The growth of India’s FMCG (Fast Moving Consumer Goods) retailed through MT (Modern Trade) is outpacing the growth of FMCG products in GT (General Trade) and has accelerated in the last quarter of 2011, resulting in a 100 basis point jump in MT’s share of overall trade.
This is being driven by a host of key factors, not the least of which is the fact that urban shoppers are increasingly adding to the number of ‘crossover shoppers’ – shoppers that patronize multiple store types to meet a variety of needs. A growing affinity for better value, a more comfortable and modern store experience, a wider variety of categories and brands, as well as compelling deals are driving shoppers to walk into Modern Trade stores even as they rely on their friendly neighbourhood ‘Kirana’ to ‘top-up’ (buying smaller quantities when they run out of stock) or satisfy their need for quick purchases at close proximity.
The growth in volume sales within modern trade appears to be mimicking the volume growth in General Trade. This is an important facet of modern trade and the comparison, when contrasted with the growth in value indicates that the modern trade environment is also facilitating a ‘trading-up’ amongst modern trade shoppers. With value growing faster than volume, it implies that even in an inflationary environment, modern trade shoppers are expanding the share of their wallets dedicated to shopping for categories sold through organized retail. This is both heartening for Modern Trade and an important indicator to manufacturers and brand owners that they need to create a strong approach to understanding, and serving the modern trade shopper. Over the last year, another aspect that has helped buoy the frequency and the quantity of shoppers stepping into modern trade outlets has been the increase in modern trade stores across urban India. After the correction of 2009-2010, a period which saw a number of store closures, this trend is a definitive sign of recovery and the reinstatement of shopper confidence in the modern trade shopping experience. This is especially pronounced during the onset of the festive season where an uptick in sales has become a customary feature coupled with a steady increase in shopping incidence and the number of shoppers across the year.
A closer look at the mainstay of where modern trade shoppers reside, indicates a sharper increase in some urban cities compared to others. At an overall level, 17 key metros contribute to 73% of overall modern trade in India. More importantly, they equal nearly a third of the general trade’s sales for the same geographies. However, some geographies are witnessing a faster growth in Modern Trade relative to the overall market and general trade (kirana stores, grocers, etc). Within this, Tier II cities such as Jaipur at almost 40 percent, Indore at 39 percent and Surat at nearly 27 percent are witnessing rapid growth. As shoppers in these geographies awake to the possibilities that Modern Format outlets bring, this is only likely to gain momentum.
At a city level, the acceleration of Modern Trade becomes even more evident with nearly all cities witnessing a universe of Modern Trade shoppers who are propelling the format in a manner that either matches or exceeds the growth rates of General Trade.
The Modern Trade shopper has always been characterized as a shopper who has stronger purchasing power and a willingness to buy a wider repertoire of categories and brands. This mix of affluence and experimentation is an invaluable asset for manufacturers seeking to introduce, grow, and create categories. This can be especially useful in times of uncertainty like 2011 since the sharp increases in value growth indicate resilience amongst shoppers who patronize organized grocery retailing formats. Specific instances of this can be seen in categories like Refined Edible Oils and Coffee where value growth has outpaced volume growth by 2x-3x.
Interestingly, categories where shoppers are usually prone to impulse and making decisions within the store (as opposed to pre-planned brand choices on a shopping list) like, biscuits, beverages, salty snacks, noodles, and chocolates, also see a sharper rise in value compared to volumes. More importantly some categories are ascendant and growing. For instances, salty snacks have grown in size to occupy a higher ranking amongst the top five food categories within Modern Trade clocking a volume growth of 32% with a price growth of 5%.
In non-foods, categories linked to a shopper’s daily personal ritual though affected by inflation have held on to robust growth rates. Hair Oils and Toothpastes have seen their total value sales through modern trade grow at least twice as fast as their growth in volumes. Other key categories across personal and household care too have grown in healthy double digits with most categories growing by nearly a fourth of their size. At this continued pace, these categories are likely to double their size in Modern Trade over a span of just three years. Already, Diapers as a category has risen to a higher ranking amongst the top five categories by value and, in keeping with its evolution in other developed and developing markets is showing all the signs of being a category favored by the Modern Trade shopper in a young and expanding population base.
At an overall level, when one looks at the categories where Modern Trade’s penetration is significant, nonfood categories dominate the list.
For categories as disparate as Packaged Rice, Liquid Toilet Soaps, Floor Cleaners, Breakfast Cereals and Air Fresheners, more than a third of sales comes from Modern Trade making these categories dependent on organized retail and an integral part of the shopping basket. Interestingly, categories like Cheese and Mosquito repellant equipment are categories that enjoy a high penetration and high growth rate within Modern Trade.
Another underlying phenomenon is the continued rise of Private Label. With the retailer’s stamp of assurance and typically priced at a discount to national brands, these brands offer a great alternative to the value-conscious shopper mindful of her budgetary balancing act. Though this list is dominated by food staples and household cleaning products, categories like Noodles, Biscuits and Salty Snacks also feature here.
As the Indian Shopper evolves, expect this list of categories to grow and their reliance on Modern Trade to expand. The marketers who perceive this oncoming shift sooner and forge strong ties with this growing base of shoppers through partnerships and collaborations with retailers will be best poised to win in 2012 when Modern Trade in India grows in importance and strengthens its roots in a rapidly evolving market.
Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit www.nielsen.com