Quality, Sustainability & Convenience, the New Dilemmas of Retail Business

India’s retail sector has shown the resilience to weather any storm. The Covid pandemic brought the world to a grinding halt, and in India the story was not much different. The retail sector suffered but in the aftermath of the pandemic with the pent-up consumer demand pushing consumption it rallied around. However, it the rising inflation has again made the industry pause and do a rethink. On the plus side, the country’s young demographics, rising disposable incomes and the exposure online due to rapid digitalization, are the factors that will benefit the retail sector. In this KPMG and CNBC TV18 episode of the series Transforming Dilemmas into Decision-Making, an eminent panel of industry leaders and experts comprising AK Tyagi, Executive Director, Haldiram’s, Mohit Khattar, CEO, Graviss Foods Pvt. Ltd. (Baskin Robbins), Vikas Sharma, COO, Zepto, Nikhil Sethi, Partner, KPMG in India, and Shireesh Joshi, Chief Business Officer and President, Network Expansion for Open Network for Digital Commerce (ONDC), discuss the retail sectors new chapter.

Haldiram’s is a stalwart in the snacks market, an extremely competitive space with a plethora of organized and unorganized players. But the brand stands tall among competitors with their unwavering commitment to quality. Executive Director Tyagi, an industry veteran, has been a witness to the growth in this market segment and in the retail sector as a whole. Talking about the competitive landscape he says, “Competition is always good for the industry as well as the customer and it gives opportunity to everybody to expand the market.” Competition gives the company a chance to be “more innovative”, says Tyagi and is a “healthy sign for the industry”. It makes businesses put in all their “effort to delight customers and differentiate products”.

Valued at Rs 45,000 crore, the salty snacks market is growing in double digits and Tyagi is confident it would reach Rs 1 lakh crore within six to seven years. Of this salty snacks markets, 50% is the Indian ethnic market and 50% is the western market, he explains. “And definitely, we are the leader in traditional market as well as in salty snacks market,” Tyagi adds, sharing that the secret ingredient to their success is the fact that they treat their customers authentically and “never compromise on the taste and quality of the products”.

But that is not the whole story. Haldiram’s has also made “good investment in technology” and currently all types of Indian snacks are made in fully automatic plants with HMI control and minimum human interface. Technology may require a lot of investment but the advantage that a fully automatic plant provides is, as Tyagi says, the ease to “maintain consistency in the quality of products”, which along with hygiene is a big factor.

As for growth opportunity for the market, Tyagi says, “There will be big scope for the salty snack category in the coming ten years.” He counts the customer becoming more aware about hygienic food with minimum human intervention, a post-Covid advantage. “The future of the Indian salty snack market is very bright”. Currently, there are around 8.2 million outlets for Indian snacks, and these will increase as new demand grows with customers looking for convenience food and on-the-go food, he explains.

Sharing his insights on the market, Sethi, Partner, KPMG in India says, the market is very competitive, both at the premium end and mass end. Lots of companies are vying for the wallet share of affluent consumers at the premium end, and therefore, there are many new launches. Although there is growth in this segment, it’s the mass end where the volumes are, and this is where the large companies are operating or companies seeking to become large are operating. “In an extremely competitive scenario, the only way to move forward and gain share is how you differentiate and the proposition you take to the market,” he adds.

Consumer wallets are tightening, and the external pressures are reducing the spending power, he says. “The game is becoming a little more of a market share game or a category rebalancing game as opposed to overall share of spend that is going up” and in this scenario, companies need to be able to innovate, Sethi opines. A market report by KPMG and Equitor has shown that customer experience is becoming critical to not only maintaining market share but also ensuring customer loyalty and getting customers on board. It is also the key to bring new customers on board. Its not just digital experience but also product price proposition and value proposition that will influence the customer, the study reveals, as shared by Sethi.

All this means that companies will need to make a lot of investments in new product, marketing, technology, new channels, etc. The real dilemma for companies in this scenario is “where do I put my investment in order to get that additional market share?” says Sethi elaborating on the unfolding retail scenario. To add to this, businesses need to go beyond the market share that is bought share of a transactional nature and convert it into loyal share which will stay with them over a period of time. It’s a game where there are many winners and losers and “I think every company needs to find out which is the way forward for them,” he adds.

Today, the customer proposition is quick deliveries and for companies operating in the quick commerce business, the dilemma is where to put their money and to not just get the customers wallet share but also build a financially sustainable business. Vikas Sharma, COO, Zepto, candidly states, “Nobody has been able to perfect the entire quick commerce market like Zepto.” Customer retention which is happening in this sector is unheard of in any other market as of today. This, according to him, is the result of the advanced technology and supply chain which starts from the point a company provides its app to the customer. But the real game playing out is at the micro fulfilment centres, called the dark stores. “A lot of thought goes into identifying where exactly you need to locate the dark stores,” because it is one of the major success factors in terms of reaching the right demand centre, he explains.

