Tag: Organized Retail

Categories
Business India

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 !





Categories
Business India

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. 

Categories
Business India

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 !




Categories
Business India

Modern Retail in the News – III – Nielsen, Hypercity and Pantaloons

Finally, I have figured out a Google alert to supplement the manual reading efforts into compiling Modern retail news in the country and the world :). 
Consequently, I will try and update the news pieces once a week henceforth.


This week’s last few pieces make for interesting reading.


A summary of the Nielsen report on Modern retail growth across cities points out how the smaller towns are showing high growths for the channel – and cites how Hypercity has got this model right. Read it here for details. 


The other article appears in The Financial Express, and mentions how Hypercity is likely to turn cash positive later than expected. Both pieces highlight different dimensions of India’s modern retail growth story, and give a sense of how it is expected to unfold.


The nugget of information gleaned from this article is how the chain has brought down the contribution of the FMCG category to business, and is now looking to increase the share of apparel in order to drive profits. 


It is ,indeed, ironic to contrast this with this report from HT that talks about Future Group’s sale of the Pantaloon’s business to the AV Birla Group – since apparel / fashion was the first successful money spinner for Mr Biyani, which propelled him on to becoming India’s retail tsar. Such has been the turn of events since then, that Mr Biyani has eventually sold it off to reduce the burgeoning debt column on the group’s balance sheet.


Hope you enjoyed reading, and do comment on what you liked / disliked. 
That’s it for now. Have a great week ahead !
Categories
Business India

Modern Retail in the News – II

Adding two more interesting articles today : May 05, 2012 – 
http://www.livemint.com/2012/05/03223807/Modern-retail-has-13-of-big-c.html?atype=tp
talks about the changing preferences of consumers and their shifting attitudes towards Modern Trade – as highlighted by a Nielsen study released recently. 


Till we understand the latest report, it would do good to refresh what Nielsen said in 2011 http://www.acnielsen.co.in/news/20111115.shtml

The other interesting article is : 
http://www.dnaindia.com/money/report_india-likes-buying-certain-products-only-at-organised-outlets_1674238
which tries to elaborate how FMCGs are looking to grow contribution from Modern Retail.


Watch this space for more..
Cheers !



Categories
Business India

A Random Reading List

What started with a bit of blog post statistics analysis soon turned to a Googling frenzy – First, to determine if this piece of authorship would feature even remotely on the Google radar – (alas, it didn’t !) – and so, what does Google throw up when I type “FDI in Retail”…

This led me to an interesting web page hosted by The Hindustan Times at – http://www.hindustantimes.com/India-news/NewDelhi/What-s-FDI-in-retail/Article1-775543.aspx. 
This page had links to other articles on the FDI in Retail issue, one of which was written by Mr Harsh Mariwala – the top boss at Marico Industries –  for the Economic Times :  http://articles.economictimes.indiatimes.com/2011-11-30/news/30458687_1_retail-chains-foreign-retailers-retail-fdi  –  It details out the impact of the retail revolution on job creation with relevant data, and also touches upon other relevant points of view in favour of this idea. 

As I was mulling over this, I realized that I had rather ambitiously somewhere in my earlier posts mentioned that I would talk about data and its impact on modern retail. 

And that in my enthusiasm to capture the history of modern retailing in India, I had completely missed this bit out. 

I then suddenly recalled a brilliant article on data mining, and how retailers in the west use it to gauge when female consumers could possibly be pregnant – yes, you read that right ! – and after some more mind search and googling, I found the link to – http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all – truly an amazing piece of “detective work” if I may call it that..and the interesting thing here is that Indian retailers are not unaware of this and similar data related practices to track and predict consumption – two circumstantial pieces of evidence to support this notion – 

1) All modern retailers today try and push sell a loyalty / membership card – one that rewards the user with points for every purchase. This is precisely what is used to study and analyze consumer behaviour trends.Its not a bad thing, as it helps them to plan assortments, time new introductions, and even store lay outs in some cases.

2) That it is now being put into action was corroborated today, when a senior colleague received an SMS from Domidoesntknow’s PizzaChain, saying that its been three months since he’s visited them and how they would like to hear from him again – and all this while communicating a discount offer! 

So, if companies in India are now doing what is an already established practice in the evolved modern retail markets out west, what are they doing to survive and thrive, given the difficult times they seem to be facing. 

Cue – to the second interesting article which was discovered amidst the frenzy..http://hbswk.hbs.edu/item/6944.html – highlighting how JC Penney is attempting to re-invent itself, in order to be more competitive in the future…

That’s all for today guys – no weekend off this week again, so I have to end it now. 
Cheers !

Categories
Business India

Modern Retail in the News

Off late, I have been noticing a higher frequency of modern retail related news in the papers -observation constrained to two dailies as of now.


Whether this is a conscious tactic to educate the public at large about the modern retail business, or build awareness among policy makers – is something that I leave to the news channels to debate over. What is important is that it seems as if the mainstream media is taking cognizance of this format – and trying to figure out how it works.


