IBM and Huawei hook up to start Chinese takeaway

MWC 2012 IBM’s enterprise consultancy, IBM Global Business Service, has joined up with Huawei to create enterprise solutions, initially for Chinese companies but with global aspirations.

Huawei wants its smartphones embedded into businesses, and to give those businesses a reason to buy its tablets too. IBM wants to push its Chinese presence and tap into the expediently expanding market, which it hopes to do with Huawei’s help, but to Huawei this is just another step on the road to global domination.

The jointly developed platform is called “Smart Workspace@Mobile” though at the moment it is little more than slideware and aspirational statements. It will involve Huawei’s device management systems, and apply IBM’s experience with enterprise resource planning, customer relationship management and supply chain management, to create a combined solution to be pushed heavily into the energy and retail industries.

Both companies reckon enterprises are posed to make greater use of mobile workers and want to be ready to exploit that market in China and beyond. Huawei pins its plans to a projection which sees a 80 per cent of businesses making their staff work on the move by the end of next year.

But this alliance with IBM is also important in painting Huawei as a full-service company, not just a manufacturer of networking kit and Android handsets. There are dozens of high-volume-low-price manufacturers in China and Huawei is desperate not to be lumped in with them. Launching a quad-core Android handset is one part of that – the Ascend D being anything but low-cost – but sitting on stage alongside IBM is equally important. ®

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Retail apps have fuelled mobile payments growth

The gross merchandise transaction value of mobile payments for physical goods will exceed $170 billion worldwide by 2015, according to a new report just released by Juniper Research Entitled ‘Mobile Payments for Digital & Physical Goods – Analysis, Markets & Vendor Strategies 2011-2015′, it forecasts that this will be nearly treble the $60 billion predicted for 2011. Significantly the report says that initial growth in mobile payments has been fuelled by a dramatic upsurge in retail apps in the wake of the consumer smartphone explosion. The sort of iPhone and Android apps plus mobile-friendly web sites that GoMo News has frequently covered in the past. The report cautions, however, that vendors still need to innovate unceasingly as the market develops and becomes more competitive.‘Our research for this report underlined the importance of mobile as an extra channel to market,” David Snow, a senior analyst with Juniper Research, observed.

“But Juniper believes that mobile campaigns must be tightly linked to print, online and store based campaigns to ensure consistency of customer experience.

Increasingly people will browse on one device such as a PC and then buy from another such as a smartphone,” he added.

The report found that there was an increasing awareness in the industry of the need to enable an integrated shopping experience within the wider context of a fast expanding e-commerce market.

Other key findings from the research are that the market will gain further momentum in the medium term following the increasing deployment of POS (point of sale) solutions to facilitate in-store [NFC-style] cashless transactions.

It also identified a major industry benefit – namely that retailers have discovered a marked uplift in average transaction value when cash is replaced by a mobile payment method.

In the report there are of some 17 mobile payments vendors and offers guidance for readers to pinpoint their strategies.

The Rise in Retail Theft

When the economy improves – and no matter how stagnant the recovery has been, 2010 was a better year than 2009 – you’d expect shoplifting incidents to decrease. The better off people are, the less incentive they have to steal.

According to a new report from the National Retail Federation (NRF), however, “shrinkage”  – the industry term for inventory loss due to shoplifting, employee theft, paperwork errors and supplier fraud – actually rose in 2010, to 1.58% of all retail sales, from 1.44% of all sales in 2009. In dollar terms, shrinkage cost U.S. retailers $37.1 billion in 2010, versus $33.5 billion in 2009, a 10.7% jump.

Consumers bear the brunt of this cost. “We need to be concerned,” says Richard Hollinger, a University of Florida criminologist who conducted the NRF-sponsored study. “We all pay for it. This theft amounts to an involuntary tax to compensate retailers for crimes that take place in their stores.”

So what’s causing the surge in stealing? First off, America still has a chronic unemployment problem, and as benefits run dry, people get more desperate. But Hollinger attributes a chunk of the worsening problem to more organized retail crime rings. “Shoplifting used to be an individual thing,” says Hollinger. “Now, groups are stealing in large quantities, and it’s a global enterprise.” According to another NRF survey, 94.5% of the 129 retail companies questioned say they have been victimized by organized retail crime over the past 12 months, the most in the survey’s seven-year history. Technology makes the trade more lucrative: criminals can lift items and easily move them on auction sites like EBay.

