In a recent article by a reputed international news agency, much publicised for it’s content and sensational predictions of Indian Retail, the authors claimed that the FMCG Salesmen in India are under severe threat even as Reliance Retail’s JioMart App is going to take away millions of jobs, making the role of a salesman redundant, especially because of the deep-pricing & subsequent penetration strategy taken up by the retail behemoth with combined revenues of Rs 100 Crores pa (USD 13 Bn) including sales and retail of it’s acclaimed fuel business. At the face of it, the threat looks looming and large enough. I received the same article through email and social media by many who follow the Retail Industry and consider me a fellow student of Retail as well. I read the articles four times – I really, really did. And found there was neither anything sensational from the article nor something serious to worry about Reliance Retail’s JioMart App. For the record, I have spent 24 years in the Indian Retail Industry and my first formal job was with RPG Foodworld, the first organised Retail Chain in India. And in my most previous assignment at Levista Coffee, a packaged powder product which shares shelf space with Nescafe & Bru, my team and I managed to increase the retail footprint from 23,000 in Mar. ‘20 to over 77,000 points of sales in April ‘21 – despite Corona, or due to Corona!
Let me take you through a brief history of the FMCG supply chain over the past 3 decades.
In the 1980s, it was a more coveted job to be a salesman at Colgate Palmolive or Unilever or ITC, which were and are among the top FMCG companies in India, than having a degree in Science or English. Though the “role” was to visit Kirana (mom-and-pop) shops in the country’s neighbourhoods and collect orders for products, the salesmen – mostly men, were highly respected even as the products would get rationed to their respective geographies, zones & territories. For Ex., “Lux” soap or a Rin Washing powder wouldn’t be available at all shops and the salesman had the prerogative to allot it to a particular store. The shopkeeper, in turn, had to ensure the salesman was kept in high stead, for he may not allot stocks in the next instant otherwise. Credit facilities during the 1980s and 1990s for small shopkeepers were almost NIL. In fact, across the retail supply chain, the final seller had to pay up front to buy the products from the manufacturer and then sell to customers. In the FMCG supply chain, there was another “thaw” – the Distributor. Even as FMCG manufacturing companies grew in size and volumes, the companies started creating a new bunch of entrepreneurs who would buy the products from the Manufacturer and then sell it to the local shops. The intent was two-fold: The Distributor would have a knowledge of the locality and the shopkeeper, so he would know who to ration the products; second, the credit system was slowly evolving, so the companies started offering a small credit period through the supply chain and someone was required to manage and monitor this.
The “Distributor”-led model of FMCG supply chain has evolved in the past 3 decades and has now gone fully hi-tech, with e-commerce companies like UDAAN taking a giant leap by not just automating the entire process but also streamlining a number of issues and by filling the gaps. Have all the issues been resolved, yet? No. A big one.
In 2002, German Retail chain and the world’s second largest Retail company “Metro” entered in India and set-up it’s first store in 2003 in Bangalore, at Yeshwantpur, in the outskirts of the city. The first challenge for Metro was accessability. There was no public transport to its location after 7pm! 2 decades later, the city’s coveted World Trade Center shares it’s compound. There are 5-star hotels and a world class mall in the vicinity and Amazon India’s head office is right next door. The store size has not increased in size much though, over the past 18 years. The company took the B2B route in India due to FDI guidelines and morphed itself in to a “Cash & Carry” model, which means it could sell products at a discount but traders and customers had to pay upfront to avail the offers. Add to that, the cost of transportation of the items to the kirana locations and the cost of credit – in many cases, it makes no sense to shop at Metro – to resell. What was considered a deep threat to the Distributor-led FMCG ecosystem not jostles alongside the traditional supply chain. Metro AG operates over 30 “stores” or hypermarkets in India and anyone with w valid “GST” number could buy goods from the store and thereby avail GST input credit as well. Over 60% of customers at Metro, according to market sources, are small and medium sized offices or business who buy everything from the pantry corner to household grocery, furniture and clothes for personal or office consumption and not to really sell again. Metro has an estimated turnover of USD 800 mn pa (Rs. 6,000 Cr).
Cut to 2021. Reliance Retail’s ambitious JioMart is the talk of the town.
