Watch out Big Retail, paan shops serve FMCGs better.

ROADSIDE paan shops, which are slowly transforming themselves into mini general stores, are emerging as an increasingly prominent retail sales channel for FMCG companies. Industry officials say small paan shops are posting smart growth rates and currently contribute 18-20% of the total sales across various categories, including beverages, chips, biscuits, chocolate and confectionery, noodles, shampoos and soaps, batteries and even diapers. Modern retail formats, the subject of much media hype, contribute only about 6% of India’s retail sales.

 In a challenging economic scenario, companies are taking notice of the contribution of this often ignored sales channel. According to FMCG industry estimates, these outlets have mushroomed significantly in recent years to contribute about 20% of retail sales from 10-12% a couple of years ago.

Typically, companies sell inventories to large re-distributors, which buy in bulk at discounted rates. Small paan-shop owners in big cities and rural markets then buy stocks from them in small quantities according to their requirements. In recent times, however, Pepsi, Coke, Parle Biscuits, Colgate and Cadbury, among other FMCG majors, have started servicing these outlets directly in metros. “These are no longer paan shops and are actually small top-up FMCG dealers. Most of them stock up a whole range of non-tobacco products, including personal care items,” Marico CEO Saugata Gupta said.

Consider the case of GlaxoSmithKline Consumer Healthcare (GSKCH). According to Nielsen data, ‘paan plus’ type of stores account for 10% of the company’s overall business as against organised trade which contributes only 4%. This, when GSKCH’s products comprise mostly non-impulse products, like Horlicks and Boost, that are sold through paan stores. GSKCH’s executive VP (marketing) Shubhajit Sen said: “We don’t cover these outlets directly, but quite often we have seen our products stocked in such shops, and this is true specially for low-priced stockkeeping units and sachets.”

The paan shops cater to consumers on-the-go and the urban poor. Small packs contribute a sizeable chunk of sales from these outlets. “We ensure that these outlets are serviced directly and indirectly and it is a very important sales channel for us,” Sanjay Purohit, executive director (marketing) of Cadbury India, said.

“Ours being a largely impulsepurchase category, paan shops account for a huge chunk of sales for us. Such stores have the distinct advantage of offering on-the-move convenience of purchase,” Satyavrat Pendarkar, PepsiCo’s (Frito Lay) director sales and supply chain, said.

According to Dhairyashil H Patil, vice-president of Maharashtra State Consumer Product Distributor’s Federation, the percentage of consumers who buy things on a daily basis in India is huge. “These paan shops cater to this consumer base. On an average, there are 345 outlets for a population of one lakh, and paan shops constitute over 15-20% of this number,” he said.

 Samsika Marketing Consultants MD Jagdeep Kapoor said: “As compared with modern formats, these smaller shops are far more organised. They have great business models with better inter-personal skills, good cash-flows and low overheads. We expect this channel to contribute over 25% of sales in the next few years.”

WHEN SMALL IS BETTER

Big cos have now started taking notice of the contribution of this often ignored sales channel These outlets in recent years have contributed around 20% of retail sales In recent times, Pepsi, Coke, Colgate, among other FMCG majors, have started servicing these outlets directly.

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