CONSUMER GOODS & RETAIL Archives

July 6, 2016by EOS Intelligence EOS Intelligence No Comments

Genetically Modified Crops’ Technology Struggles to Keep Promises in Brazil

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Brazil, one of the world’s leading developers of genetically modified crops (also known as GMCs, Transgenics, or Biotech Crops), stands divided over rising cultivation of GMCs. The proponents of GM technology believe that the country’s tropical and humid climate makes the crops particularly vulnerable to pests and that adoption of the GM technology is the only way to make these crops resistant to such unfavorable conditions. Others contend that GM technology has failed to produce expected results, and in turn has given rise to mutated species of pests and weed that are more resistant to agrochemicals.

EOS Perspective

Brazilian farmers are known to be extremely price-sensitive when it comes to seeds and agrochemicals. This steered extensive adoption of GMCs cultivation as it promised better yield with limited need for agrochemicals. Rapid adoption of GMCs cultivation and increased yield suggest that GM technology has indeed been beneficial to the Brazilian agricultural industry in the past two decades. However, rising incidence of GMCs deterioration in the past 3-4 years elevates concerns over economic viability of such crops cultivation in the coming years.

With GM seeds being protected by patents, their prices have soared over the years. Moreover, as the technology is developed only by a handful of multinationals, GM seeds command high prices owing to the dominance of only few companies in the industry. The emergence of herbicide-resistant weed and mutated species of pests add to the total costs for farmers, thereby reducing their profit margin even further.

Declining profitability of GMCs cultivation is raising demand for non-GMCs cultivation. However, the monopolized seed industry is making it difficult for farmers to get hold of non-GM seeds. For instance, in 2010, Monsanto, one of the leading companies in Brazilian seed market, introduced an 85/15 rule, which allowed farmers to buy only 15% non-GM seeds, while the other 85% had to be GM seeds.

Cultivation of non-GMCs require additional protection from genetic contamination spreading from GMCs. Adequate measures to check contamination of non-GMCs impose considerable additional costs and efforts for farmers, further discouraging them to adopt non-GMCs cultivation.

Genetic contamination of non-GMCs is an inevitable consequence of widespread GMCs cultivation, as phenomenon of pollination or scattering of GM seeds through wind is beyond the control of farmers. Despite taking necessary precautions, there has been increasing number of reports on genetic contamination of non-GMCs in Brazil.

Since 2005, in a bid to protect their intellectual property, Monsanto started performing tests on soybeans marketed as non-GM. If these tests uncovered Roundup Ready seeds (Monsanto’s patented technology), farmers were required to pay Monsanto a sum equivalent to 3% of their soybeans’ sales. Monsanto claimed that most Brazilian farmers used smuggled seeds, as a result of which the company was being deprived of revenue and this levy was the way to recover the company loss. But in several cases, farmers were forced to pay this penalty for having their fields contaminated with GMCs, with no fault on their own. However, in 2012, Brazilian court ruling deemed Monsanto’s penalty as unjustified.

Suppressed under the dominance of biotech multinationals, Brazilian farmers are more likely to rely on new variety of GMCs in the event of failure of the existing GMC technology. To seize the opportunity, biotech giants have already made plans to introduce new products in the Brazilian market. For instance, Germany-based BASF and Bayer are planning to introduce new GM soybean seeds in Brazil in 2016.

As Brazilian farmers have become too reliant on GM technology, going back to non-GMCs cultivation is rather difficult due to the widespread genetic contamination of crops and increasing control of biotech giants over Brazilian seed market.

June 2, 2016by EOS Intelligence EOS Intelligence No Comments

McDonald’s – Facing the Heat Globally

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With more than 36,000 outlets globally, out of which 14,000 are located in the USA alone, McDonald’s is rightly known as the fast-food giant. After decades of expansion that saw the brand conquer leading markets across the globe, McDonald’s seems to have been losing its sheen across leading markets since 2014, with the biggest challenge arising in its home market. Growing health consciousness among consumers, new diverse competition, legal hassles, and supply chain troubles have kept McDonald’s in the news for all the wrong reasons, while dropping profitability has forced this leading fast-food chain to shut down about 700 outlets globally in 2015 and further 500 in 2016. With a change in management and a proactive approach to upgrade its offerings, at least in its home market, the chain does seem to have a plan of action in place, however, it is yet to be seen if it is enough for damage control.