Law enforcement is keying in on the issue.  In Phoenix, for example, 36 people were arrested in February for their alleged participation in a retail crime operation. The name of the police effort: Operation Orange Crush.

America’s stores need more of these stings.

Stores Demand Mannequins With Personality

One size fits all no longer applies to mannequins.

With retailers fighting for customers in the sluggish economic recovery, the generic white, hairless, skinny mannequin is being pushed aside by provocative alternatives that entice shoppers with muscles, unusual poses, famous faces and lifelike bodies.

“The customer shops from the mannequin,” said Jenny Ming, chief executive of the youth retailer Charlotte Russe, where poses for new mannequins are drawn from red-carpet celebrity pictures, and feature pierced ears, articulated fingers for rings and flexed feet for high heels. “The No. 1 reason our customers come in is because they see something they like.”

The Disney Stores chain has added little-boy figurines that fly from the ceiling and little-girl ones that curtsey. Nike has made its mannequins taller, and added about 35 athletic poses. Armani Exchange has ordered models that will lie down to help shoppers imagine wearing lingerie. A new accessories-only store by Guess features glossy black mannequins in model-like poses on an actual runway, while Ralph Lauren’s new women’s store in Manhattan commissioned mannequins with the face of the model Yasmin Le Bon.

It is all part of a new appreciation for old-fashioned window dressing. During the 1990s and early 2000s, many stores cut costs by hiring inexperienced workers to outfit their mannequins, and generic was best as the dummies needed to be dummy-proof. But with shoppers getting increasingly persnickety, retailers are expecting their store displays to serve as “come on in” advertising, with the made-to-order mannequins sending a very specific message.

“They personify their brand with their mannequin statements, and they’re looking for something a little more customized or unique,” said Peter Huston, brand president at Fusion Specialties, a mannequin company in Colorado whose sales, almost all of custom mannequins, rose 48 percent last year.

One of Fusion’s customers is Athleta, the sportswear company owned by Gap Inc. It commissioned mannequins based on a catalog model, Danielle Halverson, a track-and-field athlete training for the Olympics.

Fusion Specialties digitally scanned Ms. Halverson in stationary and action sequences. Then, over about two weeks, seven sculptors created clay renderings of the 3-D digital scans that “hand-etched her from a tiny pile of clay down to the tiny delineations of the sinew in the muscle,” said Tess Roering, vice president for marketing at Athleta, which opened its first physical stores this year.
After making more prototypes, Fusion produced the Dani-quin, as Athleta executives started calling the mannequin, in five variations. The running pose, especially, looks realistic: she is in midstride, with only her left toes on the ground. The Dani-quin, by the way, is headless.

“We wanted to make sure that our customers weren’t worrying about the hair, or anything else,” Ms. Roering said.

Michael Steward, executive vice president of Rootstein USA, which makes mannequins for stores like Ralph Lauren, Chanel and Neiman Marcus, said the newfound appreciation for specialty mannequins came as many retailers reassessed the market.

“A lot of people have decided they have to specialize,” Mr. Steward said. “Nothing sells the clothing like a mannequin: it’s a subliminal message from the retailer, the first thing people see in the window or in a department when they go into the store.”

When mannequins first were used, they were basically molded dress forms to which clothing makers pinned garments. By the 1920s, they had developed into torsos with joints attached, and slowly started to get wigs, makeup and glass eyes. By the 1960s, when some women stopped wearing bras, “you started to have nipples on mannequins,” said Linda Scott, a professor studying consumer culture at the Said Business School at Oxford. “That was a big shift,” she  said.

But in the 1970s, as retail chains expanded nationally and cost pressures increased, mannequins shifted back toward the generic. “That’s when you saw mannequins that did not require makeup, did not require wigs, or so much attention to detail, to reduce the costs,” said Mr. Huston, the Fusion executive.
During the recession, companies curtailed spending wherever they could, and mannequin sales slowed. But after shedding unprofitable brands or merchandise during the recession, the retailers are focused on a specific customer and a particular brand position, and they want their windows to reflect that with custom mannequins.

“Over the past two years, everyone has really had to reassess their business and their client base,” Mr. Steward said, “and the market is so competitive that people are just focusing on what they do well, and what they sell.”

