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Comparing Stocks within the same sector
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Message Icon Topic: Retailers vs. FMCG. - Good contest! Post Reply Post New Topic
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italics
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Quote italics Replybullet Topic: Retailers vs. FMCG. - Good contest!
    Posted: 23/Nov/2007 at 11:46am
I chanced upon this brilliant piece my mohnish pabrai on the advantage wal-mart has over P&G. This makes even more enlightening reading when you consider that pantaloon is starting to push its own retail brands in a major way. The ex. here is of tide but i think it should work for many categories beyond detergents. Apparal is just one other example:
 
The article:
Let's examine the changes in Procter & Gamble's (PG - commentary - Cramer's Take) DNA structure. This 175-year-old company consistently produced high-quality products and overlaid them with stellar brand-building to dominate its markets. Even as the product superiority gap inevitably shrunk, the company's branding power kept a steady revenue stream flowing, even from 56-year-old products like Tide detergent.

In contrast, Wal-Mart's (WMT - commentary - Cramer's Take) DNA structure can be summarized by Sam Walton's phrase, "Stack it high 'n let it fly!" The company sells Tide more efficiently than anyone else on the planet. P&G's brand power makes folks yearn for Tide, and Wal-Mart's price leadership leads them to its door.

As Wal-Mart scaled to more than $200 billion in revenue, it found that it had the volume to clone Tide and sell it as a store brand. Compelled by the price difference, shoppers decided to try the store brand, and they began to abandon Tide in droves. When they encountered Wal-Mart's store brand for paper towels, dishwashing detergent, etc., they also started switching -- rapidly.

What happened to P&G is cataclysmic. Its advertising generates store traffic for Wal-Mart, but consumers end up switching to store brands, which have zero advertising budgets. It's clear who'll win this uneven battle. P&G's business model now looks a lot different, and its genetic blueprint is completely unequipped to handle the shift.

In general, as the mass-merchants scale their store brands, the consumer packaged-goods companies will have a harder time competing. There's nothing P&G can do, and unfortunately, investment returns for P&G shareholders will be very lackluster over the coming decades.

Would love to hear everyones thoughts on this. In case this has been posted already, then apologies for the repetition. A great read none the less.
 
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Quote omshivaya Replybullet Posted: 23/Nov/2007 at 11:59am

Yes, great post italics jee. I hope Pantalooon can do the same with its own brands.

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Vivek Sukhani
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Quote Vivek Sukhani Replybullet Posted: 24/Nov/2007 at 5:31pm
I believe retailing will only help FMCG companies. All retailing will do i that it will force only the best one to survive. I think FMCG giants in India will utilise the retailing route to take on the unorganised sector. As far as indian equities go, if I have to chose between FMCG and retail, at this moment I will go with FMCG. The brand loyalty is simply mind blowing.....
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Quote italics Replybullet Posted: 24/Nov/2007 at 6:02pm
Vivek lets not forget that indian consumers are also extremely price sensitive. Value for money is something that we all look for across economic strata. I have seen diamond merchants worth crores bargain for cheap airline tickets. More imp research has proved this.
 
So in that context i think retailers may just have an edge. they can offer the same goods for less, because their costs are lower thanks to lower ad spends - besides of course the pricing power they may have thanks to volumes. So that's something that must be considered.
 
For me, the retailers hold the edge at the moment. unless FMCGs can do something drastic.  
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Quote basant Replybullet Posted: 24/Nov/2007 at 6:29pm
Over the next few years bargin power willshift from the FMCG producers to the buyers. Till now these guys were bargaining with local Kirana shop owners but now they would have to sit on the negotiating table with a pantaloon or a Reliance Retail. Moreover the strategy of private labels by the retailers will further squeeze the FMCG majors.
 
In Europe and US the bigger companies are not the P&G nor the Unilevers but the WalMart and the Carrefours. A similar situatiion will happen in India.
 
Pantaloon's strategy of changing from Kurkure to Bingo was a laboratory case for the things that we can expect in the times to come.
 
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Quote Vivek Sukhani Replybullet Posted: 24/Nov/2007 at 7:02pm

Well, its like this......who's more popular will win the game. Can a pantaloon or a RF do well, if they dont keep a colgate......so its true, marginal brands may perish, but those who are very strong brands will become even more strong. the thing is FMCG is not a saturated sector in india yet. So, organised retailing will only help the FMCG majors. Rather . thankfully to organised retailing, the FMCG majors can make their products more easily and cheaply visible. I never knew Dettol has launched so many variants till I saw the same at BB.

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Quote smartcat Replybullet Posted: 24/Nov/2007 at 7:22pm

Retailers Vs FMCG is like saying Husband Vs Wife - A Good Contest! There might be a small tiffs in the along the way, but it is not really a contest to see who will win eventually. 

Walmart - P&G scene might not happen in India. Even if it does, we are probably 10 years away from it. While India is price sensitive, we are also brand conscious. Indian consumers would like to buy and get Colgate toothpaste at 10% off rather than buy a private label brand with 15% lower price than Colgate.
 
And it is possible to give a discount of 10% on a popular FMCG product, and still keep the retailer and FMCG company happy. Right now, there are inefficiencies in Indian retail scene due to which the consumer is paying close to MRP. In the long run, the only entity that will lose out is the small trader (the distributor). Distributors are not really adding any value in this setup - so he will slowly become a non-entity over the next few years.
 
Retailers will become big yes, but it is not at the cost of FMCG companies.
 
 
 
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Vivek Sukhani
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Quote Vivek Sukhani Replybullet Posted: 24/Nov/2007 at 8:33pm
And who's the wife and who's the husband, for in our indian context, it is the wife who wins in 90 p.c. of the cases.....
 
By the way, you can be safely nominated to be the refree in the finals of the next Fifa world cup......your verdict is totally acceptable to me, let other also voice their opinion.....
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