Retailing in India

Retailing in India

India has one of the best retailing systems in the world. The industry is totally fragmented and has the highest level of penetration across the length and breath of the country. This industry has the largest number of entrepreneurs in India.

The adoption of this model in countries where the unemployment is very high, would help to create many more entrepreneurs and resolving the unemployment problem .

India is the only country where a retail outlet could be seen in every street corner whether it is a town or a village.

The leading category in retailing is Food and in other categories are gold and mobile phones.s leading the table.

There were many attempts by Business groups to establish a very large Organised retail chain in India. Many a times, the companies were not able to implement this concept with big success especially in Food and Grocery items, since the value delivered by a local retailer was not matched by a large retail chain. Since retailers are a large entrepreneurial class, they were also able to wield influence in the society and able to curtail the efforts by large players in consolidating this industry.

Small retail provides lot of opportunities for entrepreneurs. When I was travelling in interiors of the county, I saw the small and village level retail has even spread its wings to retailing in other products categopreis. Earlier , the retailing was taking place in a big way only in food and grocery. Now we can find shops selling Textiles, Pharma, Electronics , Telephones and even Jewellery.

In a small retail, many players were able to achieve a Profit Before tax on Sales of close to 20% . Whereas in the case of large retailers, hardly they are able to achieve a Profit Before tax of 5% with great difficulty even after achieving a gross margin of 30 35%.

For small retailers, the operations are very simple and easy to manage.

For small retailers, the productivity per sq.ft is the highest sometimes going upto 100 times of a large retailer.

Small retailers offer small packs, which makes the buying affordable for all the sections of society. The buyers need not buy in large packs and store for long periods of time. Storage increases the cost in terms of inventory cost as well as additional cost on food/grocery items becoming stale and not good for use.

For small retailers, the overheads and expenses are very less in delivering the service. Whereas in the organized retail, the expenses on Rent is between 6 – 8% on sales, Salaries are between 4- 7%, Interest on working capital, wastages going up to 3% on sales and payment of taxes.

In fact, the cost structure of large retailers is unfavourable and large retailers have a very clear disadvantage of 16% on sale compared to the small retailer. If the large retail is not managed well then it increases the loss of cost competitiveness further.

Due to space constraints and increasing purchasing power of buyers, the large retail formats are not able to make the experience of buying pleasurable. One of the constraints is in providing parking space for large number of customers.

As of today, there are not too many managers in the Indian system with the capacity to manage the large store formats in an efficient manner.

The systems and procedures are still not uniform and it differs from store to store for the same retail chain. There is lot of discretion for store managers. Whereas in mass retailing, there is a need to follow well defined systems and procedures without having too many exemptions, discretion by the local managers. Local managers can have disecretion to decide the product portfolio of a store depending on the region based on the consumption pattern but not the administrative systems and procedures.

In vegetables and fruits, large retail formats are not able to deliver consistent quality products. The quality differs from day to day and from hour to hour. Many a times poor quality products are displayed and stock out is observed in these items.

There are still many issues relating pricing, bar coding and counter management. Many a times, there is a need for intervention by the person who is preparing the bill to manually intervene to input the prices which is leading to errors in billing and customer complaints.

Since all the products are not having a proper bar code and automatic billing , this reduces the efficiency of the billing and counter management. Counters become a major constraint in deciding the number of customers who could be served by the system. Counters decide the capacity to serve the number of customers.

Organised retailing is not able to take off in a big way due to all the above reasons especially in food and grocery categories. .

To make a large successful Organised retail chain, the following points could be taken into consideration.

1. Choose the right product mix. Emphasis should be on non perishables and items which are not sold in a big way by small retailers.
2. Follow a strategy of creating a few model stores on the format. Address all the issues relating to Store Management, Procurement, supply chain, wastage management, billing system and counter management. After making this a big success, then replicate the same model across many centres .
3. Organisation structure. Managing a large retail is more complex than managing a small retail. There are different businesses involved. The first business is the store management followed by Supply chain management and Real estate management. Each business requires different skills . Hence three separate entities to be created for each of the above. Since Indian entrepreneurs have still not mastered all the above aspects, it would be in the best interests to enter into JV’s with those who are experts in the above fields either from India or from abroad.
4. Systems and procedures. This is the key for success of the retail. Even small inefficiencies in the system , wipe away the little margins achieved by large retailers and sometime resulting in losses. This area requires more attention than the attention provided today and this area to be given the prime importance in managing the retail business.
5. Large retailers have to create strategic alliances with the small retailers in the catchment area and wherever the direct market penetration would be difficult, they could look at indirect penetration in the market through distributing private lable products through the small retailers.
6. To have better control, instead of spreading operations thin all over the country, make the expansion fast within small territories to start with and then go for national expansion.
7. Create as many private labels as possible especially in Food and Grocery and start marketing to small retailers. Quality of products should be given the prime importance.
8. Present in the entire value chain. Right from production of Agri produce to packing and branding the products and marketing them.
9. Adopt best practices in Financial and inventory management. Reduce the wastages in the system through ensuring quality at all levels.