Wake up, Wake up, Government of India

In a recent article about supply chain as also in several other forums I have been talking about how the recent price increase of food articles is hitting the consumers without benefiting the farmers and producers. What does it mean?

The long winded supply chain is possibly the key reason behind the price rise.

The constituents of this chain protect their margin without adding any value and in the light of increasing volumes, the wastage also goes up. So, who ends up paying for it? The consumer. While the poor farmer still gets his meager few rupees per kilo as farm gate prices!

Am I talking through the hat? Not really.

Way back in the late 90’s the price of onions shot up to an extent that the central government was reported to have been shaky due to it. During that period the RPG Foodworld stores sold onions at retail prices which were significantly lower. Was it sold at a loss or at lower margins? Not at all.

Smarter sourcing and better supply chain ensured that the chain was able to offer this value to consumers.

This view has been endorsed by the recent India Today, which talks about how fruit and vegetable prices can be managed and moderated by enabling Indian Retail.

Wake up, Wake up policy and legislation makers. It is time to take Indian Retail forward!

An idea whose time has come?

On the 4th of Jan 2010, I got up to face the first working day of the year and decade. After a nice vacation with the family the obvious tinges of blues in the air while I was wading through the news paper. I turned the pages and suddenly my brain went into overdrive and all thoughts of blues or greens vanished when I saw the cartoon as shown below.

I saw this interesting cartoon in “The Hindu” and was struck by how wonderfully the cartoonist has captured the essence of an article of mine “Mobile and Different” which was published last year in May ’09.

- Mobile and Different

Either the cartoonist has read the article and the thought was powerful enough to inspire this cartoon or he has seen and heard of expectations and indications from consumers and vegetable cart sellers and feels that the trends indicate such developments.

Either way, looks like the idea mentioned by me in 2009 is interesting and might even see the light of the day as its time seems to be coming, if not having come!

Cartoon courtesy: The Hindu dated 4th January 2010

Supply chain tangle, untangle

Consider the picture above which tell the story of supply chain management challenges in India, so poignantly.

The large land mass with poor and in some cases nil infrastructure is challenging enough. Add to that myriad taxes and levies that are imposed from state to state. GST which was supposed to have been introduced from April 2010 appears to be delayed.

The variance between farm gate to end consumer price can be as high as 4 times for tomatoes largely because of damages which could be as much as 40%.

In isolation all these statements and nice numbers make for lively discussions and debate. When one sees a picture of a truck with paddy being ferried on a barge the reality of managing supply chain in India hits a person, hard.

Are there any solutions to manage this, apart from the clichéd statement of setting up distribution centers and transportation management?

I think there is a possibility to address this in a very different way and have written a detailed article about it, which was published recently in the Business Line, Brand Line. Pls click on the following URL to read the article.

Supply chain tangle, untangle

Photo courtesy – The Hindu.

Making a mountain out of a molehill

The “Global Retail Theft Barometer 2009” report has led a flurry of news reports and yet another opportunity for India bashing. Headlines like “Nation of shoplifters?”, “Indians are world’s best at shoplifting” make for attention grabbing news while the more balanced publications still did succumb to headlines like “India No. 1 in Retail theft”, “India tops list of shoplifting nations”, etc.

This is a classic example of misunderstanding or maybe even misrepresenting facts to create a distorted perspective. In that context, let us do a reality check by examining certain facts without colouring them in any way.

First is the study itself. This is based on a confidential survey of only 1069 Retailers, although 4,200 large retailers were supposedly contacted. Which means that 75% of those contacted did not reply or participate in the study. I wonder why?

I have tried to see what kind of a questionnaire was used and am unable to access a copy online. So, will limit my view to the simple fact that one cannot, I repeat, one cannot effectively measure theft. At best it is an opinion expressed. What a Retailer can measure in the difference between physical and system stock. How can this be segmented with precise percentages between theft and other reasons.

There are various components of shrinkage. Wrong receipts, Wrong billing, Inaccurate stock audits, Unaccounted breakage/ damages and of course willful theft in transit or by store staff or customers. Any retailer can first of all only measure the overall shrinkage and even that is a guesstimate in the case of many operators. To expect them to be able to measure the component of shoplifting is incredibly hilarious. I just loved the decimals in the figure of 45.2% of shoplifting and 23.3% employee theft! It does create an aura of absolute accuracy.

