The Hindu Business Line : Multiple filters to sieve through mountains of market data

Story so far: A supermarket comes up next to Mani Kadai, a petty shop that used to be my college-day hangout. I meet the owner Mani and ask him whether his business was taking a hit because of the new supermarket in the vicinity. "They may have money power, but we have public support!" he replies, cheerfully. But I wonder if the neighbourhood shops will continue to flourish even after the giant retailers begin marching down our streets.

Episode 152

Last week's episode, `at the petty shop,' has drawn enthusiastic response, as much as Mani may get at his shop! Let me begin with S. Vembu's mail which lists the strengths of giant retailers (huge money power; systematic procurement/credit facility/huge turnover, etc. resulting in less procurement cost compared to small timers; bright/clean/better display, merchandising, and advertisement; customers can shop leisurely, and go through write-ups before final purchase; credit/debit card facilities) and the weaknesses of giant retailers (huge built-in cost in the form of employee wages, uniform, rental or capital sunk for premises; electricity cost — a big monster; losses, shoplifting and pilferage despite modern gadgets; customers with low disposable incomes are less likely to enter a high-profile shop).

The retailer's strengths, according to Vembu, are: Knowledge of regular customers and personal touch in transactions; credit facility; the not-so-well-off customer segment comfortably walk in; lower quantities handled, so lower cost. The neighbourhood retailer has the following weaknesses, however: Poor display and projection, lack of light and cleanliness, and low visibility shops; and limited choice.

"Considering the above pros and cons, neighbourhood shops in metros/Tier I cities (such as Vizag, Coimbatore and Mangalore) will feel the pinch by the end of 2007 or middle of 2008," predicts Vembu. "Subsequently, the markets in stages will begin to feel the heat. The products are likely to be purchased in bulk from cities and taken to rural markets for resale. The small time retailers will not be able to fight the giants, who would use the time-tested market entry tool of freebies!" Ominous. "Sales campaigns such as buy one and take one free, buy sweaters/umbrellas during summer, and refrigerators during winter, will keep these shops busy even during slack seasons."

Meagre margins for suppliers

The giants will arm-twist suppliers/producers to save cost of procurement, fears Vembu. "Margins will be meagre for suppliers, which in part is likely to be passed on to customers. A big retail marketing war with wider political implications seems imminent. Ultimately, there will be two classes, viz. MNCs (multinational corporations) and Indian giants on one side, and the poor/ lower middleclass on the other. With high rate of unemployment and the resultant poor economic conditions, social tension could heighten." Let us wait and watch, wraps up Vembu, on a note of suspense.

"There are ample avenues for both forms of retailing to co-exist," says C. Prahalad, Consulting and Enterprise Solutions, Satyam Computer Services Ltd, Chennai. "In a country where organised retail penetration is only close to three per cent there is space for all forms of retailing. The bigger retailers would help in dis-intermediation, that will lead to a fall in prices. This will be a boon for customers. For big companies that offer their products to multiple retailers, hassles of distribution and tracking retail stock levels will come down, as the retail biggies would have a good IT infrastructure." Will the mom-and-pop kirana stores be wiped out? A little too premature, says Prahalad. Why? "With a substantial number of people below and bordering on the poverty line, kirana shops are unlikely to go out of business. A substantial chunk of people take their monthly groceries and other purchases on credit; they would need these mom-and-pop stores for their daily needs. Moreover, not everyone would enter the super-market if they need only a few items, say batteries etc." Some hope, that is, for my friend Mani!

Unique cultural issues

Next is an interesting mail from Ramesh Vaidyanathan, VP and Legal Head at the Mumbai International Airport Ltd. "The cultural habits that are unique to India cannot be ignored," he writes. "Indians love to chat with the shopkeeper and the purchase decision is heavily influenced by the `expert' comments of the shopkeeper. The friendly greeting and affection of your regular grocer cannot be easily replaced. The big retailers tend to be impersonal, there is no help around, and the sheer range of choice can be confusing. If this is my experience as a 32-year old, you can imagine how it must be for the elderly." Happy shopping, Ramesh!

"Dear Swati, neighbourhood stores will thrive," says Dr Jyot Mohanlal D, General Manager, Marketing, Indian Petrochemicals Corporation Ltd, Vadodara, and visiting faculty for MBA/ PGDMM at MS university of Baroda. "The emotional bond with customer is strong in small shops. Casual walks to and window-shopping at the neighbourhood shops will continue."

