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Tuesday, August 28, 2012

Kirana stores throng big retailers like Future Group, Reliance Retail and others for better margins
MUMBAI: At a recent store launch in Aurangabad in Maharashtra, Rob Cissell, CEO of the value retail format at Reliance Retail, chanced upon two customers pushing down overflowing trolleys.
A quick chat with them revealed something that Cissell hadn't seen even in China where he had spent three years with Walmart as chief operating officer. "They were kirana shop owners who usually drive over 100 km to buy a wholesale store. (On this occasion) they decided to try out our hypermarket (Reliance Mart). And they said we have better prices and a better range," says an astonished Cissell.
Cissel is not the only modern retailer in India who has picked up the trend of kiranawallahs lining up outside hypermarkets for deals on days of discount and bargain offers that are more that what fast-moving consumer goods (FMCG) companies offer them. Future Group's Big Bazaar has noticed it ever since it began its 'Sabse Sasta Din' scheme on Republic Day in 2006.
However, of late kirana owners have found many more opportunities to procure consumer products as retailers offer yearly, monthly and even weekly discounts to beat the slowdown blues, literally turning air-conditioned aisles of their stores into a flea market.
What gets the average kiranawallah excited is the huge margin on offer. Take, for instance, Ganesh Patil who runs a small grocery store in Mumbai's western suburb of Borivali. At his store, a two litre bottle of Coca-Cola sports a price tag of Rs 65; the thrifty Patil was able to purchase it for just Rs 39 from one of the modern retailers recently during an Independence Week sale. That makes his margin a whopping 40%.
The same product sourced from company's distributor would have earned him just 9%. Another example: Patil purchased a 2 kilo pack of Surf Excel Quick Wash, which bears a price-tag of Rs 320, for Rs 260 during the same period from the same hypermarket.
"Our margin for these products is more than double what we get from company's distributors," contends Patil, who spent over Rs 80,000 at the recent shopping spree at a larger rival's store.
Retailers including Future Group, Reliance Retail, HyperCity and Aditya Birla Retail aren't too chuffed with this new breed of consumers. "We offer discounts for consumers and not for resellers. We don't encourage such buying trends as our suppliers are affected," says Damodar Mall, director, strategy, at Future Group. 
And they are trying everything - from capping heavily discounted products to monitoring spending patterns of frequent consumers - to discourage resellers. "We try to restrict buyers from purchasing a large number of products of a particular category. They can buy as man products as they like at full price. But during discount sales, one can't buy more than 12 pieces of a product," says Ashutosh Chakradeo, head of buying & merchandising at HyperCITY Retail.
Experts, however, say that such opportunistic kiranawallahs are still a speck on the organised retail landscape. "Kirana owners may buy from modern retail stores, but that would not contribute significantly to overall sales. In small towns, it is also a novelty factor for smaller grocers to go to the nearest satellite towns to buy from larger formats, but the volumes here again aren't very high. Hence, such a trend is not sustainable in the long run," says Roosevelt D'Souza, executive director, Nielsen India.
In addition, FMCG companies aren't feeling threatened - not yet, at least - as modern trade accounts for between 7% and 10% of their total sales. "There is always a possibility of such modern retailers becoming a sort of semi-wholesale channel for kiranawallahs. But to offset that we try to avoid giving huge discounts on best-selling or popular products so that the price disparity between large and small retailers is cut to an extent," says B K Rao, general manager at Parle Products.
Ironically, the trend of kiranawallahas buying from modern retail is gaining ground at a time when political parties in the country are debating on whether foreign direct investment in retail should be allowed; the opposition's argument is that if international retailers are allowed to open stores in India, buying could shift from millions of mom & pop stores to larger rivals.
As long as modern retailers use their clout to source products at significantly cheaper prices than their smaller counterparts, traditional store owners will continue to view them as a lucrative procurement alternative. That can change only when cash and carry outlets such as those of Metro, Walmart and Carrefour multiply from just a handful now into hundreds.

Courtesy:  Economic Times
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