Tuesday, April 28, 2009

Cash and Carry; Is this format the dark horse to pip the post?

India is a land of traders. And also small businesses. As also eateries.

That shows that the 3 main customer groups that a cash & carry store targets exists and exists in large enough numbers. But is that enough?

Let’s examine eateries first. Most eateries serve the Indian staple of Iddly, Dosa, Chapati, Puri or Poha for breakfast and meals for lunch or dinner. These are all made fresh and offer limited scope for mass production either in a heat-&-serve or ready-to-eat manner. To some extent batter or dough for these items can be mass produced and sold. However, how much of a value add it would be vs incremental cost is a matter of debate. There exists a niche in the HoReCa segment. The large hotels and specialty restaurants might find value in certain offerings like imported food, wine, liquor, etc. Is that enough to sustain an entry strategy into a country like India? No!

Small businesses thrive on network and connections, not only for business but also for their purchases. They might perceive value in a cash & carry offering and patronize the same. However, they are not the focus from an international perspective. So, when international operators start cash & carry stores, they would not be deciding on the ranging strategy basis this segment.

Last but not the least is the great Indian trader/ retailer. Approximately 12 million of them, of which almost 2/3rd is in rural markets. India also boasts of some of the most intensive distribution systems by companies like ITC, HLL, etc. and yet almost 1/3rd of the retail outlets are not serviced by this system. They manage their supply chain through the wholesale and semi-wholesale markets depending upon their size of operations.

My guess is that these retailers would be the secret behind the success of cash & carry stores in India. Subject to the following ground level realities –

Access - The cash & carry store has to be in the outskirts to leverage lower land costs. Public transportation is not one of the strong points of most Indian cities. However, the existing wholesale markets are usually situated near the public transport hub. How can the trader come to the cash & carry store, with minimal effort and cost?

Assortment - Small semi-urban and up country traders are regular visitors to any city’s wholesale market. Their ranging would be different and predominantly include Beedies, coir ropes, etc. Would cash & carry sell beedies and coir ropes?

Price/ promotion – The wholesalers are amongst the most networked in India. They leverage trade schemes and offers across states to ensure very fast turn around of stock at minimal margins. Cash & carry stores need to be extra responsive with regards to pricing and promotions. For the trader customer, his loyalty follows the next 0.1% extra margin he might get!

Yet, in spite of these constraints, there exists a chance that Cash & Carry might end up pipping the post in the first round of corporatization of Indian retail.

9 comments:

Akashagarwal said...

HI VR,

an interesting article. we have been dealing with Metro cash & carry and when we spoke to walmart for their cash & carry business, it appeared to us that how is it that walmart will manage to survive lets forget growth in India with their people not looking at the huge possibilities that the market offers. in my personal opinion, walmart in india has already written their death story.

Akash
9810193424

VR said...

I would not be in such a hurry to write off any of the retail operators!!! The jury is still out with regards to the future of Indian Corporate retail.

Manasa. M.P said...

I think Cash and carry system is preferred over franchise and JV by many international Brand today entering Indian market. One if the example is Decathlon sports- worlds seconds largest sports retailer (French) today is in Bangalore with B2B service.

Manasa,

Vicky said...

With my limited retail exp, one proposition of wholesale markets that cash and carry or for that matter any retail format has not been able to beat so far - 100% availability of all products. Simple as it may seem but no organised retail can match the range, variety and availability factor of an indian bazaar.

would really like to have everyone's views on this.

puresunshine said...

i agree with vicky. i think retail for the general junta has to penetrate deeper and once that is achieved, one can see a brighter future for cash and carry. beating the indian bazaar, even a tiny 300 sq ft shop, is sometimes a challenge.

Anonymous said...

is retail in india in the rising stage or in the decay stage???

Anonymous said...

The success of any retail chain is based on the backend and strong supply chain and both are in real bad shape in India .Be it cash & carry or a super /hyper format i seriously doubt if any of them will succeed as operating costs are high and store proposition almost all of them appear confused .

The format which will succeed in India as of now will be category killers / speciality retailers in apparels , electronics ,lifestyle etc. Already about 15-20% of sale is coming from modern retail in these formats and customers are more confident to buy from modern retailers for these products . The reasons could be touch ,test and try benefits , after sales and ambience .

My question to Rajesh is " IS INDIAN RETAILING A TITANIC which has already hit the iceburg ?

Anonymous said...

I would agree with the comment by one of the fellow members above. If a strong SCM of a good assortment can be maintained and the prices are fine; the work is done. The other, of course, overheads cannot be ignored; but again am assuming that the cash and carry format shall be professionally managed.

Sandra said...

Interesting article and interesting comments, I just want to say that everythign is and will be about Pricing and Promotions as Rajesh already told!
Thanks for your interesting and informative articles Rajesh. Have a great day!

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