Recently, Sahara has rolled out and executed its plan for foray into the FMCG and durables retail sector, though not through the traditional route but rather through an "innovative" channel. The innovation is that Sahara will be employing its existing 6 lakh odd strength of sales force, so far selling financial products, to sell the Sahara Q shop's offerings also. The company is planning to invest 3000 crore rupees to entrench its presence into the sector. I did my analyses of the concept and will present it here-
Lets have a look at the FMCG and retail industries. The Retail sector is India is currently being valued at $350 billion and has been projected to reach to $850 billion by 2020. The Indian FMCG sector on the other hand stands today at $24 billion and has been projected to grow to about $73 billion by 2020.( Still wondering why the international tier 1,2 and 3 companies are leering at India? ) But, Sahara will be following a direct selling model of private label brands (http://www.businessdictionary.com/definition/private-label.html), somewhat similar to Amway and Tupperware. The size of this sector ie the direct selling one was $ .957 billion in 2011, it is growing at a rapid pace of 20% CAGR and is projected to touch $1.97 billion in revenues by 2015. Amway is the protagonist of this model in the Indian story with a coveted market share of 45%.
Let us analyze the private label direct selling model
Bargaining power of suppliers- Low, as most of the times the companies own the value chain.
Bargaining power of the customers - High, since the customers can chose from a plethora of products available in the alternate channels.
Threat of new entrant- Moderate, As the investments required for the entry are not that huge, yet not many players have been seduced by this sector.
Threat of Substitute product- High, local grocery, department stores, modern trade, e-tail etc
Industry Rivalry- Low, not many players under operation and those are active are active in different segments.
Now, let us have a look at Sahara's plans-
- Sahara Entering the sector by investing Rs. 3000 crores
- Products will be delivered through direct to home mode.
- Utilizing network of existing 6 lakh personnel selling Sahara financial products to over 6.5 crore customers
- 73 categories of products.
- Overall Category growing at a rate of 20% per year.
- Initial phase of launch will cover 60 towns across UP, UK, Bihar, Rajasthan and Jharkhand.
- Plans to launch retail outlets in 998 towns by march 2013.
- Massive back-end support structure, which would eventually comprise 200-300 contract manufacturers and packers, 305 warehouses ,encompass 10 million sq ft of space and more than 25,000 various types of distribution vehicles
- Marketing campaign- Milavat se Jung
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A SWOT analyses of the proposition
STRENGTH
Control over value chain with back-end support structure
Unique Direct to home model.
First mover advantage
WEAKNESS
Low varietyLimited categories.
Demands change in consumer purchasing behavior.
No shopping experience.
Sahara’s Lack of experience in the sector.
OPPORTUNITY
Portfolio extension.
Increasing preference for value for money private labels.
THREAT
Rising modern retail with plethora of
offerings.
Kirana stores can also do home delivery.
Due to a strong umbrella branding,
unsatisfactory quality in any one category can affect the perception for other
categories also.
I conducted a short survey ( Wish to express my gratitude towards the respondents)
The results which I got are as follows-
1, 42 % of the women are dissatisfied with the variety offered at the nearby kirana store.
2. 67% of the women said that their local kirana store offers free home delivery
3. 62,5 % of the women trusted the quality of the staples being offered by the local kirana.
4. 75% of the women trusted the quality at the supermarkets/modern retail.
5. 71% perceived better value with shopping at the super market
6. 16% of the women preferred kirana store as their shopping destination , 42% preferred supermarket as theirs and rest of the 42% were indifferent.
Now, Consider the following matrix
Thus,
So, for sahara Q shop to be successful the following equation must be satisfied
And,
- With such Stiff competition in the FMCG and retail, how will the Q-shop manage the margins?
- With already a limited variety, Q-shop needs a very strong and responsive supply chain.
- To convince the customers about the superior quality of Q-Shop products, apart from ATL promotion they have to give a very thorough training to the sales personnel.
- They have to ensure that a system to cope up with copy cats, the problem of ‘fly by night’ operators. This model is much more susceptible to negative publicity than others.
- With ongoing negative publicity and caution issued by SEBI to investors, how is Sahara planning to handle its PR?
Finally, According to my analysis, the road ahead seems very difficult for the
Sahara Q-shop. I wish them good luck.
In this battle whoever loses, the consumer shall win.
Thank You
Your opinions are most welcome.
