Lacking Accurate Retail Data
For companies that already have a presence in developing markets, the challenge lies in identifying new ways to fuel year-on-year growth across the trade landscape – despite a lack of available data. Companies in this situation usually rely on sources of low-quality data that can only offer an indicative view of sales performance and potential. Typically, the question of whether these businesses are reaching the right, high-value retail outlets goes unanswered.
Most foreign companies rely on local distributors to deliver their products to known retail outlets. Often, this results in a roadblock: most distributors are not naturally focused on helping the company expand into new outlets or areas of potential profitability as this may come at the expense of their own efficiency. Additionally, they may not be able to ensure that appropriate levels of service are provided to stores that have the highest value potential.
As such, businesses looking to expand their presence in traditional-trade markets must take it upon themselves to understand how they stack up against the competition and where opportunities are worth pursuing.
The Rise of Modern Trade
Modern trade – defined as retail outlets that are affiliated with or franchised from a larger chain or parent company – has been on the rise for some time in developing countries. The impact that this transition has made on the trade landscape is dramatic: it is estimated that for every 7-Eleven convenience store that opens in Thailand, four or five traditional-trade outlets close.
Although it seems like adding structure to the retail environment in a developing nation would be beneficial, it can actually present a major financial burden to companies that have worked hard to create a brand presence in the market. Modern trade and the consistency it brings to retail in terms of store format, brand recognition, common pricing, scanned transactions and general organization comes at a higher price tag. In many developing markets, the growth of modern trade is directly correlated to an increase in below-the-line investment for existing companies. As a result, these businesses must increase their above-the-line spend to offset rising go-to-market costs, or they must look for alternative sources of lower-cost growth.
Five Strategies to Expand in an Emerging Market
To offset the rising cost of modern trade and to get a better grip on opportunities that traditional trade can offer, consumer goods companies must tap into new sources of information to drive growth. This could mean increasing their understanding of a remote region where the selling potential, route-to-market and/or consumer isn’t known. The good news is that today’s technology can give companies the ability to put new retail outlets in emerging markets on the map.
Below are five strategies for companies that need to identify new growth opportunities and bridge the gap between traditional and modern trades in emerging countries:
1. Understand the market. First and foremost, companies trying to increase their presence in emerging markets must gain a true understanding of the local business environment. How many traditional-trade outlets are there? How many outlets are there by channel or type? How well is the product category represented within these? What is the performance of the company’s brand within the category and against its competitor brands? What are the sources of supply of product to outlets? Geographically, where does the company perform well versus poorly and why? Being able to accurately answer key questions such as these gives companies an advantage over their competition.
2. Hone in on selling potential. Getting an accurate picture of performance across the trade landscape in a developing market can be a difficult task. Sources such as syndicated data providers are good for indicative information. However, they generally only offer broadly extrapolated numbers that are based on a small sample size across the market. Although this is a directionally accurate approach, it’s difficult for companies to act on since accurate data for the remaining outlets is nonexistent. In order to truly identify the areas of highest volume potential across the trade, companies need to invest in the latest data-gathering technology that will help them gain a true understanding their performance by geography, outlet type, category, product and channel within the developing market.
3. Understand the costs to serve. Calculating profitability at the category and product levels is important before a company decides to expand into new retail territories. What business activities and overhead costs are needed to serve existing clients? How would new business impact spend in the market? These are imperative questions that companies must ask themselves before embarking on a path for growth.
4. Target sweet spots. An important consideration for companies looking to expand their business is striking the balance between the costs to serve and how much room there is to grow in a particular market. Identifying that point, or sweet spot, is crucial to achieving growth while maintaining or even increasing profitability. This can be hard to do in an emerging region, but businesses should start by gaining a true understanding of performance levels across the trade and marry these to their total business spend.
5. Actively support business partners. Companies that have access to factual and up-to-date data and can quantify the sweet spots are able to capitalize on opportunities to expand their market presence by – quite literally – mapping it out for their distributors. Using the latest mapping and visualization tools will give businesses the ability to provide their extended mobile workforce with detailed data and delivery routes to all of the newly identified and potentially profitable retail outlets.
Take Control With Advanced Technology
Do the challenges that traditional and modern trades present in emerging markets seem unsurpassable? Well, they’re not. Today’s consumer goods companies have the ability to increase control using advanced software and by following the strategies referred to above. Those that do will no longer be reliant solely on their distributors or limited sources for information, nor will they struggle to make sense of enormous volumes of data.
Contibuted by: Reece Croucher, Senior Manager, InDeed & Andrew Liebenberg, Business Development Manager, Just Enough