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THE RETAILING ONSLAUGHT
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According to a UN report on the state of world population, by 2008 close to 3.3 billion people had shifted to cities and almost 5 billion will shift by 2030. The next few decades will see an unprecedented urban growth in the developing world, notably in Africa and Asia. By 2030, the towns and cities of the developing world will make up 80 per cent of urban humanity. This urbanization trend provides both a setting and a perspective for reviewing the emerging retail juggernaut on the Indian scene. For, growth of organized retail is predominantly an urban phenomenon. The prospects of organized retail are determined by the level of urban population. Analysts suggest that urban families spend 2.5 times more than rural families. In India, urban population is growing at a CAGR (cumulative annual growth rate) of 2.4% annually. India will, thus, have an urbanization of 30%, increasing to 32% by 2015. In Brazil, one of the BRIC economies, urbanization level is 85%. The Brazil organized retail has a 36% market share of total retail. In China, organized retail has a 20% market share of total retail, with 42% urbanization level.
Skeptics point out that India does not have China’s booming manufacturing sector that helped Chinese rapid urbanization. Manufacturing sector creates urban centers whereas service sector comes later to service the urban centers. India currently has service sector dominance.
(1) Chandigarh, (2) Nagpur, (3) Goa, Kochi, (4) Visakhapatnam, (5) Ahmedabad, (6) Bhubaneswar, (7) Jaipur, (8) Mysore, (9) Indore, (10) Lucknow, (11) Coimbatore, (12) Guwahati, (13) Ludhiana, (14) Surat, are the fastest growing cities of India and organized retail is likely to target these and growing towns neighbouring mega-cities. We must know that organized retail is yet another aspect of global shift from industrial to knowledge society. Retail selling has been there since the very beginnings of organized society but the change from individual shop to malls or mega stores is recent. In China and India, its scale appears overwhelming because of the threatened displacement of traditional shopping structure that needed no special knowledge or training. Nor was competition so visibly challenging. These new retail mega bazaars will need trained sales and space management staff. Organized retailing is, thus, more than a matter of size and scale.
India has the highest number of shops in the world—11 shops for every 1000 persons—but Indian kiryana shops are not the so-called mom-n-pop stores of the west. They may be spared the fate that small shops in western countries have met at the hands of organized retail. The key factor is the role of population density. A cursory survey will show that in a country with considerable area (say more than 500,000 sq km), organized retail flourishes when population density is low. USA has a population density of 31 person per sq km. Brazil has a density of 21 person per sq km. European Union has a population density of 112 people per sq km. Even China with a population much more than India has a density of 135 people per sq km. In India it is 332 persons per sq km!
Besides density of population, another factor to be considered is the diversity of population. India is peculiar and very different from any other country and nation. It is not only a multilingual and multicultural country but a country of vast difference in taste for food, clothing and colour and consumption preference. Chain store system works on the principle of uniformity.
It is the cultural pockets within India that dictate the Indian consumer behaviour. Also, the sharp regional disparities are a veritable impediment to uniform supply of consumer goods and are likely to slow down or blunt the edge of retail onslaught. What sells in Tamil Nadu may not sell in Punjab. Even within a region, what sells in Mumbai may not sell in Nagpur. Even within the city like Mumbai, what works in Malabar Hills may not work in Borivilli or Dahisar. Organized retail is a game of standardization. It is a game of mass scale selling where everything is so standardized as to squeeze the supplier to submit to the lowest possible price.
In India, standardization is a challenge. Indians defy standardization. One can see this by merely travelling on the road. If you observe the standard rules of the road, you are bound to meet with an accident. Each one for oneself. This has something to do with our philosophy of life. One realizes oneself not because of society, but in spite of society and others. Each Indian has his deity and his own way of pleasing his gods. We do not like to reach a function, meeting or even office at the given time. We like to set our own time. In market terminology we are a “nation of customization”.
To help stay as customers rather than consumers, there are the market imitators who can copy goods and sell so-called “duplicates” or fakes at much lower prices. And the consumer has no complaints if he gets a fake for fifty rupees of the original costing five hundred rupees. The fake or duplicate often proves better than the original as every car or scooter owner knows. Here standard things don’t work. Take a typical household in India. How happy is an average Indian housewife while rattling off the list of customization of morning break-fast of her family—the son wants toast, butter, and double-egg omelet; daughter wants corn flakes with honey; hubby wants aalu paratha with decent helpings and dahi (curd), and she herself prefers the leftovers, perhaps. We want everything our way. Not the retailer’s way. Here, a friendly kiryana store has a clear advantage. But then, times are changing. All we can say is that the kiryana store and his delivery boy are going to be around for a while because, in this blessed country, there is room for all kinds. Slacks, jeans as well as salwars will co-exist.
The new-fanged retailers will have to be inventive with their packaging. The Indians are not yet ready for King Size or Economy Size bottles and packets. Indians are tentative buyers and prefer small, “homoeopathic” dozes. Look at the large-scale selling of shampoos and biscuits. It is the sachet and the small pack that sells the most. “Until sachet happened, .. shampoo was considered a luxury by majority of Indians. A typical Indian doesn’t have money to indulge in bulk purchases”, says a keen observer of Indian consumer behaviour.
Now look at average American couple who buys six months of toilet paper whenever Wal-mart comes up with a great offer and have a separate storage room in their house to keep discounted and advanced purchases! How many average Indian householders can afford this type of shopping? Growth of organized retail depends on volumes of selling as well as buying. Sachet economy may not be enough to sustain organized retail. Kiryana shops are better placed to service a sachet economy. Kiryana stores will rule India for a long time.
Going by the growth rate of total retail and rate of urbanization, urban market in top 1000 cities/towns is likely to double in size to $200 billion by 2015. That means Organized Retail will have to capture 32% of the urban market to meet the projected $64 billion of organized retail revenue by 2015. In view of near monopoly of kiryanain 95% of these top 1000 towns, coupled with poor infrastructure, it will not be easy to attain.
Success of organized retail also depends on supplier capacity to deliver large volumes of standardized product quality at competitive prices. India has thousands of small manufacturers of consumer goods, but few capable of servicing hyper-marts.
India’s agricultural land holdings too are highly fragmented, average size being less than a hectare. It would take thousands of such holdings to service a big retailer. Soon, too many retailers may be chasing too few quality agricultural suppliers, disarraying economies of scale. Inconsistent quality and specification will cause other problems. Contract farming is a possible solution but is in infancy presently. So far the focus of retail players is on front-end buying of real estate at exorbitant prices, attracting customers to the glitzy malls, but the backbone of Retail is back-end operations—storage, cold chain facilities, road and air connectivity that are slower and need massive investment.
Current retail and fun-filled shopping experience is confined to 6% of India’s population in top six cities, contributing 14% of India’s GDP and accounting for 68% of organized retail. Going beyond this will be slower, tough and less glamorous.
