Just a few days back I met my friend who manufactures variety of flour. Starting from wheat, rice to dry fruits like cashews, pistachios to an odd order to grid coconut shells. He almost grinds any organic food. Today he is supplying packaged and branded flour to almost 600+ shops in Pune. Recently he has also started supplying to big retail chains like Reliance Fresh and Spencer Daily as well. He was also about to start supplying to to another new chain, however they did not agree on some business terms.
Most of these big retailers today are starting a big time competition for the market share. On one hand in India there are communities like marwaris from Rajasthan, who are traders by profession since hundreds of years if not more. Baniya is one of the four primary categories in Indian culture. So retailing is not new to India and for these communities it is in their blood. I remember my childhood days. On J.M. Road in Pune, we had two shops of local Maharashtrians for many years. When I was in may be 4th or 5th grade, a new marwari’s shop also started in the same area. For first few months, my parents considered him outsider and used to go to the local guys’ shops for any purchase. But soon the marwari family, father and his three sons, with their prompt service, competitive (in straight terms – cheap) price and sweet talk captured the minds of the families around and soon the other two guys were marginalized.
Today most of the retail companies are going to compete with these marwaris all across India. The game is of volumes and direct purchase. Most of the retail companies are buying large volumes of goods directly from manufacturers and farmers. By doing so they are reducing procurement costs and the competition is driving them to lower their prices. You go to Big Bazar and see that people are buying electronic consumer durables as if it is some music CD or some vegetable. BB is announcing schemes almost every month on some item or the other and driving sales volumes.
Multi level marketing has nothing to do with retailers. This is a chain of ordinary people like you and me who earn the money by selling products of companies like Amway, Modicare & Tupperware. Many of the products sold by these companies are not available in the market to compare the prices. However that is not a major portion now. Few years back, these products were really exclusive. As the Indian market has opened in last few years, many imported products are available for comparison and many are cheaper as well.
The volume game of the retail chains is changing the way people are buying products. When I was a kid, I used to go to vegetable market with my parents or grand parents. They had a very good judgement of the quality of the farm products. They were able to select the best from the lot. By watching them, I learned a lot. Although I am not as good as them, I am not completely new to the market as well. Same is the case with my wife Shilpa as well. Just a few days back we had been to Reliance Fresh. Later we also went to More, the new chain of store by the Birla Group. However we were soon very disappointed by the scene over there. Due to the large volumes of vegetables, the staff was not able to take good care of them. Since the rains had just started, most of the fruit vegetables like tomatoes were having mud everywhere. We bought some leaf vegetables, but when we came home, the shiny fresh looking vegetable had become dull and lifeless. We then finally went to our local mandi and brought fresh vegetables and fruits we were used to.
The younger generation is slowly getting away from this knowledge. They are slowly getting used to believing that all packed products are good. They go more by the branding, presentation and visual appeal than genuine quality. In coming few years many of them are likely to eat in canteens or cafeterias or restaurants at least 4-5 times a week.Coming back to the multi level marketing, when the market is going to loose distinction between genuine quality and “well advertised quality”, the MLM companies are not going to attract the mind share. Plus the MLM products soon become monotonous. No one wants to fill there house with Tupperware everywhere. People need variety. Change is becoming constant in life. Current retail advertising is bringing the concept of buying cheap and keep on changing goods every few years. Today even the two wheeler market is loosing heavily on re-sell volumes.
The other factor which is going to limit the MLM companies is that even with a country like India with one billion people, it has really difficult to convince new members to join the membership chain. This means that most of the people who are at the end of the chain are going to remain there for some more time. These people generally recover their initial investment in first few sales. So once they know that they have to really take effort to sell the products and are not going to get commission sitting at home, as they dreamt in the beginning, these agents are likely to go into hibernation. If the MLM companies do not really come out of this, they are likely to be out of business or going to remain stagnant in coming few years.