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Opportunity in diversity for Retailers? - Views on News from Equitymaster
 
 
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  • Apr 6, 2011

    Opportunity in diversity for Retailers?

    For those who have given up on India's Inc's appetite for innovative ideas, here is a reality check. Retailing major, Pantaloon Retail plans to cash in on the diverse food tastes of Indians through the pilot project 'Ektaa'. For starters, 'Ektaa' is the company's private food brand that sells community-specific food products. To start with Pantaloon had introduced a few variants of rice and later added pulses in its product portfolio. The 5 variants of rice currently being sold are Red Matta from Kerala, Sona Masoori from Andhra Pradesh, Govind Bhog from West Bengal and Basmati from Punjab. In future, the company is likely to sell wheat, spices, pickles, papads and khakhras as well under the brand. Private labels account for 20-25% of the total food segment sales and the company is expecting Rs 1 bn (approx. 1% of its consolidated sales) turnover from 'Ektaa' in the next 2-3 years.

    Opportunities

    India has a huge base of migrant population i.e. people who live away from their hometowns. Besides those migrating to metro cities from smaller towns, Indians have also got accustomed to shifting base across metros due to work compulsions. The migrant population is thus deprived of food products readily available in their home town.

    Pantaloon had conducted a study of store wise customer requirements across locations. It has found that for every store that it runs, it normally caters to not more than 3 communities. Thus, it should not be too difficult to stock such products in its stores.

    Pantaloon also has the first mover advantage of entering this segment because at present no national player caters to communities specifically. Regional players like Bedekar do exist but they operate only in select states and cities. The company is also focusing on the packaging of the product to make it more appealing. What is more, the private label may be expanded to include non food items as well in the future.

    To ensure smooth supply chain Future group is sourcing these products from locals. Future Agrovet, their subsidiary company, has tied up with millers across the country to source products for Ektaa brand.

    With proposed FDI in retail, Indian retailers can use community retailing as a differentiating factor as against the global players. Indian retailers will undoubtedly be in a better position to understand local needs and serve their customers. This can help them in dealing with foreign competition better.

    Challenges

    It will prove to be a challenge to understand the various communities' tastes and preferences. Pantaloons has at present divided India into 8 communities- The Tamilians, Kannadigas, and Telugus in the south; Bengalis, Maharashtrians, Gujaratis and Marwadis together and Punjabis and Baniyas. But, there exist hundreds of other communities in India. Without proper research, it may not be able to serve the entire country. A lot of money has to be spent on consumer research and also on the logistics requirements. This entails substantial investment at the initial stages. With globalization, Indians tastes and preferences are also changing and there is appreciation for Western palates. This section of the society may not be interested in traditional Indian foods.

    Conclusion

    The opportunity does exist in a growing country like India, but it needs to be seen whether the efforts generate enough returns for retailers. Researching consumer tastes and preferences will require capital and skilled manpower. Retailers will be able to earn profits only after setting off these initial costs. Although Pantaloons expects to earn substantial revenue out of this project in 2-3 years, we need to see whether these will add to profit margins as well. We suggest a cautious approach towards any such initiatives by retailing giants.

     

     

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