Indian retail scene is set to undergo major shake-up in next few years. Largely unorganized and fragmented neighborhood retailers may have to compete with large retail chains in near future. Notable among large domestic players, who are in the process of setting up retail chains are Reliance Group and Tatas. In addition, large overseas retail chains such as Wal-Mart, Metro, Macys', Woolworth and others have already started India operations while many others are waiting in the wings.
About 12 million Indian retail outlets (of which nearly 78 per cent are family run) transacted Rs 9.3 trillion in 2004. Organized retail sector, though account for only 3% (Rs. 350 billion) of total retail business at present, is predicted to cross trillion Rupee mark in 2010.
These retail chains in organized sector would need thousands of products - garments, handicraft, home furnishing, fashion accessories, grocery, home decoration, toys etc. Thus, a huge opportunity awaits the labour intensive Indian small and medium manufacturing industry. What does it take to be able to join this emerging supply chain ? Last week, we discussed issues related to export to small overseas retail outlets. This week we examine issues related to supply of merchandise to large retail chains.
Retail chains believe in building partnership with suppliers as opposed to piecemeal sourcing. Companies desirous of supplying to large supply chains should be prepared to spend considerable time and resources in understanding how the supply chain works and what it takes to be part of this supply chain. Most retail chains have well documented manuals to help suppliers. For example, here's Suppliers' Manual of Woolworth
Secondly, retail chains may prefer to sell products under their own brand name. In that case, suppliers should be prepared to manufacture under retail chain's brand name. As a result, expect the retail chain to control and monitor product design, quality of inputs, manufacturing process, standardization, labeling and packaging.
Thirdly, to qualify as supplier, the manufacturer should be prepared to invest more in production facility and quality control process. In their quest for better quality at lower price, retail chains are known to hammer down prices constantly. To be able to remain profitable, the supplier must upgrade production facility to achieve economy of scale.
Labour and Human Rights Issues
Large retail chains are sensitive to labour related issues such as child labour, sanitary working conditions, minimum wages, abuse of worker's rights etc. Most large retailers have well documented policy towards suppliers in developing countries (please visit corporate web-site of respective retail chain). Before approaching any retail chain, make sure your factory comply with relevant ILO Standards and The Universal Declaration of Human Rights
Interested readers may study Insight guide on Labour standards and working conditions in supply chains
Safety, Health and Environmental issues
Safety and health related issues are particularly important for food products. Use of pesticides and commercial fertilizers in agro commodities, quality of chemicals used as preservatives and other ingredients in processed food etc. are areas of concern. Besides food, there are many environmental issues such as use of organic dye in fabrics, bio-degradable packaging materials and tamper-proof containers in packaging etc.
Supplying to retail chains is going to be a major opportunity for small and medium manufacturers. As registered supplier of a retail chain - SMEs can look forward to continuous orders throughout the year. Besides, it will help them concentrate on manufacturing totally, leaving advertising and brand building to retailers.
Happy and Productive Surfing
Dr. Amit K Chatterjee
FAIDA - Newsletter on Business Opportunties from India and Abroad
Vol: 6, Issue 24
; March 3' 2006