Arvind Mediratta, Managing Director and CEO, METRO Cash and Carry is a man whose life revolves around inspiring quotes. At TechSparks 2018, he began his talk with a quote from John Sculley, “The future belongs to those who can see possibilities before they become obvious.”
Although he isn’t eloquent at technology, he understands what it takes to be successful when doing a business in India. He took the stage to share his learnings from the last 28 years of his life.
Understanding unarticulated needs
If one were to look at the biggest innovations of our time, the pioneers behind it were able to observe things which were not obvious. Nobody told smartphone creators that they were looking for a phone where one could browse the web, share files, take photographs and so on.
They saw an unmet need in the market and worked towards solving it. This is true for the startup world as well. What differentiates a startup from being successful and unsuccessful is being able to understand trends in the market. "In whatever business you may be – whether in FMCG, retail, startups – if you really want to be successful, you need to focus on emerging needs, unmet needs and unarticulated needs of the consumer," said Arvind.
It doesn't matter if you have great technology, product or service or you've spent billions to build it, if they aren’t addressing this unmet need, then, the chances of success are quite slim.
Customer access wins in the FMCG industry
In the FMCG industry, there are a lot of new product and brands as people enter new categories every once in a while. In 2017 alone, there were 14,509 new product launches. But the fact is that only 31 of them were successful, which amounts to a 0.2 percent success rate.
What's even more shocking is that this data talks about well-known giants in the FMCG sector. Big brands take time to identify the customer’s needs, develop a distinctive proposition and so on. "You may have a great product or concept. You may advertise it very aggressively on television and social media. But, what's the missing ingredient? If you're not able to place your product where customers can access them, you will not be successful."
He went on to say that while FMCG calls it distribution, it's called customer access for startups. "Even though it doesn't sound fair or right, the reality is that a product with better distribution will always fare against a superior product with poor distribution or customer access."
Kiranas dominate the market
The food and grocery market in India is about $350 billion. By 2020, at least 90 percent of the market will be dominated by kiranas. Typically, all the big companies have invested in their distribution network. While the cost to serve of the FMCG model is fantastic yet critical, there are many other problems with this distribution model.
There are 12 million kirana stores in India. Every company talks about having 50-60 percent of these stores in both the rural and urban markets. But there's a catch for low-value and fast-moving items in these stores.
Take the example of Nestle - their Rs 5 Maggi is available everywhere, but they have other product ranges to sell too, like chocolate, coffee, culinary, etc. So, while one may have great products that cater to a well-known customer need, or an unarticulated customer need, and you may have fantastic advertising, you won't be successful unless you have the right distribution model.
For many big brands, it's difficult to do targeted marketing when they're doing mass scale distribution as they can't do analytics or sample their products. The best way to drive conversion for a food product is not through advertising, but to make people taste the product.
The challenges still remain, but many big companies have started to distribute in the HoReCa (hotels, restaurants and caterers) sector, as this is the fastest growing sector in India right now. This sector requires fresh fruits and vegetables, seafood, best quality rice, spices, lentils, office stationery, cutlery, furniture, and so on. But none of the FMCG companies deal with all of these products.
"The market is completely disorganised as they will have to source these items from multiple vendors. This is where METRO comes in. We are a destination for fresh food, office supplies, etc. We provide access to all 3 channels - the kirana space, the HoReCa space as well as to service companies," said Arvind.
The cash and carry model of METRO
India is a country of small and independent business who buy a wide variety of commodities. The cash and carry model is a great model for India. METRO has a base of about 27 lakh business customers, 27 stores and footprint in around 17 cities with Rs 15 million in the retail space.
METRO doesn't sell directly to customers, they sell to kiranas or HoReCas who have a valid business licence. Only a registered business owner with a METRO card can enter the store and do business. The company globally has 2 brands called METRO and Makro dealing in the business of food service delivery. The size of the company is $37 billion in 35 countries.
They have partnered with smaller companies to help them penetrate into the HoReCa market. With METRO, these small companies like Paper Boat and Milky Mist have been able to expand into multiple geographies, get access to new distribution channels and cities.
METRO also has a food innovation space in European markets which focuses on sustainable food and vertical farming. The objective is to help startups validate their ideas and scale up their business. They also partner with startups to share their technical knowhow and customer base with them. The METRO accelerator programme is active in more than 350 countries and is focused on the hospitality and retail sector. Every year, more than 2000+ applicants get funding and access to the customer base.
"There is no dearth to getting funds in India, but to find the right partners and customers is the biggest challenge and that's where METRO helps them out." More than money, it's the access to the customer base that matters. "We are the champion for small Indian businesses. Our motto is to focus on the success of our customers, that's our business," he added.
McKinsey for the Kiranas
METRO is now looking to digitalise and modernise kirana stores, rather than compete with huge e-commerce brands and modern retailers. "We believe that all businesses are a success, we are just offering them digital solutions." They have set up kirana success centres, marketplaces and even an app through which kirana customers can order online from a kirana in their vicinity, after comparing which one offers the best price for a particular product.
Another challenge they're solving is the ambiance of kirana stores. The current stores have a closed-format architecture where the shop owner and the customer are on opposite sides of the counter, which is not a pleasant shopping experience. METRO is helping transform stores into an open-format one, in 48 hours, irrespective of the shape or size of their store. They also tie up with suppliers so that they get advertising revenue to pay for their EMI instalments.
The biggest advantage of kirana stores over big players is they know their customers in and out: they offer credit to their customers, one also doesn’t need to purchase a maximum amount to avail free delivery and so on. METRO is trying to reduce their burden by taking up the cost of credit. They have a team acting as the McKinsey to these kiranas, working together with them to make the best out of the partnership. Arvind ended with an inspiring African proverb for partners, “If you want to go fast, scale fast, go alone. But if you want to go far, go together.”
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