Toys R Us which shut down its last store in Jan2021 is now making a comeback as a shop-in-shop concept with retail giant Macy’s.
As Fox Business reports, the Toys “R” Us stores inside Macy’s range from between 1,000 square feet to 10,000 square feet in size, with larger flagship stores set to exist in Atlanta, Chicago, Honolulu, Houston, Los Angeles, Miami, New York, and San Francisco.
Last month, Glossier (a beauty etailer) announced its distribution partnership with Sephora. (read the article here)
Nordstrom recently teamed up with at-home fitness brand Tonal to put mini-storefronts into 40 of its stores in an effort to capitalize on the boom of interest in home fitness.
Walmart had earlier set up Disney SWAS stores as well.
What is SWAS model (shop within a shop) & why it is helping brand to reinvent their physical retail?
One of the most popular strategies right now is SWAS, also known as ‘store within a store’.
Store Within A Store, also known as SWAS, is an experiential retail strategy where retailers set aside floor space for partnering brands to set up shop.
This may be done as a permanent lease or as a temporary pop-up lease strategy to drive footfalls into the main departmental store or even malls.
Pop-up stores are very popular amongst luxury brands as well as they get an opportunity to showcase their new collection in a high upmarket commercial space without opening a permanent retail store.
SWAS concepts will often involve value-added offerings in addition to just selling products.
This includes tutorials/product demos, roundtable discussions, or product sampling campaigns that enhance the customer experience and drive a buzz around the brand and the host retailer.
Post-Pandemic, most retailers are trying to reinvent themselves and the SWAS model is an excellent strategy to expand & increase brand presence.
Benefits of SWAS model for the host retailer/ shop in shop benefits.
Adding newness into the store without adding burden on capex.
Partnering with known brands attracts new customers for the host retailer
Maximum utilization of the store space by adding complementing brands to the host retailer’s offerings.
Additional source of revenue generation for the host retailer.
Changes in consumers preferences driving growth of SWAS model
Today, consumers are just as likely to discover new products on social media as they are in-store.
Moreover, 81% of consumers say that they research a product online before purchasing it in any channel.
Why SWAS is a good model?
Having maxed out their online audience and facing increasing acquisition costs, many successful D2C brands have taken the plunge of bringing their products offline to participating retailers.
Product Visibility and product trials are the key to growth.
Retailers can provide unique value by offering experiences in-store that shoppers cannot get online.
Opportunity to touch & feel which is not applicable to the online shopping experience
To learn how a toy retailer could add million dollars to their profits, click here.
Physical stores are a crucial touchpoint – but not necessarily the point of purchase.
Today physical retailers are moving their mindset from Transactional relationships with their customers to “imparting experiences” to build brand loyalty.
Allowing customers to book an appointment via the website for a free makeover, lead the customer to experience not only the makeup brand but uplifts the probability of higher purchases in-store.
Focus of right merchandise mix.
SWAS model helps the brand to optimize their merchandise offering, instead of offering everything, it gives them an opportunity to curate the right product offering which is a more focused approach towards inventory planning.
If you have a young son or a daughter at your home who is fond of gaming whether it is Roblox or any other platforms, You will observe that they get involved and engaged in the gaming environment so much so that they start associating themselves with the characters of the game.
Whether the games are PUBG, Fortnite, league of legends, or Minecraft, one thing is common with all these games is the level of addiction and engagement to succeed to the next level.
Why do gamers get hooked on games?
The author Nir Ayal in his book “Hooked” explains this phenomenon as 4 step process.
a trigger to begin using the product,
an action to satisfy the trigger,
a variable reward for the action,
some type of investment that, ultimately, makes the product more valuable to the user.
How could toy retailers use 3D print phenomenon to their advantage?
If you observe the consumer’s behavior while they are hooked on their game on their pads or gaming console, you will discover the underlying need that exists inside each one of them and that is the need “ To be the part of the game” i.e. superhero fans want to be “immortalized in plastic” by seeing themselves become action figures.
Frankly speaking, during my younger days, I was a big fan and collector of GI JOE figurines and toys.
With the advent of tech tools, the dream for millions of gaming fans is coming to life.
Wherein they can create their own figurine or get “immortalized in plastic.”
Gadgets like 3D printers and facial 3D scanners (which are now available as an app as well) bring the dream of creating your own 3D printed figurine into reality.
