Beat big boxers

It was not too long ago that the retail market place was full of a diverse group of small to mid-size players selling goods and services to people in a very comfortable and familiar environment. We had often heard from our mothers about their favourite sabzi wala or doodh wala or the corner grocery guy. They used to shop from them and were comfortable about the fact that they got what they wanted at a fair price, with pretty good quality. It was all about relationship and trust. In fact, in dealings with local retailers, there was a certain familiarity: change was minimal, and reliability and comfort was in abundance. They knew you and what you wanted and you knew them. More importantly, you trusted them to sell you quality products at a fair price. As far as everyone was concerned, the value proposition was solidly intact.     

Everything was going fine, and then one day, retailing got organised. For many people, organised retailing came up in India with the launch of the 'first malls' in 1999 (‘Myth and Reality of Indian Retail Revolution by Devangshu Dutta). The launch of Ansal Plaza in Delhi and Crossroads in Mumbai is hailed as the spark that led to explosion of organised retail in the country and the transformation of the retail landscape. If we talk in qualitative terms, the total retail market in 2005 stood at Rs 10,000 billion(chart I), accounting for about 9 -10 per cent of the country's GDP. Of this, the organised sector accounted for Rs 350 billion (about 3.5 per cent of the total revenues). According to AT Kearney, the organised retailing industry is expected to cross the Rs 1,000 billion revenue mark by 2010.

According to a recent report of Indian Council for Research on International Economic Relations (ICRIER), the retail sector is likely to grow at 13 per cent till 2011 - 12 with organised retail expected to swell at a torrid pace of 45 - 50 per cent and unorganised retail to grow at about 10 per cent. Leading global retailers such as Wal-Mart and Tesco are keen to enter the Indian retailing industry. The Chicago-based Sara Lee Corporation is planning to enter the Indian apparel market. Dior, the well-known watch brand from Louis Vuitton Moet Hennessey (LVMH) group, is planning to include India among its 12 world markets. The Rosy Blue Group, the world's largest diamond manufacturer, is also planning to invest Rs 90 crore in setting up 40 exclusive Orra diamond showrooms in India over the next three years.

Besides these global giants, Indian big players like Reliance Group, Bharti Group, Pantaloon Retail India Limited, RPG Group, Tata Group and Raheja Group have already entered into this sector. If we look at the current scenario, big boxers like Reliance Fresh, Subhiksha, Vishal Mega Mart, Big Bazaar, Spencer’s, Bharti-Wal Mart have started capturing market share: local as well as national. With bigger outlets, much cheaper products, better facilities, cleaner locations and better displays, these big box retailers are posing a threat to local retailers viz. popular chaat wala, sabzi wala, and corner grocery guys.

According to a report, organised retail is set to change the concept of our neighbourhood convenience store with 10 - 20 per cent discounts on maximum retail prices (MRPs) on most items. The Future group is venturing into the unorganised retail market comprising largely of mom-n-pop stores by setting up KB’s Fair Price convenience stores, starting with Delhi and Mumbai. The group plans to set up 1,000 odd stores in the top eight markets over the next 18 - 24 months with 150 - 200 odd stores expected to come up in Delhi and Mumbai as well. These stores are also expected to come up at Kolkata, Chennai, Bangalore, Pune, Hyderabad and Ahmedabad.

The stores will be ‘no-frills’ with no air-conditioning, no bar coding on packaging and less manpower. The company plans to set up these 2,000-sq.ft stores not just in neighbourhoods, not essentially in prime real estates but even in lanes so as to save costs. So, after the fight in organised retail with biggies entering it, it is now the turn of the unorganised market to hot up. The company also plans to save costs (which would have been incurred in case of large supermarkets) in terms of factors such as real estate, cost of operation, supply chain, manpower, IT etc. to pass on the benefit to the retail customer. The cost of setting up a modern supermarket store is around Rs 2,000 per sq.ft against Rs 280 of a KB’s Fair Price store. The store will offer branded food and fast moving consumer goods at 10 per cent below MRP, while on regional brands, savings by consumers could be around 20 per cent.

What will be its impact on small retailers? Should they leave the field for big players? Or, should they compete? Well, before arriving at any solution or conclusion, I think that we should examine the strengths and weaknesses of small retailers.

Small & weak

What are the negative aspects or traits of small retailers? Why are they not at par with big boxers? Can they overcome their weaknesses? Can they beat the big boxers? If yes, how will they do it? These are some of the questions that need to be answered.

Here are some characteristics of small retailers.

Under one roof: Today, people want to shop at big stores where everything is available under one roof along with the glitz and the flash. People are crazy about window-shopping. Look around you if you are in a metropolitan city and you will find a large number of malls and shopping centres. Retailing configuration in India is fast developing as shopping malls are increasingly becoming popular in large cities. When it comes to the development of retail space (especially malls), tier II cities are no longer behind metros in the race. If development plans up to the end of 2007 are studied, it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in tier II cities. Governments of states like Delhi and those where National Capital Region (NCR) lies are very upbeat about permitting the use of land for commercial development thereby increasing the availability of land for retail space. Consequently, NCR renders land to 50 per cent of the malls in India.

In Ghaziabad, around Kaushambi and Vaishali region, malls include EDM, Pacific, Waves, Ansal Plaza and Galaxy without counting around three-four malls under construction. These are all located hardly one or two kilometers away from each other. All house outlets of various national and international brands like Lifestyle, Globus, Levi’s, Lee Cooper, Cotton County, Westside, Big Bazaar, Vishal Mega Mart, Reliance Fresh and Spencer’s. When big stores are so accessible to people, why will they visit small stores? Will they not prefer to shop at a store that is fully air-conditioned with a large range of fairly priced products and which, above all, makes them feel affluent?