Sahara Q shops are planned for 300 sq. feet, which is equal to space of an average Kirana store. So they are coming up as a branded kirana store and not as another super market.
ReplyDeleteI agree with their positioning because in small towns generally oil, flour, sugar etc are sold in small amounts generally in multiples of 10, 15 Rs and people know that these products will not be of equal quality.So they should invest in building brand equity and image of trust and faith and value for money.
Even in Pune I saw people buying 5 Rs of (loose and unbranded) Palm oil every day.This can give it leverage in expanding into rural India, where still sachet revolution is generating huge profits. Main strength of Sahara is low cost due to own distribution network, thus their value for money proposition can be crowd puller. Because private lables have particularly done well in categories that are low involvement – such as home cleaning product, pulses and spices- where customers are not particularly brand conscious.
Good analysis
ReplyDeleteBut without information about the segments that Qshop aims to target and the level of premiumness they intend to give their products, this analysis may or may not hold true.
Need to look at who the customers of Sahara's finacial products are, what are their income levels. Are housewives covered by Sahara's existing sales network? Or is their target the quality conscious customer who cannot spare the time to shop, or hate the shopping experience, and are satisfied if they get the best quality goods without the worry of shopping and choosing, and are ready to pay for the convenience?
This would make the business much more lucrative in my opinion.
Eg: I cannot distinguish the quality of food items, pulses, grains, oils, flour, veggies etc. Nor am I interested in experimenting with brands and developing an expertise in this area. So if I can get assured quality stuff at my doorstep with out having to go through the dilemma of choosing a brand at the supermarket, I will pay a fair premium. Not to mention the waste of time, parking, luggage etc that is associated with supermarkets.
Q is, how many are there like me, who constitute (I suppose) the potential market for Q shop.
Thank you for your response friends,
ReplyDeleteI will reply first to Abhinav. I am not saying that the model can't be successful. Nothing is impossible in this world. I am just saying its going to be tough. The company wants to open branded kirana stores, fine. And how do they intend to differentiate themselves? Variety? no. Product range? no. Convenience? no if you go and buy from shop. There are only two things, one the quality and second the price. Quality first, Will the common consumer suddenly start doubting the staples she has been buying since eons, just because Q shop says so? difficult i will say. Price, It can be a very profound factor, but how cheap can they make it? And just because it is cheap it doesn't guarantee success, case in point- Vishal Mega Mart, which also used to sell private label staples.
Now, when you chose a target then you do it keeping in mind that it shall attract few other groups, you will not chose a target that will repel other groups. Does the company want to sell 5 rs. lose palm oil? it is definitely not possible, one - pilferage can't be checked. two, would you trust the quality of a five rs. lose palm oil? I won;t. Three you can definitely not do business of a mass scale considering the investments the company has put in by catering to people who buy 5 rs palm oil. A strategy for rural India may not be successful for a tier 2 city. The company intends to sells products like deodorants, can it cater to both the target groups from the same store? There seems to be a positioning dissonance with your argument.
Now, Jaws :) I don't think the company is targeting premiumness, it can't be inferred through there communication. And segmentation is clear, it is middle class and beyond, but majority will be middle class only. Why do you say that the customers who buy financial products are different. They are just regular shoppers. For a regular Indian housewife shopping is a cherished part of her life. Majority of the women will not say that they hate shopping. And yes the best quality at the best price is of course having good chances of success, but in market there is not fight for reality, there is fight for perception. How does Q shop intend to convince that there products are actually the best? Difficult. Not impossible. People go to shop for the sake of experience also, we shall not neglect that fact. But again, I am not saying it can't be successful. It has to be seen how they deliver the perceived superior quality at a perceived superior price and...yes, sustain it.
I beg to differ. From the way that Q-Shop intends to proceed by targeting customers through existing sales personnel, it is inherent that they will target premium customers. But obviously, later on for growth, they will enter the common man's market. Do reply. I am interested in marketing and am a novice at present, so any guidelines would be highly appreciated.
ReplyDeleteSee, if a company has adopted the personal selling strategy it doesn't inherently imply that they are targeting the premium segment. You can check out their ad campaigns on youtube, they are targeting the middle class basically. It is just a differentiating strategy. Whether it helps them or not is actually to be seen. Moreover, do you think the brand conscious premium customer with high spending power will abandon the mainstream established brands for Sahara? Possible but difficult, really really difficult :)
ReplyDelete