The Game Changer is Here !

Here it is, today's print ad from KB's Fairprice, inviting store owners to join hands with the group and avail the benefits of an IT enabled, scale back - end, while ensuring a standardized front end and uniform shopping experience.

I have discussed the franchisee expansion model in my earlier posts here & here. 
I firmly believe that it has the power to address the job loss due to FDI in retail, and other theories that currently limit the growth of this channel - mainly due to lack of funds to expand the coverage network. 

Mr Biyani in his interview here  had mentioned the plan to expand store coverage in Delhi and Mumbai through a franchisee network. Today's ad has set the ball rolling. 

KB's Fairprice has a large store network in Delhi & Mumbai - this seems to be a first step in ramping it up nationally.

The website here details the fixed costs and up front investments. It also mentions the selection criteria, the application and training process (a 9 day orientation programme), P&L preparation and the obvious benefits of aligning with the brand. 

This truly is a game changing initiative - for two reasons - IMHO.
1) This is a "never before" shout out to retailers across the country - those who want to upgrade themselves, or would like to get the benefits of scale.
2) The clarity and transparent nature of the communication - to be sure, I checked the Nilgiris website also - since it runs on the franchisee model. KBFP's site wins hands down on this front. This is the first time that a large brand has spelt out so clearly what it wants from its partners - the last memorable example was skumars.com (clearly not so memorable now)

Will Mr Biyani & team be able to crack the code ? Will only ATL communication help ? Should they also roll out a retailer engagement plan / road show ? (maybe they have thought of it - it will happen only to the selected franchisees ? How will India's Kirana community respond ? What will be the impact on people like Araamshop.com ? 

A strangely intuitive feeling strikes me as write this - would it not help both KBFP & Araamshop to integrate their business models? Perhaps, at some stage they may even end up doing so - and I hope that I am proved right on that count as well ! 

Meandering Thoughts and the update..

Looking back at the older posts today, I realise how bad I have been at trying to plot a course for this blog, and sticking to it.


I started with a very grandiose vision of how I would like to discuss a plethora of ideas about Modern Retail in India.


Poor posting discipline meant that I was soon forced to lower my sights, and look at addressing specific themes for the month.


A few historical / nostalgic posts later, this blog had metamorphosed into a Modern Retail weekly round up and analysis bulletin.


Clearly, I am struggling to steer a course - no value judgements whether that's good or bad - its the fact, just as it is.


Maybe with enough time, I will be able to organize the content better into the streams that I had originally wanted to - or maybe something totally different will emerge - only time knows what's in store. I guess I should keep at writing new posts, and then we'll see where they go !


Today's weekly bulletin is short and sweet.


Google threw up a link to an interesting website called RetailDigital - a self styled Global Portal for retailers - India's equivalent is called IndiaRetailing
It has interesting tidbits of information about the retail domain - mostly UK centric, but with a sprinkling of international coverage as well.


India, with its burgeoning population (the glow sign at the AIIMS signal read 1.22 billion on Saturday!) is obviously one of the key markets and on the radar of the western media, especially the guys with the big bucks - who are looking to make killer investments.


The news article is about a research report that tries to explain the significance of the convenience format to India's retail sector - read the press release here. It tries to explain through scientific techniques of analysis how the cracking open the convenience format is going to be the key to retail success in India (the PR doesn't say so explicitly - this is purely my interpretation)

While it is not my intention to take a dig at the folks who do this for a living, or even diss their efforts, it is my humble opinion that such reports and analysis usually are prepared through a lot of data collection efforts.
Thus, they may or may not portray an accurate picture of reality, or even visualize the future correctly.
This is because, the quality and quantity of data reported in our great nation is usually suspect - as the goof ups  by the Planning Commision of India have shown us - with the Rs 32 per day estimate of not being poor enough !


So, possibly a better decision would be borne out of a diligent, 3-4 week trip across India, understand the consumer behaviour of the people, and then, marry these insights with data from such reports to possibly devise strategy (of course, the simpler solution is to read this blog !! :P) 


The other piece talks about the rapid growth of India's retail sector, thus increasing its attractiveness on the investment quotient, as well as having a long term impact on manpower requirement. An interesting bit of information is how the CBSE, India's biggest educational board, has included courses on retail management at school level.


Truly, this is a path breaking idea that can work wonders if implemented well. India's huge population needs more and more employment opportunities, and trained professionals will always be in ever increasing demand as the sector opens up and reforms.


That's all for tonight folks. A more detailed examination of certain ideas to follow.

Is All Really Not Well With India's Retail Sector ?

Adding this news article to the post below : 
Future Group has again stated that they will continue to expand the convenience format. They are looking at adding 1000 stores in 2 years !
So will the retail revolution finally arrive ? Only time will tell...