JioMart operates over 1,500 supermarkets and hypermarkets across the country and are located mostly in crowded neighbourhoods thereby increasing the reach to the customer base in the 100 crore populated country. With it’s deep pockets and a larger purchase base, the company procures FMCG and other items directly from Brands and sells them mostly at 5% lower than MRP. The local Kirana shop is the biggest competition who shares a personal rapport with the neighbourhood and knows exactly what to stock and when, which expensive ERP systems fail to take notice of many times. The Kiran would also give credit to the customers, something that organised chains cannot, save for the Credit Cards offered by banks. (India has an estimated 15 lakh credit cards in circulation!). Reliance Retail also has it’s in-house brands which compete on pricing with international & domestic brands, thereby increasing chances of getting sold than their counterparts. Reliance MART came up a few years ago in small towns and in their outskirts, where the company attempted B2B sales akin to Metro. The company smelt success and decided to expand its footprint across India. But unlike Metro, being an Indian originated company, Reliance MART has the liberty to sell in bulk and in single units to wholesalers, shopkeepers and end-user customers as well. The company has been quietly doubling it’s count for the past 3 years.
The pandemic has been able to drive a digital revolution in the offline Retail Industry which CEOs and CTOs couldn’t achieve in the past decade. Reliance was among the biggest beneficiaries. JioMart was initially conceived as India’s response to American Amazon but has now evolved in to a super App doing different things to different people in the ecosystem. Customers can shop and get the items delivered in 3-4 hours – the deliveries come from nearby Reliance SMART stores which are also stocking points). Kirana Shopkeepers, on the other hand can order in bulk quantities and the company would service them according to the delivery roster, once or twice a week. The physical presence of Reliance Retail turns up in to a stocking point which can service the goods directly to shopkeepers, thereby a chance to alleviate the middlemen that are the Distributors. But this is easier said than done.
There are an estimated 5 lakh distributors in India, from Kanyakumari to Ladakh, Bharuch to Shillong. These DBs (as they are popularly known) employ 3-4 sales persons (both genders) and have a small fleet for last mile distribution. The DBs make 5-15% margin on goods, offer 7-30 days credit to the shopkeepers and collect payments and reorders only to fulfil them immediately. Many large companies, from ITC to Marico and hundreds of others use Order management Software through mobile apps such as Recibo, Bizhome and Salesforce to collect orders from shopkeepers, prepare digital invoices, manage the supply chain efficiently and collect payments. Companies, on the other hand are sitting on piles of “data” to understand purchase behavior of shopkeepers and collate them with market insights of customer buying pattern. While Nielsen and Kantar Research are the big daddy of this vertical, there are hundreds of smaller agencies doing their bit.
Lastly, the estimated size of the Indian retail Industry is USD 650 bn (I wonder how it can keep increasing a few billion every time an author writes a sensational piece!). Of this, the pie of Grocery is around 40%, Fashion and apparel around 30% and all other categories take the rest. So, of the USD 250 Bn of Grocery Retail, less than 10% is organised and the 90% share is with smaller neighbourhood Kirana shops. Needless to say, the Goliath in this scenario are the Kiranas and not the eternally loss making retail chains. I am yet to see a Kirana shopkeeper who went out of business for want of business. Yes, many have wound up, but that’s because their next of kin do not want to continue legacy or perhaps due to poor management of inventory. Udaan, JioMart and many others are attempting to get a small, very small pie of this piece.
FMCG companies, on the other hand would never want to upset the “goliath” for want of a quick business through Reliance, or Metro Cash & Carry or even Amazon, for that matter. The role of a Salesman is only getting better and he / she is now more equipped than ever, thanks to technology to support. Yes, the local Kirana shopkeeper would always keep comparing his purchase prices between Apps and the traditional Distributor. But the fondness is usually short-term. Loaded new age start-ups offer higher margins to Shopkeepers to acquire and write off the losses as a “Marketing proposition” terming is the Cost of acquiring new clients. But how long this would go on is anyone’s guess.
At best, I see Reliance’s JioMart as a wrench that would only tighten the broken ends of the FMCG supply chain in India. For one, this model will bring all stakeholders closer – the Manufacturer (Brand), Distributor, Shopkeeper & Consumer, thanks to technology. Second, Reliance would only use the existing lot of DBs to increase the supply chain width and depth. The company, instead of selling to shopkeepers directly, would instead use the DBs to bring efficiency and higher frequency for supply. By offering better prices, credit facilities and increasing the range of products to distribute, the DBs would carry more ammunition to face shopkeepers, thereby passing on their benefits to the Kiranas & end-users. While there is no prophet to predict the future, to make Reliance the villain of Indian Retail is not just a far fetched imagination but also some pop-corn worthy entertainment stuff.
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