Doesn't augur well

Maggie Thomas of Aruvankadu, Nilgiris, has sent a disquieting mail. "Cosy family-run coffee shops/parlours have been known to have lost out to big retailers; so too have small book shops run by booklovers. I hope this happens later than sooner in India. Wal-Mart's entry does not augur well. But India is now interested in big bucks. Sad." Scary words, Maggie. Sends a chill down the spine!

"Dear Swati, your article `Fate of neighbourhood shops when giant retailers march in,' talks about a less discussed but very relevant story," writes Vinod Menon from Hyderabad.

"The small retail owner in your article, Mani, is right when he says, `They have the money power but we have public support.' Whatever Mani does to get support from the public should be followed by all small retailers in India. Their fate depends on how they react to the changed scenario, which is driven by today's consumer and not Wal-Mart or Reliance."

"The fundamental difference between the organised and the unorganised retailer is that the former responds better to the changed scenario and finds a business opportunity in it."

Vinod informs me about a forum on `how small retailers can use technology, bring in best practices and combat competition from giant retailers' held recently in Kochi.

"The final conclusion of the forum was that the small retailer has scope to increase efficiency within his small format and respond better to the consumer. One of the proven methods to increase efficiency among small outlets is deploying cost effective point of sale (POS) technologies. Tailor-made POS solutions are available for small outlets and this can help cut cost, better inventory and customer service." POS, ASAP, may help, it seems.

"Retail is the in-thing," says Krithivasan. "With a exploding population, more disposable incomes and nucleus families, mega and focussed retail outlets will become more a necessity and the order of the day. Visiting and spending time in a mall has become a fashion statement.

"With mall culture catching up and plastic money giving consumers unlimited spending power, gen-next will push the retail revolution to further heights.

"The next-door kirana shops will certainly survive, but in diminishing numbers." What a pity!

Timely discussion

Girish Bhatnagar, who has spent 34 years in Supply Chain Management (SCM), writes in: "I have been fascinated by the retailing operations in general and Wal-Mart (which is naturally a much studied and dissected business model of supply chain backend and retail front end) in particular. Your article prodded me to organise my thoughts on this issue," he opines, enclosing a studied thesis on the topic! Thanks Girish.

"Dear Swati, we should not have doubts about the future of neighbourhood shops though many giant players are going to enter the retail market," says V. Nadanasabapathy, Retired Deputy General Manager, Syndicate Bank, Chennai.

"In the $300 billion domestic retail market, there is enough space for everybody to step in and flourish. Further, the supermarkets may not be in a position to extend service to all sections of society. Also, all the existing customers of the neighbourhood shops may not shift to the supermarkets. Important reasons like proximity to the residential colonies, willingness to supply things even in smaller quantity at anytime, door delivery and personalised service may compel existing customers to continue to do business with the neighbourhood shops. Retail giants may attract certain people but not all. Take the case of hotels. The establishment of five-star hotels and modern fast food restaurants has not wiped out roadside eateries and mobile restaurants. In a populous country like ours, the arrival of giant players in the retail market may not take away the business of existing shops. In fact, it will create healthy competition and benefit customers. So let us welcome the arrival of new players!" Optimistic?

Well, there are more letters on the topic — from S. Gnanaharan, Saravanan KR, Sriram Kannan, and Lion M. Thanga Velu — which I'm slotting for next week.

********

Surveillance engine chugs on

In what seemed to be an otherwise dreary week, a good change was a chance visit to the market regulator's office on a day when a spanking-new surveillance software was put in place. I had gone to Mumbai to visit a friend who works for a newspaper and he was attending the press meet. "Want to join?" he asked me, knowing my interest in IT stuff. The spokesman explained how SEBI (the Securities and Exchange Board of India) need no longer depend on the market participants to furnish data for `whatever investigations it may choose to undertake'.

Someone called me from the next chair, "Psst... what's the name of the software, miss?" I said, "MISS," but my friend nudged me to say, "No, IMSS, for Integrated Market Surveillance System." The presentation had already progressed to a slide that showed how the regulator will be able to skim through three to four gigabytes per day and apply nearly 30 types of filters!

With such a sophisticated surveillance engine in the hands of the market regulator, will things such as the IPO (initial public offer) scam that rocked the bourses not long ago be relics of the past, I wondered. Or, will there still be things that IMSS would miss? Send in your thoughts by Friday.

SWATI_CA@HOTMAIL.COM

Blog at: http://Swati-CA.blogspot.com

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