Hasbro, the world’s biggest toy manufacturer is spearheading this revolution into the world of Hyper Personalisation for their customers.
The Hasbro Selfie Series, which employs 3D printing to let consumers create a collector-grade six-inch action figure in their likeness for $60.
The team at Hasbro will initially launch with costume designs from G.I. Joe, Ghostbusters, Power Rangers, and Marvel, as well as designs inspired by Star Wars heroes.
To make a figure, fans download the Hasbro Pulse app, scan their face, customize the action figure and hairstyle, and send their mock-ups to 3D printers.
Join my FB group of Retail Evangelists, using this link, click here.
The 3D print advantages to retailers:
Hyper Personalisation will lead to creating brand loyalty which will result in sales.
Building a community of gaming enthusiasts and creating a virality of your campaign without spending on celebrity endorsements.
An unique gifting proposition to gift someone you love their personalized figurine in the costume of their favorite gaming environment.
Want to learn more about Hyper Personalisation, click here.
Check out the video
Indeed a long road ahead for our middle eastern toy retailers to look beyond trading.
They need to create experiential gaming hubs using the Hyper Personalisation model similar to the Hasbro selfie series.
If you are a retailer and in need of bespoke strategies to grow & scale your business then feel free to reach out to me.
email me email@example.com
My book, ― “How to become a shark salesman”, provides tricks, concepts and hacks to grow your business by learning the Art of selling & become a ―Shark in selling.
Brands worldwide urgently shifted their efforts toward capturing consumer engagement in the digital world.
Retailers who are adaptative and agile quickly learned how to compete with eCommerce, instead of competing with the new buying preferences of the customers, they embraced e-commerce and the convenience of shopping it offered.
We call it the rise of Omnichannel retailing and
I call it “One Retail”.
Recently, one of the middle eastern homegrown eCommerce retailers 6thstreet.com announced that it shall be opening its first retail store in Dubai.
Retail fact 1- Do you know why eCommerce businesses are turning to physical retail?
There is one aspect of the “One Retail” business, that even eCommerce could not match or offer and that is “customer interaction or engagement as it happens in a physical store” & building of a bond by exercising exceptional customer service.
The actual value of the retail environment today is in the less tangible, value of emotional and experiential engagement that only physical retail can offer.
These softer elements are fundamental to establishing long-term consumer loyalty, brand reputation, differentiation, and, ultimately, sales.
Retail fact 2 – It all boils down to customer Experience.
Customer impact takes into consideration customer service, how engaging the store’s design, layout, and features are, and the overall experience that customers have when they visit the store.
A PWC report revealed that when brands offer a superior customer experience, their customers are seven times more likely to purchase from them than from their competitors.
Zappos, instead of focusing on shortening the call times of their call centers, encouraged their call center team to build customer relationships by understanding their buying preferences and knowing them better overall.
Retail is here to stay:
“Nike Live” concept: smaller-format, community-focused stores with tailored offerings and rewards based on local customer feedback and insights.
Even if the final purchase is made online, the importance of the memories, experiences, and emotions tied to the physical space cannot be underestimated in how they contribute to a final sale.
After all, 55% of shoppers visit a physical store before making a purchase online. This is “brand impact”—the role of the physical store in making customers feel more loyal to the brand.
Creating experiential hubs within the store is the key to building engagement.
The US retailer, Target is increasing the number of “in-store shops” from the likes of Disney, Apple, Ulta Beauty, Levi’s, and Lego offering customers the benefit of multiple branded shopping experiences all under one departmental store.
For the in-store brands, it is providing a platform to reach out to a new segment of customers.
Ikea’s central London stores provide free planning and house-organization services, rather than being a traditional showroom of products for sale.
This may seem like a simple business move—opening new stores to attract new audiences—but its success lies in how Ikea has adapted its retail model to focus more on providing customers with new services and experiences tailored to urban living, rather than simply opening more stores of their famous warehouse formats.
To learn about how to franchise your business, click here
Retail fact 3 – Customer acquisition is the new game of Retail:
One of the most important reasons why eCommerce grew was the low cost of customer acquisition in terms of digital ad spending vs revenue.
But as the organic reach of e-commerce becomes lesser and lesser coupled with the high rising cost of digital spending per click, lots of eCommerce brands are looking toward physical retail to acquire a new set of customers.
As the cost of ad spending increased across digital and social platforms whereas the rentals across all the major markets showed a decline hence it became a lucrative proposition for the eCommerce retailers to open shops and up their customer acquisition game.
