A smallish outlet universe of nearly 4500 outlets across the country, contributing nearly 5% by value to the Indian retail sector, Modern Trade (MT) is, well, in embryonic infancy right now.
However, as mentioned in the earlier post, the lack of scale does not take away the operating complexities from the business.
We saw that the traditional trade business strives to drive distribution of products across the outlet universe. Hence, its sustenance and growth depends upon whether stocks reach the outlets successfully, day in and day out. Initiatives to generate offtake are really very few, limited to tactical interventions like merchandising or hiring shop windows for display. This is primarily because the outlets are manned counters, unlike the self - service types found in Modern retail.
However, modern retail works on what is called the Distribution Centre (D.C) model of supply. The retailer's supply chain measures stock on hand, outlet level sales by SKU, the minimum inventory level required, and then raises purchase orders. These orders are then billed by the manufacturer (the FMCG company) and supplied directly from the company warehouse to the retailer's DC. Note that the distributor is usually not involved in this transaction.Once the stocks reach the DC, the system allocates them basis secondary sales and current stock position to each outlet. Hence, product distribution is taken care of.
This, therefore, raises the next logical question - If distribution was the biggest agenda being driven by the traditional trade side of the business, it suddenly becomes redundant in modern retail - why then do you need a sales team to manage this, because all orders et cetera are system based ?
That is because the role of a modern trade sales team is slightly different from that of a traditional trade team.
The MT team too has to ensure product availability across stores, because, well, embryonic infancy also means less than perfect systems and lots of manual processes, hence room for errors. However, it is also the responsibility of the MT team to ensure that the available product is displayed and merchandised in a manner such that maximum off take happens, and the replenishment cycle does not fall off the rails.
What this essentially means is that the MT guy has to not only ensure high quality merchandising of products and maintenance of fixtures, he also has to be aware of opportunities inside the store where he can purchase / poach space to increase stock availability, participate in store promos (especially around festivals) to piggy back on other product categories, use store level insights to develop tactics that would help drive off take.
In addition, he also has to manage payments within the agreed time period, deliver stocks at high fill rates, within the specified freshness norms (typically products need have minimum 75% shelf life at the time of supply), at the right time (after taking appointments at the DC- because there are 50 other vehicles ready to offload).
Basically, all the complexities of the traditional trade business, and much more !!
To sum it up, both business work on the Availability -- Offtake -- Replenishment cycle.
Traditional trade focuses on ensuring availability and hence drives replenishment, while modern trade focuses on generating off take and hence replenishment.
Hence, the submission that the modern trade role involves tactical elements of marketing, which are needed to prompt consumers to give their product a try - would not be too far fetched in my opinion !
However, as mentioned in the earlier post, the lack of scale does not take away the operating complexities from the business.
We saw that the traditional trade business strives to drive distribution of products across the outlet universe. Hence, its sustenance and growth depends upon whether stocks reach the outlets successfully, day in and day out. Initiatives to generate offtake are really very few, limited to tactical interventions like merchandising or hiring shop windows for display. This is primarily because the outlets are manned counters, unlike the self - service types found in Modern retail.
However, modern retail works on what is called the Distribution Centre (D.C) model of supply. The retailer's supply chain measures stock on hand, outlet level sales by SKU, the minimum inventory level required, and then raises purchase orders. These orders are then billed by the manufacturer (the FMCG company) and supplied directly from the company warehouse to the retailer's DC. Note that the distributor is usually not involved in this transaction.Once the stocks reach the DC, the system allocates them basis secondary sales and current stock position to each outlet. Hence, product distribution is taken care of.
This, therefore, raises the next logical question - If distribution was the biggest agenda being driven by the traditional trade side of the business, it suddenly becomes redundant in modern retail - why then do you need a sales team to manage this, because all orders et cetera are system based ?
That is because the role of a modern trade sales team is slightly different from that of a traditional trade team.
The MT team too has to ensure product availability across stores, because, well, embryonic infancy also means less than perfect systems and lots of manual processes, hence room for errors. However, it is also the responsibility of the MT team to ensure that the available product is displayed and merchandised in a manner such that maximum off take happens, and the replenishment cycle does not fall off the rails.
What this essentially means is that the MT guy has to not only ensure high quality merchandising of products and maintenance of fixtures, he also has to be aware of opportunities inside the store where he can purchase / poach space to increase stock availability, participate in store promos (especially around festivals) to piggy back on other product categories, use store level insights to develop tactics that would help drive off take.
In addition, he also has to manage payments within the agreed time period, deliver stocks at high fill rates, within the specified freshness norms (typically products need have minimum 75% shelf life at the time of supply), at the right time (after taking appointments at the DC- because there are 50 other vehicles ready to offload).
Basically, all the complexities of the traditional trade business, and much more !!
To sum it up, both business work on the Availability -- Offtake -- Replenishment cycle.
Hence, the submission that the modern trade role involves tactical elements of marketing, which are needed to prompt consumers to give their product a try - would not be too far fetched in my opinion !
