Catalyst

The retail reformat

D. Murali | Updated on January 19, 2011 Published on January 19, 2011

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While the kiranas and local vendors will continue to play an important role in Indian retailing, the lure of lower prices, better quality, and wider selection offered by larger retailers may be more attractive than the convenience of proximity and the customer rapport that local vendors have thus far relied on, prophesies an essay included in Winning Strategies for the Indian Market edited by Anuradha Dayal-Gulati and Dipak Jain (www.vivagroupindia.com).

Fighting inflation

In a time of rising food prices, larger retailers can help combat inflation more effectively than local vendors and can devise innovative ways to battle the surge in food prices, aver the essay's authors, Leslie Carroll, Eileen Chao, Philip Cooksey, Diane Gojkovic, and Michael Rosskamm. “Through bulk buying and offsetting losses in perishables with profits made on other products, big retailers can consistently offer fruits and vegetables at 15 to 20 per cent lower (30 to 40 per cent for vegetables) than local vendors can.” The essay notes food and grocery retailers are the staple of retailing, accounting for 75 per cent of overall retailing value sales; and that, until recently, however, organised food retailing had experienced a concentration of growth in southern India, through food retail chains in Chennai, Hyderabad, and Bangalore.

Sourcing woes

In a section on ‘sourcing,' the authors observe that in food retail and perishables, the supply chain connecting farmers to existing organised and unorganised retail is highly inefficient. “In addition to wastage, the number of intermediaries means produce travels slowly, leading to mark-ups, loss of quality, and inefficiency. This situation makes it difficult to run an efficient national retailer, and it hurts all supply chain partners' margins.”

The essay identifies an opportunity, therefore, for large national retailers not only to reduce their procurement costs through negotiation power but also to lower logistics costs and increase margins for their partners by consolidating the supply chain and improving its efficiency. “According to a recent study, organised retailing could increase farmers' incomes by as much as 37 per cent, lifting families out of poverty.”

Quiet revolution

An example cited in the essay is of Reliance Fresh, which offers products that consumers would buy three or four times a week, thus increasing the frequency of visits; also, some stores carry fresh flowers that are purchased everyday. “Executives never thought pre-cut vegetables would work with the Indian consumer, but a pilot test revealed great success with the product and Reliance introduced it. Contracting with local farms facilitates regional diversity.”

The authors speak about the company's deals with State Governments to establish rural hubs for buying fruit, vegetables, pulses, and dairy goods from the farmers; because by disintermediating the supply chain and buying directly from the farmers rather than the wholesaler ( mandi), prices are reduced by at least 15 to 20 per cent.

An interesting section in the essay is about innovations in staffing. An example given in the essay includes Pantaloons, for its plans to hire housewives and senior citizens; and Spinach, the Mumbai-based supermarket chain, which has hired sales staff from among pushcart vendors on the city's streets. All this, despite the caution sounded by industry analysts that training these employees and helping them develop crucial soft skills for customer service could be challenging.

Instructive read.

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Published on January 19, 2011
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