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Tuesday, June 16, 2009

Traditional Outlets vs Modern Trade , the scales tilt again

FMCG companies need to , and they are refocussing on traditional outlets since the sales in modern trade are slipping .

Companies have a marked increase in throughput from neighbourhood ,traditional stores . The advantages cited are
  • fresh stocks , due to lower pipelines
  • Better merchandised
  • Very high CRM , due to personal interaction of the outlet owner/manager with the customer
  • Increased margins are given by the companies which are getting passed on
  • ease of "touch and feel"
Traditional sales for established FMCG companies like Dabur account for 95% of their sales , it continues to define and decide the market direction

Companies due to the non-uniformity / learning curve of the modern trade are encouraging traditional retailers with higher margins , credit terms .

The modern trade gets beaten on
  • higher fixed costs (upto 30% higher) where they have to manage customer expectations of a more frill environment .
  • increasing focus on private labels
Companies like Colgate,Dabur,HUL,ITC and several others have stepped up their discounts ,freebies, credit terms without resorting to price cuts for the traditional outlets. The efforts are to boost volumes and counter the regional players who are nibbling away-stated a recent Motilal Oswal report.

Dabur for eg last year has heightened , investments on brands with a strong rural franchise focus .It rolled out a special rural focussed sales initiative across seven states -UP,MP,Bihar,Punjab,West Bengal,Maharashtra,Gujrat -stepping up presence by going into villages with a population of under 3000 people .The company says this resulted in a 20% surge in growth in rural areas , ahead of urban markets.

The role of trade marketing is increasingly becoming relevant
  • to address the need for companies and talk to the consumers
  • ensuring that companies are always working with the traditional trade.

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