Retail

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The Screen As A Strategy : Understanding The Internet

Published April 29, 2015 by vishalvkale

I closed the previous article {found here : Understanding The Internet : Reaching Into The Gut Of Existing Systems} with a statement that few organizations truly understand how to use the 5-21” space of the screen;  this article looks at this aspect in a little more detail. A great many companies use the customer-facing aspects of the internet as merely another tool to communicate and connect, completely ignoring the full power of the internet ecosystem.
The Screen, first of all, is mistakenly defined as just a mere device that displays, or acts as a window, disseminating information to your prospects and customers, and the general audience. The screen is more of a doorway, a portal that transports – or has the ability to – transport your customer into a world of constantly interacting stakeholders in your product, your company and your addressable market segment. If that doesn’t scare you as a Brand Manager, as a Marketer, and as a Sales Professional, high time it did.
Before the internet ecosystem evolved, the touchpoints a customer had for interfacing with your products were limited – The Shop, Company Offices, Other Customers who were limited to those who were met personally, Media, Competitors and a few more. But cut to today and that has undergone a sea-change, with the potential ability of the customer connect having increased to almost infinity, with the feasibility of getting exposed to and influenced by a much larger array of touchpoints, viewpoints, opinions – as well as both positive and negative customer feedback and experiences
It stands to reason that in the changed environment of freer flow of information & increased touchpoints, the customer communication has to change from a one-sided monologue to more of an engagement with the customer. The reason is straightforward – a greater number of touchpoints mean larger information volume and interactions, contrarian opinions, noise and greater scope for replaceable products to engage with prospective customers, as well as greater potential of the medium to enhance audience experiences.
Thus far, we are on established management jargon, which is spouted by a good number of companies. Only a select few organizations manage to actually convert the monologue with an active engagement; very very few, in fact. For, a large majority of the sites I visit, at least in India, still adhere to the old style of communication; little effort is made to enhance the customer experience, and make it more rewarding and meaningful. In some cases, the customer experience is actually negative in many ways. The reason this is not showing in sales is either due to the price differential; products are cheaper on the Ecommerce sites, or due to other attendant disadvantages.
Let me illustrate with 2 examples : one B2C and one B2B. The internet is so vast, that it is not feasible for me to cover more in a blog post; neither is it advisable. In B2C, let us take books. Why does a customer buy a book online? There are two reasons : Price, and Convenience, which has lead to galloping sales at online book stores. But halt a moment, and analyse in depth. And, instead of asking what does the internet give you, ask what does a book stall give you? Reverse your viewpoint for a minute!
In a book store, you can get a feel of the book, you can flip its pages – which is pretty damned important if you are reading a new author, or a serious topic; you can easily compare similar books or two options on the same subject. Furthermore, you can far more easily spot new books; the interface is much bigger than a small screen; in a store, you are exposed to 4 walls crammed with books, which  make for easy discovery.
To compete with this, you have the price-offs and the convenience factor of the small screen; till date there has been on attempt at going beyond this. Reviews do not count in the age of the convergence of technology; it is simple enough a task to look a book’s reviews on your smartphone and purchase offline! The offline stores are also now becoming more nimble, willingly offering discounts to regular customers, and other small facilities, like getting selected books for them. They are now allowing customers to sit on sofas in comfort, and browse books to their heart’s content – in other words, they have added several value-additions to the customer interface, making for a much more rewarding experience
And that is where the digital players are not doing anything : trying to make the customer interface more rewarding. Sure, this will be expensive, time-consuming and demanding; but it will have to be done sooner or later. Currently, you are not facing the pain as the market is untapped, and there is a scorching growth pace, that is hiding the underbelly. All are advised to study Telecom, and how its ARPU fell, and draw parallels and extrapolate to the future, with penetration at higher levels. That is a reality every industry has to face.
In our example, a moments’ thought and you can spot any number of ways that the customer experience can be made more rewarding. You can facilitate browsing titles – and the usage of technology can ensure that the browsing experience in online stores will be leagues ahead of the offline experience, as you can offer targeted searches in the book’s content. Author-searches, cross-selling opportunities, specific searches of interest – all of which can make the customer experience exceptionally powerful.
You cannot match the dexterity and ease of new book discovery in offline stores; but you can work around this issue by offering other advantages. You can offer first 1o pages downloads free, as an example. You can look at facilitating direct interactions with the author, fan pages, discussion forums; you can facilitate book searches and book discovery in a much wider database, and can give options for time of delivery if book not in stock {beyond the current We Will Get In Touch When In Stock} and so on and so forth.
All this can be achieved at the touch of a button for the customer, which cannot be matched by the offline store. The current model of price-driven sales online is already driving a deep schism into offline models, leading to a massive backlash by offline models, who are competing with extraordinary tenacity and dexterity, and are in the process not only maintaining relevance, but actually winning back lost ground.
And all because the online people aren’t using the full power of the medium; and that is because the pain isn’t showing in the numbers, as the high growth rate is ensuring the new customers are greater than Churn. As I said, learn from Telecom : there will come a time when Churn will exceed new customers. And no one can say how far away that time is, given the stunningly scorching growth rates in this industry.
In the next article, I shall take a look at the B2B marketplace, as well as some interesting entirely avoidable mistakes made by the best of them in this trade in both the B2B and B2C Space. 