One aspect that the eCommerce business has taught me is the new retail analytics or matrix.
Instead of focusing on sales per sqft or GMROI, I have started looking at any retail business from these two parameters.
Customer acquisition cost.
Lifetime value of acquired customer.
In my opinion, by focusing on these two parameters, the conventional retail parameters/ matrix automatically falls in place.
In today‘s digital era, everyone is selling to each other.
Employee selling his skills to his employer,
Entrepreneurs are selling their ideas to Venture capitalists,
Boy friend selling his aspirations and dreams to his girlfriend & kids are selling to their parents and vice versa.
Hence we all are in the SELLING Business.
Gone are the days when a chartered accountant used to say, I am not into sales.
Today right from CEO of an organization to the lowest rank is in Sales Business.
My book, ― How to become a shark salesman provides tricks, concepts, and hacks to grow your business by
learning the Art of selling & become a ―Shark in selling.
Loyalty programs are not only sales drivers but also a strategic tool for retailers to retain their customer base.
Loyalty programs- not defined objectively.
“Ritesh, can you help us in developing our Loyalty program?”
This was the question asked me by one of the upcoming retailers.
I asked them – “why are you planning a loyalty program- is it for incentivizing repeat customers or just because you want to stay updated vis-a-vis your competition?”
The question made my client think…
I asked them another question, “what is going to be one major hook in your loyalty program?”.
The meeting ended as the client needed more time to brainstorm internally and come back.
Most loyalty programs are mere discounting exercises without even keeping track of the customers buying behavior i.e. on what items are they accruing the points and on which item they are redeeming the points.
Personally, speaking I am the biggest fan of Amazon Prime which according to me is a masterstroke when it comes to the Loyalty program which is coupled with a subscription model.
For your information, it has over 80 million subscribers worldwide.
Do what you do so well that they will want to see it again & bring their friends.
Loyalty program example – Ulta beauty’s ultamate
Another brand that is going big on loyalty programs is Ulta beauty whose loyalty program is called “Ultamate”.
At the outset, their loyalty plan seems more like incentivization but once you peel the layers of the program, one realizes that the loyalty program is based on “Honest incentivization”.
Your spend of USD1/- gets you 1 point.
But what is remarkable about the Ultamate plan is that they use multiple mediums to reach out to their customers, via email, via messaging services.
They track every customer purchase and try to personalize incentivization for each customer by giving them 2x or even 5X points on their spending.
Traditionally loyalty programs form “Buckets” of customers based on their spending at the store i.e. grouping of customers and then cross-selling them their products.
But Ultamate is different as they hyper-personalize the incentivization and entice their customers with 5X points or sometimes 10X points of special promos either online or offline.
A lot of Ulta beauty locations have awesome salons.
And they always have offers for 2x, 3x, 5x points. That means, for every dollar you spend, you’re actually getting $5 worth of rewards.
You also get 2x the points during your birthday month, and they send you tons of other offers throughout the year.
The rewards program allows Ulta Beauty to garner a loyalty most retailers can only dream of.
Sephora, on the other hand only redeems the points in terms of sachets or smaller packs of beauty products.
To learn more about Hyper-Personalization, click here
So how did Loyalty program Ultamate go viral on TikTok?
On TikTok, customers and fans have taken to educating one another on how to make the most of the retailer’s famous Ultamate Rewards program.
Check out the video.
the actual customers are posting videos of how they have got their favorite beauty gadget or product using Ultamate points.
Videos on TikTok emphasize “ the tailormade” experience of being an Ultamate Rewards member, teaching other users how to stack coupons and maximize points.
Remember, it is not paid influencers campaign but the actual customers who are using their loyalty points are sharing their experiences.
Ultamate performance indicators –
37.7 million members i.e. around 10% of [the population of] the United States, or the size of Canada.
Ninety-five percent of Ulta Beauty’s sales come from its members.
Moreover, the program has garnered millions of expressions on TikTok wherein the customers are sharing their opinions on the loyalty program and encouraging their friends to try the ultamate loyalty app.
Ritesh Mohan is a passionate retail professional with over 20 years in the Retail sector.
He has been instrumental in the growth of some of the regional brands as well in the Middle East region.
Ritesh specializes in Retail management, Product development, Brand management, Retail Operations, Sales Management, and Franchising & Business Management. He is the author of two books mainly ” Simplifying Retail” and “How to be a shark salesman?”
