Retail selling has come as a relief to both steel makers and industrial customers
Every month, Santosh Hegde does what households typically do. He visits his neighbourhood store for his monthly shopping. But this automobile component manufacturer doesn’t shop for soaps and cereals. He buys steel. Not in the same shop, of course. He goes to an Essar Steel Hypermarket and buys 50 to 100 tonnes of steel. Earlier he would travel 200 km from his base in Nashik to Mumbai or Pune to buy his steel. Now, the goods are delivered the next day to his shipping address.
Ever since the first mill began rolling out steel in India about a century ago, the metal has been distributed in just one way — from the mill to the trader, who acted as a middleman, and then to the customer. Two years ago, Essar Steel cut out the middleman by opening a network of retail outlets. Today, Essar claims it has a 20 percent market share in flat steel products and the 185 Essar Hypermarkets in as many cities have played a major role in this.
Direct Connect
Essar Steel Chairman Shashi Ruia
Two years ago, the company decided to sell steel directly to customers, pioneering a network of retail hypermarkets in India.
Who Are the Customers?
Small and medium manufacturers that typically buy in small quantities
How Do Customers Benefit?
Like any supermarket, the stores deliver the goods for free and within a day. With traders, the customers often have to wait for three weeks.
What Does Essar Gain?
The off-the-shelf style has made the market more dynamic, lessening the impact of a global metldown.
Challenges
The traders have the flexibility to give discounts. They also double up as lenders for their customers. The retail outlets need to find a way to meet the credit needs of its customers too. Also, the marketing culture will have to change as they are now selling to the ultimate customer, not the trader.
(This story appears in the 17 July, 2009 issue of Forbes India. To visit our Archives, click here.)