Retail FDI : A Complete Analysis

Published January 8, 2014 by vishalvkale

A summary of my posts on Retail FDI – presenting a complete analysis

Seeing as there is a lot of opinion floating around, let us take a look at some hard core statistics of this trade, as well as current research which proves quite conclusively that this is just a political brouhaha, and that there is no danger to the Mom-n-Pop store format in India. 

“I had occasion to visit the market today to stock up on provisions, and I decided to cross-check my personal hypothesis by talking to a Reliance Fresh Outlet and a couple of my regular Kirana Stores. These are almost next door to me, and more importantly, are less than 100 yards from an EasyDay Superstore


The Kirana Owner was pretty candid in his analysis. He said “Dhanda kam hone kaa to sawaal hi paida nahi hota sir. Peheli baat to har cheez ke daam badh rahein hain, doosri baat hum graahak ke baju mein hi baithhe hain. Pichhle teen saal mein humaaraa dhandaa to badhaa hi hai, ghataa nahi. Itnaa zaroor hai ki kisi din 5000 ka maal biktaa hai to kisi din 3000 kaa.”


Translation: Business has gone up in the past 3 years. I asked him about the past 3 years simply because it has been around 3-5 years since the modern format stores- the big chains extended their presence in Indore. I live in one of the biggest but oldest suburds in Indore City with several major colonies. There are 2 major LFR outlets within 1.5 Km of each other servicing a major residential region of the city, and these retailers were in the immediate vicinity of the superstore. A perfect example of co-existence


At Reliance Fresh, I talked to the billing counter clerk. His feedback was there were around 300 – 500 walk-ins  per day with an average billing of around 100000 – 150000 per day. The purchasing habits of customers were heavy purchases in the first week of the month followed by sporadic purchases spread through the rest of the month. I was frankly surprised at the low average billing and queried him on it. His response was a big learning for me: “Sir, It is not like that. Yes, average billing in the rest of the month is low for normal days – but on scheme days the offtake is greater. Retailers – nearby retailers – tend to stock up on various commodities (especially oils) and products in bulk whenever we launch a good scheme. The walk-in I told you about are purely retail customers”. This tends to confirm my observations on my various visits to superstores when I have observed bulk purchases happening. It was nice to have confirmation of my observations.”


First, the proof of my analysis:




Conclusions:

  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 Proof of the Arguments stated above:

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


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!





Earlier Research on this Topic: 






Analysis of the above from my Blog: 

I have been arguing in my writings that the threat to kirana stores in India does not exist, and that the 2 can co-exist…. interested parties may refer the above researches that have been conducted in India circa 2008 & 2010. I admit that these are a bit dated, and might need to be re-validated. However, I have not observed any difference in any of the cities in which I have made queries and observations; the trend seems to be the same as before. Not one of the small retailers I have spoken to in any city has told me of a decline in business volume or profit.


