The Hindu Business Line : The search for an Indian retail model

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VICTOR Hugo said, "There is nothing more powerful than an idea whose time has come." Clearly, if the number of column centimetres the media devotes every day to the sector is any indication, retail is definitely a happening phenomenon in India. But despite the reams of verbiage that one goes through, it was a recent newspaper insert from `In and Out' (the petrol station-based convenience store) that started me thinking seriously about that oft-repeated phrase — an "Indian-centric" model of retail. For, I have not yet been able to figure out the role that these convenios play in our Indian scenario. Sure, out West they're an established retail format, their raison d'etre being convenience of shopping (while you fill fuel), you buy your tobacco/ soft drink/ beer ... or if you've run out of eggs, you just drive down to your closest convenience store, and pick them up — no wandering through massive aisles of merchandise, no standing in long lines — sure, you pay a little extra, but then it's convenient.

Now, has anyone out there spotted the incongruities when this model is applied to India? No? Well, I'll fill you in.

Not many Indians have cars (penetration is less than 1 per cent), so a retail format based on petrol stations as location will have a limited customer base.

Here every paan shop round the corner (we have five million of them) sells you your tobacco and soft drinks — and beer sales are restricted — so there goes the bulk of the Western convenience store purchase.

In India, a service attendant fills your petrol for you so you rarely get down from the car, unlike in the West, where most people fill their own gas, which means they have to get down from the car, and then it's not a big deal to go and get their cigarettes and other things.

Our fixed price structure mandates an MRP, so there goes the basis of the profit generation opportunity out West ...

So, how then is the `convenio' better than your Sunil Shop round the corner? Why should the customer go there instead of ordering on the phone from Sunil Shop? What is that `competitive differentiator?" Got the confusion?

Yes, so we all know that India has close to 13 million retail outlets — the highest in the world; the retail industry is close to Rs 9 lakh crore, growing at 20 per cent but organised retail is only 2.5 per cent of the pie, though growing at a healthy clip of 35 per cent.

Also, it's no news that our Government is yet to allow FDI into the country which most pundits feel is the fillip required to make the `industry' grow (technically it's still not an industry); that real estate prices are coming down which is good news for the `industry'; that increasing supply of organised retail is going to drive increased demand, that the `mall-ification' of urban India is going to have a cascading effect ... and we all know that the West gave birth to organised retailing, that it's a mature industry out there and adoption of best practices from the West will save us having to reinvent the wheel.

But for a sound retailer to get footfalls, then (some) purchase and then a major share of wallet (the marketing hierarchy of needs), one has to enumerate, internalise and work around the differences which make Indian retail truly swadeshi.

We the people: The Indian Consumer

The foundation of the difference obviously lies in the consumer. Here again we have the obvious trends such as exposure to brands, the working woman and consequent time poverty for the dual-income metro family, rising personal consumption and changes in shopping basket composition which we read about day in and day out. But a few facts stand out which affect modern retailing.

Clearly, the first step to follow while talking consumer is defining him/her. The bulk of today's departmental store (say, Shoppers' Stop) consumer, one would suspect, is in the 25-45 years age group, middle-class urban SEC A (fairly HNI), but strangely enough, so is the discount store (Big Bazaar) shopper. Now this consumer actually shops in groups, either en famille or with friends, so what are the implications? Even for the discount store, the concept of aisles is not suitable. So store layout changes to accommodate groups and L- and U-shaped counters become more sensible.

We spoke about the low penetration of cars. So, let's say the SEC B consumer, who should ideally be the target of the discount store, and even the supermarket (FoodWorld, for example), finds it difficult to travel for daily needs to the organised store, and then carry back the monthly groceries, it is far easier to order from Sunil Shop, who will deliver home, keep a monthly account for you, know exactly when your son's results are coming out — and give him a sweet gratis if the result is good!

Implications? Either a supermarket becomes the neighbourhood store, but bang goes the concept of economies of scale — of big-format logistics and so on, and where is the space? Or the supermarket becomes resigned to the idea of having only a few people shopping there for everyday needs, of whom the bulk will probably drop in once a month and buy some stuff! (Remember the marketing hierarchy?)

Then there is the obvious fact about the need for convenience driving the presence of one-stop shops — and this is what drives malls. So, should the organised retailer invest in free-standing locations at all? Or get into malls? But then being in a mall means clearly fighting against competition — which is fine if your store has managed to capture a significant mindshare (or heartshare, as the current buzzword goes) and is the destination store, but if not (and even if it is), what are the odds against the customer shifting?

Talking of heartshare, there is an added danger in trying too hard to ape the West. True, the Indian consumer is fiercely value-driven, but she has only just discovered the pleasures of shopping, so the organised retailers mustn't let the search for cost efficiencies drive away the emotion from shopping. The Indian consumer must not believe that being smart is better than being special, at least for the time being.

