Thursday, January 25, 2007

Retailing, which format?

An incisive article in the Hindu Businessline today on which retailing format will succeed. The article, with the opinions expressed by those in the industry, does not actually say which format will succeed, as expected. What is interesting is the diversity of opinion.

Heres one,

"The formats that will gain the maximum are the 60,000-70,000 sq ft hypermarkets and supermarkets that offer a wide variety of products at rates lower than the market price, coupled with the retailing experience, given the consumer's basic outlook of value for money." (Girish Vedamani, Retail Association of India)

while heres another

"But according to us, the discount format will be the single most dominant form of retailing across categories like FMCG, pharma and telecom, since they are daily consumption products." (Atul Joshi, Subhiksha)

Obviously, there is no one size fits all when it comes to retail formats - my personal feeling is that having a few stores spread out, a la Big Bazaar or Walmart in the US will take a few years before it can make a mark, if it will make a mark at all. Indians shopping habits (note: Need to write on this) are not the "drive down, fill car with stuff, stock, repeat next week" types - not yet. Which is where the Subhikshas come in. They have got discount retailing right next door - with their low cost formats. And these models will delay the movement into the large store format - and my guess is that companies recognize this and many stores will exist in multiple formats - except perhaps the niche ones. As of today, large grocery stores in malls are more for browsing than serious grocery shopping. Stand alone Big bazaars have a fair share of bulk shoppers - going by the crowd in any of their stores, but in terms of penetration, they are still some way away.

The other part about the article, rural retail, deserves a read. How companies tackle this remains to be seen, but it is an underserviced market by all counts. The rural business hubs of Reliance, e-choupal of ITC hold great promise here. And the lowering gap between rural and urban aspirations - especially in an age of 99 cable channels.

He (N.V. Sivakumar, PwC) said it is extremely surprising that even people living in villages, where the primary source of livelihood is agriculture, want the same value-for-money goods that are offered to the urban population through the modern retail outlets, along with a wholesome retailing experience.

This was expected, in fact, I am not sure why people felt that aspirations/expectations (affordability is another thing altogether) of the rural population would be different than the rest of the country. That should give some impetus to knock out substandard products and outdated technology "created" for the rural market - barely any of them made a mark anyway.

The interesting thing is that when foreign companies sell stuff in India, they made the same mistake, we are now making in selling to rural India. They came with old products which were way off the expiry date in their home markets. But they discovered (surprise! surprise!) that Indians sought the best, albeit with a value tag. We made the same assumption in rural markets and suddenly it is discovered that rural India also seeks the best, with an even greater value tag.


sabu mangalasserril said...

rural and urban...and mistakes that people commit..very different post//go on !!!

Anonymous said...

I find the last point difficult to grasp. Can you give an example for a product specifically aimed at rural markets but didn't succeed? Vicco/babool etc. are all I can think of, and they have been a resounding success...

Neelakantan said...

The RTV of Hindustan motors is a recent example. Similarly, Mahindras jeep which used to sell well in rural areas is not so hot anymore...

Vicco, Babool were as much urban successes as much as they were rural.

Neelakantan said...

But anon, more than specific product examples/launches - it is a tendency of companies to continue with dying products,outmoded technologies because they think it will sell in "rural" areas.
And many are finding that it is not true. That is the point i am trying to make.