The key finding of the report are encapsulated below:

1) An initial fall of 23% in terms of volume. This loss is made up in the subsequent years

2) No evidence of a decline in overall employment in the organised sector

3) Closure rate of the small kirana store @ 1.7% due to the Organised Retail Phenomenon. Total Kirana closed were @ 4.2%. Out of this 4.2%, only 1.7% were due to organised sector factors

4) Competitive response from traditional retailers through adoption of technology and improved business practices

5) Extension of credit to customers


Far more interesting is the anaylsis of the impact of / on customers

1) Increased Consumer Spending

2) Proximity is a major advantage of the small retailer


Increased Consumer Spending

This is something all of us should have observed! We do tend to pick up far more items when the full range is displayed in front of our eyes: that 10-rs pack of chocos; those cakes and tit-bits; small tinkers that we spot on shelves; the odd item with a deal too good to refuse; the latest kitchen gizmo; that shiney kitchen aid; that bunch of hankies we dont need; all those lovely toys for the kids… the list can be endless.


Proximity

An Organised Outlet will be at least a km away – if not more. The very fact that the local kirana store is right next door is in itself a powerful advantage. This is particularly important since needs arise in a normal household practically everyday. Further, quite a few items are usually forgotten in our trips to the mall – or the brands we need are not available.


Both the above do not explain why is it that kirana concept is not only surviving, but also thriving. The adjustments made by this category can be said to be:


1) Convenient Timings

2) Credit Facility

3) Lower wait time in-store

4) Personalised Service

5) Smaller Pack Size Availability

6) Consumer Goodwill

7) Home Delivery

8) Facility of open goods: loose sale of packaged goods

9) Local Brands Stocking

10) Knowledge of Consumer Preferences

11) One-stop shop concept, with a wider range of products being stocked – viz. stationery, batteries, bakery items, snacks and sweet meets, ice cream, soft drinks,

12) Friendly replacement and return policies

13) Innovative new products especially in impulse categories

14) Perishables like milk – esp home delivery on coupons

15) Bill payment support to nearby households and other services

16) Stocking of all new product launches – faster than even the chains


The above small items, taken together, are creating a powerful force that is retaining the customer profile. On the customer front, what is happening is that the share-of-wallet, which was earlier 100% to the local kirana market, is now being shared between the organised retailer and the kirana merchant in a few segments of the market. For the lower segments of the population, the facility of smaller pack sizes, loose goods and credit are together ensuring stickiness. In fact, these last 3 factors are powerful strategies, given India’s demographic and income profile. As an example, I have frequently found that a 100g pack of my brook bond herbal variant of Red Label is not stocked by malls. I can think of quite a few other similar cases…


The other major factors in the equation are

1) Increased Consumer Spending

2) Increased Prices

3) Increasing Households and Population

4) Increase in Per Capita Income

These factors are growing the overall market: which is creating space for all the players!


India has 14 shops per 1000 people – 1.5 Crore retail outlets, and it would be being optimistic in the extreme to expect a handful of Organised Retailers to kill of the unorganised sector. Yes, the Organised Retail Sector is Growing rapidly – the figures are 36% y-o-y, but the main drivers of business as on date are different. In the Food and Grocery segment, the three identified differentiators are conspicuous by their absence.

  • First, this space has a widesrpead, well penetrated market, with each locality and each house being properly serviced
  • There is limited scope for value addition – tangible value addition- in this category for the consumer.
  • These are low-involvement purchases and customers do not think and evaluate purchases too much – they are habit-formation categories – and habits are the hardest to break
  • Proper servicing of this unorganised sector by the companies. One has to understandthat for the FMCG category companies, this market is the bulk volume generator. Further, since logistical challenges are limited due to small SKU sizes and low absolute prices per SKU, each store is properly stocked with even the latest products. The critical point here is that the advantage of new products / full ranges is not present for the Food and Grocery Sector. Organised Retail is competing not just with the small retailer but also the industry norm of weekly servicing of each outlet in the entire nation
  • The fundamental drivers of business in this category are thus different – quite different. So are the ground realities. This category is one of the most streamlined and organised categories, as also the most competitive among all the products categories. Easy logistics, Low SKU Price in absolute terms (how much does even a premium biscuit cost – 50 rs? Contrast it to one shoe- 750/-), established systems and habituated customers create an entirely different paradigm of business

That is not to say the Food and grocery as a category will not grow in Organised Retail – it will. It is one of the top 7 categories. However, the fact remains that today, in the Food and Grocery segment, the share of Organised Retail is only 1% as opposed to more than 10% for other categories

LFRs – Large Format Retail chains – have been around for some time now, and have completely failed to make a dent on the retail landscape. We have already seen the advent of supermarkets, and they have yet to kill off the small retailer. What is happening is that in the vicinity of these stores, local kirana business is getting impacted by a few percentage points over the short term. Over the mid- to long- term, this can be easily overcome :

  • firstly by the attendant increase in population
  • secondly by a change in stocking patterns and
  • thirdly by an increase in personalised service


Size of the Indian Market, which makes full coverage nearly impossible . India is a very distributed market, with a Kirana store every 50 yards from a residence. That coverage is going to be hard to beat, and is unmatched anywhere.


