Understanding
Retail
Childhood memories often hover around a kirana
store which you had frequently visited to purchase your favourite brand of chocolates
or biscuits. Just outside our house we too had a grocery store owned and run by
Kamal bhai – Paavan Kirana store. I loved the store and was a
loyal customer. As a neighbour I got many privileges – one of them was an entry
inside his stingy store. This liberty that I was allowed beyond the boundary
set for other customers, must have proved him expensive as most of the time I
would pick up a handful of chocolates from the jars kept on the shelves and
would rarely acknowledge a correct number pocketed. I am sure this must have
accounted for losses which need to be compensated whenever we meet next. After
entering into this industry now I realize what a commendable job Kamal bhai
did. In absence of technology and infrastructure he managed to run his store
successfully for many a decades.
Things have changed a lot from Kamal
bhai’s time. Retail has become modernized today. As per the industry
sources the Indian retail industry is one of the fastest growing in the world.
It accounts for over 20% of the country’s GDP and around 8% of the employment[i].
It is expected to be a US$ 1.3 trillion by 2020[ii].
Out of this, organized retail is expected to grow at a rate of 25% per annum.
The current market size of Indian retail industry is around US$ 520 billion (Source:
IBEF). However it is important to know that in India organized retail trade
only accounts for 8% of the total retail trade[iii].
Though figures seem to be discouraging, the silver lining is that India is a
market where scope for further penetration of organized retail is much higher
than other developed countries where organized retail is approximate 80% of the
total retail trade.
The key demand drivers for the organized
retail in India are changing demographic profile and increase in disposable
incomes, urbanization and changing consumer tastes or consumerism.
Trends, to
be noted
In 2011 the Indian Government announced
reforms in retail sector and with this a road for FDI in retail opened up.
Later in December 2012 FDI on Multi-brand was finally announced by the
Government, making the sector really exciting and upbeat[iv].
This reformed retail sector started seeing changes in its approach to business
and new trends were observed. I would list down the following trends which I
feel are important for the retailer to focus on.
·
Localized product mix and store formats: In a country with immense diversity and
consumer needs changing at every few kilometres, it makes sense to have
a customized product mix specific to the location and even the store formats
can be made flexible as per the need.
·
Usage of
Data Analytics & Technology: With the usage of smart & high-end billing software it has become
easier for a retailer to track the buying pattern of a specific consumer and
create a customized profile for him. The growing impact of consumerism has
encouraged the usage of technology even at small stores. Data Analytics help in
maintaining right inventory mix at the store and the retailer can earn more
profit per square foot by replacing the merchandize with lesser margins.
·
Social Media
& Customer’s Interactions: As per the
research conducted by PEW research centre in January 2014, 74% of internet
users spend time on social networking sites[v].
This has evolved as an important promotional tool to reach the online audience.
Thus the retailers have started creating the page of their stores on networking
sites like Facebook to promote and advertise. It provides an ideal platform to
create one more avenue of interaction with the prospective patron.
·
E-Commerce: Internet penetration has given birth to e-commerce
in retail. There are 354 million internet users in India. According to the report published by the Internet And Mobile Association of India
(IAMAI), internet users in India have grown by 17% adding 52 million
new users this year[vi]. This has given birth to the online retail industry
and since a last few years we have seen many home-grown e-tailers setting up
their online shops like Myntra, Snapdeal, Jabong, Flipkart etc.
·
Mobile
Commerce or M-Commerce: The
interesting trend of internet penetration is that out of 354 million internet
users almost 60% access the internet through their mobiles[vii].
This has compelled the e-commerce sites to launch their own apps for android
and ios platforms accessible through smart phones. A trend has been seen that
consumers have started shifting from e-commerce to m-commerce because of easier
accessibility and much easier user interface.
Popular
Formats
Today shopping is more an experience than
just a mere purchase of a product one needs. The objective of any retailer is
to lure maximum customers to his shop and manage more footfalls in this highly
competitive retail scenario. The retail stores can be divided broadly in the
following 8 categories:
·
Company owned or a franchised stores – Mostly Single brand or different brands from the
same manufacturer
·
Speciality stores – For eg. Furniture stores etc. – Mostly Multi-brand from different
manufacturers
·
Departmental Stores or Lifestyle stores – Multi-brand from different manufacturers
·
Super Markets – Catering to daily needs – Food & Grocery, Cosmetics etc.
