DESPITE being the secondlargest producer of cement globally, the retail channel of this business in India is quite apprehensive about its future prospects, according to a survey.
A survey by Feedback Business Consulting Services has shown that one in every five channel members is not sure about being in the cement retail business for the long term. The reasons range from increasing direct sales by cement producers to certain questionable practices prevalent in the business.
“The demand for cement is driven by large institutional buyers, infrastructure projects and readymix-concrete (RMC) units. Direct sales account for almost 50% of the total sales in Tier I cities. About 20% of the respondents were concerned about their future in the business, owing to three reasons - they perceive the business as too competitive, they believe there is no pride in the business and the fact that the next generation is not interested in continuing the family business, ”said V Ravichandar, CMD, Feedback Business Consulting Services.
The survey which interviewed over 2,000 cement channel partners across 31 centres claimed that dealer management is not a priority for cement producers. This is despite the fact that cement production recorded a year-on-year growth of 9.1% for 2006-07 fiscal touching 161 million tonnes.
“Sub dealers in particular, who are serviced by first line dealers, are dissatisfied because they feel that companies do not recognise their importance in the channel structure. Another concern is that first line dealers do not pass on the full benefits due to them,” Mr Ravichandar said.
Further, the booming RMC business in the metros is also eating into retailers’ revenues. With close to 300 RMC units operational across the country, this segment churns out an average 60,000 cubic meters of RMC everyday. “RMC units purchase bulk cement, directly from the manufacturers, with a unit’s consumption of cement standing at approximately 350 kg per cubic meter. The savings on every 50 kg of bulk cement purchased vis-a-vis cement purchased from the channel is about Rs 10-12. The channel doesn’t get a share of this business,” said V G Sakthikumar, COO, SCHWING Stetter India.
In this context, it must be mentioned that in spite of such high volumes, RMC constitutes about 5% of total concrete consumption in the country - clearly indicating that the segment has a huge growth potential in the years to come.