Friday, June 14, 2024
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Shelf Wars and Battle for Aisles

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For FMCG companies, listing ensures prime placement of products in stores and access to a coveted audience of consumers. However, for small and emerging brands, their aspirations for market penetration are often hindered by the financial burdens associated with listing fees.

Consequently, these nascent entities are compelled to weigh in on the potential benefits of securing a listing against the opportunity cost of allocating precious capital towards alternative avenues for brand building and consumer engagement.

A cross-section of retail professionals weighs in on how new and emerging brands should navigate the listing fees system to get the most bang for their buck.

In the fast-paced world of fast moving consumer goods (FMCG) retail, the battleground is no longer the familiar shop aisles but also the negotiation tables where the currency of shelf space is often determined by listing fees. The term broadly refers to an up-front payment that a brand manufacturer makes to the retailer to introduce his products at the retail stores.

Retailers typically have limited prime shelf space, especially in high-traffic areas within their stores. They often allocate these spaces to established brands with proven track records of sales and consumer demand. Charging listing or placement fees allows retailers to maximize revenue from these coveted spots. For FMCG companies, whether big or small, securing a listing with retailers means more than just a place

on the shelves — it signifies access to a coveted audience of consumers whose purchasing decisions are influenced by the products they encounter during their shopping journeys. Across both General Trade (GT) and Modern Trade (MT), the process of securing a spot on the shelves has become critical for brands vying for consumer attention.

Listing Fees in Modern Retail

“While established retail chains have long been known to impose listing fees, the practice gained traction in smaller chains and modern trade stores about 5-6 years ago when many startups secured funding and everyone wanted to get into offline at any cost. So, to expedite the shelf allowance and placement process, retailers started offering listing charges. Now these charges have become a regular norm as for a store it’s a real estate cost and also a filter mechanism for them to select brands,” says Rahul Gupta, Founder, Growthmate, a marketing services firm that enables consumer brands to launch and scale offline retail with its vast retailer network

So, what began as a tactical maneuver for offering a streamlined pathway for brands to secure placement on store shelves without protracted negotiations has now matured into an institutionalized practice deeply ingrained within the fabric of modern retail.

The practice of listing fees became an industry trend in modern retail in early 2000s with the entry of modern retail chains and the proliferation of shopping malls. It became more pronounced over time as big established FMCG brands started competing aggressively for visibility and shelf space within retail outlets. Retailers capitalized on this demand by charging fees for premium placement, promotional opportunities, or preferred positioning within the store layout.

The exposure gained within a supermarket through investments in listing and visibility fees is akin to securing prime advertising space in a bustling urban area,” says Akash Singh Verma, Merchandising Head, DavaIndia Generic Pharmacy, who has experience working with MT retailers like SPAR and Deerika.

Retailers levy listing fees on FMCG brands, depending on factors like regional or national reach. These fees can range from Rs 20–25 lakh for regional listings to Rs 70–80 lakh for national ones. The actual amount often depends on the retailer’s influence in the market and the financial capabilities of the brand. In modern Indian supermarkets, listing fees can fluctuate between Rs 4,000 to Rs 8,000 per SKU, reflecting the diverse pricing structures adopted by retailers.

Typically, the Term of Trade (TOT) agreement dictates the terms and conditions governing various aspects of the retailer-vendor relationship and covers elements such as pricing, promotional support, payment terms, and listing fees.

Established retailers use the TOT framework for striking a balance between profitability and fostering mutually beneficial partnerships with vendors. Through negotiations, retailers endeavor to arrive at listing fees that align with their strategic objectives while also recognizing the value proposition offered by vendor partners. This entails a nuanced assessment of factors such as brand recognition, product quality, consumer demand, and market trends, all of which contribute to the perceived worth of securing shelf space within the retailer’s store.

Conversely, for vendor partners, navigating the terrain of listing fees entails a strategic calculus aimed at optimizing their market presence and maximizing return on investment. While the prospect of listing fees may pose a financial burden, particularly for smaller or emerging brands, it also represents an opportunity for heightened brand visibility and market penetration. Therefore, vendor partners must weigh the potential benefits of securing a listing against the associated costs, evaluating the long-term implications for brand equity and consumer engagement.