Prices of custom mannequins run from about $400 to $1,200 a mannequin, not including the $15,000 or more that places like Fusion charge for development. A mannequin makeover can cost a national chain millions.

Is it money well spent? Not always, said Professor Scott, because shoppers are an unpredictable lot. “Sometimes they’re imagining themselves in the clothes, sometimes they’re just entertaining themselves on an evening walk, sometimes they’re standing there with a girlfriend talking about how stupid the clothes look,” she said.

And Mr. Steward, the executive at Rootstein, said retailers sometimes ask too much of their mannequins.“Everyone thinks they’re going to reinvent the wheel,” he said. “As I always say, there’s only so many things a mannequin can do: would you like two heads with that, madam?”

Merchandising and Shelf Management to latch shoppers

Back in the “old days,” store brand product merchandising was easy. A retailer simply placed its store brand widgets to the right of the national brand widgets on the shelf, and called it a day.

But times – and store brand products – have changed. Most food, drug and mass merchandise retailers have made significant improvements to the quality of their own-brand products, and many of them now boast multi-tiered store brand programs. They want shoppers, therefore, to view their own brands as true brands.

Accomplishing that mission is easier said than done, however. After all, retailers lack the deep pockets of the national brands when it comes to marketing. For that reason, merchandising plays an especially critical role today in attracting consumers’ attention – and dollars.

Photo by Vito Palmisano

“With limited ad dollars to support these brands, merchandising may be, in some cases, the only way to differentiate them versus national brands beyond price,” stresses Mike Kowalczyk, vice president and general manager of the In-Store division of Livonia, Mich.-based Valassis, a media and marketing services company.

Andres Siefken, vice president of marketing for Daymon Worldwide, Stamford, Conn., agrees that strong merchandising plays a significant role in store brand growth. Effective merchandising techniques not only help drive transactional sales of store brand products, but also help make such products more accessible in the store – educating consumers and driving incremental trial.

“Data [have] proven that many people developed a better perception of private brand quality during the recession,” Siefken adds, “and that people tend to keep buying private brands after trying them.”

With rising fuel and commodity pricing wreaking havoc on consumers’ budgets, proper merchandising is even more critical than ever, notes Scott Kern, management consultant for the Parker Avery Group, an Atlanta-based boutique strategy and management consulting firm.

“While merchandising is always important, in these times of household financial stress, merchandising of private label is critically important,” he says. “Merchandising must ensure there are price-competitive private label offerings as part of the assortment for the value-conscious shopper, but not so many private label products that they take up too much of the assortment and push out brands that customers are loyal to, thereby driving them to competitors.”

Consider the shopper
Before devising any sort of strategy for a store brand merchandising overhaul, retailers will want to gain a strong understanding of basic shopper behavior within a store.

Photo by Mimi Austin

“Humans deselect before they select,” explains Dorothy Allan, vice president, business intelligence for Plano, Texas-based Crossmark, a sales and marketing services company focused on the CPG industry. “There are 7 billion people on the planet, and all of us sort and class information the same way. It is a very efficient way of processing millions of data points in a short period of time.”

That reality does not amount to an invitation for retailers to clutter up their stores, Allan notes. Instead, they need to be decisive about product placement and create a pattern within the store onto which shoppers can latch. She points to a personal example from her annual holiday store walk.

“The majority of stores were ‘painted’ with red and green displays,” Allan says. “Four months later, the one I still remember more than any other was a gum display. It was light blue and had a great offer and true appetite appeal. It certainly broke through the sea of red and green.”

Consumers also approach store shelves and displays with a mindset that varies according to the category, notes Todd Maute, a partner and senior vice president with CBX, a New York-based branding and design firm. For example, a shopper has a different mindset when he is looking to buy a differentiated product such as laundry detergent than he would have in a commodity-type category such as canned vegetables.

“I think it’s in retailers’ best interest to understand the value and role that private label plays in the category,” he says, “because the role the brand plays in the category will vary, and the role should help shape the merchandising strategy.”

Because geography also plays a part in in-store shopper behavior, retailers should take location into account in store brand merchandising.

“Localization of the merchandising strategy based upon the store demographics seems to provide the most consistent performance results,” says Daniel Galvin, executive consultant for the Parker Avery Group. “Price optimization is also most effective when combined with clear brand demographics at the local level.”

