Tuesday, June 2, 2009

Is Retailing being redefined?

I have been taught and have also seen it in experience that Retailing is more about the back end. It is all about aggregating volumes and leveraging this to generate value. This value helps manage the differential cost structure of a Corporate Retailer as also enables passing on some of the same to customers. The whole cycle of value creation and bettering the value proposition gets more customers, which in turn enables increased levels of volume aggregation. This helps in establishing a sustainable business cycle.
A few days ago I saw a press report titled on how Retailers now prefer to buy from wholesale markets (New Indian Express article – Retailer Shun Direct Procurement). Frankly I was flabbergasted.
If this is indeed the thinking and reality, all I can say is that it is fraught with dangers.
  1. Everyone, including the street cart vendor purchases from the wholesale market. I agree that the volumes purchased by them Vs a chain of stores would give some price advantage to the chain. Whether the advantage is large enough to compensate for the cost structure variance and yet offer a meaningful value proposition to the customers is a huge question mark.
  2. Such ideas only further arm the anti-corporate retail voices. Their main grouse has been that conventional traders would be wiped out in the short term without any sustainable long term benefit in terms of development of agriculture, cold chain, etc. When corporate chains also start being dependent on the wholesale, one only further strengthens the existing the supply chain instead of making a meaningful change.
This seems to be a short term fix-it approach with only the current operating cost being the primary consideration. The past few years have seen massive expansion of the number of stores and distribution centres. But, has not been matched with grass root level efforts to aggregate value and truly make a difference.
I am reminded of a couple of corporate efforts who did this and they have reaped rich rewards. One that comes immediately to mind is the corporate supported sunflower cultivation when sunflower oil started becoming a big thing in India. There are lots of similar stories.
If Retailers pursue private label to leverage volumes and reduced cost structure of such products, but depend on the wholesale market for fruits and vegetables, there is a clear dissonance in strategic thought. This is akin to saying that I will purchase from the stockist and distributors instead of negotiating with the manufacturers to build long term value.
I am reminded of the milk revolution started by Dr. Kurien (who was later sidelined by corporate!!). Right now India needs a fruits and vegetable revolution. It needs a GREEN REVOLUTION. A comprehensive cold chain is needed, along with enormous inputs and support to the farmers.
Corporate Retail was supposed to be the answer. If they also follow the same wholesaler route, who will now make this difference?


Sudhanshu Pant said...

As I understand it, the organized opposition was led by wholesalers, so this may be a way to reduce opposition to the entry of organized retail.

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