The Hindu Business Line : The hightailing of retailing

The local shop delivers things at home at no extra cost — which is India’s answer to Internet shopping. So instead of trying to get people into the shops, the big shops should try to get more goods to the people.

Bindu D. Menon
T. C. A. Srinivasa-Raghavan

For four annoyingly noisy years between 2005 and 2008, Urban India was subject to a new sort of din from the Government: Let us allow large foreign shopkeepers (known as retail chains) to enter the Indian market.

An equal and opposite din was created by small Indian shopkeepers who felt threatened by this.

Oddly, the man who was championing livelihood issues of farmers at the WTO, and allowing the US to accuse India of blocking the Doha Round, the Commerce Minister, Mr Kamal Nath, was appearing oblivious to the livelihood issues of small grocers. He has never satisfactorily explained the inconsistency.

Today, because of the global financial crisis, the noise has abated. But thanks to all the IOUs handed out to get European support for the nuclear deal, it will soon revive.

Sooner than we all realise, India will asked to open its retail markets to foreigners in a big way. Technopak expects $30 billion investment into India in the retail sector over the next five years.

Poor growth at malls

Is this a good or a bad thing? In the small versus large shopkeeper debate, it is generally believed that the latter will win only at the former’s expense. But is this true?

As anyone who has shopped in the large grocery retail chains will tell you, the 20 per cent savings on the shopping bill — and that is the maximum — is almost wholly offset by the cost of petrol expended in getting to a big mall, parking charges and, because the shops open at 11 am and it takes so long to shop, the lunch or snacks.

That is why the growth of shopping at malls has been so poor. It costs too much, eventually. The question that retailers have to ask themselves, therefore, is if they will make money.

On current reckoning, profits look doubtful. People have tried these big shops — and found them wanting because, in the end, they end up spending as much as they would if they bought from their local store, if not more.

So even though the organised retail segment accounts for about 7 per cent of India’s vast retail market of about Rs 20 trillion and there is a huge potential for expansion, the prospects are not very bright.

According to a report by Centrum Research, the average sales growth is expected to be about 9.3 per cent in FY2011 as against a decline of 7.7 per cent in FY2009.

But how this is expected to happen when space rented or purchased has declined, remains to be seen. If you don’t have a shop, how do you sell groceries?

After all, purchases in these shops are dominated by food and grocery which account for 63 per cent of the retail consumption basket of India.

Cash-and-carry business

That is why the big shopkeepers are rethinking their strategy. For example, they are beginning to focus on profitable sales, and not just sales.

That means low, not high volume, which stands everything on its head. That, in turn, could mean an exit from the grocery business.

The big retailers are also turning to the cash-and-carry business as it is ideal for meeting the needs of the small mom-and-pop stores as well as institutional buyers such as hotels and hospitals — which prefer cash dealings.

It is also easier to enter this segment of the business as 100 per cent FDI is allowed in it.

But when everything is said and done, the old issue will remain: How can the big shops get a slice of the huge groceries business?

How should they use the breathing space the global crisis has providentially given them?

To get the answers, it is useful to hark back to some common sense, otherwise known as basic economics.

‘Shopping experience’

The first point to recall is that, glamourise it in any way that you can, a shop is only a shop. Big or small is irrelevant.

Second, people don’t enjoy parting with money, and just because you call it a “shopping experience” or some such silly thing while adding on all sorts of attractions, it doesn’t mean they will spend. So all you end up doing is to add to your cost by way of high rents without getting much return.

Third, quite simply, it is a hassle for shoppers to get to the locations where these big shops are. We are still very far away from the Western model.

The local shop delivers things at home at no extra cost — which is India’s answer to Internet shopping.

Fourth, however, the basic point in favour of big shops remains: They cut out intermediation costs — all that marketing guff about supply chains is true — by a very substantial percentage, sometimes as much as 70-80 per cent even after paying producers a higher price. So everyone gains.

Fifth, therefore, the big shops need to figure out better ways of delivery in the Indian context. They should give up the attempt to get more and more people into the shops as Big Bazaar has been trying to do.

Given the limited space these shops have, it just makes the visit unpleasant. Shopping is fun only if you can browse without feeling crowded and bumped.

So, lastly, the big shops, instead of trying to get people into the shops, should try to get more goods to the people.

blfeedback@thehindu.co.in

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