In an unprecedented step, McDonald’s (McD’s) shut down 700 outlets globally (350 outlets in the USA and 350 outlets in its remaining countries of operations) in 2015, and it expressed plans to shut down further 500 outlets globally in 2016. While the company maintains that this will help weed out unprofitable stores, it definitely does spell trouble for the world’s largest burger chain. The biggest concern, however, remains that the slowdown does not stem from poor performance in any one economy but an amalgamation of issues faced by the brand across the globe.

As McD’s strides through one of its worst times, the company looks to tackle the dim outlook with a head-on approach. As one of the first steps, in March 2015, the company changed its management, appointing Steve Easterbook as CEO in place of Don Thompson (who served the company as CEO since July 2012. Since taking charge of the driving seat, Steve Easterbook (who was previously responsible for turning around the company’s business in the UK), has introduced several initiatives that seem to reinvent the brand offerings and reprise its lost reputation.

In the USA, the company introduced all day breakfast and introduced a new customizable menu called ‘TasteCrafted’ in nearly 700 outlets in the USA. The new menu is the company’s attempt to follow the Chipotle strategy of personalization of meals and presents consumers with the choice of three buns, three different meats, and three different styles of toppings. The company has also tried to tackle the minimum wage issue by raising wages in company-owned outlets in the USA, however, this created dissatisfaction among franchised outlets employees. However, even as a start, these measures have helped the company improve sales at home (US sales witnessed the first rise in two years in Q3 2015).

Internationally, and especially in Asia, the company is working towards stricter supply chain auditing to rebuild its brand image. In the Chinese market, the company has launched several healthier options such as apple slices, veggie cups, and multigrain muffins to attract the health-conscious consumers. McD’s is also looking at massive expansion in China, with plans to open about 250 new outlets each year over the next five years. It wants this next wave of growth to stir from the franchising model. Similarly, the company is looking at the prospects of selling a stake in its Japanese operations to a local investor, who could help the company turnaround its Japan business.

EOS Perspective

As McDonald’s woes seem to arise from a mix of dissatisfied stakeholders – consumers, partners, and employees across the globe that vary for each economy, it is not far-fetched to say that the company stands the risk of losing its leadership position across its top markets (as it already has in India). Several strategic decisions are being made by the brand to return to its past glory, however, these seem more long term in nature and therefore will have a significant gestation period before their results are visible.

While the company is largely looking to lean on franchising to spur growth and streamline operations, such as dependence on franchising can act as a double-edged sword especially in times when the company is facing tarnished reputation in several of its leading markets.

May 5, 2016by EOS Intelligence EOS Intelligence No Comments

Online Grocery Retailing In India: Will Clicks Replace Bricks?

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India is the sixth largest grocery market worldwide buzzing with plethora of opportunities for the development of online grocery retailing. Gone are the days when Indian consumers were reluctant to shop online – studies have revealed that Indian consumers are overcoming biases against purchasing products without the touch and feel factor and are widely accepting online shopping. However, shopping for grocery online is at a very nascent stage and is still overcoming operational and economical hurdles. Over the years, multiple online grocery sites have shutdown, though there are a few survivors and presently the market is bustling with new entrants including e-commerce giants such as Amazon, Snapdeal, Flipkart, etc. Players are constantly implementing innovative marketing strategies, expanding operations, and experimenting with business models to find the best fit for e-grocery market.

Online grocery retailing is a tough segment to crack largely due to the perishable nature of products it offers, coupled with several operational impediments such as logistics, supply chain management, and low margins. Also, players face major challenges in training and retaining employees as well as attracting investment to grow operations.

Despite the challenges, online grocery retail is witnessing rapid growth driven by increasing internet connectivity, use of smartphones, and changing lifestyles with increasing number of working women demanding convenience. Consumers pressed for time are continuously looking for less cumbersome options in their fast-paced lives and online grocery shopping is increasingly the best solution for them.

Out of the 40 online sites that initially ventured into the grocery retailing market, only a few have survived and BigBasket has emerged as the most successful e-retailer. Other survivors include ZopNow and Localbanya, while there are several new entrants such as Grofers, Jugnoo, etc. Traditional brick and mortar retailers have also realized potential of the market and have slowly started selling groceries digitally – for example, Reliance launched ‘fresh direct’ while Tata sells through ‘My247market’.

