Customers shop at the Big Bazaar, Hypermarket store, in Noida, UttarPradesh (Prashanth Vishwanathan/Bloomberg News)  

This May Be An Early Sign Of A Big Shift In India’s Retail Trade

Jagdish Motiram Lilani, a distributor for consumer goods makers for more than three decades, has stopped stocking products of Mondelez Inc. Not that demand for the company’s Bournvita health drink to Oreo biscuits has fallen. But the buying pattern is changing.

He has multiple competitors. Kirana stores that usually buy from him are switching to Metro Cash & Carry in search of bigger discounts, Lilani told BloombergQuint. And online retailer BigBasket too offers discounts on bulk orders from mom-and-pop outlets, he said.

Moreover, urban consumers are increasingly buying from supermarkets and hypermarkets, according to Lilani. So demand for small retailers is down, ultimately hurting distributors.

He is not alone. Sales of bulk dealers in other cities have been falling for similar reasons, BloombergQuint found in a survey of distributors across seven states.

Distributors, dubbed general trade, dominate India’s retail supply chain, accounting for 90 percent of sales for the makers of fast-moving consumer goods. Hypermarkets, supermarkets and smaller organised outlets contribute about 10 percent, according to Nielsen India. Still, what Lilaini and others have observed may be early signs of a shift in India’s market that, according to a report by Assocham and MRRSIndia.com, is expected to grow from around $672 billion in 2016 to $1.1 trillion by 2020.

“Cash-and-carry stores have become a formidable force wherever they are present, and distributors are feeling the heat,” Mayank Shah, category head at Parle Products Pvt Ltd., said. Companies need to change their strategy and differentiate the offerings that they sell through large wholesalers and the traditional route so that there is minimal conflict.

It’s still an urban phenomenon and distributors’ business is growing in rural areas, according to the BloombergQuint survey. But drop in cities has been steep. In Punjab and West Bengal, distributors in urban areas have lost nearly a third of their business, leading to inventory pile-up in some cases in the festival quarter when the business is traditionally good, the survey found.

The reach of large wholesalers like Metro Cash & Carry and Walmart is only going to get bigger with time in India, said Prashant Agarwal, joint managing director at Wazir Advisors. “The entire chain needs to figure out how to handle the situation so that it is beneficial for the consumer.”

Metro and Walmart together have 50 large wholesale stores in India. Other entrants like Lots Cash and Carry has three stores. BigBasket’s wholesale arm sells to about 8,000 kirana stores, Hari Menon, founder and chief executive officer, said over the phone. It offers products to small retailers in Mumbai, Chennai, Delhi, Kolkata, Hyderabad and Bangalore.

Sunil Alagh doesn’t see that as a reason for alarm. “There’s no massive impact on distributors as cash-and-carry stores have yet to reach a particular scale,” said the head of retail consultant SKA Advisors. He expects distributors and cash-and-carry companies to learn to co-exist.

RS Sodhi, managing director of the dairy company Amul, isn’t that sanguine. “If distributors are to stay in the game, they need higher margins and that’s the only way to solve the issue.”