Chan­nel In­te­gra­tion for Bet­ter Re­tail Mar­gins

Progressive Grocer (India) - - Contents - By Su­nil Kumar

The av­er­age mod­ern re­tailer in In­dia seems to be cop­ing with the evo­lu­tion of a num­ber of dif­fer­ent re­tail chan­nels now avail­able to the con­sumer. On­line re­tail has made shop­ping ex­pe­ri­ences more con­ve­nient and un­am­bigu­ous but has also placed greater em­pha­sis on the im­por­tance of in­formed buy­ing de­ci­sions made pos­si­ble by in­creased con­sumer aware­ness. Chal­lenges per­tain­ing to high in­vest­ment costs and low re­tail mar­gins can thus be over­come by in­te­grat­ing on­line and off­line re­tail to pro­vide the mod­ern shop­per with a per­son­al­ized and ed­u­ca­tional in­ter­ac­tion with re­tail busi­nesses.

In­dia has an ex­pand­ing re­tail space and is an emerg­ing mar­ket as­sisted by in­creas­ing spend­ing ca­pa­bil­i­ties of the mid­dle class. Rev­enue born out of the re­tail in­dus­try in In­dia ex­ceeds USD 600 bil­lion and matches the mar­ket de­mands of a mar­ket car­ry­ing over 1.25 bil­lion con­sumers. How­ever, re­tail­ing in In­dia has its own chal­lenges and lim­i­ta­tions. Un­or­ga­nized re­tail still ac­counts for over 80% of the mar­ket share and stand-alone ki­rana stores spread across the coun­try are more than 90 lakh in num­ber. The cost of re­tail­ing has also grown ex­po­nen­tially and sky rock­eted mainly due to real es­tate and rental costs. Over­head ex­pen­di­tures in­clud­ing elec­tric­ity bills due to air con­di­tion­ers, re­frig­er­a­tors for frozen pro­duce, man­power costs and han­dling costs also add to the in­vest­ment in­volved. A mod­ern trade re­tailer is ap­proached by at least three to four new brands ev­ery day but due to space con­straints, in­no­va­tive prod­ucts don’t re­ceive ad­e­quate shelf space and end up fall­ing short of meet­ing ex­ist­ing cus­tomer de­mands. Cus­tomers have also found eas­ier ways to shop that in­cludes brows­ing prod­ucts on­line and quick home de­liv­er­ies. There are a hand­ful of such fac­tors that lead to com­pli­ca­tions in run­ning a re­tail busi­ness in the cur­rent mar­ket con­di­tions. The over­all im­pact has re­tail­ers com­plain­ing of fall­ing foot­falls and de­creas­ing profit mar­gins. Hence, the press­ing ques­tion that arises is re­lated to how re­tail­ers can cope with the evolv­ing mar­ket and cus­tomer needs to suc­cess­fully

over­come th­ese chal­lenges. The best way out is to strate­gi­cally place busi­ness de­ci­sions in var­i­ous bas­kets and in­te­grate on­line and off­line re­tail in an en­gag­ing and ef­fi­cient man­ner.

A re­tailer look­ing to profit off an in­te­grated on­line cum off­line sell­ing chan­nel has to cre­ate a vir­tual on­line store which of­fers a seam­less shop­ping ex­pe­ri­ence and which has a di­vided and var­ied prod­uct list­ing. The 50:50 com­po­si­tion ra­tio works best while serv­ing a prov­i­dent yet con­scious con­sumer. Half of the prod­uct range must in­clude the top 100 SKUS which are fast mov­ing and dis­counted us­ing at­trac­tive of­fers. The other 50% of the prod­uct line must fo­cus on healthy, nat­u­ral and or­ganic prod­ucts. There has to be a clear cat­e­go­ry­wise clas­si­fi­ca­tion of prod­ucts that makes brows­ing for re­lated items eas­ier and im­parts con­sumer ed­u­ca­tion on the health ben­e­fits and ap­pro­pri­ate us­age of cer­tain prod­ucts. Prod­uct rec­om­men­da­tions and tes­ti­mo­ni­als must come from in­dus­try ex­perts, nu­tri­tion­ists and lead­ing con­sumer prod­uct an­a­lysts. Clear prod­uct dif­fer­en­tia­tors must be put into place to as­sist the buyer in mak­ing an in­formed and re­spon­si­ble choice. For ex­am­ple, there are more than 17 dif­fer­ent va­ri­eties of honey and each has a unique taste, aroma and health­ful qual­ity to of­fer. Sim­i­larly, there are mul­ti­ple lo­cal grains that used to be pop­u­lar with In­dian house­holds in the 20th cen­tury and that have re­cently made it into the re­tail land­scape. Re­tail­ers must profit off on­line cam­paigns that mar­ket the ben­e­fits of such ex­clu­sive and salu­bri­ous prod­ucts that are cus­tom crafted for In­dian con­sumers. Mar­ket­ing cam­paigns and out­reach ini­tia­tives must also in­clude suit­able recipes to go along with a unique in­gre­di­ent or raw prod­uct.

To aid off­line chan­nels, re­tail­ers can part­ner up with brands and com­pa­nies to in­crease foot­falls and bill val­ues, and ex­pand prod­uct bas­kets. As part of such col­lab­o­ra­tions, re­tail­ers and brands can jointly in­vest in shift­ing from a high list­ing fee to bet­ter-per­form­ing dis­plays, free tast­ings, prod­uct demon­stra­tions and im­proved mer­chan­dis­ing. An­other method to mould bet­ter shop­ping ex­pe­ri­ences can in­clude mak­ing them more con­ve­nient by in­stalling es­ca­la­tors, elec­tronic prod­uct dis­plays, more billing coun­ters dur­ing fes­ti­val rush and skilled man­power on the re­tail floor. Cat­e­gory man­agers should fo­cus on bet­ter un­der­stand­ing the ori­gin and sourc­ing of prod­ucts rather than chas­ing mar­gins and top lines. The most ef­fec­tive way to man­age a cat­e­gory is to think like the con­sumer. What can a prod­uct be used for? What cheaper al­ter­na­tives are there out­side the cat­e­gory? What in­gre­di­ents can be paired with cer­tain prod­ucts to im­prove im­pulse de­ci­sions?

The big­gest chal­lenge for many new and even ex­ist­ing prod­ucts which have im­mense po­ten­tial and con­sumer de­mand is high sell­ing and mar­ket­ing costs that scale up to as high as 60-65% of the prod­uct cost. Re­tail­ers and com­pa­nies must work to­gether to bring down th­ese costs to a work­able 40% so as to pass on more ben­e­fits to the con­sumers and em­ploy­ees in­volved in the re­tail chain. In­dian re­tail, which con­sists of both mod­ern trade and e-com­merce, needs to be more prod­uct-ori­ented and con­sumer-led in­stead of work­ing on a dis­count-led ap­proach. To re­al­ize a new and im­proved ap­proach to re­tail­ing, pro­gres­sive in­dus­try lead­ers should place a more struc­tured em­pha­sis on in­te­grat­ing on­line and off­line re­tail in a way that one chan­nel com­ple­ments the other. That is the fu­ture and the so­lu­tion to the nu­mer­ous chal­lenges that lit­ter the re­tail land­scape in In­dia to­day.

Half of the prod­uct range must in­clude the top 100 SKUS which are fast mov­ing and dis­counted us­ing at­trac­tive of­fers. The other 50% of the prod­uct line must fo­cus on healthy, nat­u­ral and or­ganic prod­ucts.

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