Successful e-grocers such as BigBasket, ZopNow, Nature’s Basket, and Reliance Fresh Direct, among others started formulating strategies to succeed in the e-grocery market. For instance, BigBasket started selling private label brands to improve margins while ZopNow offers cashbacks, discount coupons, and grocery deals to attract customers. Other strategies include implementing quality assurance programs and offering niche products, among others.

EOS Perspective

E-grocers face various obstacles, hence a robust strategy is the need of the hour to survive and succeed in the market. It is imperative for any player to first understand the local nuances of the market – this includes establishing local relationships, developing local logistics, and building business according to unique scenarios in different cities. India is an extremely diverse country and a complex market to survive, hence effectiveness and efficiency of players to adapt to the market defines how any company will succeed in the industry. Factors such as target segment, operating costs, competitive landscape, and consumer preferences vary greatly across India, therefore, aligning business with domestic market and following ‘localization’ of operations is the key to success.

For long-term sustainability in the market, it is essential for players to differentiate through innovation and to improve business scalability. Innovation can be achieved in the form of targeting specific customer segment, selling niche products, or offering tailored services. Attracting investment can help players to expand and scale up their businesses.

Further, it is crucial for e-retailers to prioritize customer experience — across technology, delivery, and service platforms — as convenience is the primary factor that influences people to buy digitally.

Nevertheless, the question still remains if clicks can replace bricks. Online grocery market has potential and is expected to grow but it is unlikely that it will dominate or replace the brick and mortar stores in the near future. Online retailing definitely have the potential to grab a substantial portion of grocery sales in a long-term horizon, however, physical stores will long continue to have an edge, particularly in case of FMCG goods.

April 13, 2016by EOS Intelligence EOS Intelligence No Comments

CPG Companies – Facing the Load

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For companies operating in the consumer packaged goods (CPG) industry, 2014 marked the start of a difficult time, especially with growing supply chain challenges that have been augmented by greater uncertainty around the state of OTR transportation. Due to this, the industry has witnessed several hard-earned supply chain gains being washed away by external factors. Moreover, rising expectations and demand from consumers are translating into SKU proliferation as well as growing number of retail channels. This has further lead to operational complexity. While these issues are real and should be dealt with now, only very few companies have managed to overcome these supply chain pressures and emerge with solutions that balance supply chain costs as well as service levels. Some of the measures adopted by companies managing to successfully handle these supply chain issues include consolidating shipments and shifting towards drop trailers. Moreover, companies are also making more strategic shifts, such as adopting intermodal transportation at a greater rate and cutting down on distribution centers (to ship directly from plants) to improve supply chain efficiencies.

CPG companies are witnessing intense pressure throughout their supply chain, from raw-material supply to shipping finished products to distribution centers, wholesalers, as well as retailers. While some of these pressures accrue from the customer end, others arise from intensified inorganic growth in the industry, as well as the ongoing transportation shortage (especially in case of ‘over the road’ (OTR) transportation). This has further resulted in higher freight costs for shipments and is also forcing companies to maintain higher inventory levels (especially to outweigh the transportation crunch).

EOS Perspective

As the CPG supply chains have been shedding many of their gains owing to ongoing complexities, companies must come up with long-term strategic solutions to handle supply chain pressures. While short-term solutions may help companies overcome cost pressures temporarily, they may not provide companies with a holistic solution that helps balance supply chain costs and service levels. Therefore, companies may need to commit to long-term strategic solutions such as collaborative supply-chain approach and network redesign to unlock supply chain efficiencies.

March 9, 2016by EOS Intelligence EOS Intelligence No Comments

Succeeding in Myanmar’s Fragmented Grocery Retail Industry

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In recent years, several reports have talked about how the rapid economic growth, expanding middle class, and consumer spending have fueled growth in Myanmar’s retail industry. Although the growth potential is very lucrative, retailers should also look closely at the industry challenges that currently exist. These challenges must be carefully assessed and addressed in order to capture the growth opportunities and succeed in Myanmar.

Myanmar’s rapidly improving growth indicators and demographics have attracted the attention of several investors as well as business consulting firms globally. The country’s growing urbanization, middle class population, and rising disposable income point towards tremendous retail opportunities for players looking for new growth markets.

