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Comparisons are odious but forewarned is forearmed...4Ps B&M’s Savreen Gadhoke analyses the backward journey of Indian retailers

Even before the then 44-year-old Sam Walton opened the first Wal-Mart store in Rogers, Arkansas in 1962, he had already put in place his supply chain and marketing vision. The fact that he already had more than a dozen years of experience running a variety of retail stores (Walton’s 5X10), spread across Arkansas, Missouri and Kansas, gave him requisite depth about consumer needs and a strategy for meeting their ‘lowest prices everyday’ expectations.

Cut to India’s Sam Walton wannabes a.k.a. Kishore Biyani, Mukesh Ambani and Sunil Mittal, among others (we’re sure you get the picture...) and you realise that they are holding the wrong end of the stick. If globally, supply chain management came first; in India, the story is remarkably different. Forget Walton, across Europe and US, new entrants in the retail business first ensure that their back-end is strong and robust and then concentration is shifted to front-end. But it is just antipodal in India. “In European and American markets,” says Andrew Levermore, CEO, Hypercity, “the supply chain is much more organised compared to India and this has enabled them to create very many successful retail brands.”

Retailers bemoan the multiple tax layers imposed by the Government as one of the biggest hurdles in developing efficient logistics and warehousing facilities. Vivek Wikhe, Senior Consultant, Technopak, avers, “Overall investment in back-end has not picked up in India so far and the main focus of retailers is on expansion. Most of the retailers still rely on the traditional set-ups of godown to store their goods.” No wonder, the Government has now begun giving incentives to those who are investing in building strong back-end support and players like Reliance, Bharti (Wal-Mart) and Vishal Mega Mart have begun earmarking hefty investments for establishing their back-end and logistics facilities.

Adds Arvind Singhal, Chairman, Technopak: “Indian retail industry compared to developed nations is very unorganised and unconsolidated.” Of course, there are those who say that one does not really need to compare. After all, organised retail is still a nascent industry in the country. But comparisons are inevitable, if one were to simply take into account that all the rosy predictions about the potential of Indian retail have somehow not kept pace. In fact, the picture today is nowhere as rosy as the one painted three years ago, when the Indian retail juggernaut was just about gathering steam. Then, pundits predicted that organised retail in India would grow at 38% annually and that the industry would touch the grandiose $60 billion mark by 2011. Contrary to the hype, even today, Indian organised retail is only growing at about 28-30% per annum, and the industry stands at only $14 billion odd today.

Clearly, something is not going as per plan. And hey, we are not even referring to the dismal ambience of Indian retail stores vis-à-vis their global peers. Out-of-stock notices, lack of air conditioning, slow billing process, are just among a few downsides of the Indian retail experience, but all that is easily rectifiable given that the industry is still nascent. But this nascence is perhaps the single biggest reason why one needs comparisons with global counterparts at this stage. Forewarned, is after all, forearmed!

Apart from supply chain issues, there is also the additional pressure of huge infrastructure bottlenecks faced by retailers in India, crucial among them being transportation. Seconds Soumitra Ghatak, CEO, My Dollarstore, who says, “As compared to other markets, Indian retail industry is still very new and its growth is being disturbed by lack of adequate infrastructure and property.” India is geographically vast and 40% of the traffic passes through national highways for going from one state to another. But national highways are few and far between, leading to congestion on road and timely delivery, which has a direct effect on the quality of products especially fruits and vegetables. They say that apart from a few states like Maharashtra, Gujarat and Tamil Nadu that have good highways, the rest of the nation (particularly north India) suffers from pathetic infrastructure. Interestingly, organised retail has had a successful run in South India largely because of the very developed Nilgiri belt. Major retailers like Subhiksha and Spencers have flourished out of Chennai only because of the good infrastructure facilities.

Further, unlike western countries, India is a vast, heterogeneous nation, with varied geographical and cultural tastes. So single-format retail has as little chances of success in India as peaceful resolution of the Kashmir issue between India and Pakistan! Little wonder that retailer after retailer is expanding his retail format net (small & big stores, large & smaller inventory stores, hypermarts, departmental stores, food & grocery retail outlets, electronics stores, apparel stores, et al) to catch more consumers. But herein is the catch! In India, the retail growth is mainly in food & grocery retail, a chunk which comprises of 55-60% of total organised retail, much higher than the global consumption pattern. And hence, while in Europe and US, the shift has been from hypermarkets to convenience stores, so far, the exact opposite has been the case in India. Baqar Naqvi, Associate Vice President, Retail and Consumer Goods, Technopak avers, “Given that large-scale growth has been projected for Indian organised retail, then retailers will clearly have to shift their focus on larger formats like hypermarkets and supermarkets.”

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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