Supermarkets, Malls, Departmental Stores, Large Retail Chains like Big Bazaar, DMart etc. form a distinct channel of B2B distribution called organized retail or Modern Trade (MT). As opposed to General Trade (GT) where distributors, wholesalers, dealers, stockists, retailers etc. form an intricate network of channel partners – MT is a simpler form of B2B distribution where brands sell directly to MTs. Thus the channel relieves brands from the hassles of managing large number of intermediaries yet gives assured sales from supermarket store- shelves month after month. At present, MT is the fastest growing B2B distribution channel in India accounting for about 10% of total retail market. It is estimated that MT shall account for 30% of total retail market by 2030.
As a brand / manufacturer – would you consider MT a preferred B2B channel ? If you are channel partner – would you be worried about competition from MT ? Let us discuss comparative merits and demerits of MT for small and medium manufacturers.
MT And Indian Retail Distribution Market
Indian retail industry is huge – estimated to be worth $ 1.1 trillion. General Trade (GT) accounts for about 88% of total market, followed by Modern Trade (MT) accounting for about 10% of market and online (e.g. Amazon, Flipkart etc.) accounting for 2% (Source: IBEF). MT has larger market share in urban areas, about 15.2% and significantly higher 25% in top 17 metros (Source: Nielsen). Among Urban Regions – MT is most popular in South India (22%), followed by West (19%), North (10.6%) and East (7.5%) (Source: Nielsen Retail Audit Report).
Above numbers have great significance for your product in case you are considering MT as a potential channel of distribution.
Evolution Of MT Stores
India has both home-grown and foreign brands, consisting of chain stores and strong independent stores. Together, there are about 600 MT banner stores in India (e.g. Big Bazaar, DMart, Spencer etc.) with the top 20 contributing to nearly 75% of total business. As per Nielsen estimates the total number of organized retail stores (MT) is about 18,197, of these, 11,758 are banner stores. Such stores have grown by 19%, is a clear indication of the fast growing size of MT as a channel. Data reveals that supermarkets grew by a sizeable 25%, while hypermarkets grew by 15% in comparison. The number of modern trade stores in small towns of less than 100,000 population, have also seen sizeable increase, growing three times faster as compared to metros. (Note: Supermarkets are defined to include all chain and stand-alone stores, that have an area of less than 15000 sq ft, and not more than 9 POS counters. The rest are classified as hypermarket)
Products In MT Stores
MT stores mainly cover FMCG categories like household consumer products, packaged food and related products and personal care products. Of the 90 FMCG categories Nielsen tracked, 43 of them have a higher MT contribution and make up almost 70% of total MT sales. Categories like Cheese, Breakfast Cereals, Packaged Rice, Hand-wash/ Body wash and Olive Oils have a much higher MT contribution, to the tune of 50%. Geographies aside, analysis of seasonal trends reveal that big sale events in January, May, August and during the festival of Diwali are a huge draw for consumers, taking the MT contribution to 17% from 15%. Categories like Washing Powders, Chocolate, Salty Snacks, as well as large packs of Packaged Rice, Diapers, Packaged Tea and branded packs of Deodorants are a big part of shopping baskets during events.
Considerations For Selecting MT As Preferred B2B Distribution Channel
Before selecting MT as a potential B2B distribution channel – Brands / Manufacturers should carefully consider it’s merits and de-merits in the context of their product profile and financial status. MTs way of working is significantly different from that of GTs. So, manufacturers graduating from GT sales must keep following issues in mind
MTs in India largely sell FMCG and grocery products. They employ very rigorous selection process for products to be accepted and displayed on store shelves. Selected products must be able to compete with established brands and attract consumers. Category managers in MT sourcing departments decide product selection. Manufacturers need to contact concerned category manager and present their products for evaluation. Most MT store display whereabouts of category manager and approval process in their websites. We have listed a few below
2. Demand Cycle
As MTs source products according to plan – demand is consistent throughout the year. MTs depend a great deal on promotion and marketing as per plan. However, demand from GTs could be erratic or seasonal.
3. Nationwide Coverage
On approval – the product will be displayed at all chain stores affiliated to the MT and consequently receive nationwide coverage.
4. Product Range
MTs maintain a well thought out and limited range of products, as opposed to GTs where product range could be extravagant.
5. Low Selling Cost
Once a product has been accepted by MT – expect regular orders from its chain of stores. As opposed to GT, no investment in channel partner selection and maintenance is required. Consequently, selling cost is low
Products selling from MT store must have Bar Codes. So, apart from other packaging considerations – manufacturers must augment their packaging with bar code before approaching category manager.
Expect very aggressive price negotiation. Margins from MT might be lower than GT. All negotiations are centralized – with category manager, usually stationed at Head Office of concerned MT.
Credit cycles are much longer in MT – could be 100 to 120 days compared to GT where credit cycle usually varies between 7 to 60 days max.
9. OEM Supply
MT may buy your products as OEM and resale under its own brand. In such cases, manufacturers need only focus on regular supply and maintaining product quality. No more investment in sales, marketing, distribution etc.
10. Order Supply
MTs strategically plan sourcing and inventory position – ensuring fast selling products never go out of stock. As a result, manufacturer has to follow strict order fulfillment cycle (missing which may raise penalty)
11. Hidden Cost
The approval process may entail costs not foreseen before such as registration fee, store charge, sample cost etc. Besides, there may be additional charges for shelf space ir in-store salesman (manufacturer’s salesman stationed at store)
How To Find MT Category Managers For Product Approval
Most MTs provide details of accepting new products in their website. Other easy way of finding concerned category manager is to visit concerned store and inquire with store manager. A personal approach is always preferable. However, if that’s not possible, one may contact through web. Here’s a few links to large supermarkets.
1. DMart : How To Become A Partner
2. BizBazaar : How To Become A Supplier
3. Spencers : How To Partner With Us
We at vanik.com maintain a database of category managers of top Modern Trade stores in India.
As one can see, Modern Trade involves a more planned and organized approach to distribution. With the entry of modern trade in Indian retail, the scenario has greatly changed. MT’s share of retail market is consistently increasing. Massive infrastructure development, catchy interiors, technological development, standardization, marketing and promotion has all helped boost its smooth penetration. However, GTs have largely remained same over the years and consistently losing market share to MT and Online. Future may belong to MT or Omni Channel.