Monday, October 26, 2009

How will they do assortment planning!!

In the previous post, I was mentioning about a truly different store and next to it was another truly different store. A store selling Indian drugs (medicines).

Another interesting store which is different in terms of assortment and presentation.

While walking through this shop I started marvelling about the challenge they would face with regards to assortment planning and inventory control. Understanding such diversities of Indian Retail is what would help create a world class Retail mechanism in India.

The variables to be handled and managed are far too many and too complex. Yet, they do it and do it well. But, for 1 store or maybe a few stores. The challenge facing Indian Retail is how such interesting and disparate ideas can be scaled up using systems and processes.

This can be done and if anyone says otherwise don’t believe them!

Sunday, October 18, 2009

A truly different store!!

Have always advocated the concept of a truly different store and during a recent trip of mine I came across this interestingly different store. Please note the name of the outlet “Coconut World”. As customers we were driving past this place and after noticing this unique name, we made an U Turn and came back to visit this store.

Of course the expectations that this name evoked were very different from what we actually experienced. The name created an imagery of a store with a whole range of products made from coconut and related materials. We expected to see handicrafts, curios, food stuff, etc. (Hint, Hint – Maybe they should realign the assortment in line with the branding!!)

What we discovered was a small cafe kind of place (Note the rack of tender coconut on a rack outside) which served a lot of coconut related food items. To be fair to the store, they also had several coconut related products including a very innovative one; coconut pickle.
Now, that was one thing I never expected to find anywhere in the world; Coconut pickle. I don’t particularly fancy the stuff but my son says that it is the best thing he has tasted ever!

Which brings me to another point of my basic retail model; differentiated assortment. There is a huge potential to this interesting format. How it pans out is dependent on so many factors.

But, they have managed to attract attention and a share of my mind space by ensuring two elements of my basic retail model;
  • A truly different store
  • Differentiated and relevant assortment
Hope to see and share many more such stories with all of you, which illustrate how well the basic retail model works in real life!

Friday, October 16, 2009

Happy Deepavali/ Diwali!

Best wishes for a Very Happy and Prosperous Deepavali or Diwali depending on which part of India one hails from.

This is one festival or social occasion which not only unites the country (which even the myriad languages are not able to do)but more importantly, this is a true Retailer’s festival.

If anyone were to ask me what was a national day/ common festival or occasion for Indian Retailers, my unblinking reply would be Deepavali or Diwali.

Regardless of the mythology behind this festival which changes from Shri Ram’s return to Ayodhya to Shri Krishna’s triumph over the evil Narakasura, this is a festival which celebrates rejuvenation, hope, prosperity, aspirations for future prosperity and overall materialistic well being.

Is it any wonder that the festival is celebrated by purchasing all sorts of new things. It is symbolic of a new persona/ new beginning and an auspicious start.

Hey, all this is fine, but where does Retail figure in all this?

First of all, for most North Indian traders and businessmen Diwali is the auspicious start. I still recall the visits to the cloth wholesale markets with my father where on Diwali night, Laxmi puja would be done and the books of accounts taken from the Puja and a fresh set of accounts started. So, in that context, Diwali is definitely a trader/ retailer festival as it is unique to them.

At a slightly larger scale, pan India, the Diwali season accounts for anywhere upto 60% of a Retailer’s annual sales. Which other festival or occasion can come close to this in terms of Sales?

So, in that spirit – as an Indian and a Retailer, where Deepavali or Diwali is the biggest thing for most Indians, WISHING ALL MY READERS AND SUPPORTERS A VERY HAPPY DEEPAVALI/ DIWALI & A Very Prosperous Year Ahead. Special wishes to my Retail brethren, for the cash tills to ring continuously, loud and long during this festive occasion.

Friday, October 9, 2009

Intricacies of Indian Retail

This article of mine appeared in 'Retail &Leisure International', which is a UK based magazine in their Sept '09 issue.

