The FDI Decision

Late in the evening on the 24^th, I suddenly got a flurry of SMSes congratulating me about the FDI opening up for multi brand Retail. I was puzzled and also a bit amused. Puzzled because we are used to seeing many such decisions being watered down or even rolled back in the face of a larger issue where FDI regarding Retail might be sacrificed.

Amused, because of the premature celebratory mood. Of course the fact that the government has at least taken a stand now after going back and forth for years now is a cause to celebrate but is there enough in this cabinet decision for such an upbeat mood?

Well, I have my scepticism about this decision.

Firstly, the trend in the past few years has been the domination of coalition pressures on decisions. I will wait to see whether the adjournment of parliament extends to the next week and causes enough furore for any dilution or even roll back of this decision.

Second, this decision has already been announced with a major catch. The trade and commerce minister has gone on record stating that the final ground level implementation will be the state government’s prerogative because trade licenses, especially Shops & Establishment Act comes under their purview. What exactly does this mean? You are welcome to bring in big bucks, set up a corporate office and get a senior team in place. Then, go around to each chief minister to beg & plead to open stores?

Does this sound practical? In the current context only the Punjab CM has extended support to this decision. Most are silent and obviously some are vocal in their opposition. This has some very troubling implications.

Second are the various riders. Obviously the powers that be have very little clue about Retail and many of these conditions seem very food & grocery Retail specific. For example, take the clause of sourcing a third of products from 'micro and small industries’.  Take Toys as a category which hardly has any noticeable modern trade presence. If an international operator enters the country, 30% of their range has to be from local small scale industries or artisans. Sure, you can include the wooden toys of Srirangapatnam and a few such regional specialities. Will this add up to 30%? I don’t think so.

Does this enable at least the food and grocery formats properly? No. Take the other factor of 50% of  the investment needs to be in the back end. Contrast this with the reality of limitations like the APMC legislation, varied taxation and octroi, etc. What use will this back end be if there are other constraints that stop such chains from sourcing effectively?

What is the logic of limiting these operators to the top 50 odd towns based on population out of close to 8,000 towns in India? In fact this is an oxymoron to the arguments for allowing FDI in terms of employment generation. Should at least a part of these chains be mandated to open in regions which need local impetus? Then there will be overall growth of that region.

So, all I can say is so far so good. At least there is now a decision around which debate can be built and hopefully meaningful improvements to the policy made.

Lastly, there is an urgent need for experienced Indian Retailers to be involved in this and not only as providers as opinions. That would ensure some method to the madness and bring to fore a far more important and pressing matter.

When is Retail going to be accorded an Industry status?

Tier 2/3 towns come of age for Retailers

Almost a year ago I was in Tanjore to teach at a business school there. I noticed a few things about the Retail scene there, namely the presence of a few national chains of supermarket. Also, the consumer base was present and the latent need for a better shopping experience was evident in my interactions with people.

I happened to visit that town again after a few months for a wedding and was amazed at what changes can happen within a this period.

Obviously the consumers, shoppers and the Retailers of this town had caught up with their peers across the world. Some noteworthy observations –

Smarter stores – The stores seemed brighter with better signages and also more inviting. When I stepped into one such store the change was obvious. There was better lighting, the merchandise was presented in a more inviting manner plus the personalized service. It made for an unbeatable combination.

Wider range and assortment across categories – Apart from packed grocery, the shelves had a wider range of products be it processed food or some new and interesting home ware product.

Advertising and promotions – The local TV/ cable channels were filled with advertisements of the local retailers across categories. Supermarkets were shown with very appealing self service shelves, furniture, CDIT, you name it and it was there.

Focus on shopping experience - The underlying theme across all these advertisements was the service factor with the personal touch being highlighted in several ways.

All these and more made me accept the reality which I have spoken about often enough and even mentioned in my book "The INDIAN reTALEs"; tier 2 and 3 towns are the future for Indian Retail.

Lastly, the sad reality that national chains are losing out! This was a fact that I could not ignore and if the management of these chains are true retailers, they also will not be impervious to this fact. A simple example to illustrate this reality - a supermarket of a national chain situated on high street has its signage in a sad state. The letters of the signage were missing. If one were to ignore this and enter the store, it was dark, dirty and offered a pathetic shopping experience. Obviously the store manager is either too busy fighting other fires or is just not motivated enough to create a sustainable alternative to the shoppers of this town.

So, in summary what is the take out?

• Be aware of the potentials of such towns and leverage the same.
• Ensure that the staff are motivated enough to leverage the existing potential, especially in such towns which are outside the ambit of corporate networking and also offer several other local employment opportunities.
• Most importantly, hire locally and encourage local ownership in terms of staff profile and empowerment. Increasingly good management and other educational institutes are there in such towns. So finding good talent locally is not difficult and will also prove beneficial as retention would be easier.

A simple reality needs to be kept in mind while handling such local competition. The physical and visual attributes of a store are the easiest to match. Coupled with personalized service the local Retailers have a good competitive alternative. A great and appropriate merchandise with reasonable prices is the core competitive advantage that national chains can and must leverage.

