Riding on retail

The retail revolution is creating a new set of stakeholders-the country's SME sector. And this is quietly transforming the way several small and medium enterprises operate.

The Mumbai-based Netway Home Products (NHP) supplies home cleaners and personal care products for Pantaloon Retail's private labels. Nimish Pasad, Head (Private Label Business), NHP, says the tie-up with the retail chain three years ago completely changed his outlook towards business and opened his eyes to the emerging consumer market. "Despite lower margins, I have derived tremendous scale and cost advantages from supplying to Pantaloon. There has also been a tremendous improvement in my quality, processes and volumes. Starting from one assembly line, I now work seven," says Pasad, whose sales have been growing 100-150 per cent annually over the last three years.

Up north, G.S. Kochhar, Managing Director, Ghaziabad-based Precision Moulds & Dies, says his two-year-young Gluman brand of household plastic containers has already secured "a satisfying share" of the market, thanks to retail chains. "Mom-and-pop shops don't give our brands much visibility. Large format stores, on the other hand, give our range of products adequate shelf space. Though they give us lower margins, we get higher sales and regular offtake," says Kochhar, whose products sell in Spencer's, Reliance Fresh and Big Apple (a Delhi-based chain).

Neelam Chhibber, Founder-Director, Industree Craft, a Bangalore-based company that works with rural artisans making home products with natural fibres and other such materials, says she derives almost half of her sales of Rs 4 crore from retail chains like Pantaloons, Shoppers' Stop and Welspun. "I need sophisticated urban markets for these products. Opening my own stores is a prohibitively expensive proposition. So, it makes sense to tie up with large retailers," she says

The experiences of Pasad, Kochhar and Chhibber represent some of the obvious advantages of organised retail for small vendors- greater visibility, larger volumes and a platform on which they can rub shoulders with big brands. Says R. Subramanian, Managing Director, Subhiksha, one of India's largest retailers: "Distribution costs are high in India. So, instead of having to deal with thousands of small stores selling several products in small quantities, an SME can deal with one organised retailer and be able to sell his product across a large number of stores."

Viraj Bahl, Director of Delhi-based Fun Foods, which makes sauces, mayonnaise, and salad dressings, says he doubled his sales in some Tier II cities like Baroda within a few months of getting his products into Pantaloon's Food Bazaar. "No small shop can display my range of 70 products the way a supermarket can. They also give us an insight into customers' minds by sharing sales figures of each product with us," says Bahl, pointing to the brand building and marketing potential of large format retail chains.

G.S. Kochhar, 60
MD, Precision Moulds & Dies, Ghaziabad
Business: Makes plastic containers such as jars and cups.
Sales: Rs 25 crore.
Sales to organised retail: Rs 70 lakh, growing 100 per cent annually.
Supplies to: Big Apple, Reliance Fresh and Spencer's; in talks with Aditya Birla Retail.

Neelam Chhibber, 45
Founder-Director, Industree Crafts, Bangalore
Business: Markets natural fibre household fabrics and accessories, bags, gift items, and furniture produced by rural artisans.
Sales: Rs 4 crore.
Sales to organised retail: 50 per cent, growing 25 per cent annually.
Supplies to: Pantaloon Retail, Shoppers' Stop and Welspun; in talks with Reliance Retail.

Nimish Pasad, 25
Head (Private Label Business), Netway Home Products, Mumbai
Business: Manufactures and supplies personal care and home care products like hair oils, shampoos, hair conditioners, toilet soaps, face washes and toilet cleaners.
Sales: Won't reveal.
Sales to organised retail: 50 per cent, growing about 150 per cent annually.
Supplies to: Pantaloon (Food Bazaar) and Metro's Cash and Carry Business.

Arvind Chaudhary, CEO (Food Business), Pantaloon Retail, says his company has two main SME initiatives-of building regional brands into national brands and private labels. "We have a special team for developing private labels. It helps small vendors upgrade their systems and quality and provides them all the technical inputs they need. Through our private labels, we have taken some regional products like kasaundhi (Bengali mustard sauce) and khakra (a Gujarati snack) national," he says.

