From the pages of Images Retail (April 2009)

Retail 2.0 - The next wave
By Rituraj Verma

An example that comes to mind is the sudden shutdown of the 1,600-store strong chain Subhiksha, once promoted as India’s largest supermarket chain. The chain never solved operational problems in its early stages, and its investors were too new to the industry to add value by bringing expertise to the table. As a result, the chain continued to expand a bleeding model, and with its expansion, the size of the wounds increased. Despite several rounds of funding, the return on investment continued to be negative and soon it became clear that the size of the problems was too large to ignore and a shutdown was inevitable.

Similar stories exist on the supply side of the real estate market, where believers in the “India consumption story” credited it as being the main reason why developers were expanding at a frenetic pace. Consultants predicted that the demand for real estate would far outstrip supply in coming years and so a mad race for building malls of any size and shape started. Developers announced ever-larger projects in ever-smaller catchments, which made no economic sense. The construction industry was in love with the concept of the mall. Retailers, while they continued to bleed, continued to support such an obsession, with lavishly signed rentals, that kept the whole “consumption story” alive. Excavations of malls with two levels of basement parking and four floors of retail selling area were the norm. Today, the same developers are busy redesigning the entire concept.

In such a scenario, it becomes vital for developers, retailers and consultants to work together to come up with solutions that will deliver results to the marketplace. What follows are some approaches to the problems that the industry faces and the direction that collaborative efforts must take.

Like Web 2.0, the second phase of the retail revolution is likely to operate on different paradigms.

Identifying unconventional competent brands
While the top 50 brands have ruled the market for the last five years, large gaps exist in the organised retail share of wallet of the Indian consumer spend. These gaps arose because cautious, competent and profitable retailers stayed away from the party, waiting and watching until the malls became cheaper for them. In the scenario today, while it is easy for developers to focus on existing conventional brands, the real winners are the people who were wiser and had been working on the back end, quietly waiting for the market to correct. Developers and consultants need to find these retailers, and prepare them for scaling up their operations. This means providing all possible means of help to these retailers including research, finance and marketing skills....
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Hot and Hungry
By Sangita Ghosh

Sharing insights on the mindset of Indian consumers, Ireena Vittal, principal, McKinsey & Co stated it very clearly that considering the current situation, food will remain the single largest spending category between now and 2025; per capita spend on food is set to double driven by the huge consumer base of 206 million households with an average household size of 5.4 in the country. Even though the percentage of spend on food has dropped from 56 in 1995 to 42 in 2005 and will continue to decrease from 38 in 2008 to 25 per cent in 2025, it still will be much higher in comparison to the 11 per cent in the US and 19 per cent in the UK.

Concurring with Biyani, Vittal too was hopeful, stating that the downturn will not be a major threat to the food industry in the country provided that the food producers manage to get right into the minds of the consumers to win in the market in the current situation.

The opportunities – dining out
While the food retail industry will hold the key, it is still the great Indian middle class that will be creating opportunities with its huge volume of purchasing power for the food and beverage offers. The Indian consumer base is dominated by the youth with over 53 per cent of the total population being represented by the age group under 25 in comparison to 38 per cent in Europe and 30 per cent in China. This is the section for which food retail promises to offer a feast of opportunities — predominantly by the foodservice industry via catering and out-of-home eating opportunities.

According to Amit Burman, vice president, Dabur India Ltd., given the current scenario where the Indian consumer has tightened her purse in expensive household spending, vacations and big tickets purchases, spends on eating out and on food have risen considerably because consumers are looking for.

As Burman observed, the recent entry of big brands — both national and international — in this space has led to a surge in numbers of restaurants and eating outlets fuelling the development of the food service industry and further adding to the growth of F&B retail in India. “Of late, this growth has been largely fuelled by boost in business at value food joint chains, food courts and the food malls, which most consumers prefer over plush five star hotels,” he said...
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