·
Discount Stores or Dollar Shop – Every product sold at discounted prices - For eg Rs.49
or 99 store
·
Hyper Market – Large supermarket catering to daily needs like food, grocery,
cosmetics etc.
·
Convenience Stores – Small format stores catering to daily needs specific to the locality
Key Challenges
Every sector has its own baggage of challenges
and retail is no exception. Ideally it makes sense for a retailer to be aware
of the challenges before he decides to plunge into the sector. Based on my
experience I would list down the following challenges which the retail sector
is facing today:
·
Global Economic Slowdown: Economic slowdown affects the flow of money in the
market and thus the industry as a whole gets affected. Shopping of lifestyle
products is curtailed by the customers and even the idea of eating out
frequently is curbed resulting into lesser footfalls at the lifestyle stores or
restaurants.
·
Unorganized Sector: An Indian consumer is as emotional as he is rational. A retailer needs
to ensure that he creates more and more patrons for his store and not just a plain
customer. Mom & Pop stores have survived the organized retail onslaught on
the Indian market mainly because they bring in the human element largely
missing from the organized retail in India.
·
High Real-Estate Costs or Exorbitant lease and rentals: In case of Urban India this is a major
issue being faced by retailers today. High real estate costs or rentals are making
the survival of large format stores and hyper markets difficult. In Ahmedabad itself
we have seen the closing down of many malls, hyper markets and even a chain of
super market, largely for this reason.
·
Man-power crisis: Like any other industry retail is also facing a dearth of qualified
staff to manage its huge retail space.
· Margin Pressure: Squeezed up profit margins, largely in
food-grocery retail segment, make it difficult for a retailer to survive as the
service expectations of the customer remains high but a lesser margin at his
disposal makes it difficult for him to match the expectations. Because of
wafer-thin margins in food-grocery retail, the gestation period for a retailer
to earn or to reach the break-even in business also gets prolonged. This
results in the retailer losing patience and finally into the closure of the
store.
Retail Entrepreneur’s Journey
Being a person of
advertising and media throughout my professional career I was fortunate to work
on different brands and was fascinated by the stories around the brand
development. I remember once accompanying my employer to a famous
communications B-School and was so impressed by his presentation that I started
fostering a dream of emulating him. When finally I decided to bid adieu to my
professional career and look for viable options of entrepreneurship I reminded
myself that I am not going to launch a business but I am going to launch a brand.
Thus my fascination with brands continued in my entrepreneurial journey as
well. Here, I am narrating my thoughts on what goes into brand development and
what steps are needed to manage and sustain the brands created by first generation
retail entrepreneur intertwined with my own story.
· Creating a retail brand: With a boom in real estate market, Juhapura promised
development but it remained devoid of a proper organized retail outlet which
can provide convenience of purchase to the residents. It was in this gap that
we found a huge opportunity to start an organized food-grocery store in the
area in early 2004.
With the vision of bringing convenience to the locality, we started
Hearty Mart in February 2004. It was positioned as ‘Sabse Khass Ghar ke Paas’; as it was a neighbourhood store which
was equipped to cater to the basic needs of the area. Thus it was destined to
bridge the gap between demand of daily needs and the options of supplies
available.
Creating a
brand is a tough call. As the great David Ogilvy has said:
“Any
damn fool can put on a deal, but it takes genius, faith and perseverance to
create a brand.”- David Ogilvy
My learning says that there are
four basic steps which a retail entrepreneur should follow to create his own
brand. The steps are as follows:
Step
1:
The retail entrepreneur needs to create his own credibility by way of employing
fair practices among his stake holders - investors, partners, employees.
Step
2:
With efficient services and ensuring good quality products to his customers he
can create a credible image of his own store; for this he can employ loyalty
programs and promotional activities. A personal touch is required. He should
interact with his customers regularly and try to create patrons and not mere
customers. Shop patronage helps in fighting competition.
