Mumbai: The growing rift between big box retailers and large consumer goods companies has created an opening for smaller companies that are vying for shelf space in large stores and for a bigger share of household budgets.
Bigger share: A file photo of people shopping at a Big Bazaar in Noida. Mint
The shopping basket of Pratibha Bhide is a good place to start.
“What matters most is value,” said the housewife from Dadar in central Mumbai, as she took away consumer goods worth Rs1,200 from a Big Bazaar store. They include products such as Nestle Ltd’s Maggi noodles, Tasty Treat Tomato Ketchup (a private label from the Future Group) and a combination pack of Excel Plus, a floor and toilet-cleaning solution from a lesser-known consumer goods company named RSG Consumer Products Pvt. Ltd.
Says Sadashiv Nayak, president (concept), Big Bazaar, the Future Group’s hypermarket chain: “Private labels and No. 3 and No. 4 brands in a category account for close to 35% of our sales. While regional brands are still a small category, accounting for 2% of our overall revenues, we have seen their contribution double to 4% in the last 120 to 150 days, as we have increased our collaborations with them.”
Large consumer goods firms usually offer lower retailing margins compared with those offered by smaller competitors who lack bargaining muscle.
“Non-leading consumer goods companies give us better margins of upto 10% more and we are also able to run better promotions, give consumers deeper discounts or offer cross-category promotions, giving smaller brands increased visibility and sales for the period of the promotion,” says Gordon Reid, chief operating officer of Star Bazaar, a hypermarket from Tata group’s retail company, Trent Ltd.
Margin friction between large retailers and major consumer goods companies have sometimes led to showdowns: Big Bazaar and Food Bazaar had stopped stocking chocolates and confectionaries from Cadbury India Ltd for some time in 2008 though the stores now stock these goodies.
“If modern trade retailers deliver the volumes, they can demand the margins,” says H.K. Press, vice-chairman, Godrej Consumer Products Ltd., which has brands such as Cinthol and Godrej No 1, while admitting to be in constant dialogue with modern retailers about margins.
Procter and Gamble Home Products Ltd and Hindustan Unilever Ltd declined to comment.
Modern retailers such as Reliance Retail Ltd, Aditya Birla Retail Ltd, Future Group, Star Bazaar, Vishal Retail Ltd and others are experimenting with alternatives. “Retailers have increased their private labels over the years and this will continue. They are also increasingly pushing regional brands and smaller players as they get better margins and can use their pan India presence to promote them,” observes Pankaj Jaju, senior vice-president, Enam Securities Pvt. Ltd.
Regional brands such as Homex, a phenyl floor cleaner from Indore-based Homex India Pvt Ltd, saw sales rise by 50% after it partnered Vishal Retail in 2008, which has 171 stores spread across the country.
“We are strong in tier II and tier III cities and become an excellent platform for smaller brands as we give them ready infrastructure and assured footfalls when they get into organised retail,” says Ambeek Khemka, group president, Vishal Retail. He admits to also getting better margins in the bargain.
Henkel India Ltd, which has brands such as Henko detergents and Pril liquid dishwash, registered improved sales as it partnered with modern trade retailers, says a company official.
“We have not only grown the liquid dishwash category but have also attained share leadership in some key accounts with a strong performance on Pril liquid. Modern trade also played a significant role recently in the successful introduction of Pril Rose variant to celebrate the festive season in India. We continue to work in close co-operation with our modern trade partners to develop brand-wise plans to drive growth performance of this important channel,” says Jayant Singh, managing director, Henkel. He did not disclose the margins offered by the company to large retailers.
“The cost of putting a consumer good on a retail shelf is 21% to 22%, but we get compensated upto 16% by large consumer goods companies and are actually putting the goods on display at a subsidy as these brands are category pullers. The world over, multinational consumer goods companies give modern retailers margins of 23% to 25% and we too should get the same,” said Thomas Verghese, chief executive officer, Aditya Birla Retail Ltd.