Rethink placement
Whether merchandising store brands, national brands or a combination of both, placement is key, Allan says.

“Perfect pairing or solution sales are one of the eight rules of shopper marketing,” she notes. “Make it easy for the shopper to say ‘yes’ and save time in store. Studies show if you can help the shopper find what they need more quickly, they will use the balance of their time to shop and buy more!”

Photo by Vito Palmisano

How much more? Allan says a shopper with 100 items on her list will walk out of a “shoppable” store with 104 items, citing a retail shopability study from Dr. Ray Burke of Indiana University’s Kelley School of Business in Bloomington, Ind. Therefore, retailers must find a way to engage the shopper and fortify the emotional connection with her. Building trust is all-important here, so the brands that will come out on top are those that are “authentic” and live up to their promise to the consumer.

“While innovation is important, the fundamentals of having the right products in stock – in sight and in the right locations with the right message or offer – are key to driving shopper loyalty,” she emphasizes.

The multi-tiered aspect of many retailers’ store brand programs, too, presents a challenging but exciting merchandising opportunity, Maute believes. Premium products, for example, have no national brand match for comparison purposes. And when niche store brands such as organics are added into the mix, the complexity only increases.

“You can have a three- to four-brand presence in a given category, so merchandising is critically important to communicate that you’ve got depth in the category – you’ve got price if they want price, and you’ve got unique and differentiated if they want unique and differentiated,” he says.

Maute points to New York-based Duane Reade as one retailer that really knows how to merchandise its premium food tier right along with its opening price point items. The retailers’ assortment of premium cookies, for example, gets a prime eye-level space block, with its no-name skyline-themed value brand situated below it. The national brand, meanwhile, gets non-prime placement, meaning Duane Reade gives its own brands the star treatment.

Still, the traditional approach – with store brands placed to the right of the national brands on the shelf – does still make sense for certain products and certain categories, Maute says. For example, it can work with ibuprofen or canned commodities to suggest store brand quality is on par with that of its national brand shelf-mates.

“At the same time, if you’re trying to say you have breadth and depth in the category – and different types of canned fruit items, for example – you might want to block set them together because then you will have a much larger presence in the category versus being checker-boarded throughout the aisle,” he says. “And some of those aisles are quite large.”

When done right, cross-merchandising also can be an effective element in a store brand merchandising strategy.

“The cross-promotion of private label products with complementary national brands is a great way to drive sales for both and provide solutions for shoppers at the same time,” says Jeff Weidauer, vice president of marketing and strategy for Vestcom, a Little Rock, Ark.-based specialist in retail shelf-edge solutions. “One of the more successful implementations we’ve seen is to include a private brand product as a tie-in to every end cap in the store.”

The best strategies, Weidauer adds, strive to build customer confidence in store brand products, treating them as quality brands in their own right instead of simply low-cost alternatives.

Retailers also should support strategic store brand placement with additional marketing, says Rick Davis, CEO of Davaco, a retail services provider headquartered in Dallas. He says point-of-sale and other store signage, in-store coupons, promotions and “seasonal pushes” all are proven methods of moving product and boosting category sales.

Go above and beyond
With all of the current interest in store brand product innovation, retailers also have a huge opportunity to infuse a bit of innovation into the merchandising of such products. Shopper-engaging placement could involve the creation of category “destinations” within the store, Siefken’s favorite innovative strategy. Although he notes that the vast majority of “good retailers” have been busy creating such areas, the best ones pull it off by going beyond just entertainment – they have an “experiential” focus. Moreover, such destinations make a fine showcase for premium and specialty-type private label offerings.

Photo courtesy of CBX

Siefken points to Schnucks’ Culinaria with cooking classes inside the store, Wegmans’ tea bar/center and Carrefour’s wine club/in-store destination as great examples. They make for “retailtainment,” he says, providing a total product and category experience.

The approach also allows shoppers to use all five senses in key categories within the store to drive incremental category sales, Siefken says. Moreover, such creative merchandising really sets one retailer apart from another.

For his part, Maute sees opportunities for retailers to merchandise store brand “solutions” in certain categories, rather than facing off product by product against the national brands.

“I think there’s probably value in assessing if it makes sense to merchandise the ‘baby solution’ versus diaper to diaper, baby oil to baby oil or wipe to wipe,” he says. “And I think you’re seeing more and more private label expand into the perimeter of the store – you can also block set in those categories.”

