“We do not touch anything that has a margin less than 65 %”. My jaws dropped when a buyer in a very upcoming retail chain said this in a matter of fact way. Gone are the days you could expect a good product to be present on the shelves by sheer quality, merit or unique benefit. Any entrepreneur or entity interested in creating a good brand or a product range has to endure many complex hurdles like listing fees ( fee for them to enter the product and bar code in their computer system), significantly higher margin than your street corner grocery store and an annual investment plan that requires the brand owners to spend on all events like the retail store anniversary etc.
Looking at it from the retailers point of view, it is fair that they need this to pay off their ever increasing rents, salaries and the various costs they have to incur to run an establishment like that. Retailers in many developed countries have managed to spread their wings and have a big chunk of retail sales in their respective countries. Also most of them are listed in the stock market making them accountable to the every hungry pack of investors.
While customers are preferring to buy in these large hypermarkets, it does not look like the most efficient model for a country like India.
| Traditional Independent retailers | Large Hyper Market Chains |
| No Listing Fees | Charges listing fees from Suppliers |
| Margins between 15- 20 % | Margins upwards of 35 % |
| No events | Forced Event participation |
| Keeps stocks that sells faster | Lot more focused on their profitability |
India is a peculiar country with each geography having their town likes and dislikes. What sells in Calcutta is unknown in Nagpur. We cannot afford this one size fits all Indians approach that retail chains tend to take at times. At the same time, smaller retailers are not the most efficient. Larger retail chains invest in cold chains that our perishable stuff. This enables our farm producers to get a better prices in the long run.
The optimal way forward is to keep a check on margins that hypermarkets keep through legislations. Important would be to also do away with irrational demands by hypermarket chains on investment by brand owners on listing fees and event participations. Because the net payer for all this would be the lady who walks down the aisle with her trolley.