Oct 5, 2012|
Is Modern Trade the future growth driver for FMCG?
Modern Trade spreading its tentacles
Modern Trade (MT) consists of supermarkets and hypermarkets that retail Fast Moving Consumer Goods (FMCG) goods. Also known as organized retail, this retail format started in India in the early 1990s, and since then has slowly been gaining in importance.
As per Nielsen, the proportion of consumers who claim to shop at MT "occasionally" has grown from 54% last year to 66% in 2012. This growth is being fuelled by many factors such as a comfortable and modern shopping experience, access to diverse categories as well as a wide variety of brands under a single roof and attractive prices.
A whopping 54% of the MT shoppers actively seek promotional deals, with 35% of them making bulk purchases. In fact, organized retail has gained momentum with increasing numbers of 'urban crossover shoppers' who patronize multiple store types. They visit MT stores but also rely on the neighbourhood Kirana stores (General Trade) to replenish day-to-day convenience shortfalls. Nielsen's study states that over a third of the Indian shoppers, on average, frequent 2 or more types of stores.
Modern Trade - A boon for certain consumer goods
Modern Trade by virtue of effective merchandise display has spurred sales of certain FMCG categories. This is particularly true for impulse purchases made by shoppers. Food categories such as salty snacks, cheese, biscuits, noodles, breakfast cereals and chocolate in MT clocked over 20% growth during 2011. Even food staples, which were the exclusive domain of Kirana stores, have successfully entered MT in the form of branded staples. In 2011, packaged rice and packaged atta retailed through MT registered brisk double-digit growth. Apart from that, MT has coaxed consumers to opt for more premium products. For example, refined edible oils witnessed considerable "uptrading" from the regular edible oils to premium refined edible oils in the MT channel in 2011. Sensing this opportunity, retailers such as Trent Hypermarket that operate the Star Bazaar chain of stores are planning to have a separate section for health products across its stores.
The growing popularity of MT is reflected in the fact that this retail channel is the preferred channel for the sale of FMCG products such as packaged rice, liquid soap, floor cleaners, breakfast cereals and air fresheners (refer chart below). Hindustan Unilever (HUL) claims that in, certain categories, its sale volumes through modern trade are growing faster than through general trade. This faster growth of certain product categories in MT have led to the emergence of private label brands. These are essentially in-house "retailer" brands (for example Future Group's Tasty Treat snack foods) sold at lower prices than higher ad spending main-frame brands. Despite the relatively recent arrival of private label products, it has already clinched 7% of overall MT sales.
Modern Trade - Current Share and Penetration
Modern Trade has a market share of 9.2% in overall FMCG sales. But MT still continues to be an urban phenomenon. As per Nielsen, 17 key metros account for a whopping 73% of overall modern trade in India and accounted for a third of the general trade's sales in those geographies.
Further, one in every five urban shoppers now frequents Modern Trade in the form of super or hyper markets. This growing importance of MT has also resulted in FMCG companies setting up sales and marketing teams dedicated only to MT.
Modern Trade accounts for more than 10% of HUL's overall FMCG sales at present. Dabur India gets 60% of its Activ Fibre juice sales from the organized retail stores.
The growing clout of MT saw this retail channel growing by 28% in FY11 that has powered the 18% rise in overall FMCG sales for the year.
Modern Trade has opened up an important sales channel catering to the growing urban shoppers who have strong purchasing power and with more choices, a willingness to experiment. This sales channel has not only nudged consumers to make more impulse purchases but has also led to the growth of premium products and incubated new product categories. Although modern trade has only a 9.2% share in overall FMCG trade in India, it is growing much faster than general trade.
Going forward, Nielsen expects modern trade to continue its stellar performance, clocking growth of more than 25% in line with the current 28%, and so it will further increase its penetration.
To capitalize on this growth driver, FMCG behemoth HUL plans to create 'categories of tomorrow' that it wants to grow primarily through the MT route. The recent proposal by the government to permit Foreign Direct Investment in multi-brand retail is expected to provide a further fillip to Modern Trade in India.
Clearly Modern Trade is complementing the growth of FMCG business. Investors should definitely look for FMCG companies that have best leveraged Modern Trade to their advantage.
||Madhu Gupta (Research Analyst), Managing Editor, ResearchPro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages. Madhu contributes towards our small cap service Hidden Treasure.
More Views on News
Aug 9, 2017
While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.
Dec 9, 2016
Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.
Nov 30, 2016
Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.
Nov 30, 2016
GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.
Nov 28, 2016
Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407