In the past three years, companies such as Coca-Cola, Carlsberg, PepsiCo, KFC, etc., have already entered and started their business operations in Myanmar, while several others are looking at ways to enter the nation’s lucrative retail market, and to be the part of its growth story. Many industry experts remain upbeat on the nation’s future economic growth prospects, and have projected the retail industry to grow at a strong pace in the future.

EOS Perspective

Rapid economic growth, urbanization, and growing purchasing power, along with consumerization of IT are bringing bigger exposure to international brands for Myanmar’s rising middle class. This is expected to boost the demand for fast moving consumer goods. In addition, the evolving buying preferences of young and aspiring middle-class population, who are looking to spend their rising incomes on bigger and better brands are set to trigger improvements in the range and quality of retail products and services.

Recent FDI reforms and the influx of foreign capital are likely to dramatically change Myanmar’s retail industry landscape in the coming years. International retailers are expected to spur industry growth by creating more jobs, improving supply chain networks and infrastructure, bringing cutting-edge technologies, processes, and management best practices. Furthermore, the increased competition between local and foreign retailers is likely to promote market efficiency, which might also result in better portfolio of grocery products and services on offer.

For foreign players, Myanmar’s retail industry still remains relatively unknown. As the market remains highly fragmented with lack of structured data on consumer preferences and market segmentation, companies need to spend time to study the market.

The best strategy for foreign retailers should be to form a joint-venture with the right local partner, who has comprehensive understanding of the market and its consumers’ buying behavior. Joint ventures remain the preferred strategy for many multinational retailers to enter Myanmar’s retail industry. With the help of trade fairs and road-shows, companies can identify and engage with potential partners. This will help them conduct due diligence, at the same time gain better understanding of the industry as well as first hand market insights. Many companies from Japan and Singapore have successfully reaped the benefits of this approach.

Proven as very challenging, retailing in rural Myanmar remains untapped. There are plenty of growth opportunities for grocery retailers as consumer and market dynamics are expected to continuously improve in the long run. By offering value added services such as bill payments, mobile recharge and top-up cards, and postal services, retailers can truly create a competitive advantage. Retailers can start investing in partnerships with wholesalers and independent retailers to grow their current network. Once the opportunities become ripe, retailers can scale up their operations by acquiring these partners, and thus expand their footprint in new geographies.

In order to succeed in Myanmar’s grocery retailing, foreign and local players will have to form strategic alliances and create a win-win relationship through exchanging technologies and global best practices with sales network and market intelligence. Furthermore, retailers must be agile, flexible, and adaptable enough to seize market opportunities in Myanmar’s fragmented retail sector. Succeeding in Myanmar’s grocery retailing requires unique solutions tailored to meet the evolving demands of various consumer segments.

January 14, 2016by EOS Intelligence EOS Intelligence No Comments

Have Big Box Retailers Successfully Metamorphosed the Indian Retail Culture?

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With its vast aspirational population, India is among the most favored retail destinations globally. However, the country’s retail market is still shackled by old-fashioned merchants and modern retailers are struggling to draw customers. One of the biggest challenges is the ‘retail structure’ of India – the market is mature but highly fragmented with 12-15 million outlets. About 92% of retail sales is derived from the fragmented unorganized sector.

There are some major impediments that are holding back retailers from realizing their full growth potential to yield desirable profits. Modern retailers in India suffer from regulatory hurdles, supply chain disruptions, soaring real estate prices, and scarcity of skilled workforce, among others. Consequently, several big box retailers such as Carrefour and Shoppers Stop have closed or downsized operations, respectively.

Despite the teething challenges, several international retailers have invested in the market while many others are contemplating to capitalize on the growth and demand potential of world’s fifth largest consumer market. Big box retailers have ushered revolution across the retail sector with their assortment of store formats based on consumer convenience, offering cash on delivery option, installment payment systems, and elevated customer experience by bringing all retail brands under one roof.

Working population and youth have proven to be attractive consumer segments for retailers. Also, rural India, representing a less penetrated market, is a key opportunity segment for retailers.

Several retailers such as Big Bazaar, Metro Shoes, Flipkart, Lenskart, etc., have overcome sustainability hurdles by implementing innovative ideas and deeply assessing the retail market.

