March 31, 2008
Indiaretailing.com: Experience vs. convenience, as the retail mêlée goes
By Ranjan Kaplish and Satrajit Sen
Through a special arrangement, what follows is an excerpt of an article from Indiaretailing.com, presented here for discussion.
According to India Retail Report 2007, organized retail presently only comprises 4.7 percent of the overall retail market in India, but was expected to grow by 34.8 percent by 2006-07. The business of buying, selling and buying, with its tremendous growth potential, has attracted not only the national corporate giants (Ambanis, Biyanis, Tatas) and multinational behemoths (Carrefour, Wal-Mart), but enterprising Indian industrialists are busy opening jazzy shops, and are heard chanting the charming retail mantra, ‘my customer is my king.’
Perhaps this is a good time to pose this question: How can mom-and-pop stores or other old, independent retailers organize themselves to be part of the expected organized retail figure?
The subject sounds strange, being unheard or less talked-about. If an ancient marketplace starts providing services and experiences better than a branded multi-brand outlet, will its participants be considered among the organized retailers?
Dharmendra Kumar, director, FDI Watch in Retail, suggested independents form cooperatives. “The small and independent retailers can easily outnumber the countable companies in the business. They should club together and form cooperatives; together they can become one company, through which they can form a model that can compete.”
Arvind Singhal, chairman, Technopak Advisors, advises investing in a basic electronic POS system, which can generate elementary performance reports to facilitate category management, brand/SKU management, etc. Independents should make their outlets “look fresher, cleaner, brighter, and, in general, more contemporary and less cluttered.” Renovations could include adding customer-friendly shelving and displays to encourage shoppers to “walk around, touch and feel the product” and self-shop.
Overall, independents should focus on their specialization and strengths, including their proximity to customers. “Independents should further, strengthen customer contact/relationship by trying to learn and remember customer names and preferences (a computer-based system will help a lot), and stay in ‘communication’ with them, whether they are in the store or at their homes,” said Mr. Singhal.
Jayant Kochar, managing director, Go Fish Retail Solutions, likewise advised independents to “forget about asking for level-playing fields” and focus on areas where they have a competitive advantage. Secondly, he urged independents to focus on the top-line, believing most small retailers are obsessed with controlling costs. Said Mr. Kochar, “What they need to think about is out-of-the-box ways to increase sales, by grabbing every viable opportunity to satisfy the latent needs and wants of their customers.”
Finally, Mr. Kochar urged independents to surprise customers.
“We have found that when retailers think of how to delight their customers, they usually end up going in for expensive promotions and gimmicks, which may be counter-productive; or they go in for the same things that all the stores around them are doing,” said Mr. Kochar. “Think, instead, of what you can do that will pleasantly surprise them – this is the best way to create real delight that will lead to more frequent visits and higher sales.”
Discussion Questions: What parallels can you draw between India’s current state of retail development and the history of independents in the U.S.? What lessons can mom & pops in India learn about the way U.S. retail was organized? What do they need to do if they are to compete against the chains?
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Follow the basics. Emphasize products, quality and service. Seek new ways to get to know your customers. And develop ways to differentiate your company from the competition.
Quick note to Mark: In India, as in the U.S.–Mom and Pop can get pretty sophisticated if they have to. U.S. chains had all the political clout in the world but they didn’t manage to drive independent retailers out of the market. In almost every country (regardless of the rules of governance) size equals money and money equals political power but consumers still drive free–and even partially controlled–markets.
Small retailers in India should join together ASAP to maximize their political impact. India is a socialist country, and the government’s goal is to maximize employment. Small retailers should do everything possible to prevent the growth of chain stores, because regardless of customer service and creativity, chain stores will destroy profits for almost all mom and pop operations. Yes, it might help Indian retailers to form buying co-ops with each other and it might help to emphasize customer service, but the big picture is that chain stores have much better access to capital, great marketing leverage, and can afford to pay the best brains in the business. The big companies are very well connected politically, and if the small players lose on that front, they will lose everything.
I toured around Mumbai for a few days after attending the country’s first-ever digital signage/digital retailing conference in November of last year. Despite a packed show full of companies aggressively pursuing a digital strategy, most acknowledged that it would have little impact on the current crop of adults and elderly (who still make up the majority of the population). These Indians will continue to visit the same local shops that they have for decades, and the convenience and personal relationships forged between shopkeeper and customer are (in my opinion) probably the biggest reason why.
However…. The youth generation, either in imitation of western custom or celebration of the country’s newfound prosperity (or some of both, I suspect) aren’t quite so loyal. Already there are dozens of ultra-modern shopping malls where middle class Indian youths mill about but make few purchases. Expect that to change as they grow up, get jobs, and play a bigger role in the economy. Mumbai now has big, western-style retail stores packed up against tiny mom-and-pop stalls selling everything from fresh produce to on-the-spot TV repair, with all getting traffic.
