Mumbai: Big retail is emerging as a big boon for India’s fast- moving consumer goods, or FMCG (or consumer products), companies because it is encouraging more customers to try established brands, even the premium ones.
That includes customers such as Lekha Aggarwal. The 24-year-old student was once happy with an unfancied face cream and face wash that together cost Rs120. She has since upgraded to P&G Home Products Ltd’s new face wash and cream that cost Rs600, after a run-in with a “dermatological consultant”, or salesperson who knows about skin, during a visit to Health and Glow, a beauty products retail chain.
Retailers have known this for some time. “Modern retail is where Lux becomes Dove,” says Damodar Mall, chief executive of innovation and incubation at the Future Group, whose flagship Pantaloon Retail India Ltd is India’s largest listed retailer.
Lux is a popular brand of Hindustan Unilever Ltd, and Dove is a premium offering from the same company.
Now, numbers are beginning to bear out this phenomenon. While just 4.3% of all consumer products were sold in modern retail stores in 2007, their sale in supermarkets grew by 26% (albeit on a much lower base) that year, according to market research firm Datamonitor Plc.
This outstripped the consu-mer products industry’s overa-ll growth rate of 4.7% last year.
The numbers reflect the emergence and rapid growth of modern retail stores in the country, but consumer product firms and retailers are convinced they also reflect the ability of such stores to change consumer behaviour.
“The emergence of modern trade has led to higher levels of impulse purchases among consumers,” says V.S. Sitaraman, chief operating officer (consumer care) at Dabur India Ltd. “Therefore, consumers today are showing a greater orientation towards experimenting. It has also increased the ability to make newer category connections.”
Dabur expects modern retail to account for 7.5% of its sales soon from 3% currently.
In absolute terms, sales at modern retail stores added Rs586 crore to the Rs2,952 crore increase in sales of consumer products last year. The total consumer products industry was worth around Rs65,814 crore in 2007, of which modern retail contributed Rs2,838 crore.
There is also anecdotal evidence, such as in Aggarwal’s case, of a possible link between sales of premium products and modern retail stores. And, premium products are becoming an important weapon in the arsenal of consumer product firms because they improve profitability and contribute to more sales.
They constituted one of the fastest growing segments in HUL’s portfolio in the three months to March.
That link could help improve the not-too-good relationship between consumer product firms and modern retailers. Retailers claim that the firms have struggled to reorient their businesses from supplying only to small neighbourhood stores. They add that, on average, around 40% of what they order from companies may not land up at their stores.
“It is more difficult when the last mile distributor does not even own a computer,” leave alone “be able to read an algorithmic sales trend analysis,” says Andrew Levermore, chief executive of HyperCity Retail (India) Pvt. Ltd, which runs a Mumbai hypermarket.
While neighbourhood stores may stock only products that sell more, organized retailers, with their long aisles, need a wider range and this poses a problem for consumer product companies, says R. Subramanian, managing director of Subhiksha Trading Services Pvt. Ltd, which runs a discount store chain.
With consumers increasingly buying premium products at modern retail stores, consumer product companies are beginning to launch products exclusively for such outlets. And, several are partnering with retailers for discounts and promotions. For instance, Dabur India recently launched Gulabari Face Freshener spray only for modern retail stores. And HUL recently ran a promotional campaign for Ponds cream in modern retail stores where it almost gave away the product free. “Health and Glow and other such beauty chains help us build a new category and get us the right type of customers,” says Venkat Sridhar, category head, skin care, HUL.
Many consumer product companies operate in an intensely competitive market and their profit margins are already slim. New products, especially premium ones, can help improve profitability. Many firms seem to have realized this.
A report by Datamonitor says one out of every four product launch in this business in 2007 was for a premium offering.
Such products may not be showcased at their best in a neighbourhood store. And, with consumers falling to the temptation of expensive products in organized retail’s touch and feel environment, the relationship between consumer product companies and modern retailers could enter another level.
For instance, Hindustan Unilever launched its premium Dove hair care range and has relaunched its Ponds skin care range as a premium range this year.
Already, the company’s market share in modern retail stores is higher than its share in neighbourhood stores in five of nine categories, tea, hand dish wash, washing powder, toothpaste and detergent, according to a presentation made by the company at an analyst conference.
The numbers mean that while HUL’s sales through neighbourhood stores may dwarf its sales through modern retail stores, in terms of relative competitive performance, the company’s market share in all sales at neighbourhood stores is lower than its market share in all sales at modern retail stores.