Saturday, March 21, 2009

Small format wins

This was a piece I wrote in April 2006 when the "FDI in retail" debate was at it's peak, about how Kirana stores would always thrive. Is this relevant even now after 3 years?

In the Indian Retail Scenario, the small format neighborhood store will continue to flourish and grow, midst all the large format discounters. This has been so in most developed countries also. In fact, this development that will sustain any cash and carry operator as this segment next to the hotels is core to any cash and carry operator.

This is because of some very specific factors in the Indian socio economic and physical environment. These are –

Real estate costs and location – Large format discount food formats would have to look at operating in the suburbs, simply because of the rental structure in a CBD. This has implications in terms of a trade off between location and size, which then affects range. Of course formats which leverage the higher margins of general merchandise and offer food as a marginal range might be able to trade off and survive in city centre locations. But for how long is the question in the face of rising real estate costs.

Gap in supply Vs demand of real estate – Linked to the above factor is the gap in supply vs. demand in real estate. This is bound to put pressure on any retail operator with regards to the cost structure. In this context a pure discount led food format, especially a large store would be very difficult to sustain in a sustained manner.

Car ownership – Even with the explosive growth seen in recent year’s car ownership remains much lower than in the west. Take the case of dual car ownership and the situation is even bleaker. Driving to a suburban location, while juggling various other chores and duties would always be a dilemma. Especially, if there are small format stores offering good value in the immediate neighborhood.

Emerging lifestyle – 24/7 is a lifestyle most working couples are embracing if not by design then by default due to the pressures of work. This has redefined the priorities and preferences in a significant manner in most cities. Free time is precious and people choose to spend it in recreation and entertainment instead of engaging in activities that are boring, routine and stressful. With the initial novelty of a supermarket store having worn off, the primary value expected from these operators is one of convenience. It is a trade off between convenience and comfort vs. savings that will determine the choice of going to a large format vs. neighborhood store.


Navendu Mahodaya said...

Hello Rajesh,

Your analysis is correct, neighborhood store will continue to stand and serve the locality. Consumers will continue to subscribe to its value proposition.

Navendu Mahodaya
Moderator: Cool Retail

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