The convenience retailing space in India has witnessed an increased interest of late. The trend is likely to gather pace with more players entering the fray sooner than later. A clear indicator of this is the fact that supermarket chains in India have clearly shown a shift towards the convenience plank in terms of their assortment, location strategy, and positioning. The line between supermarkets and convenience stores is blurring.
That is the good news. The not so good news is that if organised retail is tough in India, the subset of convenience retailing is an even tougher ball game. The primary reason is that it is still in a very nascent stage. Retailers need to figure out their place and positioning in the retail landscape. At the same time, customer expectations from a convenience store will also crystallise and evolve.
For convenience stores, longer opening hours, preferably round the clock, and proximity to the customers are a given in any part of the world. These are the key differentiators for this format compared to the other formats. But in most parts of the world where convenience stores have been around for long, they mostly go along with fuel stations. But that is not the case in India. Fuel stations in India are not the preferred customer choice for doing a bit of shopping. And even when it is, only some prime locations in large cities can generate enough volumes for the retailer to make commercial sense.
The second challenge in India is the lack of ‘food on the go’ culture. Very few people will grab their morning cup of coffee and breakfast from a retail store. While street food in India is very popular, the ready-to-serve food that can be sold from a retail store has few takers. A freshly fried samosa will always get customer preference over one that comes out of a hot case.
The third major challenge is pricing. Most organised retailers in the Food and Grocery space fight hard for the position of being the price leader in the customers’ mind. Couple this with the MRP regime in India, and there is a serious challenge to the profitability of retailers. MRP regime is something that is not talked about a lot in India, but in my opinion it a very important factor in the scheme of things.
The fourth major challenge is the assortment. A local kirana player addresses most customer needs by assorting about 800 to 1200 SKUs. The trick is that this is an assortment highly customised to the customer base, fine-tuned over a long period of time. Add to that the nimbleness of a standalone player to address new customer needs. Organised players find it very difficult to have too much customisation for each store in terms of assortment. If convenience stores increase the size of the store and increase the assortment, they will almost a supermarket space in Indian retail. And that has its own challenges in terms of margins and overheads.
So where does that leave convenience stores? Coming to the issue of assortment first, convenience stores have to command the ‘Fresh’ categories in the catchment. This includes milk, fruits and vegetables, dairy, breads, etc. In these categories, the convenience of availability plays the biggest factor in the customer’s choice. Also, categories like milk and bread do not see any discounting, given their low margins. Fruits and vegetables is also a category where the price elasticity is quite low if you are offering good quality and a good assortment. This may seem illogical given the way customers negotiate and haggle over prices while buying fruits and vegetables. But the truth is that the prices change daily, and there are so many varieties of most fruits and vegetables that it becomes nearly impossible for the customer to judge the price properly.
So given the good quality, good assortment and competitive prices – not the lowest – customers are likely to go to the nearest retailer. This is particularly true in the case of upper and upper middle classes. Also, the assortment has to be very dynamic in order to give customers the incentive to come to the store more frequently and buy more things. There is a huge opportunity to work with the national brands in terms of product launches, sampling, etc. Convenience stores also have to offer a bouquet of services like dry cleaning, pathology services, courier services, recharges, etc. in order to give customers more reasons to come to the stores more often. That apart, there is a need to create “hooks” for the customers to keep them coming back, again and again. Needless to
say, the best chances of creating hooks lie in the food and beverage space. It is difficult to create hooks in any other category as creating a differentiation from the competitors is very difficult.
The next thing convenience stores have to focus on is on running an efficient supply chain – both in terms of service levels and cost of servicing. Given the opportunity of penetrating a geography more than any other format, convenience stores have the opportunity to build a more cost-effective supply chain than any other format.
Next comes technology. The role of technology in modern retail is huge and enough has been discussed about it. But for convenience stores, this plays an even bigger role because it offers the opportunity to create customer stickiness, customise assortment, and build an efficient supply chain.
Home delivery is another important service in which convenience stores can score over other formats, even the e-commerce players. The reason is that convenience stores cater to a limited catchment. Hence they can deliver to the customers much faster than anyone else can and that too at a lower cost.
Ultimately, it all boils down to creating value for the customer. Normally, we think of value only in monetary terms. But convenience retailers have to create value of time and convenience for the customer. When this value begins to outweigh the value put on price and width of assortment by customers, we have a winning proposition on hand.