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Rediff.com  » Business » Biyani seeks support to fight FMCG firms

Biyani seeks support to fight FMCG firms

December 12, 2008 02:48 IST
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Kishore Biyani, who owns the Future Group and its associated retail chains, is seeking support from rival retailers to challenge the might of Hindustan Unilever, Cadbury, Britannia and other confectionary, food and fast moving consumer goods companies (FMCG) to bargain for higher margins.

The founder of Big Bazaar, Pantaloon and other chains of retail stores across the country thinks that if retailers collaborate they could collectively bargain for a better price that will help sustain profitability in the slowdown.

Sourcing, including back-end operations and supply chain management, is an important part of the retail business that provides retailers scope to save on cash by pooling purchases or collectively, bargaining with the FMCG companies.

Some retailers account for about 3 to 6 per cent of an FMCG company's turnover and collectively their purchases could rise to as much as 10 per cent, giving them a higher bargaining power, Biyani said.

"Retailers should listen and collaborate," he said while speaking on the sidelines of a seminar organised by the Confederation of Indian Industries.

Biyani's Future group has reportedly sparred with global confectionary major Cadbury Schweppes by asking all its stores across formats, particularly the outlets of Big Bazaar and Food Bazaar retail chains, to remove the multinational company's products from the shelves as Cadbury was offering better deals to global retailers compared with modern retailers of Indian origin. The issue has since been resolved.  

Biyani had also reportedly withdrawn Pepsico's Frito Lay potato chips brands in mid-2007 and in May 2006 stocks of Glaxo Smith Kline (GSK) brands from its retail stores because the global FMCG majors were refusing to offer higher margins.

 'Move makes sense': A few rival retailers supported the move. "It makes sense to collaborate in back-end, training and development and infrastructure, and to get better terms of trade," Thomas Varghese, CEO, Aditya Birla Retail said. 

Indian retailers are slashing manpower and freezing expansions to cut costs as part of a series of measures to combat the slowdown. Retailers are also seeking concessions from developers, including moving to a revenue-sharing model to cut expenses on real estate. Occupancy costs account for 5 to 10 per cent of the turnover.

 Retailers should also look at collaboration in common training of people to cut costs, common supply chain and back-end operations, Biyani said. 

But industry observers think Biyani's call may be difficult to implement on concerns of business security. Common purchase means allowing a rival to be privy of business decisions and revealing business strategy. While buying office stationery or printers may not be an issue, purchase of merchandise may be. 

"Buying consortiums exist across all industries but it is going to be difficult for retailers to come together for as important an issue as purchase of merchandise," Anand Raghuraman, partner and director, The Boston Consulting Group, said. "It is an important piece of business that they wouldn't want competition to know about." 

While seeking better margin from suppliers, he called upon other retailers to collaborate to help build brands of other retailers including his group's private labels by providing shelf space in their stores.

 "Retailers can also sell brands of other retailers (private labels) and earn higher margin," Biyani said. 

The Future Group plans to grow its FMCG and other private label business to as much as Rs 10,000 crore by 2012.

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