Rightsizing modern retail - Hindustan Times

Rightsizing modern retail - Hindustan Times:

'via Blog this'

It feels great to have confirmation of an analysis or a strategy drawn on the basis of observation and deduction... the latest article on Modern Retail confirms what I have posted on my blog earlier; that things are not all hunky-dory for the Large Format Retail outlet. As I outlined in my earlier posts:

• http://reflectionsvvk.blogspot.in/2012/01/organised-retail-100-fdi-storm-in.html
• http://reflectionsvvk.blogspot.in/2012/01/organised-retail-reality-check.html
• http://reflectionsvvk.blogspot.in/2012/01/category-analysis-of-organised-retail.html

From the above we can conclude that: (as concluded in the Articles above)

1. The higher strata of society will be tapped by the LFRs 
2. There might be an initial slack in monthly sales turnover from kirana stores in the short term, especially in the vicinity of LFRs, but over the long term this will be compensated by alterations in stocking patterns, population growth, service improvements, cost advantages of the kirana setup 
3. Organised retail - LFRs -are already in India in the form of the Indian chains. This is a normal development of the market - consolidation, experimentation with formats etc are normal features in a growing, developing market. The influx of Large Format Retail stores had already begun in the form of departmental stores and the local superstores. These were small shopkeepers who grew big by virtue of their business acumen. Hence, whether FDI comes in or not, Large Format Retail stores will continue to increase in number. It is only a question of a matter of time... 
4. Each format is facing its own competitive environment, and that includes both opportunities as well as dangers
5. The Kirana Format is in no danger of extinction given its range of services, width of distribution
6. Discernible shift in purchasing patterns for certain classes of products with cosmetics and related products increasingly being sought from Modern Retail, and groceries holding their own in Kirana

The enclosed article clearly mentions that breakfast cereals, packaged rice, air fresheners, liquid soaps etc have a nearly 33% sales offtake out of total sales from LFRs. That is a huge share: one-third of total industry. Keep in mind that LFR contribute 1% of Food and Groceries industry sales... 

The customer profile consuming the above items will mostly fit into the affluent classes for Cereals and Air Fresheners, Upper Middle and above for Packaged Rice and Liquid Soaps. This confirms the observation no 1 and observation no 6 above. Next, the article also confirms the importance of home service, personal touch with the consumer, as outlined in observation no 5 in my earlier posts

This article is not being written with an objective of tooting my own horn. The objective is 2-fold; first, the stated article has blamed policy paralysis (in part) for the dismal scenario. This is where I beg to differ. The main problems are the ground reality of retail in India with particular reference to the Food and Grocery Segment. That is why its contribution from Modern Retail is at a dismal 1% whereas other categories are far ahead in terms of contributions. "While Food and Grocery items contributes 11% of the revenues of the industry - this forms only 1% share of the total category revenues including Organised and Unorganised Formats. By comparison, Clothes and fashion is at 23%, Footwear 48%, Durables 12%, Books 13%. Organised Retail seems to be facing major hurdles in this category because of fragmented and localised nature of demand and a host of local tastes and brands to contend with, A massive unorganised and well-serviced retail network, Intra - category competition and the wide spread of the Indian Market." - (Article No 2)

The real problem is the nature of the Indian market. That does not mean that Organised Retail is doomed; far from it. But the growth will be slow and painful. You will have to build it up brick-by-brick. The expectations of rapid growth are frankly wildly overstated in this category. It will be a growing category; but the local realities of tastes, preferences, infrastructural constraints etc mean that the pace of growth will be muted. 

The second point is that Organised Retail needs to ask itself some serious questions in terms of growth targets, locations and towns to be targeted, store formats and size, in-store depth and range. Rather than be all things to all people, they will have to position themselves properly. Simply opening stores and targeting footfalls will not lead to achievement of the magic numbers! It is the bills generated and their content that counts. That is what needs to be done! Irrational store and growth targets and expectations will only hieghten the pain for the chains. The overall shopping experience has to be great, yes. But this will by itself not pull in customers. This is a basic need. The shopping experience will help only marginally; or it will help by not giving a customer any reason to shift. For example, lines at billing counters. Regardless of how much fun quotient you give the customer, you are going to lose clientelle if your billing lines are anything more than 2-3 customers deep. People will simply walk out and purchase from the local kirana. The industry needs to understand that it is competing for share-of-wallet; not with other Organised Retailers! The need of the hour is tempering of expections, and proper positioning of the stores... and the acceptance that LFR (Organised Retail) will co-exist with the local kirana in India!