Do you know that general trade accounts for nearly 90 percent of the overall retail market in India with more than 15 lakh counters across the country? And, within the retail sector, modern trade is seeing 19.5 percent year-on-year growth, according to NielsenIQ data.
As far as the definition of trade is considered, it is as good as the act of swapping goods and services between two or more parties for something in return.
Today, trade has become the most significant mechanism for individuals to exchange their needs.
The word ‘trade’ has evolved so much, nowadays, in the consumer goods market that it has segregated into two categories: general trade and modern trade.
What is General trade?
It is a traditional method of trading that involves multiple intermediaries, like distributors, wholesalers, and retailers, dealing with customers. For instance, the grocery shop in your neighborhood, a shoe store in the market, and a meat shop on the corner.
Businesses involved in general trade run on an unstructured model as most of them operate independently, leading to limited services to the consumers.
And, their entire business completely relies upon the salesmen who come daily, alternatively, or weekly to receive or deliver orders.
Benefits of General Trade
Here are the major benefits, pointed out below, that businesses avail out of general trade, are as follows:
- Small retailers with enormous networks have actual accessibility to end-users (customers) which can only be witnessed in general trade. It eventually reinforces consumer goods brands to have market share in tier 2 and 3 cities too.
- It is ordinary to observe that buyers have an interpersonal relationship with the retailers in general trade. Personal touch and trust are the most critical elements of any business.
- Standalone stores, roadside stores, and kiosks are the players being seen in general trade, having direct interactions with customers leading to quick feedback
What are the challenges in General Trade?
There are many drawbacks that businesses deal with in general trade as it has no refined and organized structure, making it lag behind those in modern trade (discussed below). Here are some major bottlenecks in general trade, as follows:
Accommodation problem
Businesses, in general trade, fail to expand their product ranges as they have limited space in their stores.
They flop to grow at a mass level and capture a wide customer area due to the lack of structured infrastructure.
Instead, brands sometimes don’t prefer to tap those stores that don’t have proper shelves as it is vital for product visibility and visual merchandising.
Expiry of unsold product
Stores in general trade lack enhanced tools to manage their inventory efficiently, leading to the rapid expiry of products.
The products that remain unsold at general trade stores get expired over time due to their short shelf life.
They don’t have a proper mechanism to get alert to push the products, about to expire, to the nearest best-selling point of that store. It ultimately leads to financial loss.
Inaccuracy of data
Businesses operating in general trade drastically fail to make informed decisions due to the unavailability of historical data.
General trade stores don’t have access to data on current market trends, customer preferences, and competitor strategies.
Not having accurate data on inventory level leads to understock and overstock situations, hampering the revenue of businesses.
What is Modern trade?
In understandable words, it is a structured and centralized model of retail chains. Large players like mini markets, hypermarkets, and supermarkets are involved in retail operations with specialized teams.
There is an accessibility of a prime quality customer base with a wide range of products in modern trade due to the huge enticing infrastructure of participants and visual appeal with well-organized shelves.
And, the most significant thing about modern trade is, there is no engagement of intermediaries in the dealing of manufacturers and large retailers which makes the distribution process more efficient and organized.
Benefits of modern trade:
No existence of middlemen
Retailers in modern trade have a solid presence in the consumer goods market, empowering them to operate at a large scale.
The entire business operation gets smoother and faster as stores don’t have to place orders to any distributor/wholesaler but rather the brand itself.
Eliminating intermediaries streamlines the communication and decision-making ability of retailers as they now quickly react to changing market trends and demands.
Boost in profit margin
Large modern trade chains leverage their large purchasing power to avail better lower-cost deals from suppliers and then sell to customers at higher profit margins.
Today, many large retailers are transforming themselves in their private-label brands, offering competitive prices and capturing full profit margins.
Apart from that, modern trade retailers generate revenue not just from the sale of products but also from in-store shops, advertising space, and service fees.
Highly premium accounts
In general trade, it is seen that people from the lower middle and middle classes are the primary customers of small-level retailers though, in modern trade, the ideal customer turns out.
Modern trade stores have high-class customers that are more value-conscious, like wider selection and convenience, than just making purchases.
And, the reason why modern trade stores only have high-end buyers, not general trade stores is because of a lack of prestige and exclusivity, and limited amenities.
The role of data is pivotal
Modern trades can use data-driven software/tools to assist them with buying patterns and response rates with targeted promotion of their customers and then to make well-structured decisions for their businesses.
Retailers can even cut down the possibility of wastage in their inventory, and stockouts with the help of an inventory management system.
To resolve customer issues, they can identify bottlenecks and inefficiencies in their operations by accessing well-organized data.
Challenges of modern trade:
Excessive competition
In today’s modern trade, there is extreme competition in the market of consumer goods which makes it difficult for retailers to differentiate themselves.
Modern trade stores are mostly located in cities which restricts village and remote customers from accessing these stores’ services.
Fail to cater to mass
Modern trade, unlike general trade, doesn’t have access to lower-tier cities as it only lends a hand to people who live in posh localities.
The market reach of large retailers in modern trade is. after all, constrained.
No traditional personalization
Human touch is the most significant element of any successful customer experience, which is not present in modern trade.
Conclusion
As I discuss the difference between general trade and modern trade right above. Both channels come out with many advantages and drawbacks in the retail industry. The question of “which one of the two is better” depends on several factors like target market, business goal, resources and capabilities, and market trends. Whichever one you decide to go for, there will always be a need for effective and efficient operation which is unlikely to be managed manually in today’s market though it is possible with the help of solutions like a distribution management system.