So, it means that the entire range of system and process related issues are responsible for only 31.5% (Note the decimal point!) of the shrinkage. Having been in the industry for so long this is incredibly unbelievable. Most Retailers would state that their fill rates hover between 70% to 85%. In a context where system inefficiencies cannot ensure optimum stocking, to state that the contribution of system/ process errors is far lower than theft is at best wishful thinking.

Only the shrinkage figure of 3.2% has some validity because it is objective and is based on reality. In fact even that is suspect in the case of certain operators who do not have a robust stock audit system in place.

Let’s retain some objectivity when reviewing such reports and not get carried away by fancy headlines and provocative reporting.

Whai arhe bhe insiting on Enghlish!

I have seen Chineese food on a menu which also had an offering of Mashroom XXX!

I have seen Hotel Vegetable and Non Vegetable!

I cant figure out this fixation with English, especially wrongly spelled and mispronounced.

I have interacted with service staff who would rather speak complete nonsense because of bad pronunciation and wrong usage of words, even when addressed in the vernacular language.

Why?

Maybe the HR and Training executives need to wake up and realise some ground realities and home truths!

Most service staff especially in Retail are from economically challenged backgrounds (Politically correct term for poor people with limited or no exposure)

They are further subjected to training programs which are full of PowerPoint presentations and lots of Enghlish!

Is the unsaid and subconscious conditioning that, we want you to be like goras!

Service is service, regardless of the language used to deliver the same. I think that it is high time that staff were trained in vernacular languages and the focus should shift from language to service orientation and service delivery.

Recently when I went to Yercaud near Salem to train a bunch of youngsters on leadership, I experienced a superb example of a person’s pride in vernacular language. While waiting for the train in the night I wanted to use the wash room and walked up to the nearest platform shop and enquired where the wash room was and then said thank you after getting the directions. The person replied in Tamil “Nandri, Vanakkam”. Which loosely means thanks and regards. I am impressed and obviously this interaction of a few seconds left a strong enough impression in my mind. This person has chosen to prioritise the communication instead of the language and in the process ended up communicating far more powerfully than if he had replied with an accented welcome!

Internationally speaking, the French are proud of their language and so is the case with many other countries. Why should we bend over backwards to prove that we know better English that most others, which is also incidentally the fact!

Conversely, if a large tourist group of Indians lands up in California, should they expect to be addressed in Hindi or Tamil or Telugu or possibly all Indian Languages.

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!

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.

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.

Consumer Insights; Am I doing the right thing?

“Nice to see, but consider it sold if broken” or “No replacement or return of any items once purchased” used to be standard caveats in many stores a decade ago. I was shocked and surprised to see the ‘no replacement’ warning on the bill recently and started wondering if we have progressed at all with regards to consumer rights and consumerism.

I could not understand the concept of no items can be replaced or returned. This smacks of totalitarian attitude and assumes that the customer is actually more of a “con” sumer.

In that context the kirana store’s attitude used to be and is still a refreshing change. Many a time I have seen products including bags of rice being sent back and the same being replaced.

How does the kirana store owner manage to do it whereas many larger stores are afraid (Yes, afraid!!) to extend this basic customer service?

Simply because the he is a far more astute businessman completely tuned into the basic psyche of a consumer. Almost everyone has experienced the phenomenon called post purchase dissonance. Which basically translates into concern/ worry/ dissatisfaction with regard to the choices made and the product(s) purchased.

The Kirana guy eliminates this by giving the customers a psychological comfort which over a period of time grows into the foundation of his business - the trust of the customer - and therefore a habit to purchase from that store.

Most Corporate Retailers have taken this lesson, but whether it is to heart or is it lip service is something that I leave you to think about. The reason for my ambivalence is, although most of them have a replacement or returns policy, the on-the-ground experience for a customer who wishes to avail this is still not a very pleasant experience.

The usual culprits - internal policies, procedures and paper work ensures that the staff are apprehensive in extending this without any questions asked and in the process make the entire consumer experience most painful.

Lastly, if I don’t have the confidence that the retailer would support me in my moment of post purchase dissonance or even a genuine quality problem, would my loyalty be with that retailer?

Very doubtful.

Mobile and different; an innovative Retail Idea

The next article in my series about a sustainable retail model, focussing on the basics was published in 'The Hindu Business Line', today.

The article deals the first element of the model; A truly different store. An idea is presented for the readers to think and comment upon. Technically speaking it is not a store, but it is definitely a retail format worth exploring for India!

