FMCG companies should increase margins for kirana stores: METRO Cash & Carry India MD
The margins of traditional kirana store retailers have remained constant over the last 30 years, despite rising operational costs
Parul March 17, 2022
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FMCG makers, earning higher profits on their products, should consider increasing the margins for small retailers at kirana stores selling their goods, said METRO Cash & Carry India MD & CEO Arvind Mediratta. The margins for the retailers have not changed for the past several years and the FMCG companies still call the shots in this, said Mediratta suggesting a proper equitable distribution of margins.
“FMCG companies are making record profits year-on-year, the volume growth is four per cent and profits have grown 40 per cent,”
“Why is that because they have kept the margins of the traditional retailers fixed and unchanged over the past 30 years,” said Mediratta while speaking at a panel discussion in a programme organised by industry body FICCI and ICPRG.
This is one of the problems that the small retailers are facing as margins are the same but their operating cost is increasing, he added.
“Everything has gone up, salaries have gone up but the margins have not gone up. It has actually come down in some cases,” he said suggesting them to negotiate collectively better terms of trade with FMCG makers.
Some companies have magical price points, which have remained the same despite successive hikes.
“What they have done over a period of time is to reduce the product quantity and ingredients, and reduced the optimised packaging as far as possible. Now, the only thing they can do is to reduce the retail margin,” said Mediratta, who is also chairperson for retail and internal trade of industry body FICCI.
According to him, the future of retail is converging of physical and digital, and the government should provide easier access to loans to the small retailers, who lack resources for their modernisation.
Mediratta also pointed out that some retailers are losing billions of dollars and cross-subsidising the product to distort the competition and push the kirana and local stores out from the trade.
“Some of them have more loss than their turnovers,” he said while speaking on ‘Shaping the future of small retail in India’.
While, on the other hand, the kirana shops cannot survive even for a month without losses. A lot of kirana stores can get out of the business, if this continues for another 12 months and beyond.
“We need a retail policy. For the last many years, FICCI, CCI and RAI are working. We have a draft retail policy, which has been tabled to the government but it has not been formalised yet,” he said adding that “that is one of the critical needs of the hour”.
This should be one integrated policy for the retail sector and not separate for e-commerce, small retailer and large retailers.
“Right now, for a retailer, it is not easy to do a business. We need a lot of things for ease of doing business. We need 30-40 licences to open a store and then their lot of compliances also,” said Mediratta.
However, he also added that a lot of changes are also happening at the customers level, which is now digitally influenced, having details of the products and expects a faster delivery in hours.
“The future is omnichannel. Kirana has to phygitalise” by integrating their physical presence with digital, he added.
Mediratta further said some people say the future is e-commerce and he disagrees with that.
“Physical retail is not going anywhere but it has to incorporate some of the good features of e-commerce to make themselves more appealing and relevant to the consumers,” he added.
They should learn as how the e-commerce platform provides more information about the products, their review system, the process of returns and refunds.
Now, a lot of small kirana stores want to expand and open more stores but they do not have the capital to expand and that is where a retail policy and easy access to the fund will help them. They want to modernise and be open format stores like supermarkets, where customers can walk in and pick up products.
He also suggested kirana to work on assortments as there has been a lot of changes and consumption of frozen products is on the rise.
CAIT Secretary-General Praveen Khandelwal, who was also participating in the panel discussion, said the sector needs ease of doing business.
E-commerce has not grown over 6-7 per cent despite the offering of deep discounts.
He said there should be co-existence of all retail formats and asked the e-commerce players not to try to eliminate the small retailers.
While Deloitte Partner Rajat Wahi suggested collective buying of products from manufacturers, using their combined strength to negotiate better margins as done in countries such as Germany.