What is a modern trade?
Modern Trade is also known as key accounts trade when it comes to normal business. It refers to the form of retailing through the large-format stores, where under one roof; a person can get the benefits of multi-options in every product. This place enables one to touch and choose amongst the list of products under a roof with the help of an advisor giving the details on every product known to be a promoter. The examples that can be set for this kind of a hypermarket are Carrefour, Walmart, Big Bazaar, D- mart, Hyper-city and Lulu Hypermarket.
How was MT started in India?
The modern trade arrived in India in the mid-90s with the experiments and forays that were carried out initially in order to try selling the products to the list of customers in such a format which was more appealing, hygienic and atmospheric than a kirana store. At the very first stage, the audience felt uneasy trying out the new environments of shopping and opting for a new method other than a kirana, which had dealt them in a much personal way. Besides, the notions related to pricing were also preconceived as they linked the format of stores with the facility of air-conditioners having prices higher than that of the market. Well, after a point of time the hypermarkets started getting used by the households which provided them with clean, hygienic and friendly shopping environments. They not only started availing the offers but started getting into the comfort zone with the increase in the frequency of shopping for their own needs to be fulfilled.
With the evolution of the transitional economies and the capturing of a large part of the trade by the modern trade, the retailers initially focussed on getting the maximum attention of the customers by providing them with experiences worth shopping for in these hypermarkets. At this point, the retailers had anticipated the sense of competition which was worth contesting only if the supply chains had fewer layers and more agility. In the year 2007, there was a protest against the rise of the modern trade retailers in many of the states which were mainly led by the middlemen and agents in the form of store lootings. It seemed that the farmers and the kirana owners did not take a part in this at all. The main concern of the Protestants was that the sudden rise of these retail chains can jeopardise their lives which compelled the then players in the field of modern trade to shut down the operations risking the jobs of many. Consequently, the investments made were all in vain with the losses incurred in terms of money.
This act of protest made the government mandate the ICRIER (Indian Council for Research on International Economic Relations) for embarking on the study of assessing the effect of the modern trade on the traditional trade or the kiranas. The initial findings from ICRIER suggested the increase of jobs with the rise of the former having an increase in the earning of farmers too. However, the findings here helped the modern trade to re-establish their hold and continue operating in India.
Challenges faced by MNCs/other corporate in dealing with MT
Dealing with the modern trade retailers has become a huge thing for the corporates these days as the competition is on the rise. On one hand the retailers are fighting whereas the other hand can see the MNCs and corporates in a dog-eat-dog world. There are several challenges when a corporate or an MNC is dealing with modern trade through the retailers.
- Retail Differentiation. When it comes to dealing with modern trade, the corporate companies have to be well-versed with the factor called ‘first-hand experience’ when it comes to customers. Any kind of customers whether they are a part of a middle-class group or a high-class group look for a satiable experience so that they can enjoy it over and over again. This is why retail differentiation is a challenge that will be faced by the corporates.
- Rising Competition. This is something that cannot be avoided at any cost. The corporates dealing with the modern trade retailers have to keep in mind about the competitors existing in the market before striking off deals. The product they sell has to be more saleable than the competitor’s and thus, it calls for a perfect path.
- Merchandise Mix. The concept of merchandise mix is always the game changer but it has become a too old school in the recent market with the rise of creative strategies. If the corporates are planning to introduce this mix at retails, they have to be very careful as not only the brand/product loyalty gets reduced but the image of one product can harm another. Unlike a kirana store, the retails have a large customer base.
- Unorganised operations. Most of the times, the chain of operations become the biggest hindrance of a good business line. The existence of many intermediaries is a big challenge for the corporates to beware of. Not only it can cost significant losses to the business but can also cause damages during shipping. The chain travels like this: Manufacturer - National distributor - Regional distributor - Local wholesaler – Retailer. There is still a lot of time left for the arrival of automated warehousing in many countries.