Implications? The retailers (even mundane supermarkets and discounters) must not forget the art of making shopping a pleasure — shopping can and must still be an event — not a chore. A good example of this is the exceedingly high footfalls one sees at any new mall — witness the recent Forum Mall in Bangalore. Then we deal with the whole business of the `wet' or `perishable' food and grocery segment. We all know the Indian housewife prefers to buy fresh food and vegetables every day, a need ably fulfilled by the thelawala, hence the initial dismal performance of supermarkets at making a success of this aspect (unlike the West, which eats processed foods). Implications? A big bazaar 1) attempts to get 50-60 per cent of its revenue from non-food areas, mainly apparel, and 2) opens a food bazaar in an attempt to replicate the sabzi mandi. Similarly, a FoodWorld works really hard at disintermediation — witness its system of contracting directly with farmers in Hoskote for fresh vegetables daily. All these supermarkets also make staple vegetables loss leaders every weekend, so the potatoes, onions and tomatoes come at fantastic prices. This is an attempt to a) get footfall on high shopping days — lure them in and then grab them and b) establish supermarkets as an alternative and attractive source of food and vegetables. However, it really remains to be seen whether the smart Indian consumer succumbs to this tactic or bypasses it by cherry picking (I do).

Also, our retailers have to deal with the sheer diversity as well as changeability of the Indian population. So, customer traffic volumes per sq. ft. and hourly patterns differ substantially from one store to the next. Even more importantly, the `value' equation across various product categories itself changes rapidly, and this can shift consumer preferences for spending very quickly.

Of course, then there is the question of overall shopping behaviour. Yes, the Indian consumer is becoming a shopper — one has only to look at the long weekend queues outside any of the new stores/ malls waiting for parking to figure this out — but what is it that the Indian consumer is buying at the malls? Is it apparel? Books? Music? Or durables or grocery? Or food? How is she paying for her purchases? How much is she willing to travel to get these one-stop shopping options? And is she discount-driven enough to wait for promotions or markdowns? Also, how different is the Delhi consumer from the one in Kolkata or Chennai, and how different are they from those in Nagpur or Ludhiana? This clearly has an impact on the merchandise assortment so the saris you find in a Nalli in Delhi are very different from those in Chennai. As somebody once remarked, "India is a big country where preferences change every 25 km and customer loyalties shift with every Rs 10."

Then there are the small issues like the importance customers attach to the availability and quality of fitting rooms, the provision for parking (one estimate says that in India it is enough to provide one parking space for every 1,000 sq. ft. while the ratio in Dubai is one in 400 sq. ft. and that in the US is 5.5 for every 1000 sq. ft.)

Sectors and formats

We now come to the biggest area of difference between the West and us — an essential strategic difference — that of format. The key to a winning retail format is to follow a model that suits the Indian consumer behaviour. Here too, we must first look at a few differences and challenges.

The first big one is the undisputable fact that almost all retail players (especially in food) have been region-specific. So whether it is FoodWorld, Nilgiris, Margin Free Market, Giant, Varkey's and Subhiksha in the South, Sabka Bazaar only in and around Delhi, Haiko and Radhakrishna Foodland which are Mumbai-centric; or Ahmedabad-based Adani, they have clearly battled with scalability.

But even scaling has multiple implications. Clearly, ideally it is an attempt to increase market share/ revenues or growth. But the question is: How does it affect operations? Does it mean reduction in assortment, shift to standardisation and reduced customisation? Where to scale, up, down or out? When to scale? Should a FoodWorld replicate its South-based format in a Delhi? And what happens when it wants to go to other 10 million+ towns? And then lower down the pop strata? Is it just a `mini revolution?' Or a `maxi' one? (More real estate space is available in smaller towns, but do the footfalls justify the bigger box format?)

Clearly a retailer needs different formats for different town classes, even different geographies culturally — but then what happens to economies of scale via standardisation? Are you then re-inventing the wheel with every new town class you enter? A good way out is the way the RPG group is treating its Music World stores — flagship vs smaller vs the express outlets located in, say, a FoodWorld. Similarly, the way ABC has defined Café Coffee Day outlets — flagship vs takeaway. Let's face it, even a Walmart is experimenting (with mixed success, one might add) with its smaller box `neighbourhood format.'

Another angle to this is the fight to ensure viability of any one format so there is a format expansion taking place. From a plain supermarket a retailer starts adding on general merchandise (think of the pots and pans as well as birthday party accessories you can buy at FoodWorld or the crystal, linen and home furnishing that a Landmark is now retailing), so where does one stop? Is a format in its classical definition even applicable to India? Or should one just figure out the shopping needs of the catchment area of a particular retail location and just fulfil it? But then scalability becomes impossible! Catch 22, isn't it?

(To be continued)

(The writer is the co-founder and managing partner of EmPower Research, LLC.)

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