We find that consumer goods organizations commonly separate channels into two overarching categories: modern trade and general trade. In some organizations, modern trade is represented by those retail outlets that reflect the contemporary image of a store: closed front, windows, air conditioning, organized aisles and checkouts, and the like.
Weve also seen modern trade defined as the top five customers of a consumer goods company or as that 20 percent of retailers who constitute 80 percent of the sales for that manufacturer. Is this really a channel definition? Does that mean that the sixth largest customer automatically falls to the general trade category and is therefore managed by a different sales team? And, if so, is this customer being adequately cultivated to have greater sales potential? Not likely.
General trade seems to be everything elsefrom the sole trader in a sari sari to a small chain of regional stores, which might have the characteristics of modern trade but isnt large enough to earn that classification. Most of these retailers have managed to solidly maintain their operations, which is a testament to their business acumen. General seems to undermine this truth. By viewing general trade as the less sophisticated stepsister, are we giving this channel its due respect? After all, general trade represents a vast majority of stores in developing markets. Estimates vary but it is thought Thailand currently has about 250,000 retail outlets, and Nielsens census in 2008 suggested only 5000 of these were in the modern trade. This massive sales potential alone should command more attention from the consumer goods manufacturers.
Then add in the fact that not only does the general trade represent the largest number of retail outlets in the country, but it is not dying. On a global basis, smaller shops outnumber the large stores by about ten to one. Meanwhile, many consumer goods companies are watching the consolidation of the large stores. In almost every environment, modern trade is growing. Consolidated markets like Australia, Sweden, Hong Kong, and Singapore are dominated by two retailers per country that account for 80 percent of the grocery trade or more. Modern trade outlets in Indonesia account for about 20 percent of the grocery trade, double the figure of a decade earlier. Thailand has experienced a more gentle increase in modern trade outlets over the past ten years, from a little more than 40 percent of the total market to over half the current total.
Consumer goods companies are speculating that general trade will drown in the wake of the rising wave of modern trade growth. Does the growth of one necessitate extinction of the other? While developing Asian markets are seeing a heady pace of consolidation, it would be foolhardy to underestimate the importance of the independent retailers. General trade is not dying in this environment; its thriving!
Convenience and freshness never go out of favorThere are two main reasons that independent retailers (general trade) will continue to thrive in developing markets:1. Convenience2. Freshness
Consider the shopping behavior in these countries. People get around on foot or by motorcycle. They dont travel long distances or purchase large quantities. Convenience, therefore, is essential to serving their shopping needs.
Secondly, the Asians in general eat fresh food every day. They dont believe in stocking up on meat, fruit, vegetables, or fish. So their traditional shopping habits dictate that they go to wet markets where they believe they get the freshest food at the best value. Consider this; despite the dominance of two key players in Hong Kongs grocery market, in 2006 more than 80% of fresh food was bought in wet markets. These shoppers purchase smaller quantities on a more frequent basis.
The shoppers needs for convenient access and the freshest foods keep the small, independent retailers alive and well in these developing markets.
More cost-effective route-to-marketIn addition to the stability of the Independent retail market, consumer goods companies can realize another valuable benefit of cultivating this general trade channel: greater profitability.
The cost of getting the products to these smaller stores and getting the retailer to support the sales of the product to their shoppers (i.e., the route to market cost) is far less than the listing and promotional fees required by the modern trade. Whether the consumer goods company chooses direct selling with its own sales team, a distributor, or a wholesaler, the route-to-market for the general trade remains less costly than that for the modern trade. Using a distributor costs the manufacturer, on average, between 4.5 and 8.5 percent.
Define the channelsWithin this broad term of general trade, we have immense variability. An outlet can be anything from a sari-sari store to a relatively large independent or small chain of supermarkets. Malaysia has just over 17,000 provision stores. This particular channel is a subset of general trade, according to Nielsen, but the stores can vary in size from one shop lot (approximately 500 square feet) to three shop lots (1,500 square feet). They can also vary in many other factors: open or closed, air-conditioned or not, having modern tills or not, providing self-service or not, displaying products on supermarket shelves or not. But they are all classified together as provision stores. If youre dealing with that degree of variability, isnt it important to build equal variability in your offer?
To effectively leverage the tremendous opportunity that exists within the general trade, we must first define the channels within this large category. Channels are defined by grouping together their commercial and physical characteristics. A well defined channel must be:1. Manageable. While no shop is exactly the same as another, we need to group the outlets in a way that makes them easy to manage. Certainly, in a market with thousands of different outlets, we could have thousands of different channels, but they become unmanageable.2. Measurable.We must be able to measure whats happening in the outlets in order to determine their value to our brand. A soft drinks company could have 57 different channel definitions for restaurants (quick service, pub, fine dining etc.), but if they cant effectively measure that many channels, there is no accurate means to determine the return on investment in those channels.3. Meaningful. The channel definition must translate across the org anizationsales, marketing, and distribution. There is no point in having a channel definition that is so granular that only the experts in one part of the organisation can understand it. When a channel meets the criteria of being manageable, measurable, and meaningful, we have a functional grouping.
Build the processThe consumer goods industry exists to support consumption. If consumers dont desire our products, no further effort is required. So the first step in selecting the best channel for a brand is to understand the consumption opportunity. Who wants this product? On what occasions? How often do they consume it and how could we pursued them to consume more?
Once we understand the consumer, we can take your plan to the next person in the chain: the shopper. Who purchases the product so that the consumer can have it to consume? Where do they purchase this type of product? Which channels are most likely to be places where we can influence our target shopper? Knowing the shopping behavior of the target shopper is vital to prioritizing those channels that will deliver the best results for our brand.
Having then identified the most valuable channels for the brand, we build the in-store marketing mix that is most likely to influence the shoppers behavior in that particular group of outlets. We need to remember that the way in which a person shops in a convenience store, for example, is not necessarily identical to the way that same person would shop in a different channel, such as a provision store.
With this in-depth knowledge of the consumption opportunity and shopper behavior, as well as a customized marketing mix specific to the channel, we can approach the customer with a strategic plan that meets their goals while also supporting our own.
Consumer goods companies are missing a significant opportunity by not better analyzing the portfolio of retail outlets in greater depth. By categorizing a diverse array of retail outlets into one group without taking a closer look at the shoppers these stores serve, we are overlooking the unique characteristics of the outlets. These characteristics provide insight into shoppers, their purchasing behavior, and consumption opportunities that could potentially be realized. The first step toward maximizing the potential for our brands in the broad category of independent retail is to acknowledge that general trade is anything but general!
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