- Change in preferences. Tastes and preferences are two things that are never constant when it comes to consumers. When the corporates are dealing with the modern trade retailers, they have to keep in mind the age group that visits the stores. With this in mind, the deal becomes more of challenging as the list of assumptions and speculations keep on increasing with a point to focus on. Increasing awareness of brands and lifestyle shops have made the Indian consumers this way with reference to variety as they increased the usage of IT and telecom.
- Financial reconciliations. There are a number of challenges faced by a corporate when it comes to financial reconciliation matters. Problems of credit blockages during payments where invoices for payments are not accounted for are always on the go. Since it is a matter of transactions which have a high volume, payments are generally delayed or made in instalments which is also affected by the difference of taxes (TDS) making a small issue huge because this is the major transactions face. Besides, even DN/CN is presented very late as the timing gap is long and thus, due to the unorganised chain, the suppliers fail to receive and record mostly. Basically, the time between the sale and sales returns is not small enough and thus it definitely adds up to the problem of delayed payments making the weak accounting of the sales returns. At times supplies from the corporates that turn out to be faulty become a major issue to with the MT retailers which add to the list of reasons of the sales returns failure.
What could be the solution?
If there are challenges faced by the corporates, then there’s a way to face them every single day with a proper solution. The probable solutions of the above ones are discussed here.
- Experience worth remembering. If the brands can manage well on providing the customers an experience that can keep a lasting impression, it will prove easy on the part of the corporates to handle the challenge they face every day. The products, thus delivered, have to be one hell of a life-changing experience for the customers.To make the experience of the same unique, the corporates have to go by the store’s environmental patterns to adapt and come up with a good and attractive strategy to get their products experienced.
- Perfect Strategy. There is very less set of business that exists without any competitors in the market. Even a start-up today gets a bunch of competitions from rising brands and same goes for the old ones too. While dealing with the hypermarkets, if one has a super strategy to go ahead with, it eases all the other ways to attain the goals successfully. The particular brand the corporate sells to the retailers at the modern trade stores has to be always backed by a beautiful strategy to reach the good margin of sales overpowering the market.
- Good Mix. The idea of the merchandise mix is a very old strategy to increase sales in the market but is successful too. An exceptional mix can give good results when it comes to selling branded products at the modern trade centres. As said, a bad mix of merchandise can lead to damage of product image and a good one can elevate the same. While dealing, this aspect has to be taken care of with caution as it seems to be an important part of the business too.
- Organised Operations.It is high time for those countries that are still relying on the long chain that becomes the base of operations to switch to container trucks and automated warehouse to enable fast supply of products and to be made available on the shelves of the retail stores. Once there is an elimination of the fragmented supply chain, the operations will become much smoother and easier for both the provider and receiver.
- Research and development. It is on the basis of R&D that a company and its products survive in the market. Therefore, a proper research and development will help the corporates know about the changing tastes and preferences of the consumers when it comes to the modern trade retails. Starting from what product, what taste and why to where will enable the manufacturers to develop the products and launch them in accordance with the suitable conditions at the stores.
- Proper settlements of finance. A problem like finance exists in every business when dealing with a modern trade retailer. To make sure the payments are settled well, the suppliers are to be assisted to be accountable for their sale to the retailers. The moment the credit policies are strong enough and agreed upon by the channels of the modern trade personnel, the sales can be optimised in a better way. To support this, there should be confirmations for both invoice receipt and acceptance and conduction of schemes and other reconciliations. Lastly, there should a transparent connection between the corporates and the retailers so that the details can be traced on the payments made by modern trade retailers.
The market for the organised retail in India has a lot of potential in the near future. It just needs to keep up with the recent trends and some new strategies in order to assure a good survival in the market. Well, there should always be a balance maintained between the brand promotion and brand building. Several dynamic players have entered the market and have made this upcoming industry a fast-pacing one to taste success.