The Indian market is a strong attraction for any marketer simply because of the vast consumer base. A population of billion plus, of which approximately a third live in urban areas and this is expected to go up to 40% by 2030. This is enough to make any enterprise worthwhile, especially retail and more so food retailing. Most international chains are looking at India keenly and waiting for the opening up of FDI eagerly to partake of this market opportunity.

However, there are several factors that an international operator needs to be aware of and more importantly build into their entry strategy, failing which, even after FDI opens up the going would not be smooth.
  • Competition – Apart from the thousands of corporate chain stores that now dot the Indian Retailscape, there are approximately 12 million conventional outlets. Of these, roughly 60% to 70% are grocery stores and a third is in urban centers. Taking into account the geographical spread of India, this simply means that there are far more number of stores in cities and they continue to offer a compelling value proposition, fronted by convenience.
  • Also, the conventional stores operate with a significant cost structure advantage as also generate far higher sales per sq. ft. because of their smaller size. Such stores would definitely not be able to generate higher margins as compared to chain stores, especially those who leverage global sourcing. However, the relatively higher sales and far lower cost structure would enable these stores to comfortably take on any competition in their stride. Therefore, any chain store would require a dual strategy to manage competition from other chain stores as also the large number of neighborhood conventional outlets.
  • The Indian consumer – The consumer behavior is changing towards increased consumption and preference for a better lifestyle. However, the core sense of thrift and caution has not been eroded completely and the recent downturn has made these consumers more value driven. So pricing and promotions are not just important, they are crucial.
  • Indian cities – Barring a few newer cities, most have grown and morphed over the years. A substantial part of this development happened without zoning laws and therefore the cities have residential areas interspersed with commercial development. It is only in the past few years that well defined residential suburbs have come about and even that has not completely removed residences from city centers. If a store wants to leverage all the relevant catchment areas, real estate costs are higher in most parts of a city. If the store network plans on averaging this by having stores in the emerging residential suburbs, the sales would usually be inverse to the rental and by that logic the average sales would be lower.
  • Supply chain – The sheer physical spread of the country makes for a challenge with regards to supply chain. Compounding this is the current taxation and levies which does not allow for a distribution center network that can be planned basis distance alone. However, the recent budget proposal to implement GST by 2010 is a step in the right direction and would go a long way in enabling chains to plan more efficient supply chain system.
  • Other statutory and legal framework constraints – Today a store needs to obtain as many as 20 – 30 different licenses to start operations and usually from different authorities. Similarly, there is a legislation called APMC act in most states which effectively prohibits direct procurement from farmers. Some cities levy an entry tax called Octroi, which indirectly forces a retailer to either set up a distribution center in a higher rent area within the city or incur higher transportation costs for store fills.
  • MRP – Although there are many instances of price regulation in the retail sector across the world, I don’t think any other country enforces the Maximum Retail Price (MRP) rule. This price is printed on product and is applicable on all packaged products. This price is used to calculate certain taxes and manufacturers peg the margin structure with regards to this. As a corporate entity any chain store does not have the luxury of selling above this price and hence it acts like a glass ceiling. Even in high cost locations where the catchment might not be particularly bothered about the price, a retailer can sell only at MRP, whereas in price sensitive areas one is forced to discount, especially for KVIs.

I guess by now the reader would have concluded that my secret mission is to deter any international retailer from entering the Indian market. However, that is not the case. My intent is to portray a realistic picture that balances the huge market potential of Indian Retail with the ground realities that one would have to manage.

My suggestion to any international operator watching the Indian Retailscape with the intent of future entry would be to do so immediately leveraging the Cash & Carry route, simply because it is now immediately possible and would enable any retailer to build a ‘game changing’ back end infrastructure.

Take the food segment for example. It is no use focusing only on distribution centers, transportation, etc as an entry strategy. This would address only 60% to 70% of the household consumption in terms of CPG/ packaged products. Also, given the MRP scenario, there is a limit to how much value can be generated by focusing on the supply chain of these categories.