There are multiple models like initial franchise fees, royalties on sales, marketing, and training fees.
Few franchisors charge a margin on the products sold to franchisees and few lease the equipment or property that they have.
All these fees are deducted from the franchisee’s bottom line and hence answering the below questions becomes critical to ensure the robustness of your franchising program.
Will your franchisee still be profitable?
Will your franchisee still receive acceptable return on investment?
What would be your franchisee’s initial upfront investment?
Does your prospective franchisee support a sizeable portion of required investment? How is his banking creditability?
The best way is to work out a forecasted P&L statement for your franchisee and show them the Return of Investments over a period.
Franchisors need to budget for New Franchises
In the first years of operating a franchise, the costs of supporting franchisees typically exceed revenue from royalties and fees.
New franchises will face the challenge of building enough capital to cover the infrastructure needed to support their franchisees.
This includes support for marketing, accounting, and operation.
This is where most franchising programs fail as the franchisors run out of the patience and budget that they need to sustain the franchise program.
Franchisors should be aware of these costs and know how many franchisee units can afford to operate at a loss or break even. They should be cautious of expansion and should consolidate franchisees if necessary.
If, you are developing your franchise program & need a retail expert to execute your franchising goals for instance.
Ritesh Mohan is a passionate retail professional with over 20 years in the Retail sector, handling some of the biggest brands in the beauty, fashion, and fragrances retail & FMCG sector. He has been instrumental in the growth of some of the regional brands as well in the Middle East region. Ritesh specializes in Retail management, Product development, Brand Management, Retail Operations, Sales Management, and Franchising & Business Management. He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry
This is my first blog article this year and I could not find a better day (Vasant Panchami) and a topic that is trending currently in the Indian subcontinent.
Yes, it is, “The Union Budget 2022”.
This is my analysis and perspective, and my views may differ from the rest.
I have attempted a different viewpoint than most economists and thought leaders.
I was invited as a panel guest by the Indo-Gulf Management association to share my thoughts on the Indian Budget 2022
Frankly speaking, the very concept of direct taxations like income tax, capital gain tax, etc are outdated especially in a country like India wherein the only a small percentage of the population pays the taxes. (source financial express).
The tax reforms should not burden the small percentage of taxpayers, rather the focus should be on GST kind of taxation which is consumption-based i.e. you pay for the services or products consumed or utilized. (Majority population pays for GST)
The Budget 2022-23 focus has been on ‘growth’ and ‘CAPEX spending’ across sectors.
It is futuristic looking budget.
A good push to infrastructure by significantly increased capital expenditure, with a renewed focus on supply chain and logistics, and domestic manufacturing
Railways have been the core of India’s infrastructure development and its budget outlay justifies the same.
Linking Railways with the concept of “One station- One product” will boost the local product consumption and logistics.
The locally manufactured products can now easily be transported through nook & corners of the country with ease.
I consider this step revolutionary rather than dolling out subsidies and tax payer’s money in terms of Guaranteed MSP which was actually not solving the farmer’s issues.
By providing the market to the farmers and linking them to the logistical strength of Railways will drive better returns for the farmers.
Actually, the focus of the budget has been in developing infrastructure and supply chain ecosystem for the “Made in India” products.
Budget 2022 from Retail Business Perspective:
FMCG sector growth depends upon rural growth & its consumption.
The 1.5 lakh post offices into the core banking system is a positive particularly for rural India and a higher minimum support price (MSP) allocation will drive consumption of fast-moving consumer goods (FMCG) products in the hinterland.
Bringing the rural population into the banking ecosystem will ensure that any governmental subsidies will reach the needy people through their banking accounts or post office accounts directly.
Supply chain / logistics– Budget 2022
As a part of the ‘PM Gati Shakti’ initiative, a Unified Logistics Interface Platform designed for ‘Application Programming Interface’ will be set up.
This is expected to provide for efficient movement of goods through different modes, reducing logistics cost and time, assisting just-in-time inventory management, and eliminating tedious documentation.
Learn about the business model of food delivery apps, click here
75 Digital Banking units in 75 districts of the country by Scheduled Commercial Banks are likely to provide a big push to the digital banking infrastructure of India.
The Most Resilient sector – Agriculture
The agriculture sector has grown 3.6% in 2021-22.
Sustainability initiatives – Budget 2022.
The Budget gave India’s renewable sector a big push.
