The issue of retail formats

Sangita Joshi Convenience store, supermarket, department store, hypermarket, discount and speciality store! Which one would suit our market? A mix of supermarket and discount stores, says the author. This is the second part of the article on retail models for India. The first appeared in the Catalyst issue dated October 21, 2004. THE 52-billion-euro Carrefour is the group that pioneered the hypermarket. It attributes its success to satisfying its customers through different types of stores such as supermarkets, hypermarkets, convenience stores, cash-and-carry stores and maxi-discount stores. It also attracts its customers by keeping all the major brands in its stores and providing services such as insurance, banking and even e-commerce. One-stop shopping at its best. Here in India, Metro has tried its version of a cash-and-carry hyper-mart. Whether Metro is a success or not is a question that is too soon to answer, but there is sufficient attraction in this format we now have our home-grown Giant on an expansion spree. Again, for geographical expansion, there is no tailor-made formula. While Carrefour used a `wait and see' approach followed by a fast expansion pace when it first entered China (similar to Giant's wait before it commissioned 17 other stores) and is now developing with two types of retail stores, Wal-Mart's approach was more cautious, using an `escalator' approach covering one area after another rather than opening a number of stores in all regions. So, what RPG is doing is actually a good idea. It is playing a combination of formats, emphasising the most successful one during the implementation phase. A mix of supermarket and discount stores would most probably fit the Indian market although the type of format depends on the retailer's competitive advantage. The key is to switch between formats according to circumstances. For example, in Thailand, Tesco entered with hypermarkets (Tesco Lotus), then convenience stores; it now plans to expand with supermarkets. Casino entered with its Big C hypermarkets and is now launching a Leader Price discount store. What complicates this format issue in India is the fact that while each of the traditional models of retailing (convenience store, supermarket, department store, hypermarket, discount store and speciality store) gradually morphed from one to another globally, the Indian retail arena has a lot of them running parallel. The student of retailing is familiar with the `Wheel of Retailing' theory, which attempts to explain evolution of retail formats. According to it, gaps in one format give rise to a new one. But India, coming into the retail industry fairly late, is embracing all formats together. An allied question is that of the sectors to enter: Should it be food and grocery (the mother of all retail sectors; after all, everyone has to eat) or apparel, durables, books and music? Clearly, food and grocery has a lot going for it; one look at share of wallet will confirm this, but then there are the idiosyncrasies of the Indian kitchen to battle with, the chief amongst which are those that relate to the `wet market': fresh food through hawkers is easily available in all parts of India. It is also less expensive than processed food and is by far the preferred form in Stories in this Section most Indian households. So, for the retailer bold (wise or foolhardy) enough to The sales word enter this sector, the challenge is to:
Maruti 800's many lives The pricing conundrum Integrate the food chain from the farm to the retail store, providing fresher The fee good factor?

and cheaper food than the outside guy. That's easier said than done, given that India's food chain is highly fragmented, which adds to costs and inefficiencies Inform the consumer and then Prove it to her that the food is fresher and cheaper than the others

Effie Awards The issue of retail formats Dalda strikes OIL If you aren't the lead dog, the view never changes Hardsell Creamy skin The other problem here is that, due mainly to the fixed MRP regime and also Petrol pill the low value-addition possibility due to `fresh' food being consumed, the food Floored! Light up and grocery business in India offers low margins and upsets the return on Bag these invested capital. In fact, even in the hypermarket/discount store format, Cross over traditionally in other countries, 70-80 per cent of the items that hypermarkets Dessert! store are food and grocery-related. But as Big Bazaar learned, it couldn't have Longer lashes

sustained the discounts under the large-volume format. So, it kept food and grocery to just 30 per cent of the merchandise and focused on apparel and home linen.

But what are the other sectors? According to a McKinsey report in 2000, the `ready-to-go' sectors are dry groceries, books, music, electronics, men's clothing and sports clothing; the sectors which would require shaping/adapting are women's apparel, fresh groceries, fast food, furniture and personal care. Then, there are the `wait-and-watch' sectors like pharmacy. But since then, the situation has changed quite a bit. For instance, let us consider new product categories that are underrepresented in India in terms of the reach of efficient, organised retail channels. Durables, home furniture (and accessories) and home IT products would probably top this list. These constitute a large market size, growing steadily. Real estate is not really a major hurdle in this category since these items are `high-value, premeditated' purchases and customers can travel a significant distance if the value proposition is good. In fact, the Viveks and VGP chains of South India exploited this sector really successfully earlier on. Some reports state that one of these big retailers is planning a huge mega one-stop outlet in the suburbs of Bangalore, a modern-day showcase of all its range. But again, what would make these work? Indications are that areas that may require attention, consistency and radical change include area calculation, leasing costs and practices, deposit levels, operating costs and outgoings, property purchase practices, a legal framework and of course the 6Ps of retailing. But more about those later. The newer speciality retail chains focusing on specific categories such as health and personal care, jewellery, footwear, maternity and children's wear/accessories offer potential as well. In fact, Apollo and Pill & Powder are two of the bolder retailers undertaking pioneering work in this category (international examples are Eckerd and Walgreen). Apparel is the other sector which is one step above the `introductory' level in the life cycle stage. It started with the likes of Nalli, was furthered by Pantaloon and Shoppers' Stop, and has matured further in Westside and Globus. The last two are, as everybody knows, the pioneers of the private label revolution in India. Pantaloon Shops were mainly high-street stores (at upmarket and high-footfall locations) offering ready-to-wear garments, with a

