Designing a Multichannel Retail Play in an Uncertain Environment

There is much discussion on slowdown in the global economy. Counter to popular perception, economic growth is also faster than ever before. Even after the financial crisis the global GDP grew 4.5 percent from USD 61.3 trillion to 70 trillion between 2008 and 2011. Asia has been driving this growth On a PPP basis Asia will contribute 50% to global GDP in 2050 (vs. only 20% in the year 2000). Asian economies like India, China, Indonesia, Myanmar and Vietnam are driving this growth engine.

India in particular is in a sweet spot. Indian Middle Income and Affluent households will grow from 48 mn in 2010 to 103 mn in 2020. While many think tanks have pegged Indian GDP growth between 5-6% for the next 2-3 years, the untapped potential of this vast consumer base is bound to drive long term growth momentum. According to “The 10 trillion $ prize” a book by The Boston Consulting Group, consumption in India will grow from about 900 mn $ in 2010 to about 3.6 trillion $ in 2020. Hence growth is a macro trend but the near term environment is uncertain with fluctuating inflation and erratic bursts of capital formation. Consumer and investment sentiment has been fluctuating as depicted by the volatile bullion prices and bellwether stock market indices.

At the same time, volatility is as much of an economic reality as long term growth. The inflationary environment continues to be unpredictable. Uncertainty on agricultural output and short term business performance is being reflected in volatile WPI and CPI figures. Global commodity prices including oil and bullion have also been showing high swings.

This tension between near term caution and long term potential is the challenge for Indian FMCG companies. They need to find a balance between pursuing growth and managing costs in an increasingly volatile environment. Retailers are also impacted by this conundrum. Additionally they have the complexity of finding the right mix between multiple channels (digital vs. brick & mortar, small vs. large format) in the backdrop of a nascent and fast growing organized retail environment.

The Indian consumer demands “more, better, now” and is increasingly “trading up”. Adding another dimension to this complexity is the diverse profile of the shoppers across the country. There is a strong need for retailers to provide a seamless, converged consumer experience across channels and leverage a multi channel proposition to drive profitable growth. A seamless consumer experience requires retailers to follow a coordinated approach across formats and functions.

Marketing needs to develop skills on social media, track consumer conversations seamlessly across channels and handle the complexity of maximizing RoMI (Return on Marketing Investment) across multiple consumer touch points. In-store and digital formats need to complement each other such that demand originating on one channel can be served seamlessly on the other.

Companies need to revamp the supply chain to handle higher complexity and merchandising teams need to dynamically optimize pricing and promotions across channels. Robust IT, strong data analytics and an organizational commitment are fundamental to success. But as hard as the journey maybe rewards are ample. Internationally companies that have provided seamless convergence across retail channels have yielded a 3X shareholder return vs. those who haven’t. Indian companies can leapfrog a generation by integrating this concept into their business models from the very beginning.

CII -BCG Report on Winning With Uncertainty will be released at the CII FMCG Summit 2013 on 12 June 2013, Mumbai: This report explores how FMCG companies and retailers can leverage uncertainty to their advantage. Along with global best practices culled out from BCG’s vast international experience, it also showcases the perspective of Indian industry leaders. The report details how FMCG companies must develop flexibility across the value chain while retailers must build agility within their DNA – to win in this uncertain business environment.