Step
3:
Once he is successful in retaining his customers and has created a strong
loyalty for his store/firm, he can start creating his own in-house private
label.
Step
4:
By consistently maintaining the service levels, storing and producing good
quality products, engaging with the customers by way of innovative
communications and employing on ground activities at his store, he can create a
sustainable brand image for his private label and a store as well.
Thus Branding for the first
generation entrepreneur is not merely creating an image of his store. This
comes at a much later stage. Branding starts with creating his own personal
image as a reliable retail entrepreneur since it would have a cascading effect
on the other aspects of his business.
· Leveraging a retail brand: There is no fun if you create a brand but
do not leverage it. We have seen that many corporate retailers enhance their
brand salience by way of creating a network of stores. For a retail entrepreneur
it is not so simple, given that he does not have a deep pocket similar to his
corporate counterpart. A well thought of decision, weighing all pros & cons
should be taken as any wrong step might kill the efforts gone in the brand
creation.
Ideally, the first step is to
identify those challenges which might hinder his growth process. As discussed
in the earlier section, among many challenges the two big challenges a retailer
(mainly food-grocery) faces are:
o
Squeezed Up margins
o
Higher Real Estate costs
In order to have better margins a retailer
can replace the inventory with the products of higher margins and try to earn a
decent profit. This is just a short-term strategy and might not be helpful
beyond a certain point. The other strategy would be to bring in more footfalls
at his store and thus earn better margins on turnover. This again has its own
limitation as every locality has a limited scope. Hence the long-term strategy
for growth is to open multiple stores.
When we faced the similar situation we
decided to start a new store in Vadodara. We were discouraged by the real
estate costs and we had to shelve the idea of opening a branch of our store
there. But without implementing multiple
store strategy we knew that survival of our business was bleak. It was during
this time that a professor friend gave us an idea to look into rural market and
start a franchise. The idea looked really appealing and we seriously thought of
pursuing it.
National Council
of Applied Economic Research (NCAER) reports, rural India is home to 720 million
consumers across 627,000 villages
The rural market is a promising market as it comprises nearly 720 million people living in almost 627,000
villages, covering 128 million households (Source: National Council of
Applied Economic Research (NCAER))[ix].
In other words rural population is thrice of its urban counterpart in India. Rural
India accounts for 2/5th of the total consumption in India[x].
Thus, the industry players have started looking towards rural market and are
devising strategies especially for the rural consumer.
The e-Choupal project, launched in June 2000 became the largest
Internet-based corporate intervention in rural India. E-Choupal’s network reaches
out to more than three million farmers in over 35,000 villages through 5,050
e-Choupal kiosks that ITC has set up across six states covering 3.5
million e-farmers. (south and west, Punjab). (Source:
The Marketing Whitebook 2007-2008, pp. no. 111)
Professor C.K.Prahlad has defined the rural market in a most
appropriate manner. He has said:
"If we stop thinking of the poor as
victims or as a burden and start recognizing them as resilient and creative
entrepreneurs and value-conscious consumers, a whole new world of
opportunity will open up." – Late Prof. C.K.Prahlad in (The
Fortune at the Bottom of the Pyramid)
However entering into a rural market is not as easy as an urban
market. It is more personalized and it is the word-of-mouth that works here. We
entered the rural market by way of tapping our social network of an enterprising
community, mainly into Punjabi restaurant business in urban Gujarat but having
a rural base. Let me add here that the people of this community helped me in
setting up Hearty Mart at Juhapura in 2004. They provided the domain expertise
of the knowledge of food-grocery to my business since farming is their main
occupation at rural level. They are better known as ‘Cheliya Muslims’ and
hail from the villages of North Gujarat. With the idea of starting our
franchisee model we approached two aspiring entrepreneurs of this community at
Ilol village, near Himmatnagar and eventually in 2007 our first franchise was
launched.