The small irritants: lack of home delivery beyond 3 kilometers / minimum billing requirement; long lines at billing counters could add up to a lot, and make your regular retailer the preferred option

The presence of a large number of small and local brands especially in the provisions space, which will largely be ignored by the LFR stores. This problem is exacerbated by the decision making heirarchy in organised retail, as well as by the lack of personal touch with the consumer. By contrast, for the local kirana stores, the decision maker is in constant touch with his market and is aware of local preferences and consumption trends, and is in a position to make quick decisions. This is simply because of one largely ignored psycho-sociological factor: the consumer will rarely, if ever, tell the large supermarket that he prefers such-and-such a brand. Whereas, this same consumer will be far more upfront with the local store with whom he has been conversing for years.

The implication could be a change in stocking patterns at the local kirana store, with a lesser preference and focus on cosmetics and a greater emphasis on provisions. Secondly, we might also see a change in depth of stocking, with small to medium size packings being available at the kirana store, and the full cosmetic range being available at the LFR. This can already be observed in the market: the 2- and 3- Re single use pouches can be seen in local stores, but not in the major stores. As another example, in my home we purchase only a select brand of atta that is not stocked by the nearby supermarket…

It would require each chain to set up something like 5 – 10 stores in just one city like Indore to properly cover the city – extrapolate this number to India, and you have a massive investment outlay… this in a crowded market, with Reliance Fresh, More, Easyday, Big Bazaar etc all already having a significant presence.  Large majority of consumers are 2-wheeled, and LFRs do not have conducive home delivery policies. This means that only people with cars can shop at these LFRs, or customers from the immediate vicinity. This significantly limits their potential area. Further, the problems in relation to provisions – demand of the local brands combined with their sourcing policies will also serve as a further deterrent. Not only that, each chain has its own in-store brands, and will thus not encourage the local brands which will be available in the local stores. The perception of supermarkets being costly will also deter a large number of consumers from tapping into these outlets

The lower financial outlays of the local kirana stores will mean significant cost-savings, which can subsequently be passed on to consumers. This is already a feature in the mid-level stores- i.e. the local supermarkets like Gokul in Raipur and Prem in Indore, wherein you can already get similar or lower prices as compared to organised retail

The other perspective is the advantages that can be had from organised retail. Please note that I state organised retail and not FDI…

  1. Concentration of buying power will lead to a reduction in middle men, and a better price realisation to farmers. It might also lead to lower consumer prices
  2. The dangers of FDI / Organised retail overpowering local guys will not hold good in a market as varied and distributed as India… see coke-pepse example below for details
  3. The benefit to the supply chain side will be tremendous, since organised retail will perforce either have to invest themselves, or bring about an atmosphere that will engender investing in cold storages, for example
  4. The benefit of economies of scale will also benefit everyone in the system

FDI Revisited: latest research

Published December 28, 2012 by vishalvkale

http://www.business-standard.com/india/news/suparna-karmakar-fdi-in-retail-is-much-ado-about-nothing/496750/

Date: 25th December

It gladdens the heart to see optimism and good sense beginning to prevail over this non-issue; the latest article on this matter has yet again revisited, and added to, earlier papers on this topic, which is worth a mention.

Research on impact of retail sector regulations by the author for a CUTS international report on Competition and Regulation in India, 2011 revealed that:

(a) Globally, in densely populated countries like India (with consequent higher real estate prices), small-store formats thrive, and even flourish in the face of the competition from big-box retail;

(b) On the other hand, the introduction of foreign competition forced manufacturers to cut costs in their supply chains and small stores become more efficient, and provide more serious competition to large-store formats and centralised operation that the multinational retailers prefer;

(c) This latter trend is already becoming apparent in India, in many localities in Delhi that the study surveyed, as small store-owners are responding by upgrading to modern formats with convenient and better organised displays, ICT (information and communications technology)-enabled storage and procurement management and electronic billing counters, while building on their own areas of strength.