30% to 40% of Indian consumption is basic staples and grocery items as also fresh produce. Significant work needs to be done in this sphere to extract value from the supply chain. Being dependent on the same wholesale/ semi-wholesale chain with marginal infrastructure at the tail end will not help. Paradigm changing initiatives like end to end cold chain, cooperative/ corporate farm, etc. should be explored and indulged in to extract the value that is present, but is now lost due to damages and intermediaries. The APMC act not withstanding, such initiatives are possible and would provide a competitive edge to any retailer.

The game changer for a new entrant would not be setting up yet another store with maybe better facilities but in offering a significantly better value proposition. And for that, the key would be the back end.

Moving away from the food segment, several other product categories have not even been explored; Home Improvement being one. Housing being a key aspiration for Indians, the economic recovery will definitely see a boom in this sector. A retailer who understands the intricacies of Indian Retail would only stand to garner a major share of this boom.

In summary I would state that bring on the global best practices, but Indianize it for it to work, and it will.

Friday, October 2, 2009

Consumer insights; I don’t know how to make the right choice!

Whenever I address any audience with regard to Retail - I am fond of making a statement which inevitably provokes a reaction of shock and disbelief - the statement being - that most of us are not qualified to purchase products. This is not an off the cuff remark, but based on my customer experiences over the years across product categories. Some examples:

  • I have seen ladies sift through rice and hold it up and sniff at it. Most cases when I have asked, they could not tell what exactly they were looking for! This is not an issue of not being able to articulate. This is simply a habit.

  • Even today when one buys vegetables which are not packed, there would be a significant number of ladies fingers which have been mutilated and left behind! Again habit based on an assumption that only those whose tips snap away sharply are tender and worth buying. This particular habit is comical and irritating in equal parts when one sees a customer busily snapping away at the ladies finger and then tossing a few aside for others. I have checked some of the ladies fingers which have been so disdainfully rejected, only to find that they are as good as the others.

  • Customers purchasing furniture in many cases tend to knock on the wooden surface as if it was an occult material that would yield up secrets. These same customers would be completely lost when asked about MDF. The extent of their information is that the furniture seems to be solid (Usually meaning, made of wood) or otherwise (Which means, it is usually particle board)
    And so on and on.
The reality of the matter is that we tend to get very little information with regard to the products we purchase. We are exposed to a lot of information which are usually claims. However, we rarely get unbiased, objective information that would enable us to make a good purchase decision.

In many cases like the rice and ladies finger example our purchase is driven by ritualistic behaviour which is not understood and therefore not questioned.

Although, the extent of such uninformed buying depends on category, the most vulnerable is grocery - simply because in the case of most other product categories like electronics or apparel there is a benchmark in terms of various brands. In fact my view is that the concept of brands is itself largely driven by this ignorance and therefore the consumer needs to be reassured.

How does this influence retail?

Any retailer who understands this and follows a practice of doing things which would help address, allay and comfort the customer will be ahead of the game.

An obvious action point is to accept replacements and returns as mentioned in the earlier post. The more enduring step would be to engage the customer and educate the customer.

It could be simple things like circulating small pamphlets or leaflets about the product, signage or VM in the store or ideally by organising interactions with customers which would engage and educate the customers.

I have chosen to post this topic on Gandhi Jayanthi because there is a connection. His quotation about customer service (Customer is the most important visitor on our premises and so on) which is often bandied about can actually lead to customer disservice if not understood well. If one understands and internalises the universal truth of that statement then there starts an inherent conflict. We assume important people to be informed and knowledgeable, which is not the case with most shoppers. Hence, there is a dilema and retailers often swing to either extremes of becoming patronising/ condescending or becoming servile assuming that the customer knows best.

The ideal approach in today's context would be to internalise the statement of Mahatma Gandhi and execute it keeping in mind the customer insight mentioned above in this post.