The electronic Vehicle manufacturing /charging business in focus.
A policy for battery swapping will aid in reducing the upfront ownership cost of EVs, thereby driving customer preference towards such vehicles.
This policy is also expected to encourage the private sector to develop sustainable and innovative business models for ‘Battery or Energy as a Service.
The main rationale behind Green energy is to reduce the burden of our foreign exchange outgo in terms of oil procurement.
Hence encouraging greener transportation would mean that as a country we are less dependent on imported hydrocarbons.
GDP growth rate projected for 2022-23 is approx. 8 to 8.5%.
Industrial sector projected to grow at 11.8%.
Exports to grow by 16.5%.
Housing/ Real estate
Job Uncertainty continues to make people wary of EMIs, with home loans registering a decline vs pre-pandemic levels.
But there was no relief pertaining to Interest waiver or extended period offered to taxpayers in this budget.
However, Affordable housing was clearly in focus, with the finance minister announcing the allocation of ₹48,000 crores under the Pradhan Mantri Awas Yojana.
Current provisions to qualify as an eligible start-up (extended by a year to 2023);
India has the third largest startup ecosystem in the world after US & China.
New Delhi overtook Bangalore as start up capital.
In 2021, India saw 44 unicorns which is a record.
Beneficial tax rate of 15 percent – Boost to manufacturing sector.
This will provide stability & certainty to the sector.
Customs duty reduced
Customs duty reduced on inputs required for the manufacture of consumer goods like mobiles, cameras, gems etc
Removal of customs exemption on certain items, and providing concessional duties on the raw material that go into the manufacturing of intermediate products will support the Government’s objective of ‘Make in India’ and ‘Atmanirbhar Bharat’.
Some sectors ignored.
The airlines expected govt to suspend Minimum alternate tax for the aviation and airport sector for min two years. This is one sector that has taken the hit along with the tourism and Hospitality sector during the Pandemic.
The focus on the manufacturing sector will indirectly generate employment for the skilled population.
No relaxation to the existing tax slabs.
There is no change in current taxation slabs for the salaried employees however there is no additional tax burden either.
You can watch the full webinar here.
Despite all challenges, the Budget presented by our finance minister is quite forward-looking.
The rest will depend on its execution of governmental policies and plans.
ABOUT THE AUTHOR
Ritesh Mohan is a passionate retail professional with over 23 years in the Retail sector, handling some of the biggest brands in the beauty, fashion, and fragrances retail & FMCG sector.
He has been instrumental in the growth of some of the regional brands as well in the Middle East region.
Ritesh specializes in Retail management, Product development, and Brand Management, Retail Operations, Sales Management, and Franchising & Business Management.
He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry.
Top Retail trends shaping the retail landscape in 2022
As we embark on the new year, allow me to predict the 7 retail trends that will dominate the retail sector in 2022.
The year 2021 has been a year of recovery for most of the retailers and the retail sector in particular.
The increase in the vaccination rates & our vaccines’ providing immunity towards new variants of the virus will help the economic cycle to bounce back to pre-covid levels in 2022.
What is the future of retail?
Is retail dying?
This is one of the most common questions that get asked very frequently across panel discussions.
So let me answer it now.
The retail industry exists until the people do. It is one of the oldest forms of business known to mankind.
With the shops closing across the malls is rather signaling an advent of the new era – One Retail.
New trends and tendencies in buying behaviors & customer expectations are emerging.
Hence retail is one of the most agile industries, it needs to adapt to the changing environment and flourish.
Re-inventing the retail model by keeping your customer’s expectations and habits at the core of the business is the mantra to survive and thrive.
Learn how covid19 changed the consumer’s buying behavior, read here.
Retail trends in 2022.
1. One retail to continue to thrive.
We all are living in a Hybrid World, i.e. digital as well as physical.
As per Statista Digital Economy Compass, the global average time spent using social media platforms per day is 142 minutes in 2021 – far higher than the 90 minutes recorded in 2012.
Surely this behavior has brought a change in consumers’ behaviors and their consumption habits, especially media consumption.
It gives rise to social commerce which is another manifestation of eCommerce.
Today retailers cannot depend on one or two or even three channels of communications or even touchpoints.
A study has revealed that on average customer checks the brand on 9 touchpoints prior to purchasing the brand.
Hence the brands need to embrace this change and talk the same communication message across the platforms (stores, website, tweeter, Facebook, Instagram, youtube, direct mailers, catalogs, market places, etc).
