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What lies in store

HARISH BHAT | Updated on October 04, 2012

The consumption juggernaut has been set in motion with the path now cleared for the entry of big box retail into India. - AKHILESH KUMAR

FDI in multi-brand retail will see shoppers wanting more value for money, buying more than they need.



After protracted debate and delay, the Union Government has finally notified the decision to allow 51 per cent foreign direct investment (FDI) in multi-brand retail. It is now only a matter of time before global retail giants such as Walmart, Tesco, Safeway, Auchan and Target set up stores in India and become household names. Millions of housewives may soon be saying “I am driving to Walmart”, rather than “I am taking a walk to the nearby vegetable market.”

As industry leaders have said, this milestone notification will undoubtedly bring in big foreign investment, which will help strengthen retail infrastructure, including back-end storage capacity and supply chain practices. It will also inject modern retail practices, including better store ambience and in-store merchandising systems. Most importantly, it will benefit consumers by offering better range and value, using their global reach and economies of scale.

While these facts are relatively well known, what has not yet been discussed in detail is the impact that these large global retailers will have on the behaviour of the Indian consumer. I foresee the advent of supermarkets, hypermarkets and their ilk significantly altering our nation’s shopping habits. Here are five hypotheses on how consumer behaviour is likely to change over the next few years as global retail chains set up base in India.

more value-consciousness

The first wave of FDI in multi-brand retail is likely to be in hypermarkets and discount stores. This includes brands such as Walmart, Tesco, Best Buy and Carrefour. These retailers focus on offering the consumer excellent value, through everyday low pricing. For instance, Walmart, the world’s largest retailer, proudly announces its credo as “Save Money, Live Better.” Tesco, UK’s largest retailer, advertises with an even sharper slogan – “Every little helps.” India’s own Big Bazaar has already set this trend in motion, but these retailers will be much larger names which bring even higher pricing power, and far deeper pockets that will help communicate their value offerings far and wide. These messages will, in turn, make Indian consumers even more value-conscious, particularly as Indians, whether affluent or middle-class, have always believed in bargaining for best value. Consequently, consumers will hunt more aggressively for the best prices, rather than accept what their nearest kirana store offers them.

Bulk shopping will increase

Today, we walk across to the neighbourhood store whenever we feel like, every single day, for items we want to buy. When large global retailers offer us extraordinarily low prices and range, we are more likely to save our money and buy only from them. However, since the huge Walmarts and Sainsburys are likely to be located at some distance from our homes, particularly given the high rental costs of high streets in Indian cities, they may not be convenient to visit every day.

I foresee Indian households driving to these mega-stores at less frequent intervals, and shopping in bulk on each such visit. This will mark a fundamental change from how Indians shop today. There will also be interesting indirect effects of this change in behaviour. Homes will need larger refrigerators to store the fresh merchandise which has been bought in bulk. People will gradually shift to cars which offer larger storage space in their boots. Housewives will have more evenings free for non-shopping activity, and soaps on television may therefore have new time slot opportunities.

Choice and confusion galore

Last month, I visited an Auchan hypermarket store in Moscow. It was an amazing experience. With retailing space of over 100,000 sq. ft., this French supermarket had millions of brands and products on sale, across foods and beverages, other FMCG products and durables. Aisles stretched for miles, and the choice was not just great, it was overwhelming. For instance, there were at least a hundred brands of tomato soup on offer! Even a decade ago, Muscovites would not even have dreamt of such choice. Today, they have all global brands at their beck and call.

Global retailers will soon bring this profusion of choice into India, adding to the very good range already offered by our own modern retailers such as Food World and Star India Bazaar. Indian consumers will soon be completely spoilt for choice. In the face of such choice, consumers will in fact be confused about which product to buy, even as they grapple with hundreds of brands in each product category. Marketers will, therefore, have to differentiate their brands even more powerfully, even as they attempt to compete for consumers’ attention in the midst of such fragmentation.

buying much more than necessary

Global retailers have the financial muscle to make frequent offers to consumers – such as lower seasonal prices, attractive combo deals, buy one and get one free, and so on. In London, a city I have visited frequently in the past few weeks, I see these unbelievable offers in retail stores all the time. These tempting offers are likely to have a magnetic effect on many consumers who are unable to walk away from great deals, even if they do not need the product being pushed. Therefore, people will end up buying products and brands which are not essential to their lives, hence consuming items they had never even considered earlier.

Such shopping behaviour may have much undesirable social and personal effect though, including wasteful consumption, obesity and household clutter.

seek the best of both worlds

Indian consumers rely on their neighbourhood kirana stores for much more than mere product shopping. They obtain two key value-added services at these stores. First, the facility of monthly credit, whereby they can buy during the month and pay the store at the end of the month. This is important for middle-class households which inevitably function on a tight household budget. Second, the kirana store owner is a valuable source of local information, gossip and networking. This interaction is important particularly for the Indian housewife, who sees it as a pleasurable and essential part of her shopping experience.

Therefore, even while consumers are attracted by the excellent value and range offered by global retailers such as Walmart, they will continue to seek these value-added services which add overall value to their lives. Sterile shopping visits may leave them dissatisfied. Hence, it is quite likely that consumers will not cut their umbilical cord with the local kirana store. They will instead find their balance between shopping at these neighbourhood stores and the large global chains, with some products being bought at the former and other categories at the latter type of stores. Once again, marketers can discover valuable opportunities by understanding these new shopping choices.

Harish Bhat is Managing Director and CEO, Tata Global Beverages Ltd. The views are personal.

Published on October 04, 2012

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