focus on convenience rather than experience; they targeted conversions from stitched fabrics to ready-to-wear. Understandably, the greatest challenge for apparel retailers (much like their food and grocery counterparts) is not the competition from similar organised players, but from the unorganised sector (98 per cent of India's retail garment industry operates in the unorganised sector). So, the task at hand is to get people who usually shop with unorganised players to visit organised stores such as Westside. Of relevance here is a discussion on the future of our traditional 13 million `mom and pop' stores. No, they will not die. Yes, they will, however, transform especially the neighbourhood kirana store. They will either upgrade service, or become self-serviced convenience or speciality stores. Just like Harts, the grocer in the UK, or the Akbarally's convenio in India. I was recently witness to an interesting conflict between a `Sunil Shoppe' and an organised standalone retailer, which occurred in our apartment building. The organised guy, who already has two or three well-established shops in commercial centres in Bangalore, opened shop in this apartment complex, which has a captive shopper base of some 300 families. This shop had uniformed attendants, offered credit, delivered home all the usual trappings than some of the neighbourhood store. The expectation among residents was that the old Sunil Shoppe would have to shut shop and go. But the reverse happened! After a trial period of four months, the organised guy found he was not viable. Now, what could be the reasons for this? Shopping is habit-forming: most people continue to patronise the place they are familiar with, unless there is a substantial reason to shift (incidentally, the new shop offered a 5 per cent discount on the bill for the introductory month a lot of people went then and didn't go again). Shopping is a relationship issue. Sunil (who ran the shop) knew all our families, knew the kids, did not give them chips on account unless the mother had called to say he could, organised maids and dudhwallahs when required. In other words, he was a member of the community. In fact, a neighbour of mine said she would not go to the new shop because she felt Sunil had put in so much effort into his business! The assortment at the organised guy's shop was no different from Sunil's. So what was his competitive advantage? Most importantly, Sunil himself upgraded his stuff. Spinach, which earlier he sold in clumps, was now sorted, cleaned and sold packed in poly bags with ventilation holes! He also brought in imported cookies and chocolates and Tang and Hershey's syrup! The lessons to be learnt from this are evident and have pointers for the way the traditional shops will go. Independent retailers have to realise the shift in consumer behaviour taking place due to the new shopping experiences: coming from location benefits, assortments, category mix, value propositions, ambience and service. So the traditional independent retailers need to identify the areas that differentiate them from the organised players and help them in customer retention and growth. For a start, these retailers need to invest

much more in capturing more specific market intelligence. Perhaps they need investments in some advanced expertise to develop more accurate demand forecasting models. And of course, they need to constantly re-invent themselves like Sunil Shoppe!
Woo the people

The first mantra to be cited in strategy for retail is the 6Ps: Product (assortment), Place (location); Price (and related buying and profitability); Promotion (events/co-operative advertising/deals); People and Presentation. Talking of Product, or merchandise strategy, apart from the sitters already discussed, the Indian marketplace is seeing some examples of innovation, which, I feel, is really key to creating the sustainable differentiation. Take IT retail, for example: remember the many experiments that were tried out since Computer Point, the first IT retail outlet in the country, came into being in 1989? Also, remember the much-hyped Tangerine stores? Eight chain stores were opened with much fanfare in 1994, but folded up soon after. So what went wrong? A key factor could be the absence of the SOHO market. Today, this is the key driver behind IT retailing. Another key reason is the change in perception about IT usage. Even today, desktops constitute a major chunk of retail IT, but the retailer has other options if the desktop is not sold, for up-selling and cross-selling are emerging as major revenue sources. For instance, in the HCL store, one can buy IT peripherals such as speakers, monitors, notebooks, PDAs, mobile phones and accessories, even apply for a Reliance mobile connection. In Compaq exclusive stores, customers walk in to check out educational CD-ROMs. Like his consumer durables cousin, an IT retailer is no longer dependent on a single product and this convergence is ensuring the longevity of retailers. Big distributors and vendors are even looking at consumer durables channels to inject life into their IT sales. For instance, the Mumbai-based Raashi Peripherals joined hands with Sony to start Sony World. Similar is the case with Philips and LG, which are setting up showrooms to display monitors and other IT peripherals. Taking the consumer durables route would offer its own advantages. To begin with, this route would ensure a higher footfall compared to conventional IT retail outlets. This puts consumer-IT companies like LG and Samsung at a greater advantage compared to IT-only vendors. Incidentally, for IT, the focus is (and should be) more on the Class B, C and D cities. In metros, the availability of clusters like Nehru Place and Lamington Road ensures that a majority of computer-buyers looking for best deals continue to visit such places. Even at such clusters, changes are taking place: resellers and bigger distributors are moving to retail but the action is happening away from Nehru Places and Lamington Roads. Interestingly, for now, retail in IT is being looked at more from the visibility point of view, rather than a purely business perspective, but this is the marketing hierarchy at work again.

(To be continued) (The writer is the co-founder and managing partner of EmPower Research, LLC.)
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