FDI in Retail and the Kirana Retailer !!!

Some of you may recall that the India of the late 90s saw some amazing energy in the retail scene. The kind of possibilities that people were discussing then was electric, to say the least. FDI in Retail was touted as something that would happen in next 2-3 years and the kind of projections for the early 2000’s was humongous.

This theme of hyped projections/FDI got repeated in every industry event since then. Nothing much happened actually.  And by 2003/2004 people just got bored and started focussing inwards on the domestic players making headway against major odds.

2007 was a landmark year for Indian Retail and truly an inflection point, in my opinion, with all the Indian corporate biggies entering the scene. And the theme of FDI got restarted as a possibility in another 1-2 years. The Industry went completely berserk. Plans of 1500 stores in first year of operations (and that, by somebody just entering the scene) were announced. The highest salary paid to any professional in Indian corporate then was to a newly appointed Retail CEO.

And then 2008 happened. The “R” word was merrily passed around as a reason for many a downfall. The actual reason, of course, was more to do with folks completely ignoring the fundamentals of the business.  And then the gory stuff started coming out. Stores were being shut within a year of operations. Some retail entrepreneurs expanded at an unreal pace stretching themselves so thin, that today they have become invisible!!! And along with them, a lot of investors also got hurt badly.

And now this FDI thing is another upswing in the rocky rollercoaster ride of retail so far.

The political and media debates on FDI are hugely entertaining, to say the least. A lady politician vows to burn any Walmart that she sees !! Some unknown character has taken on the mantle of protecting the consumer’s interests and screaming his lungs out against FDI.  Practically every relevant player in the Industry is welcoming the move. Consumers also, after the modern retail experience of last few years, are eager to see what additional benefits await them. Undoubtedly, they are going to be the biggest beneficiaries.

The merits of the FDI are fairly obvious. What about the demerits ?

The key argument of the kirana (mom & pop / SME) retail getting hurt is a very valid one. Definitely 1 in every 2 kiranas, in urban markets, would have to think about new ways of doing business ahead. But then, charging MRP (and MRP+) rates for all these years were not sustainable anyway. Their USPs of credit terms to customers, and home delivery etc, is not very relevant in tier 1 and tier 2 markets anymore, where people prefer better assortment choices and price advantages in comparison. The big store/mall is all about experiential retail while Kirana Retail is all about convenience, and "convenience as a value expectation comes AFTER experience. And the Indian consumer has at least 15-20 years ahead before they get saturated with the experiential value.

The country is witnessing rapid urbanization of tier 3 /tier 4 markets, and the foreign retailers are not allowed there anyway. What prevents these guys from going to these markets! With most of the corporate professionals having to contemplate such moves (i.e. bag and baggage with their family) to survive in the equally challenging/uncertain environment around, why should it be different for the Kirana guys.  These guys with their entrepreneurial spirits actually hold the advantage when compared to the corporate folks.

If moving is not an option, these guys can harness their amazing experience/expertise and leverage it by forming cooperatives for economies of scale in buying and also in branding their service to customers. That may not be easy, given their current ways of individualized operating. In which case, they must get systems and look at expanding (get bigger or consider additional stores in new markets).  To start with, get a cash register, record your sales and give a receipt to your customer.

In all of these, sometimes feel that the so called intelligentsia takes an elitist view on the SME retail players. These guys must have already charted out their future plans with the big bazaars, reliance freshes, mores, and spencers around, and must be amused at us worrying about their future. These guys are NOT the typical types begging for subsidies and protection.

With the rupee depreciating, the US/Europe economical worries, the outsourcing story having run its course, and the stock markets in a downward spiral, the reality is that the future presents much more uncertainty to the corporate professional of today.

And the irony is that THESE kirana guys can teach the corporate folks a thing or two about entrepreneurial thinking in such tough business environments.

Retail Entrepreneurship - The future of Indian Retail ?

In one of the mega Retail events some years back, I was sitting in the audience listening to a conversation that was going on the stage, between a TV anchor of a reputed Business Channel and one of the very visible Retailers in India. This retailer had started from scratch and built a formidable empire in record time facing competition from some of the biggest conglomerates from the private sector.

I was always struck by one key differentiator between the developed retail markets and the indian retail market. Which is - while the retail sector was driven by entrepreneurs in most parts of the world, the Indian Retail sector has seen almost all of the Top 5 business conglomerates jump into the fray. You have the Tatas, Birlas, Ambanis, Mahindras, Rahejas, Videocon, RPG all making a huge and visible foray. There are, of course, enough examples of individual entrepreneurs carving their retail story in equally visible measure.

Though very early to make a judgement, the stark reality of the story so far is that deep pockets are no guarantee to Retailing success. The biggest corporates have had to face major losses and the shutting down of many stores. Major plans of getting big very fast had to be significantly trimmed down. These business houses employed some of the most visible professionals to run the show paying some of the highest salaries ever in India. As it stands today, all of them have admitted to the fact that they got it wrong, and are still trying to study and understand the dynamics of the retail business and the indian market. Management teams have undergone multiple changes -- just to get it right !!!

Coming back to the event, during the audience questions, I stood up and asked this Retailer,
"Sir, Where do you see the biggest threat to your business. Is it the big Indian Corporates or the big Foreign Retailers".
And his answer to it,
"My biggest worry today is that I have gotten too big too fast. While I try to ensure that I still maintain a good understanding of the pulse of the consumer, I can never match the single shop owners in their understanding of product & price, and its almost impossible to meet their standards of customer relationship. They are the ones who pose the biggest threat in taking my market share."

I was recounting this experience with my wife who runs a retail business and tried testing the above statement. As we discussed, it became apparent that, given the demographic profile of India (each state a different country ??), and the geographical aspects (no real planning of cities or zoning culture, traffic and parking woes), the big guys will never be able to overwhelm the single shop retailers in the same manner as it has happened in developed markets.The advantage of finding a hybrid value across the 5 P's of Retailing (Product, Price, Place, Promotion AND people) will always lie with the smaller retail shops.

And that presents a major opportunity for many entrepreneurs to enter the Indian retail market without too much of a threat from the big guys. In that sense, we probably may have a unique template where big retail can make a significant value statement to the Indian consumer, but not necessarily at the cost of the single shop. Worst case, that process may take much more years (even decades) before any such impact is visible.

Till then, happy shopping and happy retailing.