Retail chains have also been fostering newer product categories with distinct branding. "Kondapalli toys, indigenous teddy bears, and sub-categories in masalas and incense sticks fall in this category," says Gibson G. Vedamani, CEO of the Retailers' Association of India (RAI), an advocacy body for large retailers. The growth of private labels is also leading to some traditional product categories opening up to small and medium businesses. Nikhil Nanda, Managing Director, JHS Svendgaard Laboratories, a Delhi-based contract manufacturer and exporter of oral care products, says he has been supplying toothbrushes for the private labels of Subhiksha and Spencer's. "Globally, private labels account for 25-30 per cent of the sales of retail chains. So, we see tremendous growth opportunities for our products," he says.

Systems, Systems, Systems

Volumes are just one part of the story. Large retail chains also force their vendors to adopt processes that make them more "organised". Rajnish Gupta, Managing Director, Aakash Namkeen, an Indore-based company making savouries and snacks, says his association with organised retail has done his business a world of good. "The first retail chain I worked with made me reveal everything about my systems and costs. It involved lots of paperwork, which meant I had to upgrade my systems in line with their requirements; I also began to revisit my costing. Now, I know my business better than earlier," says Gupta.

Rohit Khaitan, MD, Shrishyam Agrobiotech, a Raniganj-based miller and packager of atta, besan and other flours, also says his association with Big Retail has improved his business processes. "Dealing with them has taught me the importance of quality assurance, logistics and time schedules."

Viraj Bahl, 26
Director, Fun Foods, Delhi
Business: Makes sauces, spreads, mayonnaise, and salad dressings, among others.
Sales: Won't reveal, but nationwide sales.
Sales to organised retail: 5-10 per cent; growing 20-30 per cent annually.
Supplies to: Reliance Retail, Spencer's, Pantaloon and other national and regional retail chains.

Rajnish Gupta, 32
MD, Aakash Namkeen, Indore
Business: Makes savouries and snacks.
Sales: Rs 6 crore.
Sales to organised retail: 8-10 per cent; growing 150 per cent annually.
Supplies to: Reliance Retail, Pantaloon, Vishal Mega Mart and Hariyali Kisan Bazaar; in talks with Piramyd Retail.

Nikhil Nanda, 34
MD, JHS Svendgaard Laboratories, Delhi
Business: Contract manufacturer of oral-care products such as toothbrushes, toothpastes, whitening products and mouthwashes.
Sales: Rs 36 crore.
Sales to organised retail: Small, but growing at 50 per cent quarter on quarter.
Supplies to: Subhiksha and Spencer's; in talks with several other players.

Meeting Expectations

So, what do retailers look for in their vendors? "The first thing that large retailers look for is the ability of vendors to deliver goods consistently-both in terms of quantity and quality. Secondly, they expect delivery of floor-ready stocks with standard barcodes. These facilitate the timely exchange of information so that frequent stock-outs don't happen," says Vedamani of RAI.

Good quality, consistency of supply and innovation are the three important parameters that retailers look for, says Subhiksha's Subramanian, adding that the size of the supplier depends on the product category (a high throughput product will require a vendor with a larger capacity).

Agrees Sanjiv Goenka, Vice Chairman, RPG Enterprises, which is expanding its Spencer's stores across India: "We are quite happy to provide small vendors an opportunity to reach larger markets but innovation and product quality will increasingly determine who gets the shelf space in chain stores."

Kochhar of Precision Moulds says a vendor supplying to a retail chain must have adequate capacity and a large inventory to manage 100 per cent supplies at all times, and should put in place processes in his organisation to cater to the demand. "As all dealings in modern retail are electronically managed, all deliveries must be made on time. Even a day's delay can disrupt the chain."

Many small vendors, however, initially struggle with the way large chains drive down their margins. Chhibber of Industree Craft says her margins in organised retail are "modest" and payment terms often "inflexible". Gupta of Aakash Namkeen says not all retailers study vendors' costs and some of them only look for higher margins for themselves and "schemes" (freebies) for their customers.

Despite the challenges, these vendors believe working with modern retail formats is where their future is, and most importantly, gives them a chance to grow and win.