Margins for the retailers have not changed in recent years and the FMCG companies are still in control, Mediratta said, suggesting a fairly equitable distribution of margins.
FMCG makers, who earn higher profits on their products, should consider increasing margins for small retailers selling their goods, said Arvind Mediratta, MD & CEO of METRO Cash & Carry India. Margins for the retailers have not changed in recent years and the FMCG companies are still in control, Mediratta said, suggesting a fairly equitable distribution of margins.
“FMCG companies are making record year-over-year profits, volume growth is four percent and profits are up 40 percent. “Why is that because they have kept the margins of traditional retailers fixed and unchanged for the past 30 years,” Mediratta said during a panel discussion on a program hosted by industry association FICCI and ICPRG.
This is one of the problems small retailers face as margins are the same but their operating costs are increasing, he added.
“Everything has increased, salaries have increased, but margins have not increased. In some cases, it has even come down,” he said, suggesting them jointly negotiate better trading terms with FMCG makers. Some companies have magical price points, which have remained the same despite successive increases.
“What they’ve done over time is to reduce the product quantity and ingredients and reduce the optimized packaging as much as possible. All they can do now is lower the retail margin,” said Mediratta, who is also president of retail and internal trade for the trade association FICCI.
According to him, the future of retail is converging from physical to digital, and governments should provide easier access to loans for small retailers, who lack the resources to modernize. Mediratta also pointed out that some retailers are losing billions of dollars and are cross-subsidizing the product to distort competition and drive the kirana and local stores out of business.
“Some of them are losing more than their turnover,” he said as he spoke on “Shaping the future of small retail in India.”
While the kirana stores, on the other hand, cannot survive even a month without losses. Many kirana stores can go out of business if it takes another 12 months or more.
“We need a retail policy. FICCI, CCI and RAI have been working for many years. We have a draft retail policy, which has been submitted to the government, but it has not yet been formalized,” he said, adding that “that is one of the critical needs of the hour.”
This should be one integrated policy for retail and not separate for e-commerce, small retailers and large retailers.
“At the moment it is not easy for a retailer to do business. We need many things to do business. We need 30-40 licenses to open a store and then their many compliances on top of that,” says Mediratta.
However, he also added that there are also a lot of changes happening at the customer level, which is now digitally impacted, with details of the products and faster delivery in hours expected. “The future is omnichannel. Kirana needs to phygitize” by integrating their physical presence with digital, he added.
Mediratta went on to say that some people say the future is e-commerce and he disagrees. “Physical retail is not going anywhere, but it needs to incorporate some of the good qualities of e-commerce to make itself more attractive and relevant to consumers,” he added.
They need to learn how the ecommerce platform provides more information about the products, their rating system, the process of returns and refunds.
Now many small kirana stores want to expand and open more stores but they don’t have the capital to expand and that’s where a store policy and easy access to the fund will help them. They want to modernize and be open format stores like supermarkets where customers can walk in and pick up products.
He also suggested to kirana to work on assortments, as a lot has changed and the consumption of frozen foods is increasing. CAIT Secretary General Praveen Khandelwal, who also took part in the panel discussion, said the industry needs convenience to do business. E-commerce has grown no more than 6-7 percent despite offering high discounts.
He said that all store formats should coexist and asked the e-commerce players not to try to eliminate the small retailers. While Deloitte partner Rajat Wahi proposed to jointly source products from manufacturers, using their combined strength to negotiate better margins, as is done in countries like Germany.
This post FMCG companies must increase margins for kirana stores: METRO Cash & Carry India MD
was original published at “https://www.financialexpress.com/industry/fmcg-companies-should-increase-margins-for-kirana-stores-metro-cash-carry-india-md/2463030/”