Despite the charges, the listing arena is no longer monopolized by FMCG biggies; even small brands have now become part of the game, compelled to navigate the complexities of listing in order to compete. FMCG veteran Arora says that listing charges reflect current fundamental economic realities underpinning retail operations.

“We allocate a significant portion of our budget towards listing fees, and this is purely a capital expenditure for us,” says the founder of a start-up brand, who prefers to remain anonymous. He suggests that redirecting these funds towards sampling their new products at retail counters could potentially yield greater returns and contribute to the brand’s overall growth.

However, in the contemporary business landscape, securing placement for one’s product within national retail chains presents a formidable challenge. “These chains have raised the barriers to entry, making the

process both financially prohibitive and operationally complex. For smaller or less well-funded enterprises, navigating the listing hurdles successfully poses a tough challenge,” opines Rajul Chaturvedi, an FMCG business consultant based in Delhi.

While the specific terms and conditions of listing or shelf placement fees may vary between retailers and brands, it is common practice for both new and established FMCG brands to negotiate these fees as part of their overall retail agreements.

But while established brands have the financial prowess to easily cover listing fees and even drive hard bargains, it can be financially onerous for emerging entities and fledgling brands, particularly when they are still navigating the turbulent waters of market entry.

Newer brands find it difficult to shell out the listing fee or slotting allowance, especially at a time when they desperately seek collaboration with retailers to promote a nascent category.

Another significant challenge for new brands looking to collaborate with major retailers is that the modern trade sector is predominantly controlled by a limited number of national-level food retailers who dominate the large format market. This oligopolistic environment allows these retail giants to assert their dominance by imposing premium charges for increased visibility to the expansive urban consumer base they command.

It is essential to recognize that these retailers are leveraging their position by imposing premium charges, which presents a formidable challenge for new brands seeking to penetrate this market segment as accessing such a broad consumer base would otherwise prove to be a daunting task,” says Verma.

While the allure of accessing a vast urban customer base is undeniable, the path to achieving visibility and recognition amidst such dominance demands meticulous planning and resourcefulness.

New brands must leverage their unique value propositions and differentiate themselves effectively to stand out amidst the crowd. Building strong brand identities, fostering consumer engagement, and forging strategic partnerships are essential steps towards establishing a foothold in the modern trade sector. Additionally, fostering agility and adaptability to respond to market dynamics and evolving consumer preferences is paramount for sustained success in this competitive landscape

Arpita Patel, Founder, Ancient Roots, a brand that sells healthy and natural food products like cookies, flour mix, pancake mix, spices, and snacks suggests implementing a system tailored for both startups and established brands. She proposes a solution where new brands pay an initial entry fee or rent for a designated space, such as a standee or corner, with a temporary ‘Just Born’ label. If the product performs well within three months, the brand can then be charged the full listing fee to secure a permanent spot on the shelves. This approach can alleviate the financial burden on brands while ensuring their survival and also incentivizing performance-based listing fees.

Some brands and importers suggest that retailers may introduce a system of charging an ‘introductory allowance’ at the initial stage. After having received the introductory allowance, the remaining part of the listing fee may be recovered in a phased manner, as the product starts moving. They propose that retailers have a ‘Fixed’ and ‘Variable’ model of operating the listing fee system. While a fixed minimum amount could be charged as an up-front payment at the first stage, the balance of the listing fee could be received in a phased manner in sync with the revenues that the brand generates. A practice such as this would ease out the financial stress on new brands before they even begin reaching consumers.

Listing Fees – Challenges and Opportunities for Brands

Considering the potential financial strain associated with listing fees, would it be prudent for nascent brands to prioritize General Trade channels instead of securing placement within Modern Trade channels?