Big retail will never be able to match the personalization and sheer breadth of product/service selection that unorganized retail provides in India today, but the price differences and efficiency gains that organization brings will be impossible to ignore. Thus I particularly like the idea of cooperatives mentioned above, since it provides access to some of the economies of scale that organized retail has, but doesn’t detract from the personalized and localized offerings today’s Indians have at their disposal.
Sounds like it’s time for an IGA India. Seriously as Musgrave has proved in Ireland and England it is possible for smaller independent retailers to not only survive but to prosper in the face of competition from domestic and foreign chains. The keys are organization, consistency, execution and imagination.
Organizing the independents is the only real way for the little guys to compete. The independents know their local market better than anybody so they have a small advantage over the big boxes. Organizing into one brand will cut costs (eventually) and improve operations overall.
Customer service and store layouts must be tweaked to service the customer better than the big guys. I think it’s the only direction that will help independents grow in the face of massive competition.
Strong emphasis on customer service is the best way to insure repeat visits and loyalty. Too many retailers, big and small, pay lip service to putting the customer first. No matter where they are, consumers appreciate being treated in a respectful manner.
Several dynamics for consideration:
1. Organized retail is certainly making a dent on small mom & pops in India. For example, my family based in India switched buying from their local “Kirana” (corner mom/pop) to a modern retailer. Reasons were pricing, quality of goods and range. These national retailers are able to leverage economies of scale to present international brands and niche products. The small guys can’t do this today.
2. Another thing in play is the novelty factor. Organized shopping is new to Indians. The novelty of this is driving many to the new modern stores/malls. Result is extremely high foot traffic at malls, but low monetization rates compared to the US.
3. Real estate prices in India are very expensive on a sq. footage basis. Indian retailers currently operate on relatively thin margins. While their pricing remains aggressive, cost pressures (real-estate, increasing salaries, loyalty programs, etc.) will eventually impact ASPs. Also, the density of these large format stores will never come close to the density of local mom/pops (7 stores for every 100 people).
4. Once the novelty factor wears off, the realities of finding a parking space, cost of gas to travel quite a distance (note the comment on density) to shop will get people to reconsider the benefits of the local Kirana. The local mom/pops are smart and will adapt. Moms/pops who offer conveniences like home delivery (believe it or not, they home deliver for purchases as small as $1) will build this to the next level. Another benefit of shopping with the local kirana is the credit facility that customers get – families maintain a monthly tab and pay at the end of the month. Consumers don’t get this benefit with the modern retailer.
In summary, the large retailers will indeed have an impact on mom/pops. But mom/pops will continue to be the cornerstone of Indian retail. They will certainly modernize, build their niches and offer better services. Unlike in the US, this will be a co-existence story rather than a substitution one.
Although the issue is among the most talked-about in India, and certain lobby groups have urged the central government to interfere, it is not as serious as it may seem. Many studies from reputable agencies indicate that not even one per cent of the small retailers are part of any association or organisation, which is formed to protest against modern retailers. The reason being: ‘they do not see much competition.’
The primary reasons could be:
Firstly, the network of modern retail has not grown up to the level as was expected, as the size remains nearly five per cent, and that too is segmented in different categories and fragmented across the country.
Secondly, the levels of service or the quality of products at modern-retail formats are being questioned by modern retail consumers. If you zoom in on balance sheets of the modern retailers, most of them are making minimal or no profits, but, instead, are seeking investments.
Now that the government is considering 100 per cent foreign direct investment, stock exchanges are on a roller-coaster ride (compelling some big retail companies to withdraw their initial public offers), and inflation being the subject of concern in the country, the modern retail companies have more issues to worry about as compared to the traditional mom-and-pop store owner. The experience, the loyal customer base, and the constant innovations, underlined by a consciousness that tells him to ‘be prepared’ to fight corporate retailers, will help the mom-and-pop store owner to not only survive expected competition, but also in flourishing and getting counted amongst the modern retailers.
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Follow the basics. Emphasize products, quality and service. Seek new ways to get to know your customers. And develop ways to differentiate your company from the competition.
Quick note to Mark: In India, as in the U.S.–Mom and Pop can get pretty sophisticated if they have to. U.S. chains had all the political clout in the world but they didn’t manage to drive independent retailers out of the market. In almost every country (regardless of the rules of governance) size equals money and money equals political power but consumers still drive free–and even partially controlled–markets.
Small retailers in India should join together ASAP to maximize their political impact. India is a socialist country, and the government’s goal is to maximize employment. Small retailers should do everything possible to prevent the growth of chain stores, because regardless of customer service and creativity, chain stores will destroy profits for almost all mom and pop operations. Yes, it might help Indian retailers to form buying co-ops with each other and it might help to emphasize customer service, but the big picture is that chain stores have much better access to capital, great marketing leverage, and can afford to pay the best brains in the business. The big companies are very well connected politically, and if the small players lose on that front, they will lose everything.
