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Retail Learning Curve

The learning curve for Indian retailing is getting elongated. Here's why.

By Aresh Shirali

Factoring in local learning

How far have 'market reforms' penetrated India? Well, by the look of things, roadside kiosks are still given to charging Rs 6 for a Rs 5 bottle of cola (that's a 20 per cent thuggery). So much for the efficiency of competition.

It needs no reiteration. Everyone shops, so everyone who knows anything about business also knows that retailing in India is nowhere close to anything resembling a competitive modern sector. The coming of organised large-format retailing was meant to change all that. But, as it turns out, the ascent up the learning curve is proving more arduous than anticipated.

So, is the Indian consumer resisting change?

Not at all, says Arvind K. Singhal, Chairman, KSA Technopak, a retail consultancy that is organising a retail summit at the Renaissance Hotel in Mumbai later this fortnight. Indian retail, he observes, is simply not getting revolutionised fast enough to make much of a difference. "By now," he says, "we should have seen many more players."

If retail is getting stunted, much of the blame goes to the lack of three enabling conditions: capital, real estate and best global practices. The Indian financial establishment stays off the sector because it isn't classified as an 'industry', and for a high-debt low-equity business with such a long gestation (as it is worldwide), that's a life-threatening disability. Real estate remains smothered over by yellowing old pieces of legal parchment, hindering all 'redevelopment plans' despite acute urban shortages (Delhi alone ought to have 60 per cent more retail space, going by population density ratios). As for best practices - and it's a highly knowledge-intensive business worldwide - there's little hope, until the world's best players are allowed in. And that means lowering the FDI barrier, which could, of course, also solve the capital-starvation problem.

Why isn't anyone doing anything about it?

A combination of apathy and complacency at the policy level, in Singhal's view. Peppered with xenophobia. "China has seen the role that efficient retailing plays in economic development," he says, "but in India, we have no official acknowledgement that retail has any such role." What's worse, the Indian government has not even bothered to articulate its position on the retail sector.

That, despite what modernisation could do to the 'Indian market', as experienced by the consumer. Efficient retailing, for example, could result in lower prices. Wastage would fall, and intermediaries would vanish. This could make a huge difference to basic food items such as 'atta', which could sell for Rs 6 per kg if a large retailer could source the raw material directly from farms. "In a poor country, we can't afford inefficiency," says Singhal, arguing that "the two largest constituencies - agriculture and small-scale sector - are being hurt by preventing the development of retail". How come? As stated above: apathy and complacency.

Meanwhile, however, there are other bits of conventional thinking that need to be challenged - within the retail industry. Apparel and lifestyle accessories have attracted most investment so far, but the biggest opportunity, as KSA Technopak sees it, is in food and grocery. Yes, supermarkets. Why? Because that's the biggest chunk of Indian spending, and that's where efficiency can make the biggest difference.

Another rethink has been on the balance of national brands and own labels needed to optimise retail margins. Big brands draw customers in, but since retailers have such little pricing freedom (thanks to 'maximum retail prices' or MRPs), margins have to be built into the store's own labels.

The own label drive is related to another big mistake some retailers made: concentrating on the front-end at the cost of back-end operations (an important source of competitive advantage, thanks to sourcing efficiencies, economies of scale and all the rest of it).

As for the actual consumer's attitudes, Singhal has little to report that's out of the ordinary. The Indian consumer is as rational in her search for better value as any other. But what constitutes this 'value'? Wouldn't she prefer the warmth of old relationships over the coldness of new efficiency? What about the stories of the Indian housewife using her traditional old kirana store as a point of social interaction? "Apocryphal," responds Singhal, "We fantasise that this kind of interaction takes place... shopping is largely functional."

Another myth: the traditional shopkeeper as a credit provider with a 'personal touch' and all the associated goodwill. The wider market reality, perhaps, is better approximated by the slimeball in the latest Coca-Cola commercial. But the 'carbon print' that he deserves is the force of competition.

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