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AIFPA Conclave, New Delhi 16 th November, 2007 Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators Private Limited

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Page 1: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

The Role of Modern Retail in Foods Retailing

Some Myths explored

M. SundarrajCollabrant Incubators Private Limited

Page 2: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

What we all know by now

Page 3: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 4: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 5: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 6: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 7: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 8: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 9: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 10: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Page 11: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Then

Page 12: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Now

Page 13: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Then

Page 14: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Now

Page 15: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Then

Page 16: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Now

Page 17: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

So what’s new?

Page 18: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

• Store Ambience• Better Lighting • Better Ventilation & Sanitation

• Better Displays• Organized Racks• Better Inventory availability

• More Branded options• Including private and store labels

Page 19: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

What the reports would like you to believe

• Modern = Better & Cheaper

• Shorter Supply Chain = Saves Money

• Bigger = More Efficient

• Consolidation Better than Fragmentation

Page 20: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

But is it all hunky dory?

Page 21: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Let’s Examine some of these myths

Page 22: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Myth 1: Modern = Better = Cheaper

• Did you know that India has some of the cheapest distribution systems in the world ?

• Where part carton pack is the standard

• Where you can buy a single stick of cigarette or a sachet

• Did you know that in traditional stores, the margins from Factory to Customer are still less than 20% ?

• Including Freight, C&F Agent charges/ CST, where applicable

Myth 1: Modern = Cheaper

Page 23: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

How does that obtain?

• Our traditional distribution systems are driven by self-employed people

• Often operating from home servicing about 400- 500 stores in a small 5 kilometer radius

• Operate on low overheads

Page 24: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

A Typical Distributor

His home

His Garage

Page 25: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

A Typical Retailer

Page 26: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

MRP 100.00 Basis

Retailer Margin 9.09 10% Mark upVAT 1.14 12.5% on Retailer Margin

Retailer Landed Cost 89.77Dist Mrg 5.08 6% Mark up

VAT 0.64 12.5% on Dist. MarginDist Landed Cost 84.06Company VAT 9.34 12.5% Mark Up

Gross Sales Income (GSI) 74.72C&F Agent / Frt Charges 3.74 5% on GSI

Net Sales Income(Incl ED) 70.98Excise Duty+ Edu Cess 9.79 16.32% of 60% of MRP

Net Sales Income 61.19

Traditional Grocers & General Stores

Our Findings- Price stackup

200 Stores/ 3 Cities

Page 27: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

MRP 100.00 Basis

Retailer Margin 25.00 25% MarginVAT 3.13 12.5% on Retailer Margin

Ret Landed Cost 71.88Dist Mrg 0.00

VAT 0.00Dist Landed Cost 71.88Company VAT 7.99 12.5% Mark Up

Gross Sales Income (GSI) 63.89C&F Agent / Frt Charges 3.19 5% on GSI

Net Sales Income(Incl ED) 60.69Excise Duty+ Edu Cess 9.79 16.32% of 60% of MRP

Net Sales Income 50.90

Modern Trade

50 Stores/ 3 Cities

By comparison, Modern trade takes out 25% of MRP Excluding Freight, C&F Agent charges / CST

Page 28: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

If

• Cost of Manufacturing is given

• And if Modern Trade takes larger margins

Then

• As % of sales from Modern trade goes up, Surely MRP will go up?

Implication?

Page 29: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Myth 2: Shorter Supply Chain= VFM

• Typical Freight cost in most FMCG/ Processed foods companies is less than 5% of ex-factory price

– At current prices, India works on 0.75% per day of transport.– No part of this country is more than 7 days from any other part

• Shrinkage of chain in processed foods ???

– Too many regional variations in cuisine for 1 national supplier– Not enough volumes to justify consolidation of capacity with national

supply chain– No national supply chain can improve on the ability of the local

distributor to predict the requirements of his locality

Page 30: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Siemens/ IIM Bangalore Study of Grocery Chain

Value is added only on wastage & handling losses!

Page 31: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

• Most traditional Indian stores are owner run• Staff are often relatives & home-town folk

– Both result in lower overheads

• Most Indian grocers are operating out of owned, not rented premises

– Lower cost of operations

• By Comparison, Modern Format retailers spend upto

• 7% on Rent• 3% on Salaries & Admin

Myth 3: Bigger is Cheaper

Page 32: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Our Survey Comparison

• Better Refrigeration

• Better Lighting

• Better Hygiene

– Rent: 5-7%

– Salaries : 3-4%

– Overheads: 2%

• Less Inventory

• Less Display and Lighting

• More Personalized

– Rent: Negligible

– Salaries: 2%

– Overheads: 0.5%

Modern Trade Traditional Grocer

Who’s going to pay for this additional cost?

Page 33: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Myth 4: Consolidation is Better

• Even Metro SEC A and A+ working women (Who count only for 6% of Metro audience) do not bother

– 70% still shop at traditional grocer

– On an average, make 4 visits to the store,

– Over 50% keep monthly “khata”- Credit

• If Urban infrastructure / travel is becoming more congested

Would you rather travel 2km or 200 yards?

Page 34: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Implications for Marketers & Consumers

Page 35: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

People can eat only that much

even as they become more affluent!

Page 36: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

So is all this hype about the top?

Top 3 : 6 m HH 3% of Population

Page 37: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

• If Retail rental rates stay crazily high– As they are in India right now

• If there is herd mentality in rush to retail

– As evidenced in India right now

Food for Thought

Page 38: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

In short-shelf life products , wastage reduction may move consumers from traditional retail

Page 39: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

But in ambient temp, shelf stable products, Kirana will remain king

• For most FMCG / processed product companies, price-value economics require to keep addressing the base of the pyramid

• To address even the middle of the pyramid, wide-spread reach and availability at the nearby grocer at low costs of supply chain will remain critical

Page 40: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd

Time to Question, Validate,

Or Repudiate some of these Myths ?

Page 41: The Role of Modern Retail in Foods Retailing Papers/some_myths_in_food_retailin… · The Role of Modern Retail in Foods Retailing Some Myths explored M. Sundarraj Collabrant Incubators

AIFPA Conclave, New Delhi16th November, 2007

Modern Retail Myths Explored. ©Collabrant Incubators Pvt. Ltd