Tuesday, December 13, 2011

Standard Pack Sizes : Impact on Price Points..

I was reading a newspaper article on a new regulation wherein the Government has decided to reintroduce standard pack sizes for several items of everyday household consumption. The argument is that companies have been reducing the quantity of the product without changing the price of the product, which is not in the interest of the consumer. A consumer would not check the weight of a biscuit pack every time he buys. The non-standard pack size made it easier as they would keep reducing the quantity being sold without changing the price.

But one of the main reasons why companies have been reducing the quantity (without touching the pricing) is that in many categories especially biscuits, chocolates, chips… they are trying to hold on to certain price-points which the consumers and retailers are comfortable with. Like in the biscuits business it is the Rs 5 which is very critical and the SKU at that price point tends to be the volume driver for many brands. The moment the regulation of standard sizes is introduced many of these brands will have to vacate that price slot and move higher or lower price points. The other reason reducing the quantity is to indirectly pass on the price hike to the consumer.

I feel that this regulation is not really needed for, on two accounts, one is the assumption that consumers are not smart to realize the change in the product quantity. He might get fooled once, and then he would realize & factor- in his next purchase. The second reason is that the convenience which certain price points give, both to the retailer as well as the consumer; imagine giving 7.25 for a 100 gm biscuit packet..

Wednesday, December 7, 2011

Too Much of Steve Jobs??

Missing out is Pepsi to Apple.....

Tuesday, December 6, 2011

FDI in Retail - Kirana Stores

The debate on allowing FDI in retail is something which is up for discussion, so thought I should also pitch in with my thoughts. There are many dimensions and stakeholders here, the farmer/producers, the consumers, the kirana stores and of course the international retailers who are waiting to enter the Indian market.

I will start with focusing on the kirana stores or the small mom-n-pop retailers, which I have certain familiarity because my own research work. We are known as a country of shopkeepers, because of the high retail density and the sheer number of shops. In fact in the last five years I have been observing the large number of new small kirana stores which have come up in just the 3 km stretch before my residence. ( if one were to hazard a guess based on these 3 kms the growth of kirana stores in India, it might be in the high 30s). In India setting up a retail store is considered to be the easiest way to help settle down a young guy. So the concern is that if the bigger international retailers were to come in then probably these smaller retailers would be wiped-out, estimated between 10-15 million. If that were to happen then obviously it would become a major issue. But then the percentage of organized retail even in countries where they have been for long is not 100%, infact the percentage varies in countries like Japan , Malayisia and Thailiand they are from the high sixties to 40%.

And to tell the retail in India has not evolved in the last twenty would be very wrong, our own home grown retailers Like Big Bazaar, Reliance retail, Spencers have been there for quite some time, and have we seen small retailers close shop because of them? Infact I have personally seen these Kirana store respond by upgrade their shops and increasing their service levels.

By saying that the Kirana stores would disappear would be saying that exist because of an inefficiency in the market and the moment it is removed by bringing in more efficient larger retailers, the smaller inefficient ones would disappear. The reality is that the smaller retailers exist because they provide value by providing location convenience, smaller assortments and personalized services. And yes some of them would get impacted, those who are not able to respond to the changes. Have we not seen the STD booths disappear after mobiles came in, but then the STD booths have morphed into some other kind of retail store. I firmly believe that the retail scene would evolve very rapidly and change in the form of entry of larger organized retailers is inevitable and would happen.

In my next post I will look into the other stakeholders in the retail business and how would they be impacted...


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