EOS Perspective

Breaking through India’s retail market is a grueling experience but several big box retailers have succeeded by implementing innovative ideas and assessing consumer behavior carefully. Retailers need a robust strategy and in-depth knowledge of consumer buying behavior to pave way and survive in the market. It is essential to understand the fundamental features and structure of the market – for instance, India is a highly heterogeneous and segmented consumer market, hence, adopting a single marketing strategy across the country might not reap profits. Income levels, tastes, preferences, languages, lifestyles and fashion, buying behaviors, etc. differ across India. Therefore, it is crucial to develop region-wise marketing plan.

Further, retailers need to stay on toes persistently to keep themselves updated with new trends and competitive intelligence. For example, the new mantra of several big box retailers is to invest in developing omni-channel presence, which helps to expand their horizon from brick and mortar stores to multichannel selling through e-commerce. Growth of e-commerce in India has got retailers contemplating their multi-channel strategies with a few brick and mortar giants – including Croma, Shoppers Stop, brands such as Nike, Puma, Catwalk, Mango, among others – investing to build an online presence. Most brick and mortar retailers in India don’t have good multichannel offerings with pure play e-commerce companies (such as Amazon and Flipkart) dominating the market. Therefore, an investment to build online presence represents a plethora of opportunities for retailers considering e-commerce share in Indian retail sector is expected to skyrocket from 2% in 2014 to 11% in 2019.

Trends and developments within the Indian retail sector and Indian consumer behavior are complex to understand and predict, a challenge accompanied by several regulatory roadblocks. However, big box stores have changed the face of Indian retail by reinventing and positioning themselves as lifestyle and entertainment hubs rather than aggregators of retail brands. They have successfully instilled in local consumers’ minds the ‘mall culture’, where shopping malls and lavish stores become a weekend destination – not only for picking up groceries but also for recreation. Big box retailers have a long way to go, but the journey has begun.

October 14, 2015by EOS Intelligence EOS Intelligence No Comments

Brazil’s Personal Care and Cosmetics Market: Transitioning from Physical to Digital?

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Brazil’s personal care and cosmetics market is skyrocketing with growing sales driven by a fashion-conscious and beauty-obsessed population. Brazil, the cosmetics industry veteran, is the third largest consumer of beauty products worldwide and relies heavily on traditional channels for distribution. Online retailing has made inroads into the personal care market in Brazil and is on a slow but steady growth trajectory with immense potential in the future.

Brazilian consumers have long exhibited strong interest in personal care and beauty products, mostly purchased through traditional distribution channels. Over the past couple of years, these consumers have gradually also begun shopping for beauty products online, however, they are still skeptical about payment security as well as delayed delivery and quality of products.

Despite the obstacles, some online retailers — such as Natura, Men’s Market, and BelezaNaWeb — have stepped up to overcome hurdles and develop robust strategies to initiate online purchase of personal care products. After realizing potential of online retailing in the personal care and cosmetics segment, investors have started pouring in money in e-commerce websites to reap benefits.

Personal care segment can benefit from numerous growth opportunities in the e-commerce market with consumers’ rising inclination towards special offers attracting them to shop online, beauty product segment’s growing share in the emerging online shopping market, m-commerce boosting online sales, etc. E-retailers should exploit these opportunities to penetrate the market and improve sales.

EOS Perspective

While the e-commerce industry faces various obstacles, a robust online strategy along with a balanced eco-system — comprising fraud protection arrangement, better payment mechanism, developed infrastructure, as well as clear understanding of consumer behavior — is likely to improve e-commerce adoption and increase sales.

The market is slowly overcoming some of the hurdles — to combat logistics issue, government has started investing in air and shipping ports to facilitate parcel deliveries through these modes. This is likely to improve shipment timelines and consumers, as desired, can avail quick delivery of personal care products. Further, online retailers have started assessing consumer behavior and responded by improving shopping experience by re-designing websites, launching m-commerce applications for convenient mobile browsing, and implementing loyalty programs. The Brazilian government is working towards implementing stringent regulations to protect consumers against online frauds and formulating robust e-commerce policies.

Paving way into the Brazilian e-commerce market to sell personal care products has been challenging, however, with improvement initiatives slowly gaining momentum, the market is on an upswing to witness a stellar growth.

