Modern Trade _ how to suceed !

With organised retail growing leaps and bounds most brands be it in the FMCG space or the lifestyle space or the Apparels space have quickly formed a Modern Trade Team to focus on the Huge business that these Key accounts would deliver .Having handled this business for sometime, in my last assignment with a MNC from a brand side and having worked in retail operations with one of Indias retailers ,I have to some extent the feel of what i think makes this piece work( am not saying have attained Nirvana on this ! ) .

These are my tips to succeed in this domain , of course doesn't guarantee anything , as each brand would be doing most of the same things ! so what holds the Key ? read on ...

Modern trade begins with a Lot of Info and thrives on a lot of info , its important to know whats happening at the client end , for this u need to quickly establish your moles in the system, who become your brand Evangelist at the clients end ,if the client is an important one then one standby mole would also be needed , essentially these people would update you , though not completely as to which side the wind is blowing and what are the internal discussions happening on which would be useful fo you as a brand ! so it goes without saying its all abt building relationships at the clients end .This is has to be effectively done both at the bottom end say a merchandiser /purchaser or section operations head to the highest level say a category head in retail , alll them need to have experienced some positive elements from the brand ( say eg ::active participation in their customer promo in terms of sponsorships , plus also whether the brand has said YES to most of their requirements ) .

I worked with a brand which was on a NO mode to any of the big retailers requirements ... believe me the large retailers don't care , if you are NO there are many brands who don't have NO in the dictionary at all ! So after information and relationship which is the key to success , guess , yes its Space , getting the right location is the key to succeed in any retail store , brands

pay extreme premium to get this done , with each brand looking at this, this is all swung by hard negotiation for more margins etc by the retailers usually ,its worthwhile bargaining margins for prime space !

So information ,relationship and Space are the prime drivers of success in modern trade , but they are easily replicable , so what is the show stopper , of course MARGINS , there are brands paying higher margins and getting information ,space , and "bought "relationship working for them ! in this context brands have also started looking at producing separate product lines catering to this business , Levis Signature is a classic example of a brand created only for Walmart and in India too ,you find this brand in most of the hyper markets too .

The lower the cost ,higher the Margins that you can part to the retailers then you are tailored made for success , but most brands don't have that luxury , so its information , relationship and space that they work on for success ..

After all that one does , how does one measure success in modern trade ::The KPIS(key performance indicators) are Space shareShare of segment sales : data difficult to get normally however the Moles can help !Gmrof(gross margin return on footage) data of your brand vs other brands , a lower gmrof data would sure be an indicator that the retailer would come for a margin bargain or a space cut that is Bad Modern Trade management for sure , more later on this interesting domain ! .....would like to get some feedback too

GMROF stands for Gross Margin Return On Footage – a measure of inventory productivity that expresses the relationship between your gross margin, and the area allotted to the inventory. 

GMROF is expressed as a percentage or a rupees multiple, telling you how much returns you’ve gotten per area (selling feet) during a specified period.

Large-format retail chains are calling for a different level of service from manufacturers of the goods they stock. Catalyst looks into the dynamics of their equations.

IT'S a move with deeper implications for the retailing industry. Arvind Brands recently appointed the Pantaloons group-promoted Big Bazaar as its exclusive retailer for its denim brand Ruf & Tuf. Considering Ruf & Tuf had been facing distribution hurdles, Big Bazaar proved to be the right platform for the brand, a decision that emphasises the growing importance of organised retail in India. Big retail chains are getting more powerful and as they flex their muscles, manufacturers are realising the importance of dealing with them in a different manner as compared to the regular mom-and-pop stores or neighbourhood kirana outlets. For a start, retail chain stores are employing professional managers who are equipped to handle the complex operations involved in modern trade.

Anand Kripalu, General Manager (Sales & Customer Development), Hindustan Lever Ltd (HLL), sees a growing trend towards servicing the large-format chains and stores in a different way. Says he, "With the coming of modern retail we find the needs of retailers are quite different. It is no longer about a salesman going to a kirana store. Now we have to deal with professional managers on the other side of the retail business who use modern management methods."

A couple of years ago, HLL set up `Modern Team Managers' to service modern-day retail trade. It started a full-fledged sales organisation comprising key account management and activation personnel. The focus is on providing superior points-of-purchase activation as well as customer service to such large-format chains.

Other FMCG companies claim to be engaged in a similar exercise. Says Rohit Gothi, General Sales Manager, Marico Industries, "In key metros, where a lot of organised chains are coming up, we have appointed exclusive distributors to cater to the specialised needs of these outlets. In addition, we also have an exclusive sales force to service these outlets. The skills required for organised retail are different from those required for servicing traditional kirana channels. The sales force is thus given specialised training in competencies like category management and merchandising."