This week's Google alert made for grim reading. I believe that what is currently a trickle of articles questioning the policy reform process and viability of modern retailing in India -  is likely to become a river in spate within the next three months. But on to the agenda for the day...

Today's pieces cover the modern retail story in India from 3 different points of view.

Those of the analysts , the industry pundits and the activists. 

The analysts believe that India's retail revolution is on the verge of a fizzle out - see the Chicago Tribune article here. 

Putting things into perspective is Mr Amitabh Mall of the BCG, arguing that it is the food and grocery retailers who are in soup, because they haven't been able to crack the right store format for growth.

The industry pundits believe that India is a huge market with great potential in the business, but profits are down.

Meanwhile, Mr Biyani's selling the Pantaloon business continues to make news. The reasons behind the sale are a pointer to the evident stress within the system. 

Another piece which showcases the views of a cross section of industry leaders talks about the clear and present challenges before the industry, and the possible evolution of business in India. 

The activists are convinced that the so called benefits of modern retail are over hyped - they will cause job losses and bring down the shutters on our home grown entrepreneurs.

Quite a lot of action ! 

I believe that the truth lies somewhere in between...

Indian Modern retail has been through three distinct phases of evolution. 

Phase 1 was the Great Boom of 2005-06 - fuelled by enthusiasm looking at the market size, demographics and the unorganized structure of the markets, retailers went overboard with store expansion.

Phase 2 came soon after - Streets with 4- 5 stores of each chain - these stores, which never had started making profit, soon went bust - and consolidation, operational efficiency, store profitability etc became the name of the game (reminds me of the scene in the Asterix book - The Mansions of the Gods - where every villager opens up a fishmonger or a metallurgist's shop)

Phase 3 followed - Cautious expansion, through large formats, largely into Tier 2 cities - 

Pune got a Spar, a Spencer, and even a Star Bazaar ! 

Phase 4 is on right now - Cash and carry is into relentless expansion mode (backed by investment from their parent companies). None of the players in the retail business is making money, there is no sign of respite on the policy front, and profitability is likely to be further challenged given rising inflation and changing consumer behavior - & only two players have the wherewithal to ride over this wave.

It is this phase which is being talked about through the various points of view in the articles mentioned above.Organized retail does not seem to be a happy place to be in and all is not well. 

But that does not mean India's retail story is over. Far from it. I believe that the end of this phase will see the pretenders out of business - leaving the contenders behind. 

The contenders will emerge with a much better understanding of reality, and a more realistic assessment of where they would want the industry to go. They will be the ones who will eventually crack the right model for our nation, and not merely copy paste the ones from overseas. 

I harp upon the right "model" piece because I tend to agree with the observations made in Mr Mall's piece. Indian food retail has till now focused on short term gains and not on sustenance. Getting in FDI will again provide a short term solution to the problem - monies will start flowing in, store expansions will start and the madness will be back. In all fairness, I think that retailers should view the policy paralysis as a blessing in disguise - it will force them to relook at their model and strategy, reduce debt (as in the case of the Future Group), evaluate innovative solutions, and generally firm up their operating principles of business. 

I'd like to believe the next phase of retail evolution would be based on the following trends likely to emerge - 

1) Even with rampant inflation, the stress on convenience will not reduce. Focus on home delivery of services (including grocery and food items) is bound to go up. Home delivery could be enabled through technology, accessible through mobile, tablet or any other form (ref to the Araamshop model). 

2) This would also mean that the convenience format would never go away - one chain which is doing a spectacular job of this is the Needs Supermarket group - which has a small outlet in every high rise residential society in Gurgaon - more on this later.

3) The investments made by the chains into large formats would start paying off - consumers would be attuned to buying a wide range of assortment (an indicator being the large number of international/ gourmet food formats opening up) from the hypers. Thus, monthly purchase baskets would become bigger.

4) The ever adapting and innovative kirana guy will continue to thrive - because urban India would suddenly not start living in high rises. This kirana guy would by now be a fully self service, air conditioned modern store - of course, his really high margins would be a thing of the past, but the increased volumes would make up for it. This is something which has started to take off, especially in western and southern India.

5) The small vendors / hawkers would possibly die a slow death - unless they could be recruited and trained by the large retailers into doing F&V procurement for their supply chain. This is something that they are already adept at doing, because they buy from larger wholesalers and hawk items door to door / in small residential markets. 

Besides winning hearts and minds (and reducing opposition to organized retail), it will ensure steady employment, an upgrade of skills and the chance of a better lifestyle and hence better social respect to this set of people, who, as was learned from the  job losses   article, have already started feeling the effects of Big Retail.

I imagine a franchisee led expansion happening post the current gloomy phase - this will help the smaller retailers to upgrade, do away with opposition to modern retail, and give a large footprint to existing retailers. How I wish Nilgiris to be at the forefront of doing this - but I think Mr Biyani would drive it through the KB's Fairprice format - he's pretty much stated that in his interview. 