Click on this link to read this article -

- Mobile and Different

Please do post your comments on the feasibility of this idea.

I would be personally delighted if any corporate or entrepreneur decided to experiment with this model and will be happy to provide inputs.

Home Improvement - The illusion of low labour cost!

We Indians are a DIFM (Do It For Me) type of customer when it comes to any kind of home improvement project. DIY (Do It Yourself) is an alien concept given the over abundance of labor in the Indian context. However, is it sustainable?

Traditionally the majority of urban Indians require an electrician to replace a blown fuse and therefore obviously the support of a plumber, carpenter and so on. Hanging a picture in the house is a major project because we need a carpenter for that! Why is that?

First and foremost, we are not taught even the basic skills required for some of the home related repair and maintenance work. And we don’t take the trouble to acquire these skills because of the existence of the neighborhood electrician/ plumber, etc. Therefore, we also don’t have the tools required to even do simple things like changing the fuse!

Secondly most neighborhoods have a hardware shop which has a resident plumber and electrician. These people are not employed by the store. They just use the store as their base of operations and a contact point. In return the sales generated due to the work they do is monopolized by that store. So, it is mutually dependent and creates a self sustaining cycle between the customer, the skilled worker and the store.

Lastly, given the cost of a proper tool kit, hand drill, etc., and while balancing it against the occasional repair needs as also the on-call low cost labor, most Indians prefer DIFM.

This is fine when paying a few hundred rupees to do minor stuff. Recently, the capacitor of one of the ceiling fans gave up. To replace the same we paid Rs. 75/- to the electrician who had come plus the cost of the capacitor. Even assuming that the price of the capacitor would not change, if I had changed the same, there is a savings of Rs. 75/-. Why did I not do that? Urban dwellers increasingly trade off money for time (Read this article about this concept - http://www.blonnet.com/catalyst/2003/05/08/stories/2003050800080200.htm). So, in my view the cost of the electrician’s time was far less than the value of my time and the required effort for this.

But, this also leads to conditioning and repetitive behavior. Even if I knew something about home improvement, I soon lose touch and my dependence on the skilled workers increases and thereby my latent need and dependence on contractors also grows, for larger home improvement jobs.

Now, imagine a slightly larger in scope but simple enough home improvement work. Painting your home or even one room! It is actually a simple enough job. One needs to sandpaper the walls and then paint the same. It becomes ridiculously easy of one were to use a roller instead of a brush. Yet, we usually ask a contractor to do this job.Ask anyone who has had to manage even such a simple job and there will pour forth a litany of complaints about how the painters usually did not come on time, made a mess and often left without cleaning and so on. If one were to calculate the cost of the time and effort required to follow up, supervise, clean up, etc., one would realize that the actual cost of the job was far more. Therein lies the irony of the supposedly low cost labor and completely undermines our main rational for being DIFM instead of DIY.

" IS INDIAN RETAILING A TITANIC which has already hit the iceberg ?

A reader of the blog has posted this query and would like to share my views regarding the title -

First, Corporate Retail like any industry is going through the typical adolescent phase. Like all teens, who want to be an adult but are still young adults at best, Retail in India is still finding its feet.

The moot point is is there any any success formula which was missed out? I dont think so. Please consider the following facts -

• Most Corporates who entered Retail have a wealth of experience in manufacturing and a few in some services. Retail is a very different ball game. It is the true example of 'Think Global Act Local'. And, this is easier said than done.
• Yes, several expat managers flooded Indian Retail to help set up this industry. The reality is that India and Indians are not easy to understand. At best we can be managed! I remember when a foriegn retailer opened a hyper in Mumbai in 2003, they had a huge section of home improvement, inlcuding an entire run of paints. Do you think that the Indian managers would not have pointed out that this category does not sell like this?
• Lastly, if one were to do a search on Linked In for Indian Retail, there would be hundreds of profiles today. Only a handful would have deep enough retail experience that spans more than even a decade.

So, what do we have;

• A booming economy
• Money to invest in an exciting new industry
• Lots of people pulled from various industries.

Mistakes were bound to happen. Then came the slowdown. Demand dropped, funding dried up, debts became an issue, working capital was tight.