“While the absence of listing charges in General Trade may seem ostensibly advantageous, there are hidden expenses that lurk beneath the surface. From the exhaustive number of visits required to secure placement to the meticulous selection of the right shop and adherence to stringent display standards, the journey towards retail presence in GT is fraught with its own set of challenges and costs,” explains Sanjay Arora, a veteran FMCG professional with a pan-India experience of 34+ years in FMCG Sales (GT&MT) with leading brands such as Organic Tattva, Catch Spices, Pass Pass, Patanjali , Perfetti, Dabur , Maltova, Pepsi, and Nivea.

By juxtaposing the perceived cost advantages of GT against the nuanced intricacies of MT entry, Arora advices brands to deftly navigate the terrain of retail economics. He challenges the conventional wisdom about GT being a more prudential choice and urges brands to reevaluate their strategic priorities. “When one factors in the myriad costs and uncertainties associated with GT, the listing charges in MT have a lower cost and emerge as a comparatively viable investment,” he observes.

Patel of Ancient Roots asserts that regardless of a product’s merits or its performance in General Trade, Modern Trade establishments seem primarily preoccupied with securing listing agreements. “The question is whether the investment in listing charges really worth it in terms of sales?”

“I believe MT is not a sustainable model as you can see that from chains like 24Seven calling it quits. Even if you do pay and list, the volume of sales in MT is declining and shifting to quick commerce. We decided we won’t chase MT and we’re at peace with that and happily expanding in GT,” says Anil Sharma, Co-Founder, Newtreo

However, an FMCG distributor who runs Gupta Enterprises argues that Modern Trade is sustainable if a brand chooses the right chain, closes the deal at the right value and has a promoter present to promote the brand during the initial stages. “Currently there is a supermarket in Hyderabad which no one believed would run for more than a year but it’s been in business since the past 3-4 years and has acquired a reputation for cultivating young and promising brands.”

Verma contends that for a fledgling brand, achieving profitable success with a major modern trade chain could be a challenge. Instead, he suggests viewing it as an opportunity to increase brand visibility among customers, thereby paving the way for future growth in general trade and e-commerce channels. Establishing a strong presence in these sectors can ultimately position the brand as a vital necessity for buyers in the modern trade segment.

Arora posts that the mere presence of a brand in high-traffic retail environments serves as a potent catalyst for consumer awareness and engagement, imprinting indelible memories in the minds of shoppers. This phenomenon transcends the realm of immediate conversions, tapping into the subconscious reservoirs of consumer consciousness and influencing future purchase decisions.

Rather than questioning the necessity of investing in listing, the focus should be on ensuring that investments are made in the right places to maximize visibility and impact,” says Verma of DavaIndia.

Agrees Sachin Gupta, an independent FMCG consultant who has 25 years of experience in building up distribution networks in north India: “The presence of a brand in the weighted category outlets is far more important than merely having a numeric distribution. Brand gains traction from these particular outlets where, relatively, service cost are low, product facings are high, brand story can be communicated easily and customer traffic and chances of conversion are high.”

However, it’s a significant challenge for emerging brands striving to ensure optimal returns on their investment. Established brands possess the resources and negotiating power to stitch up comprehensive agreements that go beyond just securing shelf space. Their terms of trade cover a range of promotional opportunities and strategies aimed at enhancing brand visibility within the store. Smaller brands, on the other hand, often encounter obstacles in achieving their desired outcomes when dealing with retailers.

It’s also essential to note that not all listing fee agreements adhere to a standardized protocol. In some instances, negotiations unfold through verbal exchanges between brand representatives and category heads, devoid of formal documentation. While this informal approach may foster flexibility and agility in decision-making, it also introduces a degree of uncertainty into the equation.

FMCG brands assert that the payment of listing fees should be contingent upon the fulfillment of specific deliverables by retailers. Listing fees should cover free use of space for sampling/product inserts in retail publications, access to monthly reports and MIS (Management Information Systems), cross promotions, brand tie-ins, and publicity through panels/backlist/announcements, among other benefits

“While product availability remains a crucial factor, it isn’t the sole determinant of success. There exist other alternative avenues to interact with the consumer base more effectively,” says Sandeep Paul, Trade & Customer Marketing Expert for both organized and un-organized channels with deep experience in channel sales, GTM optimization, brand  activations and shopper experience models.