So, while the short term seems fraught with uncertainty and risk, the future will be bright after all !

A Little Prescience & A Risky Prediction : The Aaramshop Model

Hello all,

I deviate from my regular weekly updates today to highlight and build on two important ideas that just got printed in the newspapers.

One was the emergence of the upgraded kirana stores (read it here) - and perhaps I can stake my claim to a little bit of prescience on this - though not in so much detail (see here).

Kirana stores are indeed an important component in the social ecosystem. Their sheer accessibility puts them leagues ahead of the competition at any point in time. And imagine, if they become like the modern retail outlets that allegedly threaten their existence, I can comfortably state that the threat would soon be directed in the opposite direction! I am quite sure that the anti FDI in retail advocates have got the wrong end of the stick by opposing investment - if at all, the advent of competition would hasten the modernization process across the country.

The article quoted Mr Sameer Suneja, the MD of Perfetti on how it had identified the high offtake retailers and treated them differently.

HUL had pioneered this differential treatment concept in 2007 with the launch of the Supervalu stores programme - which was later adapted basis respective category relevance by other FMCGs (see this & this). 

The Supervalu programme was possibly ahead of its time - it was a serious attempt to upgrade the retailer from his traditional practices and fast track him towards modern retail. It was also designed with a strategic vision of occupying key display opportunities and creating a 360 degree connect with the consumer. I cannot comment on whether it was a success or failure, but I am pretty sure that the current trend of retailer upgradation owes something to this initiative, which had the potential of being a game changer.

Speaking of game changers - the other point of today's gyaan - one name that is frequently doing the rounds these days in my mind is that of Araamshop. This is a model which is bringing the established web economy  "aggregator" concept to FMCG stores in the country. Araamshop lets you shop from a neighbourhood grocery store, via a convenient portal / smartphone app - a boon for people who typically put in long hours and are too tired to go to the market once they reach home - if they reach home on time. 

It is a very powerful concept, one that marries the best of two worlds - bringing the convenience of the kirana to the consumers' mobile phones - thus providing instant connectivity and freeing up of precious time and bandwidth for the user.

I am not too sure whether the model would be sustainable in the long run - and the reasons for my doubt are as follows - 

I don't know how the business makes money - I guess the retailers may be paying them some money to become a part of their network - but this is idle speculation on my part. 

However, it seems to be a low capex, low opex model, so it could break even quickly and even turn profitable soon. Will it be sustainable - not quite sure.

I believe it would be an operational challenge of Himalayan proportions to be able to ensure consistent service delivery from such a large group of diverse retailers. 

I could be wrong, and will be very happy if I am proved to be, but basis field experience - I can say that exerting sufficient levels of control on this motley crew would be a challenge.

Critical to the success of this model would be a few simple, basic facts - ensure timely service, correct billing, quality of goods supplied, & deliver customer satisfaction, and do all this consistently. We must remember that in the store environment, it is the shopper who makes the choices, and has various alternatives at her disposal. In this case, the severest drawback is the ability to change ones' mind, and pick up something else.

If the model gets the service level bit right, then nothing can stop it from taking off, as the buzz that good experience would generate would be nothing short of significant- I for one would definitely become its advocate !

Of course, we can always rewind to the Supervalu experiment - and imagine a scenario where a large FMCG company (say ITC, because it already has the critical experience of running a similar initiative with its e-choupal experiment) - would throw its weight behind this programme, and support it through resourcing - in terms of ATL, website presence and the  most effective lever - stocks. It could then ensure that the retailers partner with them in this new way of doing business. This support would give the company the first right of choice, create superb brand recall and would translate to higher  offtake as well - but maybe I am getting too far ahead of myself in this mist of crystal ball gazing !

That's it for tonight folks ! Have a great weekend ahead !

Cash and Carry - A Misunderstood Format - and other news.

Good Evening - Read an article today on the proposed launch of Walmart's new store at Anand - here.


The article was effective enough to attract a large number of comments, most of them focused on the adverse impact of Cash and Carry, how FDI in retail would harm Indian interests, and the usual concerns.


While I am not a Walmart spokesman, I do believe that sharing some more information on this may possibly  throw some light, and reduce heat from the matter.


Walmart already has nearly 20 cash and carry stores, and another 150+ retail stores in the form of Easy Day -  in India. They are here, and are pretty much here for good - that is reality that we have to live with. 

They are not the only ones who sell Chinese stuff in India - if at all, the quality of Chinese stuff that they sell might be marginally better than what we get otherwise. Given our constant value seeking behaviour, Chinese products have anyway become part of lives, whether we want them to or not.


