HUL will create the last mile connectivity by pushing agents called "shaktimans" to expand their rural market presence. I personally think this is a proactive step from HUL looking at the growing bargaining power of the large retail chains.
Remember some time back when Kishore Biyani stopped all the Cadbury products from his stables? HUL cannot afford to land up in such nightmarish situations. The two things that should be dominating every HUL honcho's mind are
1 . How do I protect the meager margins that they make on FMCG products?
2. How do I deny excessive bargaining power to retailing giants?
To address these things I think initially they are targeting the rural markets to salvage some market share so that in case the retailers try hard bargain, they have a moat to fall back on. But this does not address their long term problem of surrendering bargaining power in the urban markets where there is a huge scope for introducing new products and making good margins.
I think they need to start paying more respect to their distributors whom they have been pushing around for some time. They will have to play along since nothing much will left if the retail chains succeed. HUL should build robust distribution channels that will nullify the volume advantage that retail chains have and help mom and pop shops compete aggressively with chain stores in terms of price. May be they should set up ERP solutions to large distributors too. Alternatively they could build concept shops like L'Oreal and expand via the franchise route. I think some time back they started targeting barbers, laundry workers and other domestic service providers who contribute a major chunk of their revenues. May be next they will organise the karmachari's into a formal group and make them service providers who will use HUL products in washing and cleaning services!
There goes another example of the application of the Porters 5 Forces model that MBA's feast on. I say, this porter guy has stuff!
Remember some time back when Kishore Biyani stopped all the Cadbury products from his stables? HUL cannot afford to land up in such nightmarish situations. The two things that should be dominating every HUL honcho's mind are
1 . How do I protect the meager margins that they make on FMCG products?
2. How do I deny excessive bargaining power to retailing giants?
To address these things I think initially they are targeting the rural markets to salvage some market share so that in case the retailers try hard bargain, they have a moat to fall back on. But this does not address their long term problem of surrendering bargaining power in the urban markets where there is a huge scope for introducing new products and making good margins.
I think they need to start paying more respect to their distributors whom they have been pushing around for some time. They will have to play along since nothing much will left if the retail chains succeed. HUL should build robust distribution channels that will nullify the volume advantage that retail chains have and help mom and pop shops compete aggressively with chain stores in terms of price. May be they should set up ERP solutions to large distributors too. Alternatively they could build concept shops like L'Oreal and expand via the franchise route. I think some time back they started targeting barbers, laundry workers and other domestic service providers who contribute a major chunk of their revenues. May be next they will organise the karmachari's into a formal group and make them service providers who will use HUL products in washing and cleaning services!
There goes another example of the application of the Porters 5 Forces model that MBA's feast on. I say, this porter guy has stuff!
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