One such tried and time-tested method to spur greater consumer engagement is sampling, which allows consumers to experience the product firsthand, thereby stimulating demand and enhancing brand recognition. “By strategically placing products in convenience stores within specific target areas, brands can engage with their target demographic through activation initiatives. Once a significant pull is established, brands can leverage this momentum to negotiate mutually beneficial agreements with high-end retailers, thereby strengthening their position in the listing process,” suggests Paul.

Patel of Ancient roots asserts that while securing shelf space in high-end stores often hinges on paying listing charges, retailers should show a more nuanced approach instead of solely prioritizing a brand’s ability to pay listing fees. Instead, she emphasizes the importance of considering factors such as product ingredients and customer acceptance when selecting products for placement on store shelves. “Let’s focus on the quality of our products and on building a strong and lasting brand. It takes time and effort, but in the long run, it will lead to better secondary sales and customer acceptance.”

Concurs Vikram Kumar, Senior Sales Manager, Mountaintribe, sharing that it’s indeed important to focus on product quality and brand building as these are the factors that will ultimately drive long-term success. “While listing fees can provide initial access to shelves, they shouldn’t be the sole criteria for product selection. Creating a strong brand that resonates with customers and delivers on quality is the key. Collaborative discussions and sharing experiences can help find innovative solutions to this challenge.”

Taking a Balanced Approach to Listing Fees

Patel’s advocacy for a criteria-driven approach to product selection resonates deeply with modern consumers who prioritize health, sustainability, and ethical sourcing. Her perspective also reflects the profound shift occurring within the FMCG industry, where the traditional paradigm of securing shelf space through listing fees is being challenged by a growing emphasis and consumer preference for product quality, authenticity and transparency.

In an age where consumers are increasingly discerning about the products they purchase, the significance for FMCG brands to align their products with consumer preferences cannot be overstated. But this is especially challenging for start-up FMCG companies, as they must also focus on building their brands, cultivate brand credibility and consumer trust while contending with the financial burden of securing shelf space in high-end stores. This confluence of factors creates a perfect storm of challenges, placing immense strain on resources and compounding the  complexity of strategic decision-making.

“Each and every Modern Trade retailer before placing a new product definitely asks: GT mai kitna bikta hai or consumer demand kitni hai? So, it’s crucial for consumer packaged products to strategically position and maximize the brand’s impact in General Trade,” points out Chintan Shah, Founder, JuiceKraft Foods & Beverages

He says that breaking through in Modern Trade presents formidable challenges for new brands as they have to deal with demands ranging from deep discounts to shelf listing fees based on square footage, along with requirements for promoters, sampling activities, and effective merchandising. Achieving fast results in Modern Trade amidst these complexities is next to impossible.”

Amidst such complexities, emerging brands find themselves thrust into a high-stakes scenario where achieving market success becomes not just a goal, but a necessity for survival. “Many have suggested that the solution is to raise funding and place products everywhere, but I believe that simply spending a large amount on listing fees does not guarantee success,” says Patel. Her cautionary stance against the notion of indiscriminate expansion through fundraising speaks to the inherent risks of adopting a myopic approach to retail growth.

While it may be tempting for new brands to pursue widespread distribution in a bid to maximize visibility and accessibility, the reality is far more nuanced. As Patel rightly asserts, the mere act of inundating the market with products does not guarantee success — especially if it comes at the expense of financial prudence and strategic foresight

Instead, Patel advocates for a more measured and discerning approach — one that prioritizes the cultivation of brand equity and customer loyalty over short-term gains. By eschewing the allure of rapid expansion in favor of a deliberate focus on product quality, brand differentiation, and targeted market penetration, new brands can position themselves for sustained success in the long run. This requires a nuanced understanding of consumer preferences, market dynamics, and competitive positioning, as well as a willingness to adapt and iterate based on real-time feedback and market insights

In fact, the cost-benefit analysis of investing in listing charges for retail shelf space cuts to the heart of a critical dilemma facing start-up FMCG companies. This quandary encapsulates the multifaceted challenges inherent in navigating the complex landscape of modern retail, where the pursuit of sales growth must be carefully balanced against the preservation of brand integrity and values. In an environment where consumer loyalty is increasingly tied to authenticity and ethical practices, prioritizing product quality and customer satisfaction emerges as a strategic imperative for fledgling FMCG companies.