Shared below are two links that throw some light on recent developments in this industry


Organized retailers change tack as sector evolves
http://www.livemint.com/2012/04/16230124/Organized-retailers-change-tac.html?atype=tp


Lure of the hypermarket 
http://www.hindustantimes.com/business-news/Features/Lure-of-the-hypermarket/Article1-844582.aspx
The article carries the following statistics as well – numbers which I feel are on the higher side (unless they include generic hypers & specialized retailers)


Let’s see what’s in store in the days to come ! 





Categories
Business India

Back to History – Aditya Birla Retail Limited – More for you..

The Aditya Birla group made a bold leap of faith in the year 2006, when they bought out Trinethra Super Retail, a long standing player in the organised retail business in South India. 
Trinethra itself was the result of consolidation of two other chains – Fabmall and Fabcity. The advantage that the group got from this acquisition was that it became a scale player at one shot in two states – AP and Karnataka – which were individual strong holds of Trinethra and Fabmall, before these two entities merged.

Trinethra worked on a direct store delivery model (hence had to be supplied through distributors). The entry of the Aditya Birla group brought financial muscle and organised operations to the centralised DC model. 

Post the takeover in 2007, a re-branding exercise was carried out – the stores were named – more – for you : signifying a value proposition to the consumer who shopped there. Like many others who bet big on the retail rush in 2007-08, more too went on a store opening spree – and like all of them, had to resort to closures when the going got tough.

However, more had one good experiment going  on even while the smaller stores were facing turmoil. ABRL was pretty much the pioneer in the large Hypermarket format, with a couple of stores operational in the West (Baroda and Aurangabad I think). In fact, ABRL Hyper used to be a separate chain back then, and was a separate entity in the ABRL eco system also. The results of this experiment with the large format paved ABRL confident expansion in other cities, and became a game changer of sorts, being emulated (or maybe the other chains also realised it at the same time) by other chains as well. 
Eventually, the Hypermarket model became the favoured expansion vehicle for this, as well as other chains.

ABRL also pioneered a few ahead of the curve initiatives, like a monthly promotions booklet in each super market store which contained information about the various promos across categories.


ABRL had also realised pretty early that as operations increased in scale, supplier development would become paramount. Their hypermarket team was one of the first teams in the country to on board vendors about the new purchase management system, and how they would eventually want to move to vendor managed inventory. 


While ABRL’s central team did initiate these and other pioneering efforts, in store execution and MIS integration between the southern states and rest of India remained operational challenges for a long time. Not really sure whether things have improved on this front since then. Another major challenge faced by vendors was the constant churn in personnel – new faces came in almost every 6 months or so. 


It is sincerely hoped that the ABRL team is able to bridge the gap between strategy and execution – it is really strong on the strategy and thought leadership front, and can leapfrog its rivals if it manages to get the execution piece right.


Landmark stores:
Hyderabad – Jubilee Hills Road No 36.
Bangalore – HAL Airport Road, Indira Nagar
Chennai – Anna Nagar

Categories
Business India

FDI in Modern Retail – To be or not to be?

Over the past few weeks, we have been subjected to a huge hue and cry over the FDI in retail announcement and its sudden roll back – both the GoI and the opposition have presented their PoV – let’s try and  make sense of the key arguments from both sides and examine the issue from a balanced perspective.


1) Large retail will improve supply efficiencies and give better prices to the farmers – mostly correct – provided i) they get the rights from the APMCs to procure ii) Given the 1 mn population rider, conveniently located sources for a range of products may not be easy to find. 
A possible solution – get them to set up their own farms – start contract farming – this would ensure focus on productivity, better farm techniques and conservation efforts being made for the environment.

2) Prices for consumers will go down – Not too sure about this one – Given our creaking road network, where it takes five and a half hours to cover 250 km – (Delhi – Agra) – and the ever increasing costs of fuel – one cannot be too sure whether this would be an enduring phenomenon –but prices at Cash and Carry centres would definitely be lower than traditional kirana – of course – the consumer will have to spend time and money (and fuel) to go and shop from the Cash and Carry – which would be located at city outskirts ! 

3) Small retailers would get wiped out – Easier said than done – 
a. Finding real estate cheap at prime locations would not be easy – rent is one of the largest overhead of a modern retail outlet. All the prime locations – near residential colonies, high rises – are occupied by either our neighbourhood Lala ji, or by Indian modern retailers ( who had burnt their fingers in a mad store expansion race in 2007 – and are still struggling to recover from that adrenaline rush)

b. Store operating costs – Manpower, Electricity – are huge in a modern retail shop as compared to Lalaji. An anecdote – During a market visit in Hyderabad, a consumer complained to the store staff about the lack of air conditioning. This was in peak summer, and the chain was on a cost cutting drive – hence only fans were operational. Bottomline – glitzy exteriors will raise consumer expectations and consequently, operating costs. Given the erratic power supply situation in most of our cities, generators are only going to add to the confusion.


c. Convenience and friendliness of the kirana – most kiranas maintain credit accounts of the families they service. Can you even imagine that happen in a modern retail outlet ? Add to it the benefit of free home delivery, service on phone , and the occasion for gossip at the Lala’s counter !

d. Don’t underestimate the Lala’s ability to innovate – in the past five years since Modern retail has started expanding, a quiet revolution has been happening in the kirana outlets as well – they are becoming modern, adding self service and accepting credit cards too! Large retailers will not have it so easy!

e. The Journey to profitability at store level could evolve along two possible lines – franchising (like the Nilgiri’s model – which upgrades existing kiranas to self service) or rapid expansion of the Hyper format – which would allow for lower operating costs per square foot, higher range display, and a heavy mix of apparel, consumer durables and other high margin categories.

