It is the new El Dorado……………the veritable gold rush……….the who’s who of India corporate titans are announcing entry plans virtually every day……the debate on FDI or not to FDI has almost become a national pastime……Media is spewing stories and articles with astonishing frequency…..Pundits of all manner and kind are essaying predictions and projections which vary so widely and cover almost every conceivable scenario that ultimately someone is going to be right and very famous……………Retail is truly the hottest new game in town; it is one of India’s oldest and largest sectors; and arguably one with the most impact on its population after agriculture; already accounting for close to 38% of India’s GDP and the largest employer after agriculture. And yet it is easily one of the least evolved of all industry, if it can be considered an industry at all. Fifty years of restricting the consumer goods industry, a national mindset which favoured denial over consumption, a fractured and archaic supply chain for agricultural products and punishing taxation levels have all contributed to prevent the development of modern formats based on scale, choice and consumer preference.
Many or most of the 12 Mn odd retail outlets are largely operating at subsistence level, providing basic sustenance to their operators/owners who essentially survive because of a cost structure where both labor and land are largely free, and government taxes nil. It is only now, that it is beginning to evolve in line with trends and transformations that have taken place in most other developed parts of the World. I have little or no doubt that like in many other industries/sectors, organised or modern (for some reason as it is also called) retail will accelerate rapidly and leapfrog phases and formats to quickly catch up with the rest of the World and as it does, I do believe a lot of the myths surrounding organised retail will be dispelled here……………….
Organised Retail means ‘Big Stores’;
A common myth…..nothing can be further then the truth. In its very essence, organised retailing is about “aggregating value” and what shape, size and configuration your customer facing entity takes is largely a function of your offer and proposition. You can have a 100,000 sq.ft. store selling virtually everything under the sun, and it may not qualify to be termed as organised retailing and conversely an 800 sq.ft. store selling the finest assortment of say “apples” in the city and giving the “apple” buying customer the best choice, range, price and experience can easily qualify as an outstanding example of modern retailing.
Like many other things in life, “size” in retail does not matter……..unless you want it to.
Less is More;
The common thought is that the more you keep, the more you will sell. Very true. However it is the more relevant products you keep that holds true. Careful assortment planning and ranging even if it means lesser varieties, lower width and depth, if done smartly can actually help both the sales and profitability of a category grow exponentially. The temptation will be to be everything to everybody………..but that both in “Retail” and real life it is simply not possible…………Unless of course, you are the indominatable and one and only Lalu Prasad Yadav, who is now the darling of both the Wharton/Harvard educated crowd on one hand, and the trusting millions in the villages of Bihar on the other. Or is it……………… for the teeming millions who thought that everytime the EVM beeps, it is a vote for Lalu and all will be well with the alu in their samosas……..not true.
Small guy will got killed;
The hottest debate in town. Unfortunately the nos. do not support it. At roughly US$ 300+ bn and growing at at least 8% a year there is an incremental market of US$ 25+ bn being created every year. Even the most optimistic of pundits estimate Organised retail industry size to be around US$60/US$75 bn in the next 5 years. The cumulative market growth in that period will be at least US$ 125 bn. Organised retail will/could take or even be responsible for a large part of that growth but even then a significant part of India will still shop at our traditional outlets. Unlike the fable,……. in modern India, both the David’s and Goliath’s will co-exist peacefully……for a long long time to come.
It is the Supply Chain…………….?!
It has been made fashionable by some doyens to claim that India’s supply chain is the most efficient and cost effective in the World. The stark reality is that it is the “single” biggest drag on this wonderful country of ours. Organised retail in its fully blown avatar and size will necessarily entail huge investments in modernizing India’s supply chain with enormous positive knock on effect both for the economy as a whole and the Indian farmer in particular. It is often well said “India is not poor country, it is a rich country with a lot of poor people”. A modern efficient supply chain will go a long way in removing or substantially reducing that reality.
So……..it’s the price……………is it?
A common myth and indeed fear is that all modern retail formats will compete on price. While it is true that organised retail tends to have a dampening effect on prices in general, “price” is only one of the elements of the “value” proposition ………The hard reality is that there can be only one player playing the price game. All others will have to compete on something else as the “primary” element of the value proposition. One cannot wake up one day and say “I am going to match the lowest price being offered in the Market” It is the delivery model that has to be evaluated, the backend and how one wants the “customer experience” to be. Your proposition must reflect consistently in your structure ….otherwise the only price game many will be playing, is negotiating the sell off price to someone who has remained consistent to his value offering and position.
And finally to conclude, as someone who has been with the industry for sometime now, the overwhelming reality is that India needs an “Organised retail” industry, just as “Organised retail” industry needs India. I believe a well capitalised and developed retail sector in India with a modern supply chain, will do for the rural youth and the urban poor what I.T. did for the educated, young urban Indian in the last 10 years. It can and will create considerable national wealth, more importantly of a kind and equity which our wonderful country so desperately needs…..and that is not a myth.
About the author:
Raghu Pillai is President and Chief Executive, Retail Operations and Strategy, Reliance Retail. Prior to joining Reliance Retail, Pillai was working with Pantaloons as MD & CEO – Home Solutions at Bangalore. Raghu has 25+ years of experience spanning industries as diverse as consumer durables, IT, entertainment and retail. Raghu’s longest stint was at RPG Enterprises where he started as a Management Trainee in 1980 and thereafter went on to become President & CEO – Retail Sector and a Member of the Management Board, RPG Enterprises.
He led the leadership team which conceptualized and implemented RPG Group’s green field foray into retail with formats like Foodworld, Supermarkets, Spencers (Giant) Hypermarkets, Health & Glow and Musicworld stores. He is one of the founder members of The Retail Association of India (RAI) and EAN (India). He was also past co-chairman, Retail Committee of CII. He is also an alumni of the MEP program at IIM (A) and the AMP, Harvard
Business School (HBS).