September 4, 2015by EOS Intelligence EOS Intelligence No Comments

Consumer Goods in Sub-Saharan Africa: Think Local, Act Local.

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Sub-Saharan Africa’s strong GDP growth, growing middle-class, and fast urbanization have attracted many investors and foreign retailers to the region in recent years. There is no doubt that the region’s demographics offer massive opportunities for consumer goods industry. But, a closer look at the ground reality and recent experiences from multinational companies operating in the region reveals the magnitude of challenges that need to be carefully assessed.

Sub-Saharan Africa’s (SSA) recent growth, expanding middle class, rapid urbanization, and growing household incomes have made it a promising market for the consumer goods industry. In recent years, several reports and industry experts have labeled the region as the ‘next big thing’ with massive potential. Although there is no denying that the growth outlook and market opportunities in the region are promising, there are considerable challenges that firms have to assess and overcome in order to succeed in these frontier markets.

“… we have realized the middle class here in the region is extremely small and it is not really growing.” – Cornel Krummenach, Chief Executive equatorial Africa region, Nestle (June 2015)

“If you look at how difficult it can be in Africa to move goods across a border, the fees and expenditure involved, the red tape, and the lack of suppliers for supermarkets, it’s discouraging.” – Boris Planer, Chief Economist, Planet Retail (March 2014)

Beyond the well-known infrastructure challenges, one of the more overwhelming challenges for consumer companies is to gain a complete understanding of the highly fragmented retail industry. As retailers and consumers remain widely scattered, effective route-to-market and distribution becomes a daunting task. In addition, the complex procedures, and bureaucratic obstacles result in supply disruptions and higher operating costs. For instance, Shoprite, a leading regional retailer, spends nearly US$ 20,000 weekly on import permits to transport goods for its stores in Zambia alone. In Nigeria, Shoprite keeps a warehouse full of flour, while PZ Cussons keeps up to three months of stock in Nigerian factories to ensure a constant supply.

“To operate successfully beyond our home border we had to learn to trade over vast distances,” he explains. “We had to invest heavily in supply chains, information technology capabilities and international sourcing skills, as trading in Africa is still logistically difficult.” – Whitey Basson, CEO, Shoprite Group

The famous song ‘Africa’s not for sissies’ holds so true for the region’s consumer goods industry. As SSA is a culturally diverse region with its heterogeneous consumer goods market, retailers need to think local and act local. They need to develop a comprehensive understanding of consumers, their spending behavior, and shopping habits. As traditional retailing will continue to hold significant market share for quite some time, succeeding in SSA’s consumer goods markets will be challenging. The key for retailers is to assess the various challenges against the market opportunities. Companies will have to be agile to respond to sudden industry changes, at the same time flexible in tailoring their strategies as per needs of the evolving market.

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1) African Development Bank in 2011 estimated middle-class population in SSA to be over 300 million and defined “middle-class” as individuals earning between US$4 and US$20 a day. Standard Chartered Bank in its 2014 report projected the middle class in 11 major SSA economies to be around 15 million and estimated this figure to surpass 40 million by 2030. Standard Chartered Bank defined “middle class” as those earning between US$8,500 and US$42,000 a year.

2) Coca-Cola designed an innovative distribution model for African markets where bottlers deliver directly to distribution centers, who in turn deliver to retailers. This resulted in win-win situation for all as everybody in the supply chain ecosystem earns profit. Shoprite Group’s growth is heavily linked to its central distribution model that helped the firm to improve customer services and ensure smooth supply across the region.

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In May 2013, in our article ‘Africa is Ready For You. Are You Ready For Africa?‘, we also discussed six aspects that companies must consider when planning their Africa strategy and offerings.

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CONSUMER GOODS & RETAIL

Genetically Modified Crops’ Technology Struggles to Keep Promises in Brazil

McDonald’s – Facing the Heat Globally

Online Grocery Retailing In India: Will Clicks Replace Bricks?

CPG Companies – Facing the Load

Succeeding in Myanmar’s Fragmented Grocery Retail Industry

Have Big Box Retailers Successfully Metamorphosed the Indian Retail Culture?

Brazil’s Personal Care and Cosmetics Market: Transitioning from Physical to Digital?

EOS Perspective

Consumer Goods in Sub-Saharan Africa: Think Local, Act Local.