This is precisely what my arguments have largely been about, as presented in this blog; as well as of the entire pro-FDI community in retail; none of the above is rocket science; having said that it is important for decision-making to have a confirmed research report that corroborates intuitive analysis; analysts have been known to be wrong before! Most research was a bit dated, so it is nice to have a reconfirmation.

But the article goes beyond that; and I quote: “Though 53 cities in the country meet the population criterion, only 18 of those are in the 10 states and union territories that have agreed to permit FDI in multi-brand retail. Thus, the policy is de facto akin to a “lab experiment”. With  that, in combination with the research quoted above, comes to a close a needless argument – or, at least, it should. There will of course be political overtones and social reactions, as it is an extremely emotive topic – but that is another story.

While the article correctly touches on the rising star of online retail, it makes a link between online retail and kirana store sales. Yes, the younger generation is very adept at and comfortable with online transactions, but saying that it will impact kirana store sales seems a bit of a tall tale. I may be wrong in this; for it is too early in the day to make any comment. And this is also corroborated by the research, which comes across as a surprise. Does online retail really constitute a “more credible threat” to kirana sales?

That it is a threat in some categories – like books – is already a reality; that much is true. But does this extend to grocery? Honestly, I am inclined at this point on the reverse; that it does not – not over the short to medium term. The reason is the fast growing population, 6% internet penetration (let alone transactions penetration), low awareness & education levels, low per capita income, buying behaviour with the lady of the house preferring the physical touch and feel and sporadic, unplanned & at times impulse purchases of other categories from Kirana offtake. Perhaps, when India is a developed or middle income economy, the game may undergo a change… let us see. True, online sales are rising; but the sheer numbers of consumers in India might just ensure a safe short-to-mid term. Further, the urban and A-class consumers might shift over to retail – the threat of shift as calculated in the report can only mean that; this may happen over the mid term even. Since I accept one part of the report, I have to accept it all.

And if you look at it in this way, then it begins to click and come together, As internet penetration, awareness, usage and comfort grows in tandem with increasing income levels, the penetration of online shopping in combination with Cash On Delivery will increase. Thus richer localities will see changes; the others will only feel the same over a longer-  indeed, given the realities in India, a much longer period. What precisely will those changes be, which categories will bear the heaviest brunt, what changes occur at the store level, how our shopping experiences will be redefined all lie in the future… let us see how it turns out!

Rightsizing modern retail – Hindustan Times

Published August 20, 2012 by vishalvkale

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:
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!

Retail : Online vs traditional

Published April 18, 2012 by vishalvkale

Category: Books
I received my first online shipment yesterday – a book titled “The Monster” by Michael W Hudson. Score one for online model, you would think? Not quite – I spotted the book in a bookstore, but purchased online for a price advantage. Therefore, the flipkart site could not have realised this sale without the support of the brick-and-mortar shop. It is the regular shop that sold the book to me by virtue of its display and the facility it provides for leafing through the pages. Without this, chances are I would not have purchased this book at all! 
Further, I had occasion to visit crossroads book store, where I spotted 3 lovely books – The Scam, The 2G Spectrum Scam and Building Brand India. In the first 2 titles, I get a 10-20% saving over the traditional model. In fact, on browsing a little more, I noticed price-offs upto 35% in quite a large number of titles. If you look at this transaction, yet again the initial sale has been created by the traditional model – and it is the price factor that is pulling me to the online model. The third book was not available – not just on flipkart – but anywhere on the net. At least, I did not see it. In this third example, yet again we can see that the traditional model holds relevance in the modern context.
If we analyse the above transations, we can spot some commonalities:

  • The traditional model offers a superior customer interface as you can touch and feel the product. In the book category, this means you can leaf through its pages to help you in your purchase decision. This can be quite easily overcome in the online context by snapshots or teasers or chapter-one pdfs in the online store
  • The traditional model also enables product discovery more easily. I mean that you can spot a book far more easily in the store- or any other product category for that matter. This is a value addition that the brick-and-mortar model provides that cannot be easily matched. Further, this has nothing whatever to do with familiarity of computer and/or internet usage, seeing as I have been working on computers for 20 years now. You can only find a product on the internet that you know exists – this is an issue with the nature of the customer interface
  • Online sites can pass  on cheaper prices to customers simply because companies save on costs when they tie up with online retailers. That translates into customer discounts
  • This will, of course be category specific. In categories which offer other interfaces with the customers – durables, for example- where you can contact customers through advertising and build a brand recall and image, the dynamics involved are bound to be very different. Other parameters will also matter- the more distributed the market / wider product choices and lines etc – all this will alter the business model
The point is that you will need both models in the large majority of consumer products. Each model has its own advantages and disadvantages – you simply cannot afford to ignore either model in your go-to-market strategy. In order to garner consumer eyeballs, build brand-specific choice you will perforce have to have a physical distribution model, since the customer interface is far superior in the physical model.  Not only that, there is only so much you can display on a computer screen – whereas in a store, you can literally have thousands of products on display. Furthermore, there are five senses in operation in a physical store- hence, the cues or stimuli to the brain are much greater and stronger. You pick a book in your hand – and you will recall its name and title even after a day – whereas if you see it online you cannot recall it quite so easily. This might be due to the operation of a variety of cues and stimuli to memory. There is also the addional problem of attracting the customer- in a physical setting you can use packaging innovations, POPs etc to garner eyeballs – which same will be conspicuous by their absence in the online model. And if you fail to garner eyeballs – you will lose out on sales. Physical distribution is not just about generating sales – properly managed, it becomes a vital cog in your strategy. It is a tool for advertising, building brand-specific choice, aiding product discovery, reaching as many consumers as you can. It is a powerful interface that cannot be ignored.
The above does not mean that you ignore the online model. It is a business reality, and you can ignore it only at your own peril. First off. there is already a niche market of consumers who prefer the online model over the traditional one for the convenience it offers- no wasting time going to the mall or the shopping bazaar. In product categories where you build brand choice through other means like advertising – there is already a niche market driven more by value addition & convenience of the new format (as opposed to price driven sales)- as evidenced by the successes of Yebhi, Flipkart and the likes. Next, there is the price differential that consumers gain.
Which brings me to the crucial point: what has the physical book-store gained by displaying the book in his store for me? Nothing! Today, this will not matter to him simply because online sales are in their infancy. But once sales of online stores begin threatening absolute volumes at the traditional models, this is an issue that will need looking into. Perhaps, at that point in time, the publishing houses will most likely stop discounting policies in the online stores.  Please note that I say absolute volumes – so long as the new interface is mopping up incremental sales, nothing needs to be done. But once absolute profits start declining at the traditional outlets- the pressure on the system will increase. And the decline does not have to be 40% – even a 10% fall will suffice to bring things to a boil!
It is a most interesting battle that is unfolding here… 

Retail: Survival Strategies of the Kirana Retailer

Published March 16, 2012 by vishalvkale

ICRIER Report on Organised Retail: http://www.icrier.org/pdf/Working_Paper222.pdf
I have been arguing in my writings that the threat to kirana stores in India does not exist, and that the 2 can co-exist…. interested parties may refer the above researches that have been conducted in India circa 2008 & 2010. I admit that these are a bit dated, and might need to be re-validated. However, I have not observed any difference in any of the cities in which I have made queries and observations; the trend seems to be the same as before. Not one of the small retailers I have spoken to in any city has told me of a decline in business volume or profit.

The key finding of the report are encapsulated below:
1) An initial fall of 23% in terms of volume. This loss is made up in the subsequent years
2) No evidence of a decline in overall employment in the organised sector
3) Closure rate of the small kirana store @ 1.7% due to the Organised Retail Phenomenon. Total Kirana closed were @ 4.2%. Out of this 4.2%, only 1.7% were due to organised sector factors
4) Competitive response from traditional retailers through adoption of technology and improved business practices
5) Extension of credit to customers

Far more interesting is the anaylsis of the impact of / on customers
1) Increased Consumer Spending
2) Proximity is a major advantage of the small retailer

Increased Consumer Spending
This is something all of us should have observed! We do tend to pick up far more items when the full range is displayed in front of our eyes: that 10-rs pack of chocos; those cakes and tit-bits; small tinkers that we spot on shelves; the odd item with a deal too good to refuse; the latest kitchen gizmo; that shiney kitchen aid; that bunch of hankies we dont need; all those lovely toys for the kids… the list can be endless.

Proximity
An Organised Outlet will be at least a km away – if not more. The very fact that the local kirana store is right next door is in itself a powerful advantage. This is particularly important since needs arise in a normal household practically everyday. Further, quite a few items are usually forgotten in our trips to the mall – or the brands we need are not available.

