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Sumit Chandna: Credit Squeeze?
Posted On: 29-06-2009 10:02:15 AM

Sumit Chandna is currently, working with Aditya Birla Retail Ltd. as, Divisional Head, FMCG. He was earlier heading the B& M and Marketing function of Trinethra Super Retail Ltd. He was part of the core management team that launched India’s first true hypermarket, HyperCITY.

Cash is king they say, but in today’s choppy market scenario, Cash is God. Probably no one understands this better today than the ‘Modern Trade’ retailers. While, one can dismiss the whole credit issue as the retailers having bought irresponsibly and thus sitting on mountain high stock piles, a deeper investigation is warranted. Let’s take a look at the Indian FMCG market. Today the Detergent category stands at 96% penetration in the Indian market, meaning 96 out of every hundred Indians buy/use detergents. Likewise, for toothpastes the number stands at 54%. But these categories are amongst the higher penetrated categories in our country. The penetration for skin care products (excluding soaps) is at 34% and that, for say, soups is 4%. Unfortunately, a large number of FMCG categories actually fall in the medium to low penetration basket. This is where the troubles begin for the retailers.

One of the key USP's of modern retail is its’ ability to display a ‘wide’ range of products. So, let’s look at the soup example again. To provide a wide assortment, (and what a retailer calls a ‘Credible offer’, i.e. to make the customer know that the retailer means business in the category) the retailer plans 12-16 facings. These facings result in huge amount of stock. Given that the penetration is only 4%, the off take is, at best, limited. The stock on the shelf, translated into days of stock based on this limited sales, comes to a figure far in excess of the credit limit offered by most FMCG Majors. Hence what begins to appear is a gap between the money invested in stocks and the available credit to profitably turn around the stock. Playing the devil’s advocate, if a retailer were not to display soups because they hardly sell, it would end up cutting many product lines and categories, thereby loosing width and range in assortment and the raison d’etre of its existence.

This low penetration is at the heart of the problems faced by today’s modern trade in India. What compounds the problem further is that this penetration is not uniform across the markets and cities. So as a retailer grows its network wider and wider, it goes into markets/cities/catchments that might have lower penetration, (on the assumption that the retailer is covering the more lucrative markets earlier). This leads to furthering the gap between the amount of product on the shelf versus the credit available. As a result the retailer is not able to turn around the stock and money effectively. The answer then is to grow the category penetration and saliency. This is possible not only by advertising by the FMCG majors but also by exposing the product to larger audience, a role that Modern Trade plays very well. The ‘Modern Trade’ store at the end of the day, is a marketer’s delight. Seeing the products displayed in an environment conducive to the brand imagery and the customers getting to ‘touch and feel’ the products is what each brand manager yearns for. So, supporting ‘Modern Trade’ is not without its benefits for the FMCG Majors. It is imperative that the FMCG majors understand this and support the Modern Trade, at this crucial juncture.

 
 
 

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