With traditional retail growing faster than modern retail, fast moving consumer goods (FMCG) companies are focusing on traditional trade to drive sales. In FY15, traditional retail grew 12.9% to $539 billion, compared to FY14, while in the same period modern retail grew 11.6% to $48 billion.
Traditional retail has surpassed growth of modern retail for the first time in the last five years as FMCG companies are penetrating rural areas and are focusing on expanding in new markets for driving sales.
Sanjay Mishra, chief operating officer, India sales and Bangladesh, Marico told FE, “The dominant channel for our business is traditional retail which accounts for 84% of the overall business. Modern trade continues to do well and grow in urban India. It currently accounts for 9% of overall India sales. Marico remains focused across both traditional and modern trade channels. While modern trade continues to be 9% of the total sales performance for India business 7% comes from canteen sales.”
FMCG companies admit that there has been a slowdown in modern trade as companies are going slow on expansion and have also shut loss making outlets which has resulted in slowing the growth of modern retail.
B Sumant, divisional chief executive in charge of FMCG trade marketing and distribution, ITC, said, “Modern trade growth rates have slowed down in the recent period. Given ITC’s vast range of FMCG products, we have set up a common distribution network that encompasses all relevant channels, which effectively ensures that the entire range reaches the end consumer. ITC’s distribution organisation directly services more than 2 million retail outlets in the country. ITC’s FMCG products are available in more than 6 million retail outlets.”
Godrej Consumer Products said around 7% of the company’s revenue comes from modern trade and the rest, from general trade. “So, while we continue to drive a thrust on general trade and more so, rural markets, we are also equally focused on modern trade,” said Sunil Kataria – business head, India & Saarc, GCPL.
According to industry experts, the slowdown in store expansion by modern trade coupled with network corrections by shutting loss making stores and increasing share of rural in the overall FMCG pie has resulted in traditional trade growing faster than modern trade.
According to Pankaj Gupta, senior practice head for consumer & retail at Tata Strategic Management Group, “Increase in the number of self-service stores in general trade that combine the experience of modern trade with the convenience of a local service provider has resulted in traditional trade growing.”
Arvind Singhal, chairman Technopak, said, many grocery retailers have shut loss making shops and are going slow on expansion. With the slowdown in economy the overall retail sector is slowing down.