Both the above do not explain why is it that kirana concept is not only surviving, but also thriving. The adjustments made by this category can be said to be:

1) Convenient Timings
2) Credit Facility
3) Lower wait time in-store
4) Personalised Service
5) Smaller Pack Size Availability
6) Consumer Goodwill
7) Home Delivery
8) Facility of open goods: loose sale of packaged goods
9) Local Brands Stocking
10) Knowledge of Consumer Preferences
11) One-stop shop concept, with a wider range of products being stocked – viz. stationery, batteries, bakery items, snacks and sweet meets, ice cream, soft drinks,
12) Friendly replacement and return policies
13) Innovative new products especially in impulse categories
14) Perishables like milk – esp home delivery on coupons
15) Bill payment support to nearby households and other services
16) Stocking of all new product launches – faster than even the chains

The above small items, taken together, are creating a powerful force that is retaining the customer profile. On the customer front, what is happening is that the share-of-wallet, which was earlier 100% to the local kirana market, is now being shared between the organised retailer and the kirana merchant in a few segments of the market. For the lower segments of the population, the facility of smaller pack sizes, loose goods and credit are together ensuring stickiness. In fact, these last 3 factors are powerful strategies, given India’s demographic and income profile.  As an example, I have frequently found that a 100g pack of my brook bond herbal variant of Red Label is not stocked by malls. I can think of quite a few other similar cases…

The other major factors in the equation are
1) Increased Consumer Spending
2) Increased Prices
3) Increasing Households and Population
4) Increase in Per Capita Income
These factors are growing the overall market: which is creating space for all the players!

Online Retail: The New India- A layman learns something new…

Published February 3, 2012 by vishalvkale

Online Retail… frankly, only a few months ago I would very likely have thought of it in utter disdain – not for India; long way off; etc etc etc…
One fine day, I got a mail in my inbox – A voucher offering 2 mocktails at Barista @ 99/- (or some such); Pay Cash On Delivery. I was surprised, and frankly tempted- COD. No security issues, I thought. Unfortunately, I still did not make the connection, and put it out of my mind as a sales promotional effort undertaken by the host organisation. Well, as it turns out, gmail (or any other mail for that matter) had other ideas, it seemed. A few mails from other such examples later, I cottoned onto an online site stating Pay Cash On Delivery! Hold on a minute, I thought. What’s going on?
To my mind, and to be honest – to most other people’s mind, the biggest stumbling blocks to increased penetration of online retail in India lay in the low penetration of Credit Cards / Debit Cards, Low Consumer Awareness, Resistance towards and distrust of online payments due to security issues / doubts. In one masterstroke, 2 of the objections stood removed, thereby unlocking a potentially vast market. This experience brought my mind to an article by the redoubtable David Aaker: http://blogs.hbr.org/cs/2011/09/will_retailing_ever_be_the_sam.html, wherein I had expressed my reservations on the following grounds – namely,  payment gateways, trust, time, touch/feel factor and safety.The COD system deals with 2 of these, still leaving trust and touch/feel factor.Our conversation is given below:
Vishal V Kale 10/23/2011 08:46 AM
Hi David…

Interesting Article, and food for thought – there is no doubt about that. The twin combo of smartphones and e-retailing is indeed interesting.  Even 2 months ago, I would very likely have dismissed your article as new – world stuff, and applicable only in the new world etc etc – this, despite being quite adept at, myself a user of,  and well versed with –  the latest developments in Technology. Even so, I still have my reservations. 

But first, the plus point: About a couple of months ago, we decided to visit out ancestral town in Ratnagiri. (I am an Indian residing in India). Ratnagiri is about 240 kms south of Mumbai (Bombay). While planning for the trip, we decided to do a google search of the town and the hotels (It was our first visit in my 39 years). To our surprise, we found a very detailed representation of the same. Not only that, we were able to book tickets for a local AC bus service, obtain hotel reservations in a mid level hotel – all from the convenience of our home. This is a case of a small district in Maharashtra, India. The penetration of technology is indeed rapid just about everywhere. Lesson: if you are not on the internet, you may indeed be missing business…

However, your article is more about commerce through the internet, and harnessing technology in a more powerful way. I still have some reservations about that: payment gateways, trust, time, touch/feel factor and safety. While technology can be a powerful search tool – like, searching retailers over net, contacting them and checking availability (something that we do as a matter of course nowadays), making payments over the net is still associated with a high amount of risk in a customers’ perception. Then there is the trust, touch-and-feel factor and safety which go hand-in-hand together in a customers’ purchase decision. So while we may see a major shift in some categories – like books for example ( esp when combined with pay-on-receipt ), I very much fear that a large scale shift is not going to take place anytime soon – and maybe never. 

