In the hustle and bustle of India’s financial capital, Balram Gowda looks comfortable sitting in his 2x4 sq. ft. shop at Dadar, vending paan and colas with equal panache.
With around 650,000 paan shops nationwide, some 80,000 in Mumbai alone, this segment of convenience stores is emerging as a significant channel for consumer goods companies to hawk their products.
“Paan shops are on the verge of becoming mini general stores. The biggest plus point is that it is just a hands length away from customers,” says Muder Chiba, a senior vice-president at market research agency, TNS India.
In Gowda’s crammed store, there is merchandise from myriad consumer-product companies—from ITC-made cigarettes and Hindustan Lever’s Lux soap, to Britannia’s Tiger biscuits, along with Cadbury chocolates and, of course, Pepsi and Coke.
“The kiosk channel, which includes paan shops and telephone booths, represents a significant opportunity for us to reach consumers, both in urban and rural markets. The strategic value of kiosks is both in terms of availability and accessibility,” says a spokesperson for Hindustan Unilever Ltd. Marico’s head of sales B. Sridhar says, “Paan shops are generally used to stock smaller products with lower prices and for trials as well. But it also caters to the so called urban poor such as daily-wage earners.”
Besides, a paan shop also provides a congregation place that is effective in generating impulse buying, especially for products such as confectionery. “Paan shops are one of the important vehicles, especially in high-catchment areas where there is a high traffic of customers,” says a Coca-Cola India spokesperson.
This channel is also emerging as a significant sales channel for household products, though consumer-goods companies are loathe talking about their contribution to sales. “Paan shops are a significant contributor in a few categories such as detergents, hair care, shampoos and toothpaste,” says the Hindustan Unilever spokesperson.
The channel alone contributed around 25-30% of the total sales of Perfetti Van Melle’s sales in 2006, says Sameer Suneja, marketing head of Perfetti, which sells popular candies, such as Alpenliebe and Chlor-Mint.
Companies desperate for shelf space are also aggressively wooing the channel. Raman Shetty, a paan-shop owner here, says that on any given day, at least four different companies send their salesmen around, offering everything from jars to refrigerators.
Perfetti’s Suneja says the bulk of his company representatives spend a lot of their time trying to get paan shops to sell his candy.
“The quantum of business from paan shops depends upon the number of interactions that a company representative has with the outlet. Our distribution network has been set keeping this principle in mind,” says Suneja.
At such cramped stores, product visibility is the key to brisk sales, adds Ajay Chauhan, executive director of Parle Products. Therefore, display and storage material such as sachet hangers for shampoos and dispensers for cigarettes come in handy.
However, some paan-shop owners here say they want companies to offer higher margins. While paan-making nets a 50% margin, the profit margins on products are typically around 10%. This, despite the fact that products such as soaps, toothpastes and shampoos occupy the lion’s share of the shelf space.
“The salesmen who come to us have been promising us for at least last four months that margins will go up. Nothing has happened,” laments Gowda. A grocery store, on the other hand, sells many such products at 15% margins.
But “we have to keep big brands despite less margins since these are popular,” adds Shetty.
But paanwalas are given incentives for their effort, not necessarily in cash or an increment in margins, but in kind. Candy makers offer them jars as well as few extra candies for free. Cola makers and chocolate manufacturers generally provide refrigerators to paan shops that are located in high-volume areas such as busy intersections. Says a Cadbury spokesperson: “Our company provides fridges to paan shops which generate higher sales. It is on the request basis, but we assess the offtake of a particular paan shop before giving the fridges.”
Hindustan Unilever, on the other hand, uses a more indirect method of incentive. Paan shops often source their products from wholesalers instead of directly dealing with company representatives. In this case, HLL directs the wholesalers to give small redeemable coupons that can be used for future product payments, helping the small storekeepers with their cash flow.