Organised Retail: A Reality Check
- Organised Retail will not kill the Kirana Format
- The two can co-exist
- Firstly, this is in keeping with the normal practice of the FMCG trade. To understand this, one needs to understand the structure of the FMCG retail market in India. It is not necessary that the small retailers purchase from the company reseller (distributor), you have a number of intermediaries in operation like wholesalers etc. What we are seeing is the development of a trade structure in the retail space in the role of a quasi-wholesaler. Since a supermart can negotiate better rates with companies, they have to do a quid-pro-quo and lift large quantities. These savings are then passed on to customers in the form of discounts. Frequently, to liquidate stocks or to generate sales discounts are passed on - and the small retailers take advantage of this.
- The other assumption is that the entry of Bharti Walmart in the wholesale market will cause increase of competition in this arena - and this is going to impact the traditional wholesale market as well as superstores. In fact, they are going to have a negative impact on superstores only for the 2 reasons below:
- First, they will have the potential to take away whatever little business that is coming their way from small retailers (whether they will do so or not is another question)
- They will make cheap rates available to small retailers, since you require a copy of municipal shop licence to make purchases
- A good many customers of the superstores will also be lost, since some normal customers are also availing of this facility at the wholesale format store of Walmart by making entry cards on friends business licences and since each card holder is allowed one guest.
- The Small Retailer is having to cope with rising prices of products, changes in demand with wet grocery becoming more important, small pack sizes, shifts in consumer offtake, and competition from the LFRs which, though muted, is present all the same
- The LFR is facing challenges from the existing local large kirana stores like Prem and Gokul mentioned earlier; shift in customers to Walmart; Increasing competition from other LFRs that are increasing their footprint; Internal stress caused by heavy overheads and expenses leading to high target requirements for survival; Increase in the cost of land and lease rentals