Wednesday, April 18, 2012


The important players involved in supplying processed food products to consumers are the manufacturer and the retailer and unless there is a close liaison between them the market cannot satisfy the consumer fully. It is rarely understood that the retailer acts as a conduit for feed back information from the consumer regarding the quality of a new product launched by the industry and similarly valuable data regarding sales of a product in a given time allows the industry to do mid-course correction to its products to augment the sales. Industry also gets valuable information regarding the competitors which is helpful in planning corporate policies and evolving market strategies to score over competitors. Retailers can favor some manufacturers over others by manipulating the shelf space given to each of the brand offered by them in their aisles. It is well known that some good brands are destroyed some times by the retailers while bad products get promoted through such shelf space maneuvering.

Are the retailers really so powerful that many industry players dread them for various reasons? Probably yes, depending on the extent of market dominance by the organized retailers. In many countries, especially the developing ones, market is largely controlled by small retailers or the so called traders or family stores with limited shelf space and low business volume. In such a situation it is usually the industry which dominates them because of the dynamics of business that prevail in these countries. While famous brands can dictate terms to small traders, the very same brands pay obeisance to supermarkets enjoying enormous clout. Many established brands refuse to supply products to the distributors who supply the products to traders unless the price is paid in advance and there are instances when even the loaded transport vehicle does not leave the premises of the factory unless Demand Drafts worth the value of the consignments are received by the manufacturer! Such a situation is possible only when organized retailing does not make up much of the consumer goods business in a country.

Another feature of organized retailing is that with its enormous financial muscle small manufacturers can be bludgeoned into submission and get as much as 40-50% margin in selling the products from the latter. Many small scale manufacturers are ruined because of this unjustified and irrational practice by big retailers. On the other hand retailing chains deploy another strategy in tackling the big brand owners by creating their own brands or in-house compete with the former and this more or less works when such shop brands are priced marginally lower. This is what is happening in many countries where organized retailing in the form of super markets, Departmental stores and Malls have practically monopoly of the market with very little presence of small players. Probably this is one of the fears that has barred the entry of multinational brands in processed foods into India. Not allowing foreign investment in multi-brand retailing so far has allowed a thriving small business community to grow so far unhindered or without any fear about the financial muscle of international retailing giants. Whether this situation, where not even 5% of the retail market is in the hands of organized business houses, will continue or not, depends on Government of India's policy orchestration in the coming months.

It is unusual for food industry, that too for large manufacturers to complain against monolithic retailing companies regarding the unfair practices indulged in by the latter adversely affecting their fortunes in a wealthy country like Canada as is being reported. What is true for Canada can be true in other countries too. The core of the complaint is that some giant retailers are slowly weeding out reputed brands by introducing their own shop brands which are sold cheaply. Besides affecting their business, food industry feels that such unfair trade practices destroy innovation at the ground level and by "copying" these brands retailers are able to reap a rich harvest at the expense of the innovating industry. Many retailing organizations do not have the wherewithal to come up with good new products as they lack expertise, personnel and infrastructure facilities, all of which cost lot of money. Other unfair tactics include prolonging the lead time for clearing new products, restricting shelf space arbitrarily and larger returns of unsold materials all having a bearing on the viability of new brands.  

The only way the mainstream industry can fight this new trend is to set up its own "Cash and Carry" stores where the branded products are sold in bulk, acting as a feeder source to small retailers who in turn can add their margin while selling them to the consumers. Already this concept has been established in Western countries and in India too there are some such wholesale stores where customer entry is restricted by pre-registered membership system. Imagine operation of such wholesale shops in large numbers in a country like India and what benefits this will confer on the small traders who operate even in remote rural areas carrying out their business earning a few rupees that sustain them. As it is, the small retail business community in the country is a vibrant one and it is not easy for foreign companies to dislodge them from the retail landscape so easily as they seem to be imagining. A few big domestic retailing giants have already learned their lesson as their big plans, started in 2005 to establish dominance in the retail market in India has come to naught forcing them to linger on without any appreciable presence during the last seven years!


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