The good news is that this has made everyone sit up and start trying to correct their mistakes. I am not for a moment saying that everything is now fine and its full speed ahead. But, at least realisation has dawned that Retail is not as easy as it looks. It is not complicated, but requires tremendous attention to detail and focus on the basics.

In Retail it is always a chicken and egg story. Do you build scale, aggregate volumes and then put in a supply chain or do you invest in a supply chain and then work towards aggregationg volumes by opening stores. There is no right and wrong answer to this.

Today most operators have built scale and are focussing on building up supply chain capabilities. It should work.

Lastly, why this reaction to the current issues in Indian Retail? Firstly, it was over hyped and closely followed. Secondly, unlike in a manufacturing plant where the initial issues remain known only internally, in Retail, everything is visible to everyone.

I dont think this has hit an iceberg or its on the way down. Anyways, we are all going to be around and lets see if my understanding of Indian Retail has enabled a proper prediction.

India Needs You

In spite of a high decibel public awareness campaign about voting, it is disheartening to see lower voter turn outs in most states. Of course, there is an increase in the young voter numbers. But the larger voter turnout among this group seems to have been canceled out by the smaller number of voters from other segments.

Why can’t we realize that voting is not optional?

Please read the complete article on - http://tickledbylife.com/index.php/india-needs-you/

If this is True, its a shame.

Being the passionate voter that I am, I have been chasing after the appropriate authorities to get my voter’s photo id card as there is an ongoing campaign of verification and reissue of cards in Chennai.

Over the past few months we have submitted our passport pictures FOUR times. The first couple of times vague people came to our home and collected the pictures after showing us documents validating our name and address.

Once I even has the ID card of the person who had come to collect the pictures scanned and took his acknowledgement on a printout. Subsequently when someone else came asking for the pictures again, I showed this acknowledgement. The response was a casual shrug and a simple; give your pictures if you want the photo id card!

Yesterday, yet again we had a person coming and asking us for the pictures and we went to give the same to a corporation office today morning. His crib about the additional responsibility and nonchalance about what might have happened to the earlier pictures was a reality in Indian government service.

As part of the cribbing this person told us that the election commission has for the first time officially notified that compensation of Rs. 5 and 10 Lakhs would be given for those on election duty in case of disability or death respectively.

If this is true, it is a sad. The good part is someone is sensitive enough think of compensating a person’s loss. But imagine the implications of this.
Most government officials on election duty are drafted into this and have to do the same apart from their regular work. What would be their motivation to enforce a free and fair election if the underlying threat of disability or death has been officially acknowledged?

My discomfort is not with the compensation for loss, it lies with the acceptance of violence in elections. A process which is supposed to reflect the choice of the country is becoming a sham. Educated people not voting is adding to the problem.

Its a shame.

P.S. - Like Major Bhargava commented on a previous post of mine. I am not giving up. After all I have only one counrty! I hope you all dont!!

Voting is not a right, It's a DUTY

I often feel ashamed of being a part of the educated class in India. We are a pampered lot (In a lot of ways) and it shows up most obviously on election day. For most, its a glorious holiday!! The reality that people don't do their duty has made companies now declare it a working day, with a few hours permission at best.... Supposedly to vote!!

We read news papers, many a magazines and are also active on the net. I witness the enormous amount of appeals, comments of outrage, opinions, etc., that flows through my mail box and group messages daily.

One question. Did you vote? is like the school bell, suddenly rendering everyone speechless or rather text less....

A few brave souls reply with the obvious justifications like; Whats the use? Everyone is as bad as the other and so on.

I have only 2 views about this -

1. This is our duty. In return for our identity as an Indian, the least we can do is VOTE. Ask the people who live in non-democratic countries what a luxury this is. We are given this right and duty by our constitution and yet most fritter it away.

2. Now I speak like a retailer. Do you know how to increase the margins of a category or a store? You focus on the relatively better margin products. Slowly and surely the margins move up. It does not happen overnight. But it happens. Similarly, I agree that the choices are not great. But, support the lesser of the evils. Slowly and surely the message will get through and the bar will raise.

I sincerely hope that the coming election is a landmark in Indian history because the educated class voted and they defined the standards we want for an India we want to leave for our children!

Postscript - Another excuse albeit a genuine one! I don't have an election card and it is too difficult and time consuming to get one. And my response - Anyone who says this should never ever bother about a gas connection, ration card, driving license, passport, etc. If the person has any one of these, we all know the effort required for that. Cant that person expend the same as a duty towards the country?