As regards customers, these dark stores make the 10-minute delivery possible. Throwing light on how the 10-minute delivery is executed, Sharma says, the dark stores are located within 2-to-3-kilometer radius of the demand centre. Technology and supply chain design play a major role in quick commerce as a lot depends on the layout of the dark stores, the entire pick-up path, algorithm, etc.

Zepto’s customer experience metrics: 90+ NPS and 70% month on month retention rates are some of the numbers unheard of. The numbers speak for the meticulous planning of Zepto. “It is precision and navigation which helps delivery executives ensure that the goods are delivered to the customer within 10 minutes, says Sharma. The quality of the product is a big factor and Zepto ensures that fresh vegetables and fruits are delivered within 16 hours. “You are delighting customers with such freshness index,” Sharma adds.

The biggest learning, according to Vikas, is in the last mile space. Often companies think the last mile is one of the levers which sits very heavily into your P&L. “Our thought is how do you innovate the last mile?” There are tons of iterations in the learning process and all those of led to Zepto coming to a level where the company can lead the space – which is the efficiency metric on the last mile.

For Baskin-Robbins, an ice-cream and frozen desserts player, the competition is no less tough and yet they have created a niche in India. CEO Mohit Khattar shares, Baskin-Robbins is a global brand and has been around for about 80 years, although not in India, where it marked its presence 30 years ago. The dilemma for the company is whether to follow the game being played out by established ice-cream brands, “which is not necessarily our strength”, or follow a completely different path? says Khattar.

Baskin-Robbins decided to take a different approach – which was simply to “play to our strengths”, explains Khattar. “It's about deciding who you want to be and where you want to go, it's about your product quality to begin with,” he elaborates. The first dilemma the company faced in this direction was “do we make our products with pure cream and milk or do we make it with alternative ingredients?”, which some players in the industry do. “We chose the former and chose to make our product with pure cream,” Khattar clarifies. Another dilemma involved the question of pricing: “Do we price it at a level where we have to add flavours to the products, or do we add real ingredients”. He gives the example of mango ice-cream to explain this point. “Do we add mango flavour, or do we add real mango pulp?” The decision went in favour of adding real mango or real ingredients. The net result of quality decisions as these lead to the end product turning out to be a lot superior to most other products available in the market, Khattar says. Baskin-Robbins has consciously chosen this route and “that defines our pricing in the market in a sense”, he adds. Once the product decision was made, the company chose to sell the products through parlours. “We are available everywhere, but we chose to showcase our products and our quality to our customers, what we have tried to build very consciously,” adds Khattar.

The ice-cream brand is today the second largest QSR chain in the country, second only to Domino's in terms of the number of outlets that it operates across the country. “We are available in 250, towns through our parlours and that's the route that we have deliberately chosen to grow our business,” says Khattar adding, these are the kinds of dilemmas that they face every now and then in terms of the way ahead.

The dilemma as to how to grow up business further is “very simple” for the ice-cream major – “keep growing your network”. India is a large country and there are opportunities for many more stores across the countryside. To begin with, the decision is to invest in technology in production, both in terms of the ability to produce a lot more and the capabilities to produce a lot better in terms of products.

Baskin-Robbin’s products are untouched by hand, and this differentiates them from what is available in the market. Over the last couple of years, the company has consciously taken a call to start investing in new formats to ensure that customers, at least the newer customers coming into the market, get to enjoy different experiences and products. The company operates for the more discerning customers and the value proposition that it offers is quite affordable, Khattar explains.

As regards the mass segment, Khattar states, “I choose not to play on the same terms as some of the other players do.” What this means is that mass products are not offered by the brand as “my quality will never permit me to offer those products to the market,” Khattar clarifies. “Our USP is that we will offer good quality. We will not compromise,” he adds.

In addition to mass and premium, Haldiram’s offers healthy premium, says Tyagi. There are high premium products like cashew mixture, cornflakes mixture and for the mass market they have Rs 5 or Rs 10 packs. The family packs of 200 gm, 400 gm and 1 kg are for premium market, explains Tyagi explaining their strategy for catering to both mass and premium segments. Similarly, they have products for both mass and premium segments in the healthy category. “On the distribution front, we are present in all the omnichannel. We are present in every modern e-commerce and retail outlet and our vision is very clear: We want to be within reach of every consumer,” says Tyagi.

ONDC has been a game-changing proposition in India, enabling anyone and everyone to sell online. Speaking on how the platform helps smaller players compete in the highly competitive market where big players are also jostling for headroom, Shireesh Joshi brings in the concept of digital equality to explain his point. “The way digital commerce works is that a few players in pretty much every segment have invested a lot, built scale and that scale has become a barrier. ONDC is making scale available to everyone by creating a network based on commerce and not platform. In this network, there are multiple players who contribute buyers and others who contribute sellers, and collectively, the network has much larger scale. This means even a small seller can sell to very large groups. We have more than 100 million buyers, and therefore, even a small player when he gets connected to the network instantly get access to this large pool. That's the democratization that we are doing,” Joshi elaborates.