Retailers and mall owners need to learn the art of story-telling to this segmented targeted audience.
One of our regional mall players MAF- City Centre is doing it very effectively.
They have one message & story being communicated i.e. Providing great moments by making their malls – the center of their customers’ lives.
This vision is compelling the MAF team to come up with innovative ideas to remain relevant and active since they made the promise of making their mall – the center of their customers’ lives.
The malls like Emaar (The Dubai Mall) have taken the entire mall (all tenants) online, giving a buying option to their mall’s visitors more convenience. Some of the malls have concierge service as well.
“Keeping Customer at the center of all your activities” is going to help both retailers and mall owners to thrive in the coming years.
It is no longer an imperative question whether you need an eCommerce channel of distribution for your brand or not.
You need to be able to serve your customers across the touchpoints whether is e-commerce, social commerce, or physical store.
2) Immersive Retail experience
Did you recently visit the mall and pass by any of the fragrance stores?
If yes, then you would have noticed how fragrance retailers try to make use of sensory elements by diffusing their signature scents or aroma to the mall’s customers.
Use of Augmented Reality & Virtual reality will be more often used in the retail sector.
They provide value addition to the customers to engage with the brand virtually as well as in the physical world and provide product information and brand communications in a seamless manner.
They’ve created a Place App for you to place furniture items into your house using a simple smartphone. You can see if it fits your design, room size, and other settings.
Gucci (pathbreaking innovation- experience hubs)
In their flagship store in Italy, they charge an entrance fee.
It is now a mixture between a café, a museum, an art gallery, and a shop to provide an immersive experience of all senses.
Thus, both new people and Gucci fans are actively engaged.
They use AR & VR in their stores. For example, you open an app, scan shoes, and get additional information about them. You can also try on other items unavailable in the store to order them or not.
This brand makes and sells glasses.
They also have an app to try on different glasses before buying them online.
The same can be done with jewelry, watches, clothes, and everything possible to try on.
They use AR for you to try on makeup, see what product shades fit you best, and save your money ultimately.
They have virtual mirrors installed in most of their stores.
Livestreaming has grown in popularity over 2020 and 2021.
Home-bound consumers found live streaming to be a way they can engage when shopping online.
The challenge is to integrate live shopping with physical stores but it can be done by retailers who are technically advanced especially retailers like Warby Parker, Nike, etc.
6) Buy Now Pay later -fintech tools to become more prominent
In order to tap a large non-credit card users segment into the ONE Retail bandwagon, fintech products like Buy now and pay later will become more relevant as they bypass the credit norms laid down by traditional banking systems and do not hamper the credit ratings of the customers.
The biggest challenge in today’s time facing the industry is that there exists a humongous amount of data every day but most of the retailers lack the expertise in “making sense out of that data”.
There are software solution providers who would sell that tool but lack the expertise to provide “Key actionable insights” from the data on regular basis.
The primary reason for this gap is due to the fact that CEOs of most of the retail companies come from finance or accounting backgrounds and due to their limited vision, they fail to foresee the opportunity beyond the balance sheets.
Unfortunately, most of the retail companies are being driven like finance firms and not as retail firms and hence you see more retailers standing outside the financial institutional offices for filing for bankruptcies.
Farm to fork or Fresh to plate – Niches make Money.
Farm to fork or fresh to plate food tech concepts can re-vitalize FMCG brands into their new avatars.
The only way for FMCG brands to thrive in the digital age is to focus on niches.
FMCG is an acronym for Fast-moving consumer goods.
My inspiration to write this article comes from my interaction with my LinkedIn friend, Shahid khan and I am going to share some of my learnings from the newly emerging sector “Fresh to plate” or “farm to fork”.
These two terms were unheard of in the early 2000s or even in traditional FMCG (fast-moving consumers goods) kind of business.
Thanks to evolving tech developments and changes in consumer behavior,
customers are now open to accepting fresh food delivered to their homes and convenience which comes attached to it.
Any company operating on a farm-to-fork business model controls the entire back-end supply chain, powered by stringent cold chain control to maintain the quality and freshness of each product.
This starts from the time of procurement, processing, storage to the time it reaches the end consumer.
Watch the video advertisement to understand the farm to fork business.
Hope the business proposition for “fresh to the kitchen” or “farm to fork” is now clear.