Quite simply, there will always be a category of products where these 3 factors will still be critical. As to the rest – it has already happened. With the exception of Grocery, we already harness the power of the internet on a daily basis for our purchases with the objective of searching options. I would like your opinion on these thoughts that have occurred to me…
Regards,

Vishal V. Kale
 Like   Reply
 
David Aaker 11/11/2011 01:52 AM in reply to Vishal V Kale
Vishal, you are correct to be spectical,  the checkless society 50 years later is still not here.  However, there is data showing that the effect I discussed is occuring.  The extent to which it penetrates is still unknown and it might end up being less than earthshaking

My thoughts were on the lines that the time gap in receipt of product, combined with the fear of in-transit damage would be a significant stumbling block for online commerce. Additionally, the lack of touch-and-feel and the attendant inability to compare products and features as well as experience them personally would still ensure a muted response in a large majority of product categories. There would, of course, be a significant impact in categories like books, or some gift items where the above 2 factors do not play that significant a role. The other major factor in favour of online retailing is the price differential – companies are able to pass on price savings garnered by by-passing the entire distribution chain to the online retailer, which means cost savings for the consumer, and price becomes a pivotal advantage – and indeed – a USP for this format.
Online retailing, is however, also beginning to make inroads into other product categories. I have seen people pick up consumables like printers refills etc for their home computers, other gadgets – and today, I learnt of one of my personal relations’ intention to pick up a couple of durable products online. This is an interesting change, and has major implications for business as a whole in India, and is bound to grow as the penetration of computers and smartphones in India increases. The twin combination of complete product information and convenience, in addition to price savings, is ensuring its steady penetration. Perhaps the most critical aspect of this is that this is one trend that does not have boundaries – the likelihood of an online transaction will be equal in the metros and non-metros of India. While today, the scenario will per-force be skewed towards the metros, I see equal growth coming in from the tier-2 cities as they bridge the awareness gap, and as purchasing power increases.
What remains to be seen is the extent to which this trend penetrates… in the words of Mr Aaker, “Vishal, you are correct to be spectical,  the checkless society 50 years later is still not here.  However, there is data showing that the effect I discussed is occuring.  The extent to which it penetrates is still unknown and it might end up being less than earthshaking” Yes, the change is happening – that is indeed true. If you add to this scenario the power of a smartphone (whose penetration is going to be far greater than, as well as grow far faster than computers) , as argued in the article, then the potential is indeed tremendous.
Add to that the final clincher – the same levels of loyalty and conviction are shown by consumers who are habituated to the new mode of retail as compared to traditional purchase behaviour. These consumers do not do it as a one-time action; rather it is a time saver and a convenience for them. Why should I spend time shopping around, when I get it done at my own convenience is the common refrain of these consumers. (Yes, price is not the most important factor in their criterion – they are the creamy layer of society; they are also aware of and used to technology). We can safely draw a conclusion from this: that there is now a core set of consumers who have crossed the novelty-factor threshold, and are hooked to it for the value addition it gives to them. There is another learning here: how many people- consumers, if you will – are there in India as of today, who fit the bill? Among this target segment of well-heeled (to use a layman term), educated class, what is the percentage of penetration? Certainly not 100%; perhaps not even 40% is my take. And even 40% may be stretching it. For the rest of the market – traditional models of retailing are still paramount
In conclusion, I can now understand the Brand Guru’s statement, as well as articulate my own doubts and position more lucidly: While the change is indeed happening, the extent and the speed of the change remains to be seen. Will it be a niche industry? Or will it topple the traditional models? If so, by when? Interesting questions… time will tell. It may turn out to be less than earth-shaking. But one thing is for sure, the advent of 3G, Smartphones, Online Retailing and its attendant strategies (Cash On Delivery, Pricing etc) are posing the strongest ever challenge to the traditional models… Let us see what the outcome will be. Time Will Tell… Time Always Does!