Besides, the servicing requirements also differ from conventional retail as the inventory levels maintained by these chains are much lower. They require quick turnaround times on orders placed, so higher levels of servicing are required. For instance, if the company visited traditional outlets once a week or every ten days, it would need to service the organised retail chains twice a week.

Commenting on the different service levels of these retailers, Uday Bhaskar, India Manager, CMO (Customer Market Operations), P&G, says: "The needs of these modern retailers are expected to be different from traditional retailers, as also from each other. The key is for manufacturers to `differentiate without discriminating'. Each retailer may have needs very different from the other. We have to differentiate our services in a way that best meets their needs and ensure that we do not discriminate between retailers. Our experience with various modern retailers across the world helps us to deliver this in this market too."

There is also a different set of demands being made by such retailers with regard to manufacturers. Apart from bargaining for margins and discounts, there are non-monetary demands being made. For instance, most of these retailers have their shelves made for stocking specific-sized SKUs (stock keeping units). When the manufacturer is not able to supply these specified SKUs, there are chances of loss of sales for the retailer concerned. "These are retailers who are IT-enabled and have hard data with them. There is always high demand on service levels from them," says Kripalu.

At the same time, such retailers provide an opportunity for manufacturers who want to reach out to their key customers with regard to specific categories. The latest retailing decision taken by Arvind Brands for its Ruf & Tuf brand goes to show that such retailers are creating the right ambience for specific brands and categories. "With this arrangement with Big Bazaar, I am optimistic about taking the Ruf &Tuf brand to hitherto untapped segment of value-fashion buyers. The Big Bazaar chain of stores offers the perfect vehicle to expand branded jeans wear in India," says Darshan Mehta, President, Arvind Brands.

While there are textile brands looking for the right ambience, certain FMCG categories also find the retail platform a better bet than grocery stores. In the case of HLL, one of the biggest categories in modern trade happens to be its deodorants. Unlike the kirana stores where the customer is not necessarily shopping for deodorants, the large-format self-service stores give the right service and environment for this category. Observes Kripalu, "The emergence of these kinds of retailers throw open opportunities for building new categories to attract the right kind of consumers."

However, sales predominantly continue to come from the good old kirana stores, still keeping the absolute contribution from big stores meagre. According to Kripalu, although 99 per cent of the sales of HLL continue to come from smaller stores, the self-service chains are growing fast. "Customers will always want to touch and feel the products."

There are also advantages for the manufacturers who do not have to go through layers of distributors before reaching out to the end consumer. "There are no distributors here and there is no cost incurred on intermediaries," says Arvind's Mehta. As K. Radhakrishnan, Vice-President, Foodworld Supermarkets, explains: "The biggest shift is the way the distribution system has changed for organised retail for which the drivers of success are totally different and so is the logistics chain." Modern trade does not operate through the traditional distributor-stockist channel but now companies find there's a layer less to deal with when they interact directly with a large retailer. "Companies are one step closer to the customer now," he adds.

In the traditional system of distribution, companies need to worry only about stockists and they can exert pressure on them to liquidate or push stocks, but modern trade needs to be treated as a customer, elaborates Radhakrishnan. They can push back unsold stocks or dispense with meaningless promotions. And, today, company executives can't merely be content with keeping track of their own stocks as in modern trade products on shelves need to sell themselves rather than have a retailer push it. "Category managers need to understand sales of competing products; it is no longer enough if salespeople alone know the retailer; the brand manager and everybody up the supply chain need to know the retailer," explains Radhakrishnan. In fact, Radhakrishnan says that every other week senior executives from different FMCG companies drop in at Foodworld's corporate office to understand the system better. Several companies have appointed key account managers to deal with retail chains, who will be the one-point contact for the retailer for all product categories that the company deals in.

The other plusses that modern trade brings to the table are a wealth of data. So far, the FMCG sector has been characterised by the supply side, but the data-on-tap that today's large retailers can come up with helps in demand forecasting for brands. It also helps in behavioural analysis of consumers, which would go a long way in fine-tuning promotions for brands.

But it is not as if the absence of distributors' margins would lead to retailers compromising on their own margins. "What we are agreeing to is basically a set of trade terms with retailers and you still have to give them margins. It is all about the terms of value given for value received. After all, the modern day retailer does give you some amount of service in terms of space and visibility and you still have to pay for it," says Kripalu.

So, will the large retailer call the shots in future? "It's all about fair terms of trade and not about squeezing one for the other," says Kripalu. Considering there have been reports about Wal-Mart making manufacturers unhappy with its negotiating skills, it's time Indian manufacturers woke up to the increasing muscle of such retailers.