The Modern retail outlet would also need critical support from a few, “non policy” factors to be able to really succeed – namely –  

Readiness of FMCG companies to service modern trade – 
a. Modern retail today contributes nearly 5-7% to a typical FMCG cos’ sales. Given the strong reliance on traditional trade and wholesale, the SKUs available for a large number of products are suited for this environment 

b. To really drive business in the modern retail format, companies will have to introduce innovative packs (bulk packs – as the latest Nielsen shopper survey suggests), invest in shopper research and consumer understanding, deliver exciting promotions and the whole shebang – to really make modern retail work. 

c. We have to remember that unlike the Lala who has no qualms in selling whatever he is dispatched, Modern Retail is very finicky about Fill Rates. ( % of stocks supplied to order received) – levying penalty on firms who drop below agreed service levels. Managing this complexity would not be easy for FMCG firms as well. 

d. Plus, Modern Retail works on high margins, and credits!

Availability of cost effective work force and labour – A possible drawback of a large number of malls / hypers opening up would be on labour – people would be more keen to work in an AC environment, cleaning floors and toilets, but not be willing to be employed as labourers / loaders / unloaders – which would mean additional costs for the suppliers, coupled with delays in servicing.

It is also possible that it would do good to the government to organise this sector, as this would do away with “kachcha” bills and impact tax revenues too. 

To sum up, while the government, the consumers and commodity suppliers would stand to gain from the advent of modern trade, a magical, overnight transformation would be difficult to achieve – given the challenges faced by the suppliers, the infrastructure and the external environment – this, of course, is the “dhande” ka perspective !
Categories
Business India

A brief history…part two

A Very Happy Diwali to all !


Carrying the Nilgiris story forward today – 


Nilgiris is probably the second oldest modern retail chain in India. It started off as a single store in Ooty, and gradually expanded to cover TN and Karnataka (it still has token presence in the other two states). 


Lots of stuff is available in public domain about the company’s takeover by PE group Actis in partnership with a Singapore based investor. See this and this. 


Niligiris is a shining example of great brand equity. Over the last 100 odd years, it has been able to continuously reinforce the perception of being a quality self service outlet that stocks great product range (imported as well as Indian), superb dairy products (especially the cakes at Christmas time) and reliable food stuff (pulses, sugar, rice et cetera). In some places, it sells liquor as well 🙂 


Nilgiris is based on the franchisee model – that is – if I am an independent kirana shop owner, I can ask Nilgiris to make me their franchisee, at an obvious monetary consideration. 
The store will then be laid out as per their guidelines, and I will get the benefits of better margins and discounts from suppliers by virtue of being a Nilgiris store (since all national suppliers have terms of trade with the organisation). 


This model obviously has great upsides and a few downsides, the obvious upsides being – 
1) Faster store addition – you have to visit Bangkok and see the 7/11 stores to understand the power of franchisee led expansion ! 
2) Lower operating costs – since stores are usually supplied on an individual basis, the brand typically has lesser investment in warehouse, manpower and working capital – hence it is easier (relatively) – to be profitable, and that is any day a huge challenge.
3) A win – win scenario for both store owner and the brand – owing to the previously mentioned facts.


However, the operating reality is not so rosy as it seems – 
1) Ensuring consistency across stores in terms of layout, merchandising and providing branding space is very very difficult to achieve – this is because the brand has no role in deciding the store layout – as it has had to adapt to a pre-existing physical entity.


2) Managing various franchisees is itself a challenging task, since each person is a separate business man, with his / her own set of expectations about the financial and other benefits from the business.


3) There could be a risk of older franchisees turning rogue and parting ways with the brand – since location is a critical success factor in retail – and the store is technically owned by an individual – it may so happen that the store owner has a falling out due to a mismatch in expectations, and may want to start his own stand alone store. Preventing this requires strong operational discipline, as well great relationship management between the brand and the franchisee.


4) Supporting loss making stores may not be a very feasible option for the brand.


Landmark stores –
Chennai – Near Ega Theatre – PH Road, R. K Salai, Adyar, T Nagar, Velachery, Ashok Nagar, Besant Nagar
Bangalore – Brigade Road, HAL Airport Road (Golden Enclave), Koramangala (left from Sony Centre), Opp IIM.


Nilgiris enjoys a good reputation owing to its focus on quality – and it is hoped that it can expand its footprint across India so that the rest of us can also savour the benefits!