Walmart are not the only ones investing in the Cash and carry format - Metro has started expanding, Reliance's Cash and Carry Store has restarted in Gujarat, Carrefour is operating one in Delhi - so the big guys are pretty much here. The real challenge for the government would be to get them to invest in the back end, and develop infrastructure. Unfortunately they cannot build roads for us. The Government also must devise mechanisms that could encourage these companies (whether Indian or MNC) to invest a part of profits back into community initiatives - like contract farming, farm productivity, and definitely removal of the middle man. (something ITC tried to do with its e-choupal initiative) 


Steps like these would help these large retailers integrate into the community, while ensuring greater productivity for themselves ( a glimpse of the Tata Sons model of how companies integrate into communities can be had here)


FDI in retail is a reality - our political leadership has to ensure that policy making be robust enough that it delivers the benefits it is supposed to.


Cash and Carry though, may have to contend with an Indian game changer after all - Kishore Biyani, long recognized by the industry as the Father of Indian Retailing, has launched another innovation - a mall for whole sale businesses! Read more about it here.


This idea seems to be an interesting proposition, as it would do away with the "kachcha bills" that usually flourish in the business - because the wholesalers would be licensed business persons. It would also make this channel more accessible to the public - since whole sale markets are typically frequented only by the die hard bargain hunters, apart from the small retailers. To quote from the article - "Our aim is to create a modern and a non-intimidating environment for the wholesale segment with a quintessential Indian lilt to it," Sumit Dabriwala, managing director of the Group's real estate arm Future Market Networks, says. " 


The group plans to expand this to other cities - post its Bangalore launch - later this year. An innovation worth watching closely. 


Another interesting article, appearing in a Singapore based publication was seen here. While not detailed enough, I believe it still raised a fundamental issue - how does modern retail expand when it is faced with a well entrenched mom and pop store network (of at least 5 million outlets !?!). There are very few locations, very high rentals, and consequently, higher break evens, higher daily sales targets and so the story goes - detailed here. 

Lastly, a more serious and academic take on the whole FDI in retail issue - a far cry from my own humble take here. 

Reflections and a few decisions..

Looking back at the various posts that I have written so far, I've understood a few things about my self today.


This is my third attempt at blogging - the other two were under a cyber pseudonym and can be seen here and here. This attempt is the one that I have really been enjoying the most.


So the question is : Why - Despite the fact that I am writing on a slightly technical subject, which has few readers and that my posts are mostly anecdotal in nature (not scientific, validated, commented upon or even approved) - I have been posting because I think I definitely enjoy explaining how things work to people. While this disseminates information, it also challenges me in my communication skills, and refreshes my knowledge base.


Should I become a teacher then ? YES - I need to firm my drive to acquire a PhD and then see how it goes. Will I be a good teacher ? No idea - but since giving gyan is something that I enjoy, maybe it won't turn out to be so bad. My aspirational ideal - Eliyahu Goldratt of The Goal (the book, not the movie!)


Now, since I have been able to put in some amount of discipline, I feel I should enhance the scope of this blog and make it more FMCG centric. That will take some amount of time, and huge amounts of effort, but it seems to be the only logical way to take things forward.


And now that I have started to find passion in this, I will definitely revive my earlier FMCG adventures blog - though I'll still post under the pseudonym !


So, now I get back to some office work, and will post again tomorrow. 

Modern Retail in the News - IV - Update : May 2012 : Week 2

Three very interesting articles appeared this week across the papers - 

The first one, appearing in DNA talks about a paper written by two IIM-A profs on how retail in India is likely to stay local. It raises interesting points on how the larger retailers are already in India in various forms, and the larger imperative on the Govt is to reform infrastructure - something alluded to in my earlier post here. I would like to reiterate to all the advocates of the anti FDI policy that it would be really really difficult to wipe out the entrenched Kirana stores - unless they all become franchisees - which would be good as they would then have to come under the tax net.

The second article refers to how companies would have to change their understanding of the shopper - again, something that would become really critical to driving innovation and business growth - as the large growths that modern retail is currently seeing on the back of store expansions would slow down dramatically. There is a hint of self interest though, as the article interviews the marketing bosses of Tracy Locke, an international shopper marketing agency.

In last week's post , I had shared an article on how the tier II cities have shown higher growths for modern retailers - with specific reference to Hypercity. This piece encourages retailers to explore the Tier II segment in depth. Simple and obvious reasons - low rentals => faster and higher profitability, people with spending power who aspire to the larger city lifestyles => higher and sustained growths, and no comparable options in the towns. 

The last article tells us that Spar and Max Hypermarkets are not going to be partners any more. I think this was on the cards since some time now, as Spar had released a statement saying that they wanted to expand their footprint across the country rapidly, and were open to alliances with other partners who could take the business across zones. 

That's all for this week folks !

More to follow next week.

Cheers !