By eschewing a purely transactional approach to retail expansion and instead prioritizing alignment with consumer values, start-ups can forge deeper connections with their target audience, engendering trust, loyalty, and advocacy in the process. In this paradigm, the true measure of success extends beyond short-term sales metrics to encompass the cultivation of enduring brand equity — a priceless asset that transcends the fluctuations of the marketplace.

FMCG companies, especially young start-ups, should adopt a holistic perspective on retail strategy — one that acknowledges the interconnectedness of financial performance, brand integrity, and consumer trust. By striking a harmonious balance between these competing priorities, start-ups can chart a course towards sustainable growth and ensure relevance in an ever-evolving retail landscape

“For start-up FMCG companies in Food categories, a mix of online retailers, select self-service outlets, and select General Trade outlets should be the starting channel mix. Good visibility on the shelves must be the focus, with sampling ideally. Based on it, the product acceptance must be studied. If the results are encouraging, then one must choose the most cost-effective outlets to enter by paying listing fees. At any point of time, one must always be on top of the numbers. Ensuring the health of the business is more critical than the size of the business in the initial stage,” opines Mukesh Singhal, Business Leader, GCC Markets.

The notion of opportunity cost is another significant consideration, which influences every decision that brands make as they navigate the intricate landscape of consumer markets. Think of it this way: each choice, whether it’s opting to list products with a major retail chain or exploring alternative paths, carries its own implications. These implications stretch beyond short-term outcomes, shaping the brand’s future direction and growth potential.

“Brands must analyze their products thoroughly, considering differentiation and resonance with the target demographic. While listing with major retail chains may seem appealing, it’s vital to explore all options and seek expert guidance to navigate the complexities effectively. This strategic approach minimizes the impact of opportunity cost and maximizes the potential for success in the competitive retail landscape,” says Zishan Hayat Khan, an e-commerce specialist.

Echoing similar sentiments, Arora too urges stakeholders within the retail ecosystem to adopt a more nuanced perspective on the calculus of cost of entry. He advocates for a broader interpretation that encompasses the enduring value of brand visibility and consumer engagement. “By recalibrating the cost equation to reflect the intrinsic worth of consumer traffic and brand exposure, FMCG players can make more informed strategic decisions that align with their long-term objectives and aspirations.”

At the same time, he calls upon MT retailers to transcend the confines of conventional cost analyses and embrace a more holistic understanding of value creation in the retail landscape. “In doing so, they can unlock new avenues for growth, fortify their brand positioning, and forge deeper connections with consumers in an ever-evolving marketplace,” opines Arora.

Conclusion

As the FMCG industry continues to evolve, the dynamics of listing fees serve as a barometer of the ever-shifting relationship between brands and retailers. It underscores the delicate balance that both should strike to allign their commercial imperatives and strategic partnerships in the pursuit of consumer engagement and market success.

While innovative manufacturers can help populate modern trade with greater depth and width of merchandise, it is for the retailers to work in close coordination with brands in order to promote healthy inter-brand competition, without being driven by a fixed listing policy diktat. Collaboration between retailers and brands should be characterized by flexibility and openness, with rigid listing policies giving way to more fluid and dynamic partnerships.

As modern food retail continues to evolve, stakeholders must remain proactive in addressing the myriad challenges and opportunities that arise. This necessitates a forward-thinking approach that anticipates market trends and adapts strategies accordingly. By embracing change and capitalizing on emerging opportunities, stakeholders can unlock the full potential of the modern retail landscape, fostering sustainable growth and mutual benefit for all involved.

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