Reality Check!

I stay in one of those relatively quiet streets which does not have too much of traffic by virtue of it being a cul-de-sac. The other side of the coin is that the street is targeted as a free parking spot by everyone who knows of its location.

We often used to find that autorikshaws would be left parked through the night and they would then disappear in the morning. Given the current scenario where one never knows what danger lurks in such unknown vehicles the residents complained to the traffic police and they finally got the autos removed.

It was quite a surprise to learn that these autos were owned by a flower vendor. I shall come back to this.

Today morning while out for a walk I saw a person come in a scooter, park it, open a Maruti Van and get ready to drive away. I stopped this person and asked him who he was and why he had parked the van in the street? He said that the van also belongs to the flower vendor whose autos had been removed. He further explained that they park all the vehicles here as it was safe!

Now, this flower vendor typically stands outside a supermarket on the main road and sells flowers which are piled up on a wicker tray, mounted to his cycle. His typical bargaining point is how a few rupees will not make a difference to the customer but is a big difference to him. The poor guy!

This poor guy owns a couple of autos, a Maruti van, a scooter and that’s only what we have come to know. Obviously he pays no sales tax or any other government levies although he uses all the civic amenities. As often mentioned by me, I do admire the business acumen of these Indian traders. At the same time, it is such smart and savvy people that the government wants to protect because of which the FDI debate is raging.

If FDI is allowed and corporate Retail grows there will be more accountability, increased tax inflows and more credible employment opportunities. Why are we avoiding this step forward?

In this context I had participated in a panel discussion about this topic organised by SSN School of Management & Computer Applications and The Business Line Club. (The coverage about this event can be found on this URL - It wont be a cakewalk for foreign retailers). One of the participants asked the mandatory question of whether FDI will kill the small Retailer. I do wish I can bring him and introduce him to the poor flower vendor who owns a few autos, Maruti van, etc. etc.

Leveraging Catchment Area Analysis

Continuing along my recent theme on Customer Service, there is an excellent tool to enable great customer service. This is the detailed analysis of one’s catchment area.

It is also one of my favourite training sessions, which is a big hit with participants as this topic can be conducted as a conceptual program or a action plan oriented workshop. Till date I have conducted this session for the staff of several Retail organisations.

Recently I witnessed a store staff lose out on one such opportunity to create customer WOW and gain further loyalty. I have written an article on this topic, which has been published in “The Hindu Business Line”.

This is the link to the article - Who's buying what in your area?

Please do share your comments about the article.

Creating Unsustainable Expectations

Waiting at the billing counter has always been a touchy and sensitive point with customers. They are at their irritable best if there is even the smallest of delays. In fact this factor is now one of the key drivers for customer to revert to their trusted neighborhood store for basic/ functional purchases. Make a phone call and be done with it.

So, it was refreshing to see an Indian hypermarket take the bull by its horns and tackle this issue head on. They released advertisements about the “No more long billing queues” and branded it as the Green Line revolution.

Quite frankly I thought that they were quite ambitious in their claim and was watching to see how this would pan out.

I shared this advertisement in several of my classes and invited inputs from the students in the context of customer service and customer satisfaction. Initially the feedback was very positive with most students mentioning how this was a welcome move and they would try this store just for this service factor.

Cut to a few weeks later. This campaign has been on my mind and I was keen to see how successfully this Retailer had managed this service issue and what had happened.

In order to maintain objectivity I asked another class of mine to do a field visit to various stores including this hypermarket. They had not been showed this advertisement and there had been no discussion in this regard in the class.

The feedback was rather shocking although along expected lines. The Green Line initiative was highlighted as a positive and the message registered well with the student customers. Although under the negatives for that store long lines and a long wait for the billing was highlighted. The net take out was that the claim was not supported in reality and was a huge disappointment.

Obviously this Retailer might have ended up irritating more customers than winning them over with this initiative and the fact that this is no longer mentioned in their advertisements seems to validate my point of view.

So, what went wrong?

It was creating unreasonable and unsustainable expectations. Service delivery is not only ensuring great service but also setting the right expectations. In this case the customer expectations would have far exceeded the delivery that the Retailer was prepared for. This is not uncommon and I see this often enough.

In fact the reality is that most customers might have not even registered the word “long” in the advertisements. They would have registered the message as no more queues.

This just another case to the point that Retail marketing is a 360 degree exercise and starts from the home where customers get some communication from the Retailer. Wrong or misleading communications like “Upto 50% Off”, with “Upto” lost in the small print or claims which are not sustainable will hurt more than help.

In Retail everyone should get a first hand feel of the store reality by spending time there and ideally working at the store often. Then they will be wary of such actions which are not sustainable. Remember, Retail is all about execution, execution and execution. Brilliant ideas conceived and presented in meeting rooms counts for very little in the reality test of how the customer actually experiences the same.

Indigenous cost control & Margin Maximization

I am a strong advocate of the conventional neighborhood outlets simply because they display a remarkable amount of ownership and flexibility. I have illustrated this with several posts and also in my book "The INDIAN reTALEs". A few days ago during one of my teaching sessions the familiar debate of how will such stores survive came up. The usual points were covered and I returned to Chennai.

