Indian Marketers Return to Bazaar

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The bazaar may be an ancient part of commerce in India, but the countrys lubricant industry appears to be discovering it once again. Insiders say suppliers are relying increasingly on bazaar channels such as retail outlets, OEM-authorized service centers and transport nagars.

The thrust of lubricant companies remains on bazaar trade due to better profitability compared to the B2B [business-to-business] segment, Priyanka Chandra, an analyst with Dolat Capital, told Lube Report Asia recently.The quantum of cash generation and profitability… will depend on the proportion of retail/bazaar trade in the total business.

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Originally a term given to large open air markets, bazaar now refers to any permanent open or enclosed market or collection of shops where goods and services are sold. In India and some other countries it includes establishments ranging from stores operated by lubricant dealers and distributors to transport nagars, a Hindi term for colonies of related service providers.

In India, almost all of the lubricants sold in bazaar trade are automotive, since industrial lubes are mostly sold business to business. Spare parts shops have the largest share of bazaar trade, commanding nearly 54 percent, according to Dolat Capital. These shops generally carry products of all leading brands, offering consumers a wide choice of product selection. They also allow consumers a high level of decision making in selecting products, which is one of the keys to their popularity. After vehicle warranties expire, owners value such control, especially owners of commercial vehicles.

Bazaar trade is low cost, Chandra said, which makes for handsome returns compared to strategies that involve higher levels of spending on advertising and promotions. Perhaps for this reason, over the last few years, Castrol India strategically decided to marginally reduce big brand spending and divert funds to spending on road-side mechanics and sign boards that are used in the bazaar trade. Also, Castrol used to give the lowest margins to distributors and dealers but has increased them.

Castrol, Indias market leader in bazaar trade, has in recent years worked to broaden its geographic reach in India by developing relationships with independent workshops throughout rural parts of the country. Market sources told Lube Report Asia that the company increased its overall market share by leveraging long-held partnerships with leading original equipment manufacturers like Maruti/Suzuki, Tata, Volkswagen and BMW. It now claims a distribution network of more than 270 distributors servicing over 91,000 retail outlets.

Indian PSU (public sector undertaking) oil companies have always focused on selling lubricants through their widespread networks of petrol stations. But they, too, are turning more attention to the bazaar, tying up with OEMs to supply their service centers. Bharat Petroleum now has tie-ups with manufacturers such as Hero Honda, TVS, Tata Motors and General Motors.

Amit Srivastava, of lubricant distributor Silver Lubricants-Kanpur, said lube marketers offer a wide variety of incentives to mechanics, retailers and distributors who carry their products. A majority of marketers now offer cash coupons and loyalty programs to mechanics, he said. For example, coupons worth U.S. $1 may be offered for every six-liter purchase of oil, effectively making the sixth liter free. Or mechanics may receive a free DVD player for every 500 liters sold.

Some companies offer gold and silver to retailers. For example, a retailer may receive silver coins for every 1,000 liters sold and gold coins for every 2,000 liters. Other suppliers offer leisure trips to foreign countries for retailers and distributors who meet certain sales targets.

Not all marketers go along with such practices. Tide Water Oil Co. sells Veedol brand lubes through bazaar channels and has a decent distribution network. But sources said it is content with its current position and is not taking aggressive steps like its competitors.

Bazaar trade may be old, but it continues to evolve. Chandra said the past few years have seen the auto repair sector shift from mechanic shops to OEM-authorized service centers, especially in the personal mobility segment.

This shift is happening because it provides customers more assistance in vehicle service compared to mechanic workshops, she said. OEM-authorized service centers have greater brand pull and are considered more reliable and trustworthy. This is also a more profitable channel for OEMs as they can push high-end products with higher profitability without any additional sales effort. This is the fastest growing channel [for lube sales] because it has a strong brand pull and has complete vehicle service offerings.

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Asia    Business    Finished Lubricants    India    Region