I toured around Mumbai for a few days after attending the country’s first-ever digital signage/digital retailing conference in November of last year. Despite a packed show full of companies aggressively pursuing a digital strategy, most acknowledged that it would have little impact on the current crop of adults and elderly (who still make up the majority of the population). These Indians will continue to visit the same local shops that they have for decades, and the convenience and personal relationships forged between shopkeeper and customer are (in my opinion) probably the biggest reason why.
However…. The youth generation, either in imitation of western custom or celebration of the country’s newfound prosperity (or some of both, I suspect) aren’t quite so loyal. Already there are dozens of ultra-modern shopping malls where middle class Indian youths mill about but make few purchases. Expect that to change as they grow up, get jobs, and play a bigger role in the economy. Mumbai now has big, western-style retail stores packed up against tiny mom-and-pop stalls selling everything from fresh produce to on-the-spot TV repair, with all getting traffic.
Big retail will never be able to match the personalization and sheer breadth of product/service selection that unorganized retail provides in India today, but the price differences and efficiency gains that organization brings will be impossible to ignore. Thus I particularly like the idea of cooperatives mentioned above, since it provides access to some of the economies of scale that organized retail has, but doesn’t detract from the personalized and localized offerings today’s Indians have at their disposal.
Sounds like it’s time for an IGA India. Seriously as Musgrave has proved in Ireland and England it is possible for smaller independent retailers to not only survive but to prosper in the face of competition from domestic and foreign chains. The keys are organization, consistency, execution and imagination.
Organizing the independents is the only real way for the little guys to compete. The independents know their local market better than anybody so they have a small advantage over the big boxes. Organizing into one brand will cut costs (eventually) and improve operations overall.
Customer service and store layouts must be tweaked to service the customer better than the big guys. I think it’s the only direction that will help independents grow in the face of massive competition.
Strong emphasis on customer service is the best way to insure repeat visits and loyalty. Too many retailers, big and small, pay lip service to putting the customer first. No matter where they are, consumers appreciate being treated in a respectful manner.
Several dynamics for consideration:
1. Organized retail is certainly making a dent on small mom & pops in India. For example, my family based in India switched buying from their local “Kirana” (corner mom/pop) to a modern retailer. Reasons were pricing, quality of goods and range. These national retailers are able to leverage economies of scale to present international brands and niche products. The small guys can’t do this today.
2. Another thing in play is the novelty factor. Organized shopping is new to Indians. The novelty of this is driving many to the new modern stores/malls. Result is extremely high foot traffic at malls, but low monetization rates compared to the US.
3. Real estate prices in India are very expensive on a sq. footage basis. Indian retailers currently operate on relatively thin margins. While their pricing remains aggressive, cost pressures (real-estate, increasing salaries, loyalty programs, etc.) will eventually impact ASPs. Also, the density of these large format stores will never come close to the density of local mom/pops (7 stores for every 100 people).
4. Once the novelty factor wears off, the realities of finding a parking space, cost of gas to travel quite a distance (note the comment on density) to shop will get people to reconsider the benefits of the local Kirana. The local mom/pops are smart and will adapt. Moms/pops who offer conveniences like home delivery (believe it or not, they home deliver for purchases as small as $1) will build this to the next level. Another benefit of shopping with the local kirana is the credit facility that customers get – families maintain a monthly tab and pay at the end of the month. Consumers don’t get this benefit with the modern retailer.
In summary, the large retailers will indeed have an impact on mom/pops. But mom/pops will continue to be the cornerstone of Indian retail. They will certainly modernize, build their niches and offer better services. Unlike in the US, this will be a co-existence story rather than a substitution one.
Although the issue is among the most talked-about in India, and certain lobby groups have urged the central government to interfere, it is not as serious as it may seem. Many studies from reputable agencies indicate that not even one per cent of the small retailers are part of any association or organisation, which is formed to protest against modern retailers. The reason being: ‘they do not see much competition.’
The primary reasons could be:
Firstly, the network of modern retail has not grown up to the level as was expected, as the size remains nearly five per cent, and that too is segmented in different categories and fragmented across the country.
Secondly, the levels of service or the quality of products at modern-retail formats are being questioned by modern retail consumers. If you zoom in on balance sheets of the modern retailers, most of them are making minimal or no profits, but, instead, are seeking investments.
Now that the government is considering 100 per cent foreign direct investment, stock exchanges are on a roller-coaster ride (compelling some big retail companies to withdraw their initial public offers), and inflation being the subject of concern in the country, the modern retail companies have more issues to worry about as compared to the traditional mom-and-pop store owner. The experience, the loyal customer base, and the constant innovations, underlined by a consciousness that tells him to ‘be prepared’ to fight corporate retailers, will help the mom-and-pop store owner to not only survive expected competition, but also in flourishing and getting counted amongst the modern retailers.