‘One of the more successful implementations we’ve seen is to include a private brand product as a tie-in to every end cap in the store.’
– Jeff Weidauer, vice president of marketing and strategy, Vestcom

Speaking of category-specific merchandising, Kowalczyk likes what Supervalu has done in the launch and merchandising support of own brand pet offerings.

“Through an innovative positioning and strategy perspective, they have introduced a viable alternative to pet owners with their evoked set of brands,” he says.

And Kowalczyk points to product coupling as the “next level of innovation” on the store brand merchandising front, a practice that once was limited to the national brands.

“The costs for both in-home and in-store coupling strategies and the associated tactics are such that private label products can now reach consumers actually seeking to test, try and hopefully become loyal,” he stresses.

Another innovation gaining traction on the merchandising/marketing side is digital signage, Davis points out. In addition to being an easy-to-change, cost-effective configuration that helps to sell products, the technology can serve multiple functions within the store.

“For example, some retailers are selling advertising space on their digital signage for incremental profits,” he says. “And because content is controlled from a centralized location, retailers are even using their digital signage to facilitate internal training programs to be reviewed before or after store hours.”

Siefken believes integrated programs, not stand-alone programs, are the wave of the future. They are not so easy, however, to pull off.

“My advice is to take a close look at how the world has evolved and how people are now all connected,” he says. “It’s easy in theory for a retailer to create a program around their brands and integrate it with a social media strategy. The problem I’ve seen is in execution.”

He advises retailers to seek outside help from the experts when they need it here.

Photo courtesy of Fresh & Easy Neighborhood Market

“The new integrated programs will not only help drive sales, but store traffic and loyalty,” he adds.

Although grocery retailers generally have been slow to adopt new technology – in part because they realize razor-thin margins in comparison to other retail segments – Galvin expects mobile retail to play a bigger role in grocery’s future.

“In the near- and mid-term, the increase of retail price optimization and the basic blocking and tackling of marketing and merchandising coordination, brand management and supply chain integration are likely to absorb any grocery retailer’s appetite and capacity for change,” he says.

Avoid mistakes
When it comes to store brands, no one merchandising approach will fit every retailer or every category – a combination of different approaches almost always will work best. But the most successful retailers also will be careful to avoid some common merchandising missteps.

The most common of these mistakes is not treating own brands as real brands, Weidauer contends.

‘Creating clear brand architectures that are relevant to the defined target demographics are critical to maximizing private label success.’
– Scott Kern, management consultant, Parker Avery Group

“This results in poor shelf placement, meaning not at eye level or without a sufficient number of facings,” he says. “Retailers should merchandise these products as if they are proud of them.”

Failure to give store brand products their fair share of end cap placement and over-promoting these items on a price-only basis also are mistakes to avoid, Weidauer says. Ongoing price promotions not only weaken the value proposition for the shopper, but also change the perception from “quality alternative” to “cheap substitute,” he contends.

Compared to retail “leaders,” retail “followers” tend to have longer planning and strategy cycles, Kern notes – 12 months or more. What’s more, they typically fail to coordinate marketing and merchandising to the extent of the leaders.

Yet another common retailer mistake, Kowalczyk says, is not using all the tools available to them in store.

“While TV, magazine and traditional advertising may not be in the budget for most private label brands, using call-to-action tactics such as signage, at-shelf couponing and advertising certainly is within reason and has been proven to grow these brands as much, if not more so, than other forms of support.”

Too often, retailers do not take consumer demographics into the product development plan, Kern says, which ultimately has a negative impact on merchandising. By offering a single brand for all store brand products, he believes retailers send “muddy messages” to shoppers and typically reap less-than-optimal results.

“Creating clear brand architectures that are relevant to the defined target demographics are critical to maximizing private label success,” he says. “Many grocers tend to focus on low-end private label products, and there remains an opportunity for premium private label offerings in such areas as organics. Multiple brands focused on targeted brand demographics enable clearer messaging and can be price-optimized to compete with national market equivalents and value-priced competitors.”

Finally, Maute believes many retailers underestimate the relationship between product design and merchandising. The two are so connected that his company attempts to get a handle on a retailer’s merchandising strategy before designing a new store brand package or packaging line.