Is D2C (direct to customer) similar to ecommerce?
A traditional food Ecommerce site may contain various categories such as fresh foods, packaged foods – spices, condiments, etc.
But when you focus on one category of the overall eCommerce grocery retailer, you started aiming for a niche segment that forms the basic premise for any D2C brand.
The D2C market in India is at a growing stage and is expected to attain a size of $100 billion by 2025.
D2C sales in the middle east region are estimated to account for $17.75 billion of total e-commerce sales in 2020, up 24.3% from the previous year.
The pandemic has played a major role in accelerating growth for the sector.
D2C has the obvious advantage of direct consumer connect as they control sourcing, procurement, logistics, and distribution directly to customers, removing the channel margin-eaters from the value chain.
What is the margin-eaters for any FMCG player?
The answer is mainly the end retailers’ margins, distributors’ margins, fixed costs, below-the-line marketing activities, and costs & finally advertising.
So in D2C business, your margins (retail & distributor) are saved whereas your customer acquisition costs are increased which over a period of time comes down with an increase in online orders and volume.
Challenges in D2C business model like “farm to fork” or “farm to plate”
Building a robust infrastructure that can sustain growth and enable quick scale-up. This needs a bottom-up approach.
Tech tools to maintain the temperature of warehouses, transporting trucks between 0-4degree.
In the middle east, it is one such challenge wherein the temperature soars to 50% degrees during peak summers.
The “farm to fork” kind of businesses, need continuous investments.
Investments in terms of infrastructure creation, creating distribution hubs, trucks, Talent, digital initiatives, and most importantly tech support.
Licious – brand’s core achievements in emerging unicorn startup in India.
Licious is 29th unicorn to emerge out of India in 2021
The latest funding would help it compete better with players such as FreshToHome and Zappfresh, as well as large players like BigBasket and Swiggy
Licious serves over 1 million orders every month
Fresh meat and seafood is still an underserved and unorganised sector that holds an opportunity of $40 billion
Technology tools in D2C or farm to fork businesses
Online Ordering Platform
In the D2C business, your online ordering platform or app is the front-of-house place where your customers interact with your brand.
From a profitability point of view too, it’s always preferred to get orders on your own platform so that you do away from the third-party commissions.
AI controlled logistics distribution cold chain.
Robust delivery systems within a hour within city limits.
Online ordering and processing – customer acquisitions
What the Middle East players like (al islami, alyoum, alain foods) must do to re-invent themselves?
Challenge themselves– first foremost thing the regional players must do is to challenge their core business model and practices.
Bring Fresh perspectives in thinking instead of shouting “freshness” in their advertising slogans.
Start thinking keeping 10-year horizon. Formulate strategies that can sustain the business for the next decade and command its leadership position in the marketplace.
Leverage their core infrastructure and combine it with the layer of technology innovation, keeping the customer centricity in mind.
Leverage their network of HORECA – not to sell the merchandise but in customer acquisition or pick up points.
Throw the modern trade thinking capinto the bin– Start imaging a world or marketplace wherein there exists no hypermarkets, supermarkets or power retailers. Then answer the question,
“How would you still be able to service your end customer?”
One of the sectors that saw huge spike in usage was undoubtedly ecommerce, logistics and fintech companies.
Buy now pay later is one such fintech solutions which is disrupting banking sector especially credit cards.
What is Buy Now Pay Later (BNPL)?
Buy Now Pay Later (BNPL), as the name suggests, is a micro-credit instrument.
It’s function is similar to credit card, that I allows consumer purchases just as a credit card.
BNPL users get to split their eligible online or offline purchases, i.e. purchases made with partnering merchants, into zero-to-low interest instalments or repay the total dues at a later date within the repayment cycle at no interest charges, according to the terms and conditions of the BNPL service provider.
For example, if you buy something in a store or online, you may be offered the buy now, pay later option at checkout.
If you get approved, you usually make a small down payment at the checkout.
You would then pay off the remaining balance in a series of interest-free instalments.
Why so much noise for “Buy Now Pay Later”?
Pandemic has changed the way we shop or our buying behaviour,
Convenience is the buzz word and if it comes with easy credit facility then it becomes a trend. (in urdu we say,sone pe suhaga, means cherry on top of the cake)
Global e-commerce transactions totalled $4.6 trillion last year, up 19 per cent from 2019, a report from Worldpay says.