Lack of standardisation: There is a deluge of big retailers all over the world. Their primary competitive advantage over small players is standardisation. Big retailers include the likes of Wal-Mart, McDonald's, Tesco, GAP, Pentaloons, Big Bazaar, Subhiksha and Spencer’s. Store technology, outlet design etc. of these big retailers are noticeable. So, what about the little guy or retailer, or vegetable seller in the locality: the one who has been selling to us for so many years?

And, what about the new small guy who is enthused by a retail idea, and wants to open his first retail store in his hometown? Can he compete against the weight and muscle of big boxers?

Fewer facilities: Small retailers should acknowledge that, as compared to big boxers, they are lacking in facilities. They can’t afford big fully air-conditioned stores with food marts and other utilities, unlike most of the big retailers . They can’t arrange such extensive lighting, costly antiques, amazing infrastructure, beautiful paintings, floors, ceilings etc. In such a case, how can they exist in the market place?    

Big game-plan

The big box retailer is here to stay. Companies with big money, big plans and big stores will become more and more, a part of the retail landscape. And, for all the losses that they might be making at the moment, they will grow and become bigger and there will be more and more of them. Further, big box retailers from around the globe are looking at India and are salivating over the idea of selling to over one billion new customers. They are trying to figure out how they will capture our attention and imagination when they enter the Indian market.

Small but strong

Some questions do arise. What opportunities are there for local retailers? Are local choices dictated by cost and availability and not by local likes, flavours and desires? Does the retailer who makes the decision on what to stock actually understand the psyche of each town where his store exists? The secret lies in a retailer's ability to differentiate himself from others in the competition. Other than local knowledge, the local retailer has several advantages over big boxes. He can make inroads in some significant areas, which are vulnerable points for large retailers. Here are some factors that can enhance their value to customers.

Provide unusual services: This is not about good service or great service. It is about ‘better than you could ever imagine’ service. This is the kind of service where you could walk down a store saying ‘Wow! That was amazing, they really care for me!’ Local retailers have an opportunity to personalise service and pamper customers like none of the big boxes can do. Sometimes, it's as simple as impulsively pulling an extra sweet out of the jar for the five-year old child accompanying the customer. I still remember that my niece was extremely happy when the corner grocery guy of my colony offered her a chocolate. So, was my 'bhabhi'. Now, she prefers buying articles from him rather than visiting Subhiksha or Vishal Mega Mart.

Just think: how many times have processes and system-driven customer services brought a smile to your face? Sometimes, customer service executives at big companies are so well trained that it can be downright irritating to hear the same sequence of words each time without any genuine feeling behind them.

But, even small retailers make mistakes….I remember that one of my friends once went to a shop in Lajpat Nagar market, New Delhi with a complaint of defective jeans. She asked the owner to return and change the jeans but the shopkeeper refused to do so saying that it was not defective at the time of selling. He was openly rude to my friend within earshot of other shoppers. The situation turned into a heated argument. 'Customers are the most important persons to any business and they should feel this importance while making purchases.’

Build long-term relationship: The most negative aspect of big retailers is that they are far from the customers and thus, are not able to understand them properly. On the other hand, the local guy who is one of them does not have to pretend that he is part and parcel of their community. He does not need to prove that he cares about the community he belongs to. His customers are his neighbours and he has needs and wants almost similar to theirs. As a local retailer, he sees his customers daily and can grow a relationship that is not only familiar and comfortable but also everlasting.

Make your shop the destination: What is the most important thing about small retail stores, when compared to a national or global giant? It is, of course, the number of locations and geographical spread. While a large retailer would have many stores, possibly in many cities, offering an assurance of standardisation, its small counterpart may have one or two stores. To turn this disadvantage into an advantage, think hard about why a customer would visit a small retailer if he has only one location. May be he is located near a customer's home or workplace. Or, he might be located in a very visible location. However, all these are passive advantages, which change with on-going urban development including development of new residential areas, new markets and malls.

What is the advantage that a small retailer has built or can build, which will draw customers to his store? What will make them choose him from among alternative shops that they may be able to go to? What ‘proposition’ will make his store the chosen destination?

The ‘proposition’ might be a huge width of product range or fashion of the product, where his may be the store for trendsetters. It might be the lowest price for a range of products. It might be the mix of extra services that he offers. Or, it might be the ambience that might be far superior to any of the large competitors. Whatever it is, small players have to do it consistently so that customers identify that trait with their stores. They have to make that trait stand out so that it is unique and distinct from the rest of the market. That's how they can make themselves a destination.

Thinking out of the box: Situated near the main town hall office in Hoshiarpur, Gupta Vastu Bhandar is much like a million other kirana stores scattered across India. Before taking over the reins of the shop, Gupta had studied only till standard-VIII. But, Gupta’s marketing ingenuity more than compensates for his lack of ‘qualifications’: think database marketing, cold calls, home deliveries with customer ID numbers, SMS marketing, loyalty programmes or even web-based shopping.

In order to be globally competitive, small retailers have to accept the phenomenon of thinking out-of-the-box and being innovative. Like Gupta, other small players like Ritesh Bhatada of Sai Supermarket Sholapur, Maharastra and Tushar Shinde of Shri Vashi Pharmacy in Navi Mumbai, have also started thinking differently and are making use of these technologies in their business.

Wrap up

The face of retail is changing constantly. The little retailer, therefore, has to change his mindset accordingly. It can no longer be thinking about surviving but he has to think about existing solidly and competing effectively. His mindset must be about booming in the face of big companies with big retail boxes and big pockets to spend out of. Small retailers should try to become big boxes and they should always remember that the biggest retailer in the world was also once a small retailer.