Organised grocery retails in India are not driven by traditional social and shopping habits. Is that why,in spite of hypermarkets mushrooming in urban areas,quick ROI is missing? High rentals and heavy discounting culture have made profitability tough.
As shoppers,what do we love in organised grocery retails? Good ambience,hygienic,self-help,all under one roof. Offers are galore,and you get the right bill. But what we hate are long billing counter queues,no bargaining,no credit,inconsistency of merchandise availability.
Compare that with shopping at your local mom&pop kirana store. The shopkeeper knows you and delivers home on a phone call. He gives you credit and you can bargain. When the exact merchandise you need is not available,he tells you where to find it. Of course,theres downside too. The loose merchandise is open to the elements,so hygiene is doubtful. They dont stock dairy and vegetables,and you have to wait for the retailer to serve you.
If you are an organised retailer,your store will never be successful if you do three things: imitate a successful Western model without localisation,hire FMCG professionals (of course,with exceptions),and not make the shop indispensible to shoppers. Here are the reasons why:
FMCG professionals are not cut out for the retails catchment,sourcing,footfall to conversion: They do not have the merchants mentality,nor the capacity to manage ultra-diverse product categories. Thats because their expertise is different. Its on raw materials purchase,how to innovate new product lines,sales and marketing of focused product segments and line extensions,and sometimes the manufacturing process,if its not outsourced. Taking MBAs is a big mistake too; they dream of joining big corporations. Grocery retail is an everyday,painstaking,job. People perfect for grocery development is the huge graduate population waiting to prove competency. You may require senior procurement and supply chain professionals,and a few MBAs to help understand the shoppers psycho-socio-economic conditions and anticipate their needs as retail marketing process. Converting mom&pop store people into organised retail salespersons is the real answer. They have real experience in supply chain,stocks,offtake and relationships with shoppers.
Benchmarking Western organised retail model is harakiri: The logic in the West was that all product categories are already branded so retails can give self-experience to shoppers. To increase income,retailers started the private label concept that mirrors national brands but gives shoppers about 30% discount. In developed countries,as organised retailers are the only outlet for manufacturer brands,they command 30% margin. But Indian organised retailers have no power as they represent only 5 to 6% of the manufacturer brands business. So they barely get a 15% margin.
Misinterpretation of private label: Private labels that Western retailers created,get a 50% margin. Fresh counters selling non-packaged fruits,vegetables,meat,fish and seafood fetch about a 50% margin. In Europe,fresh products were not available on streets as they are in India even today. Misinterpreting its meaning,Indian organised retails sell commodities as private label that have no brand significance. In every area,from private label to manufacturers brands and fresh counter,their margins are very low. Without solving these issues,its a mistake for organised retail to spend on high cost real estate and expensive professionals. In such immature markets,those who invested in retail like a Bollywood film betting to make box-office hits within five weeks,could never bring in ROI.
Commodity products cannot drive organised retail: The first disconnect is competing with unbranded commodities that do not justify the earning per square foot value. Are organised retailers providing extra benefit to shoppers here? Or are they able to prove added value in their brinjals and potatoes beyond vegetables sold by the cart-seller? How many of the shoppers below Rs 25,000 income per month consume that rare avocado or broccoli you introduced?
Mom&pop store owners are the genuine,shopper-sensitive retail merchants: Retails require understanding of the catchment area,procurement of multiple categories and brands,techniques of acquiring shopper footfall and the alchemy of conversion in the store by frequently creating eye-catching activities. So it is a waste for retail owners to hire highly educated professionals when only an intelligent merchant mentality is required.
New thinking for a viable retail model: Reduce real estate cost by creating a hypermarket outside the city and arranging transportation for shoppers. The low cost will benefit shoppers. Divide the store in one floor as under: (1) Sell commodity through high tech dispensers like those used for boiled candy where the product is visible but not touchable. (2) Surround three walls with fresh fruits,vegetables and bakery. An aromatic bakery is big income to compensate the loss from wastage of fruits and vegetables. (3) In the centre,put FMCG branded category products with general merchandise. (4) Put hypermarket lifestyle products,from garments to consumer electronics and entertainment,in another part of the store. (5) Divide the store-named private label into three layers,basic,superior and premium,and do marketing thats credible to shoppers. Sell national brand alternatives without copying them. (6) Promote the retail brand and private label as a value proposition thats aspirational,not as discount store. (7) Create outstanding retail marketing,with fast movement of national brands. (8) Organise the merchandise into a planogram that respects entry,mid and premium price.
If you are a retailer,ask your shoppers what they think of these points. Youll definitely get This is the way to go as the answer.