Yesterday we had to purchase a few things and picked it up from a neighborhood medical store. First point to illustrate flexibility; these stores have quickly realized the value of an extended range very similar to how supermarkets evolved into hypermarkets. More range for the existing customer base is equal to obviously more sales.

So, this store too offers a variety of products which are not medicines only.

My first observation was that the carry bag given was actually a branded bag of a national supermarket chain. Simple cost cutting measure for this conventional store. He must have picked up a few bags either during multiple visits to that store or even brought it off from an unscrupulous staff for a pittance. Or the vendor must have offered these extra stocks of bags at a throw away price because they cannot be sold otherwise. Essentially, the medical shop owner spotted an opportunity to cut costs and leveraged it fully.

Next, when I came home and opened the bag to use the purchased products, I was amused to find a price sticker of a different store on the pack. There is a large format discount store in Chennai which is famous for its low prices. The medical shop owner must be picking up a lot of his extended range of products from this store as getting into the distribution system for these products might not be worth it given the low volumes that he can offer. See the picture below. The store name is clear while the price has been struck out. Guess, it would have been a better idea to strike out the store name. But then all his customers might not be a Retailer like me.

This is where the large format store is morphing into cash & carry operations, also. As mentioned in my book, operators interested in India entry might do well to enter this potent segment with potential, instead of lamenting about FDI.

Coming back to the medical store. I cannot but appreciate the remarkable ownership, flexibility and focus that the owner shows and is therefore rewarded with a sustainable business. However, is it scalable? I doubt it. A chain of discount stores used to encourage its buyers to take cash and make opportunity buys from the wholesale markets whenever there was a very attractive trade scheme. It obviously did not sustain as the chain has been closed down.

Regardless one has to appreciate the initiative of the conventional store owner in this as compared to any organizational chain stores wherein cost cutting or margin improvement will result in a whole series of meeting and presentations! The take out is that such organizational chain stores need to bring in more of a trader/ shop owner mentality without compromising on systems and processes to develop a win:win formula.

Lack of Urban Planning is a bane for Indian Retail

One of the key costs for any retailer is that of real estate. When too many players fight for the same space, obviously the prices go up and very soon reach levels which are unviable for a Retail business. Retailers operate at a 20 odd percentage gross margin compared to say the IT industry which operates at much higher levels. So, the lack of proper zoning laws and enforcement of the same leads to several issues such as –

• Different businesses with different cost structures competing for the same real estate.
• Over-crowding and congestion, leading to pollution, etc.
• Neighborhood penetration of self service modern formats increasingly becoming a challenge.
• Size having to be compromised and therefore the range. So, in effect over a period of time there is no major competitive advantage over conventional stores.

 And many more such disadvantages and issues.

 

See the following two pictures which show two separate road names for the same stretch of the street. I am confident that each of these streets would have different valuations and therefore varying financial implications in terms of rentals, etc.

 

Forget all this. Should the common man have to suffer such confusion?

Sense and Simplicity

Retail is all about common sense is an adage I have heard and also propounded often enough in my various posts and in my book “The INDIAN reTALEs”. Especially with regard to good execution, the simpler the idea, better the execution.

In this context I happened see a film about a design management firm called IDEO which is a US based one. They were showcasing their design management process to come up with a better shopping cart. It does sound a bit funny. A better shopping cart? What’s wrong with the current ones?

They figured out some of the key problems in current shopping carts and came up with a simple solution of a frame with wheels which can hold two baskets. This solved a variety of problems like pushing the carts into crowded aisles. A family can shop at the same time using the baskets and then put them on this frame. The wheels turned 360 degrees so, maneuvering it was simple, etc.

In the Indian context a similar idea was implemented in a national chain and proved to be successful. However, a problem unique to India because of the store’s smaller size is crowded aisles, especially if there are pillars/ columns in the middle. Even the frame based trolley would be cumbersome, especially during crowded times.

A few days ago I happened to visit a supermarket where I saw this amazingly simple but hugely effective innovation. A basket with wheels. The wheels turned all the way making it extremely maneuverable and it has two sets of handles. A long one to wheel it along and two short ones to carry it. Simply marvelous. It was easy to use and a great idea. Simple and sensible. Exactly the kind of ideas that are needed for Indian Retail. Please see the picture for details.

One can ask what is so great about this. After all a basket is used by shoppers to purchase small quantities of items and why take the trouble to put wheels on them and incur the extra cost. It has been proven that if shoppers are given a basket they end up shopping more. In fact this used to be a SOP in some of the store chains I have worked with. Every shopper was given a basket as soon as they came in. If this study is correct and has merit, the contra is also true. Shoppers stop picking items when the basket becomes heavy and even one PET bottle of any soft drink can make a difference. So, by introducing this innovation, this Retailer has enabled the shooper for an easy shopping experience while eliminating the drawback of using a basket.

As mentioned above, sensible and simple.