGR of 21% for LSM 5-7 and overall 3.4% for the total urban households.
This means that in by 2013 LSM 8+ would have become 25% of the urban population, implying a rapidly ballooning upper middle class amenable to consume more.
Change Agent 3: Non Food & Grocery Spends
As people get affluent the spending shifts from Food & Grocery, which constituted 70% share of shopper wallet more towards the space of health, beauty, consumer electronics and entertainment .
This also explains the rapid growth in channels like Chemist and “Fancy Stores”, which were earlier specialist channels dealing in limited FMCG products. Now they stock 35% more FMCG category and SKUs than they were doing about 5 years back
Change Agent 4: Urbanization
1. India has 42 cities with population of more than a million – expected to reach 68 cities by 2030.
2. 6 mega cities with populations of 10 million or more, 13 cities with more than 4 million residents.
Urbanization will be accompanied by a 3 to 7 fold increase in total GDP and a 4 to 8 fold increase in urban GDP in every state by 2030.
McKinsey global institute (MGI) projects that the population of India’s cities will increase from 340 million in 2008 to 590 million by 2030— we will witness over the next 20 years an urban transformation the scale and speed of which has not happened anywhere in the world except in China.
Also 20 cr rural Indians who live in the proximity of the India’s 70 largest cities would benefit from spread of urbanization and have an estimated 10 to 20% higher monthly incomes than the rural average.
The windfall capital gains due to land price hike would add to the wealth here. Access to urban centers and high media penetration would lead to consumption behaviors that are “urban” in nature.
Change agent 5: Infrastructure (or the lack thereof!)
Urbanization will be accompanied by increasing stress on infrastructure, there by reducing mobility within the urban agglomerates and retaining relevance for channels of accessibility.
Cost of doing business in base metros would go up due to infrastructure bottlenecks and the tier 2 and 3 towns presents a key opportunity in terms of higher growths.
The stress on urban roads has reflected in the decrease in the number of shopping trips. The opportunity is not just e-tail, it’s also about capturing greater share of wallet in each trip.
We have noticed that between 2008 and 2012 no. of shopping trips in urban India are consolidating due to high inflation and stress on time in larger metros where daily commute time has gone up by 30%.
Change Agent 6: Media
Due to explosion in digital media channels the marketers now have the opportunity to customize the message for every individual consumer.
However, it also poses a challenge as it is leading to rapid fragmentation of media channels. In this context both in store as well as E commerce become important as they integrate purchase channel with communication channel.
Change Agent 7: Modern Trade
In the last 20 years, Modern Trade is responsible for converting shopping from a transaction to an experience. We see the scenario post 2010 as being one of consolidation with 2 or 3 large players and smaller regional focused players.
More than the timing of FDI, it’s about the impact on supply chains across the country.
E-Tailing will do to the industry in the next 5 years what Modern Trade has done to the traditional trade in the last 15. Companies and Channels alike will have to evolve from a selling approach or activation at a sales channel to also doing sales at a predominantly consumer interaction and activation channels
The consumer’s ability to filter out unwanted brand intrusions is at an all time high with the advent of DVRs and Digital, and will only increase.
There is enough market play for all channels – Traditional kiraanas, Large kiraanas, Modern trade and E-tail to grow. But their growth challenges are different.
The kiraanas need to become experiential, e-tail needs to fix supply chain and modern trade needs to find “local” relevance.
Brands will have to work hard to engage with consumers where they want, how they want and in store will become one of the most critical channels for active brand interaction and engagement.
Hence we see category management and joint marketing plans with retailers as an essential means to fire up consumption leading to synergistic same store growths.
The consumer’s ability to filter out non-relevant brand messages has increased. Brand consciousness has also gone up. These trends make brand management challenging.
Sanjiv Mehta, Chairman HUL
In the Indian shopper decision hierarchy brands are the main purchase driver. Retailers and marketers need to ensure brand access, otherwise, customers will go elsewhere – or go online.
Growth & Co-existence
There is enough “Play” in the market – all channels can grow for at least another 20 years.
Traditional Retail will have to react – adopt modern trade’s focus on the ‘shopping experience’.
The Small Kiraana will retain relevance through accessibility for “Top Up” Shopping. Its layout will evolve to allow for greater shopper interaction. Experiments such as “Meal for Today” and “Treat for Myself” are preliminary experiments in this direction.
The Large Kiraana will move closer to match the Modern Retail experience by adding Services like Home Delivery, Credit, and Loyalty Programs etc as they fight to cater to “Main Shopping” trips.
The Wholesale will consolidate or fragment based on the local market response to Cash & Carry. Where Wholesalers move to add Value Added Services like Credit, Delivery and increase Assortment, apart from retaining rate competitiveness on predominantly unbranded categories, Wholesale will see a consolidation.
Where Wholesalers retain relevance only through reach and local knowledge, Wholesale could see a further fragmentation.
Modern trade retailers will also have to constantly keep on redefining themselves as when the newness of the format fades and price comparing becomes the order of the day what is the USP that differentiates two MT retailers operating in the same suburban catchment?
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