“We’re working with one customer that is very active in the promotion of frozen commodities, and products tend to move a lot because of promotions,” he says. “We actually changed the design strategy to get more continuity across colors and items so that even if the items do move around a lot, they still get a good brand presence. If we didn’t understand that merchandising strategy, we probably would have approached color more on product than on brand.”

Chain Reaction

A 1700 crore brand, Amway India’s direct selling business journey involves thinking and acting like an FMCG company

FOR A company that’s built on a model of minimal mass media advertising and maximum direct selling, resorting to above the line communication sure does raises eyebrows. But William S Pinckney, CEO of Amway India knows that to drive the company further into the Indian market, using advertising to increase brand awareness is important. So from a corporate ad that projected Amway more as a FMCG company and less as a direct marketing business, Pinckney says the company will now start with category advertising soon to “to educate customers about the brand as many people don’t know us.”

Pinckney’s worry may be the unfamiliarity of the brand in India, but looking at the numbers Amway has notched up, it seems to be spreading the right message. Amway will be closing the financial year with a turnover of 1700 crore, clocking a CAGR of 20%. With over a decade’s presence in India, Amway today sells around 115 SKUs — from products in beauty to home and personal care. While beauty (10%) and HPC (30%) are important categories for Amway, 60% of its sales in India come from nutrition products and its brand Nutrilite, according to Pinckney, is among the Top 5 in the world in its category. Pinckney accepts that the company‘s growth has revved up only in the past few years thanks to key changes initiated in the overall business model.

The changes however do not mean that Amway has moved from its multi level marketing model that is the USP of the company. Products are still sold through a network of Amway Business Owners (ABOs) across the country with emphasis on bottomline margins. Pinckney says one of the thrust areas has been a faster delivery of the product range to end users. Using a network of seven contract manufacturing facilities, the SKUs move to a central warehouse and from there to regional warehouses across the four main metros — Delhi, Kolkata, Mumbai and Bangalore. Amway today has a network of 130 offices, 55 warehouses that reach around 4000 cities and towns across India.

Taking a leaf out of the FMCG sector, Amway has introduced smaller SKUs like single use sachets to generate trials among customers and get them interested. Further, to get customers to ‘touch and feel’ the products, the company has ‘brand experience centres’. These centres situated within shopping malls and high streets allow customers to look at the product range. Pinckney says that the centres are manned by consultants who provide information on the products on display. However, these centres don’t sell as he is clear that selling happens through ABOs. “The retail format is not a point of sale as we don’t want it to cannibalise our core business operation.

Customers can try our products at the experience centres and we will help them get in touch with the ABO in the area they live to buy the products,” says Pinckney. However like any FMCG company, Pinckney says providing a retail experience is important even for Amway and therefore the company plans to have a footprint across the country with over 30 brand experience centres.

Amway may have notched up some serious numbers in a short span of time, but there are challenges as it looks to scale up the ladder. Foremost is the beauty and personal care category that’s witnessing an aggressive play off between established FMCG players. Market observers believe for Amway to make an impact, it will have to project each product as a brand with its own character and personality. “A lot of brands in these category are imagery driven. Any premium that a brand charges depends on the brand message it sends across,” says one market observer. That’s precisely the reason why Amway is now looking at above the line communication for individual brands. On the other side of the spectrum is the price war that one comes across in home and personal care. With well known FMCG companies playing the price card regularly, Amway for its offering has to be in sync with the market when it comes to pricing, say market observers. Pinckney knows that in terms of marketing and communication, he doesn’t have the muscle to match the FMCG behemoths in the market. But Amway’s trying to overcome the perception and familiarity issue through training. Amway provides free training to its ABOs and so far it has conducted 29,000 training sessions for more than 1.5 million people. “As this is a one-to-one marketing business, it is important that ABOs know about the product they are selling,” says Pinckney.

Amway has acquired some traction in the multi level marketing business, but to keep the chain going, the company will need to think more like a consumer goods company and less like a direct seller.

 

Twist in retail tale: Kiranas partner giants

MICROFINANCE PUSH

IT’S a nagging, almost decade-old doubt that has kept foreign direct investment (FDI) in retail at bay: will the entry of Big Retail hurt the six million kirana stores? As the nation grapples with the question, a series of interesting pilot projects are demonstrating how the giants and the dwarfs can co-exist, and even fuel each other’s growth, thanks to a little help from microfinance institutions (MFIs).