This gave boost to our brand – Hearty Mart, as with this our innovative
franchise model was launched. This franchise model helped us in fighting the
above mentioned challenges.
o
The franchisee owner was a farmer
himself and had enough space at his disposal. Thus the real estate cost was no
more a deterrent here.
o
Secondly, since he was the native of
the village where the franchisee started, he got acceptance from the local
people and he could create patrons easily and a steady footfall was ensured.
o
Selling the merchandise on credit is
a practice more prevalent in rural market and this poses a big challenge to the
retailer. In case of Hearty Mart model this was curbed to an extent as the
franchisee owner being a native of the village knew customers personally and he
took the risk of credit on himself.
Rather than opening our own branch the franchisee model worked much
better as it brought a feeling of empowerment to the villagers and they were
happy to see a person from amongst them owning a modern organized retail store.
· Sustaining a retail brand: This is the third and most important aspect
of brand creation. Our franchise model was launched in Ilol but it needed a
backhand support. Since Ilol was the first franchisee in 2007, ours was a
network of just two stores then. This did not help much and the pressure on us
started mounting as our franchisee at Ilol was heavily dependent on us for helping
them in procuring merchandise at an economical cost and we were also concerned about
justifying our franchise fee.
If a strategy of brand sustenance is not
worked out, brands might die soon. We knew this fact and started thinking upon
ideas on brand sustenance. A community’s rural base had been targeted by us for
a franchise model. As already mentioned this ‘Cheliya’ community is into
restaurant business and quite well known for its Punjabi joints in major cities
and urban Gujarat. We devised a backward integration strategy of creating a
separate business which would be into bulk supplies of food-grocery, spices to
the restaurants. This would be a part of a value chain. It would purchase in
bulk for the restaurants owned by them, this bulk purchase would give us
benefits of economies of scale which would passed on to the franchisee and thus
help them procure food-grocery economically.
Value-Chain of Hearty Mart
This strategy helped us
in developing a new company with different sets of entrepreneurs – Hearty Mart
Enterprise Pvt Ltd. This business gradually picked up well and it has become a
backhand support to our franchisee. We are creating our private brands in this
company which are being sold through our network of stores. With Hearty Mart
Super Market and Hearty Mart Enterprise Pvt Ltd in place, we launched an
in-house ‘Franchise Development Cell’ comprising of leading managers
from both the firms. It works as a consultant to all the franchisees and help
them with ideas and strategy of growth. Now with a proper support system in
place our franchisee network has started soaring in the rural market.
During one of the visits
to our franchisee in a village, a common friend told me that Kamal bhai
was not keeping well. I paid a visit to him at his native village along with my
team. During the course of conversation on a lighter note I mentioned the debt
I owed to him by having pocketed the many chocolates from his store. He smiled
and said the only way to pay back would be to make Paavan Kirana Store –
a Hearty Mart franchise.
(Nadeem
Jafri, Founder & Chief Mentor, Hearty Mart, www.heartymart.com)
[i] http://rajeshthambala.blogspot.in/2013/02/indian-retail-industry-2012-2013.html
[ii] http://zeenews.india.com/business/news/economy/indias-retail-industry-to-grow-to-13-trillion-by-2020-ficci_64630.html
[iii] http://www.ibef.org/industry/retail-india.aspx
[iv] http://articles.economictimes.indiatimes.com/2012-09-14/news/33844347_1_multi-brand-single-brand-fdi
[v] http://www.pewinternet.org/fact-sheets/social-networking-fact-sheet/
[vi] http://dazeinfo.com/2015/09/05/internet-users-in-india-number-mobile-iamai/
[vii] http://dazeinfo.com/2015/09/05/internet-users-in-india-number-mobile-iamai/
[viii] http://blogs.siliconindia.com/ganeshantre/Retail-Marketing--its-Emerging-Trends-in--Perspective-of---India-bid-1WVp73wI53581513.html
[ix]http://www.saarj.com/images/download/SAJMMR/SAJMMR%20APRIL%202012,PDF/SAJMMR%20%20APRIL/4.12,%20Abhishek%20Kumar%20Srivastava.pdf
[x] http://ideasmakemarket.com/2015/10/booming-retail-sector-rural-india.html