However, quality plays a very important role and in e-commerce more so as consumers are not forgiving. A network cannot substitute individual players’ quality strategies and so a commercial entity has to decide what their USP is going to be. “If you have no edge then you may struggle regardless of the method of commerce," Joshi emphasizes. ONDC functions as an enabler of commerce, it is for the seller to ensure that the product they are making is good quality, he adds.

In Sethi’s view, being a smaller player today is much better than what it was earlier because there is an ecosystem available to help them scale. “You have a very large ecosystem to enable a small player,” he says adding that several companies today are operating at Rs 50 to 70 crore, but the big question is “how do you scale beyond that?”. A lot of these players are focused on top premium end of the market that is on top five million, 10 million households. But “when you want to grow beyond that what do you do?”. That is the dilemma. Talking about the investment scenario, he says there is fund available but what has changed is that people are a lot more cautious about where they are spending, as opposed to how they were earlier. In this scenario, “small players need to change their strategy: one, double down on the brand because you cannot be buying growth and revenue, and two, tighten your purse strings and become operationally profitable,” he advises.

How are companies to look at ESG metrics in this scenario which demands that they tighten their purse strings? While sustainability is good it does not come cheap, requiring additional investments. How do businesses transform this dilemma into decision-making and take ESG beyond tokenism to make it integral to their business culture?

Sharma of Zepto shares how they are doing it. Zepto did a pilot for almost 60 days with Coca-Cola giving customers the option to return the pet bottles, which were picked by Zepto vendors and recycled by the company. A 100% transparent initiative that led to the recycling of hundreds of kgs of plastic effectively with technology playing an important role right from prompting customers, creating awareness so that delivery partners took it up with no incentives, creating a small area in dark stores for recycling, and then the entire channel being created to the recycling platform. However, building an overall ecosystem of sustainability is the bigger question. Zepto also introduced cyclists for shorter distance deliveries and e-bikes, which is an evolving sector. e-Bike adoption is growing with delivery partners wanting to cut down on the fuel costs, Sharma adds and emphasizes that sustainability can be achieved with the right innovation and mindset.

Baskin-Robbins aims to achieve sustainability at different levels. At the production level, which is the factory level, the company has effluent treatment plants, rainwater harvesting, minimal use of plastics, minimal use of paper and so on. Most importantly, at the front end, which is the store level, “we've completely discontinued use of single use plastics, which the government has also mandated,” says Khattar throwing light on their ESG strategy. Further, the plastics that the company uses are permitted by law. “You contribute to the cause by collecting plastic from the market and then recycling it, so it is a whole value chain wherein we are contributing in some way or the other at all levels of the organisation,” he explains.

“We are a very responsible organisation as far as sustainability is concerned,” says Tyagi of Haldiram’s. The company was the first to put up solar energy on all roofs of their factories. In fact, 60% of the company’s electricity consumption is fulfilled by its solar energy initiative. Haldiram’s are also recycling water and harvesting rainwater. Additionally, the company is responsibly collecting plastic MLP that they use, under the EPR mandate of the government. Haldiram’s are working on joint venture for a recycling plant, by which, “whatever laminate we will collect will go to our plant itself. We will make resin which will be used in furniture spare part,” explains Tyagi. “We are very much conscious about being sustainable,” he adds.

ONDC is not a business in the sense of being a for-profit entity. They are enablers of business, “even in the way we are structured”, says Joshi. The platform sees a lot of businesses starting with an ESG mindset. Small businesses that are following sustainable practices are coming up and ONDC is looking at promoting them at the network level. “What are the ways in which we can either reward or encourage their practices?”, says Joshi. It is possible to keep track of and trace the carbon footprint each enterprise is generating and there could be a way of scoring them so that people can make informed choices, he explains. ONDC is looking at badging of all kinds and certificates that will help make people chose appropriately, for example, GI tagged businesses or those with low carbon footprint.

There is a cohort of discerning consumers, says Sethi. However, in a country like India “where we are really calorie sufficient, but nutrition deficient, the ability to get nutrition out to people is critical and in this, the package industry plays a very important role. “I think some of those choices are going to get more pronounced as we become an affluent country but no, I don’t think that’s going to be an entire story,” he emphasizes.

To sum up, the real dilemma here is how to make sustainability affordable for the masses, even as convenience becomes the key with the urge to get things on the fly. While grocery planning may be a thing of the past, quality and sustainability consciousness are gaining ground and the Indian consumer seeks differentiation, as consumer demand returns. There is rapid growth, but it is starting from a very different base because the willingness of industry to embrace something new is higher when there is positivity in the industry with consumer trends turning positive. Businesses are buoyant about the long-term scenario and with all the competition, the consumer remains the king and the queen.

Moneycontrol Journalists were not involved in the creation of the article.