Biggies like Wal-Mart, Metro Cash & Carry and the Future Group have forged partnerships with microfinance and financial institutions to sell merchandise on credit to rural kiranas. The MFIs not only provide credit, but also double up as valuable intermediaries that collect orders from the kiranas, source the merchandise from big retailers and deliver it at the kirana’s doorstep. What’s more, the MFIs do not charge any interest on the credit extended to the kiranas. Instead, they receive a commission from the retailers, for whom this is a small price to pay in order to win new markets and grow faster.

While Metro has been running a pilot with SKS Microfinance in Hyderabad for a few months now, the Future Group has just inked a similar deal with SKS. Bharti Wal-Mart, an equal joint venture, has a partnership with Kotak Mahindra Bank for cards that offer ready credit to the kiranas. RPG-controlled Spencer’s Retail too is keen to explore such opportunities.
If these experiments click, it could enable large retailers to pry open vast rural markets, help kiranas become more efficient in their sourcing, give consumers the benefit of lower prices, and build a thriving retail ecosystem where the lambs can indeed sleep with the lions.

It might also soften the resistance to FDI in retail. If kiranas are empowered to source more effectively, they may be able to co-exist meaningfully with organised retail if and when FDI is opened up. Though foreign retailers are allowed to set up cash-and-carry formats, FDI is not allowed in supermarkets, etc.

“This will open up a completely new rural distribution model and help us in understanding rural consumers,” says Future Group CEO Kishore Biyani. “This is probably the first time the Indian retail sector is targeting the rural market in such a big and strategic way.”

Future Group has started to sell staples, dry groceries and FMCG products through SKS’s network to some kiranas in the North, including a few in the National Capital Region. It also plans to supply its bouquet of private label products through this network. ‘Partnership a win-win one’
IT’S a win-win partnership as we can use our sourcing strength and SKS’s huge network of kirana clients to supply products to them at competitive rates. Eventually, we can include other products as well,” says Biyani.

SKS provides interest-free working capital loan to its kirana clients. The kiranas use this to purchase their inventory from Metro and Future Group at wholesale prices. The loan amounts range from Rs 5,000 to Rs 25,000. SKS, in return, receives a fixed commission from Metro and Future Group for the total purchases a kirana makes.

“Kiranas access superior quality products at very reasonable prices, delivered right at their store, thereby increasing their productivity,” says SKS Microfinance COO MR Rao. SKS has 2.72 lakh kirana store owners as its customers (4% of its total of 68 lakh members). Industry estimates suggest that only 35% of the 6 million-odd kiranas in India are properly serviced by consumer goods companies and distributors. The remaining 65% is serviced by a multi-layered distribution network that is often inefficient, but still adds a substantial amount to the product cost.

German wholesaler Metro Cash and Carry India plans to scale up its Hyderabad pilot nationally soon. The company is also helping rural kiranas with tips on effective use of working capital and strategies to serve their catchments better. “We could have launched this as part of our CSR programme, but we chose to make it a part of our core business plan as the potential is huge,” says Metro Cash & Carry India director (customer management) Ajay Sheodaan.

Kotak Mahindra and Bharti Wal-Mart have rolled out a “business card” which offers credit to kiranas starting from Rs 8,000. The credit is free of interest for 14 days after the purchase and an interest rate of 1.5% per month is charged after that. Kiranas are now making transactions ranging from Rs 15,000 to Rs 1 lakh on this card.

Kotak Mahindra Bank executive VP and head (credit cards) Subrat Pani says the customer acceptance for this lowticket working capital funding is growing on a daily basis. “We have around 700 members from Amritsar and Chandigarh. Within six to seven months, we have been able to drive almost 9-10% of the total sales at Bharti Wal-Mart. This could potentially go up to 12% in the next three months,” he says.

Enthused by these initiatives, RPG Group vice-chairman Sanjiv Goenka says Spencer’s Retail will also study such possibilities. “Any new model which expands penetration is good for the industry,” he says.

However, Retailers Association of India CEO Kumar Rajagopalan responds cautiously. “The real potential for modern retail lies in the top 100 cities. Some companies may be experimenting on newer models, but we need to see how much business it can generate,” he says.

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