 "Charting a new path to growth")
GM Pens, a licensee for the well-known Reynolds for over two decades, launched its own brand Rorito at the beginning of this year. The Chennai-based company, in ending its role as marketer and distributor for the writing major in India, is an example of many of its ilk that decide to go solo and rewrite their own business stories.
But companies that switch from a business-to-business (B2B) to business-to-consumer (B2B) model have their task cut out. So in what ways do big businesses benefit or limit their smaller B2B suppliers and what are the risks the latter run in leaving institutional sales for a consumer-facing model? Or is it wiser to straddle both models simultaneously?
FieldFresh Foods Private Limited, a joint venture between Bharti Enterprises and Del Monte Pacific Limited, is present in both segments under the brands, Del Monte and fieldfresh. Chief executive Yogesh Bellani says, "We continue to leverage our significant strengths in the B2B space to build saliency for Del Monte through trials and innovation."
Del Monte is a leading supplier to the major quick service restaurants (QSRs) in the country such as Domino's, Pizza Hut, KFC, Subway, McDonald's and Burger King. As a food service brand, it also caters to the bakery and Horeca (Hotel/restaurant/cafe) segment in more than 250 towns through 350-plus direct distributors.
"This has given us the reach to build saliency and awareness for the brand through consumer-facing stock keeping units (SKUs) like our juice brands and the almost ubiquitous Del Monte branded tomato ketchup sachets that are sold through a host of Horeca accounts across India," Bellani says, admitting that the ketchup sachets have played a vital role in building saliency for the brand through the B2B channel. "The sachet is one of our biggest SKUs and we sold close to 810 million sachets last year," he adds.
This in turn has motivated Del Monte to directly reach out to consumers, having built awareness and recall riding on the sachets. "Leading innovation in the B2B space for our valued customers across the QSR and industrial space has ensured that we keep abreast of the evolving consumer trends and this unique strength has allowed us to bring in a host of innovative products into the B2C space."
There no pitfalls of walking the twin paths, Bellani says, but "lots of learning" that help build differentiation. He concedes that serving both channels has its challenges, the prominent being how to maintain the volume and supply. "To do that, we have invested heavily in building a state-of-the-art manufacturing facility and expanded capacities almost every quarter over the last three to four years to meet the growing demand." Besides, a robust and sustainable backward integration programme to support its business in India and maintaining quality have been critical lessons for Del Monte.
The choice of becoming consumer-facing is entirely based on how efficiently a company markets or sells its products or services, says Anoop Bector, managing director of Mrs. Bector Foods Specialities Ltd, which is present in the biscuits, bakery and condiments businesses under its brand Cremica.
"Marketing is the tool for a company that decides growth/turnaround. For instance, over three decades we have built trust for our brand Cremica. Definitely, marketing has been a bait that has helped us reach a wider consumer base by communicating the quality of Cremica's product and also helping us understand the needs of customers. As a consumer-facing company, it's imperative to understand the needs of the consumer and deliver excellent customer service," he says.
He believes B2B marketing is pertinent in today's competitive business scenario "as it helps an organisation in acquiring a new customer base". Bector says that associating with brands like KFC and Burger King gave Cremica a unique brand identity and developed a positive relationship with consumers. The limitations in a B2B model, on the other hand, can be a limited market and a smaller pool of customers.
Institutional sales or marketing largely imparts a "gimmick value to a brand", he argues. "For a small duration, such activities can convert into immediate sales but it's not economically viable. At Cremica, for the past two years we have been introducing attractive offers for our customers and freebies that have given our gamut of products instant visibility. We feel it's a very honest way of directly communicating with our customers."
Monika Solanki, vice-president (marketing) of GD Foods MFG (India) Pvt Ltd, marketer of Tops brand of food products, also agrees that volume and access to major outlets are benefits enjoyed by an institutional supplier while a brand still requires its independent image and loyal consumers for growth. Tops' association with luxury hotels, premium restaurants and food chains has given it a golden opportunity to upgrade its infrastructure, systems, quality, packaging, pricing strategy, logistics, supply chain, production capabilities, client servicing capability and the ability to retain premium buyers, says Solanki.
"However, a competitive scenario and an increasing rate of inflation leading to frequent rise in raw material and packaging prices makes it a challenge to retain the institution supplier with agreed margins. In such cases, competitors with the best backward integrated infrastructures play a key role in setting up the market with commanding margins. Institutional suppliers have a plethora of choices from among leading companies in the same market categories."
Harminder Sahni, founder and MD of retail consulting firm Wazir Advisors, explains that most suppliers, who wish to launch their own products and brands, take the call because of a notion that "we are supplying a product at Rs 100, and the brand is selling it at Rs 300". But creating a brand and pull for consumers, and to be able to charge thrice as much requires a lot of hard work and planning skills, he adds.
"Distributing is only one part - that's logistics, managing network, collecting payments, managing stock and all of those things. Yes, it's a lot of work. But you have to create your own brand, coming up with innovations, new designs and new styles in anticipation of selling. If you are a brand you have to keep the stock and if it doesn't sell you are left with all the losses."
The advantage for a B2B player is that if a company has been involved in product design and innovation and not just been a manufacturer, its understanding of costs can help in launching or acquiring a brand successfully. In practice, however, Sahni feels the recognition is missing as to what is required for making the product.
Solanki agrees that disassociating completely from institutional sales does not allow organisations to leverage an existing platform that offers a vast market, and puts the onus on the company to depend solely on building a brand with huge budgets.
Pankaj Gupta, senior practice head, consumer and retail, Tata Strategic Management Group, says a B2B company needs to add several newer capabilities to be able to succeed in the B2C segment. He lists them as development and management of brands and the trade channel, sales team skill sets, demand forecasting and inventory management. "They would need to set up a nationwide logistics network. In some cases, the product format and/or packaging may also need to undergo changes."
Companies that decide to stick with both models must create the relevant product portfolio and value propositions for the two types of customers, whose needs are quite different, he adds.
| EXPERT TAKE |
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Realign organisational structure: Angshuman Bhattacharya B2B companies often consider foraying into the B2C arena with their own brands as part of their growth and margin improvement initiatives. The underlying thought is that sourcing and manufacturing know-how could be extended to capture greater value in the chain through forward integration. Here are ways to address the principal challenges in making the transition:
Angshuman Bhattacharya Consumer lead and managing director, Alvarez & Marsal |