BNPL accounted for 2.1 per cent or about $97 billion of that sum. (source: worldpay)
So, when you are talking about a trillion dollars sector, then it gets all the attention it needs in the marketplace.
There are a number of BNPL players vying for a share of the Middle East market, including Spotii, Postpay, Cashew, Tabby and Tamara. Australia’s Zip, a global BNPL platform, bought Spotii for $16.25 million in May this year.
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Why Millennials are in love with Buy Now Pay later (BNPL)?
Millennials hate conventional banking.
They are not interested in high interest rates on cards, and recurring fees.
Convenience of easy on-boarding. (Hassle free documentation of BNPL attracts them).
BNPL service providers often use new-age mechanisms to evaluate the creditworthiness of an applicant; thus, the customer onboarding process is usually fast and convenient with zero documentation requirements or joining charges.
The entire process is digitally enabled through internet-connected mobile devices or apps.
Upon approval, a BNPL service provider issues a line of credit based on its assessment of the user’s creditworthiness and income.
After signing up, users can visit a partnering merchant application, website or offline store (in some cases), add the desired items to the shopping cart, and select their BNPL provider’s payment option at ‘check out’ to buy the selected items in a secure one-tap manner.
Users can then convert their dues into zero-to-low interest EMIs, according to the terms and conditions of their BNPL service provider.
These BNPL companies are operating like mini banking institutions wherein they incentivize the purchase with cash backs, extended credit facility etc.
How does BNPL operate?
“Why wait for tomorrow when you can have your favorite gadget or dress today at equated monthly installments, which are interest free”
BNPL player’s services or model help countless customers, especially the ones who have just started working, to better manage their expenses by allowing them at least a few weeks to make the repayments.
BNPL services, thus, are rewarding spending tools for those who are yet to recover from the many financial shocks of the pandemic-induced lockdowns or are outside the credit card ecosystem.
Word of Caution- Buy now pay later
Customers must keep in mind that a BNPL facility is still a loan that needs to be repaid in full on time to avoid penalties and an adverse impact on their credit scores.
Since the sector is in its developing stage, following are some challenges.
Customer and Merchant acquisition
Getting both customers and merchants to come online with BNPL player is one such challenge, however BNPL players are identifying themselves as more of the omnichannel solution providers to the retailers in order to mitigate the risks involved.
Returns can be an issue, too.
If you return an item, it can take substantial time and effort to have the BNPL credit provider acknowledge the return.
You may still be obligated to pay your installments till the issue is resolved
How does the BNPL players make money?
At the outset, the financial looks similar to that of credit card company.
Net take rate represents the commission charged to merchants (Take rate) minus payment processing fees that the BNPL company pays.
Debt financing cost corresponds to the interest BNPL providers pay banks for liquidity (to provide loans to their customers). Debt management cost equals the credit check costs plus payment collection costs minus late fee payments collected from customers.
Provision for debt impairment is the weighted average percentage of loans that are not paid back (i.e., bad debt)
GMV refers to Gross Merchandising Value, the sum of all payments conducted on the BNPL platform.
Marketing and sales expenses are the expenses incurred as BNPL providers acquire and onboard both merchants and customers to their platform.
General and administrative expenses include team salaries, technology, and other infrastructure costs.
Let’s take an example: Suppose your net take rate is 5% (assuming merchants pay you 6% and you pay 1% in payment processing fees). If you pay 1% interest on your loan, and it costs you 1% to manage consumer loans, the percentage of your non-performing loans can’t exceed 3%; otherwise, you lose money.
Profitability for BNPL or for that matter with any tech firms is based on
Scalability – acquire more customers and merchants.
Incentivize the purchases especially up-selling using BNPL product.
Negotiate better terms with both Merchants and Banks (for debt financing cost).
Access more data on customer’s spending and build a separate data insight report for the merchants to buy and take benefit.
Buy now pay later – a boon for ecommerce sites.
Reduce cart abandonment rate.
This is the main challenge for any ecommerce site is to reduce the cart abandonment as over 40% traffic that comes on to the site, leaves the cart without click on the “Buy now” tab.
Improves the basket size by means of upselling. Hence your average transaction value increases along with the average transaction quantity.
Ecommerce retailer gets their full payment while their customer enjoys installment plans. This helps in customer retention and build trust.
Lower customer acquisition cost- Increase in sales for the same amount of efforts done in getting the online traffic through marketing efforts.
Attracts first time buyers with the installment option at the time of check-out.