The words disruption and innovation are lavishly used in the current business scenario where changes in patterns of consumer behaviour occur fast or where even changes in business context, they have their specific meanings. While ‘disruption means problems or a disturbance that interrupt an event, activity or process-a word that has a negative connotation innovation as we all are aware means something new-an idea or an invention that brings transformational change to give better results and enhanced success.
The term ‘disruptive innovation’ augurs well with its usage in business, which refers to the dictionary meaning, ‘an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances’.
In the recent times, a few disruptions made a big impact on the retail business in India.
I call them ‘tsunamic’ disruptions. The major one was demonetization resulting in the sudden withdrawal of currency notes of a few denominations overnight in November 2016. Since then, for over six months, the small retailers went out of business. Cash was not available for transactions. They were seen running from pillar to post to find new payment systems so that they did not disappoint customers. A total of 80 percent of Indian’s retailers are small with shops measuring less than 50 square feet in size. A majority of them run stores that are less than 50 square feet in size! They were totally dependent on cash transactions.
For close to a year, the turmoil of transactions remained a big challenge for retailers to win over. The brighter side of demonetization for the retailers was the fact that they began to install electronic data capture or swipe machines in collaboration with banks and credit card companies. They started accepting Paytm payment transfers. The small retailers looked up banks, opened their accounts, many for the first time. The first step of organization/modernization of very small retailers began with demonetization. Some of them have realized that they can avail bank funding through cash credits and term loans.
The second major ‘tsunamic’ disruption that impacted and, perhaps, is still impacting the retail trade is the implementation of Goods and Services TAX (GST) with differential tax slabs on various categories of products. The realignment is yet happening in terms of percentages levied, 0 percent, 5 percent, 12 percent, 18 percent and 28 percent.
The various approved agencies of the Government of India facilitated the adoption of the new GST and the filing of returns. The seamless input tax credits were a boon to retailers as the new GST resulted in the avoidance of ‘taxation over taxes’ or ‘cascading-effect’ of the incident taxes the system added to the burden of everyone in the supply chain. State and central taxes applicable such as Service Tax, Octroi and Excise Duty separately caused the cascading. This rendered the supply chain tax heavy and the extra tax paid on the already taxed amount was finally charged to the end consumer.
Retailers suffered consequent to lower quantum of purchases from customers as a result of consequent inflation. GST has become a friendly taxation system making retailers transform themselves into organised entities filing proper GST returns.
The third major disruption that happened in the Indian business scenario is the ‘technological invasion’ as I call it, which has completely changed the way consumers shopped for their products and services. Companies were waiting for laptop and tab penetration and the Internet adoption but when smart phones made their way into the Indian market at very low prices, when the services provides slashed data charges to bare minimum and when every business organization has introduced its own apps, the way consumers shopped changed completely. Retailers especially the small ones are taking their time to adapt to these new styles of shopping by consumers as products and services are exposed to absolutely transparent pricing. Many retailers are yet flabbergasted and dazzled as technological innovations propelled the growth of online retailing in India. The Indian consumers began to buy books and music online to buy books and music online, progressed to make their bus, rail, flight and movie booking online and now they buy all kinds of products online. They come to brick-and-mortar electric stores, brows models, compare prices and buy them online using their mobile phone. The look and feel are rendered by the brick-and-mortar stores but the benefits of the sales are reaped by online retailers who can afford cheaper prices consequent to their huge saving on infrastructure and other operational costs. This too made even small retailers, at least, learn the art of connecting with their customers using their smart-phones-enabled social media communication tool like WhatsApp.
The communication on social media changed the way retailers looked at their sales promotions. They have been able to make products shots themselves or even shoot videos on their own and communicate with their customers. Retailers abroad closed many of their stores and consolidated their efforts with a mix of online and brick-and-mortar retail. Payless Shoe Source closed almost 400 stores-Macy’s 68, Penny 138, Abercrombie & Fitch 60, Guess 60, Radio Shack 550, Sam’s club 63, etc.-according to recent reports as they consolidated themselves. On the other hand, Amazon was seen looking for opportunities to open physical stores in a few markets with a reported acquisition attempt in France. A mix of store formats both online and offline seems to be the trending consequence of the global retail consolidation.
Store Format Innovation
Innovation of experiential retail formats in India seems to be working well. One of the examples is the Decathlon store. Decathlon sports stores are almost 60 in number, spread across most of the cities of India. They are located in malls and as freestanding destination stores alongside highways as well. The specialty of the Decathlon store is its offer of a great customer experience. Customers can check a product by trying it inside the store. Kids can cycle inside or table tennis player can actually play the game before buying the game’s wares. Some stores have a model putting area to check and buy golf gear. The highway format has a huge parking area and the store sports all outdoor adventure merchandise as well.
The customers are bound to have a truly enjoyable shopping experience. While the old mundane, mass, commercial stores are struggling to off er the right experience and, hence, facing closure, stores that provide the right shopping experience are seen to fl ourish in the Indian retail landscape.
Disruptive Innovations in Cabbing in India
When one speaks of disruptive innovation in business, one cannot ignore Uber or Ola, a similar cab business in the Indian market. These brands have been seen to have completely taken over the local conveyance business. In a city like Chennai, people no longer use autorickshaws but use only Ola or Uber. The Chennai autorickshaws have earned a bad name for themselves and they have been notorious of charging higher fares from time immemorial.
But in Mumbai, commuters use local auto-rickshaws along with Ola, or Uber. The destruction has not been complete. In Kolkata too, similar to Mumbai, People use yellow cabs as well. They have been true to following the rightly metered pricing.
Customers patronize both old and the new depending upon convenience and value. Technological advancements have been seen as disruptive tools innovatively supporting business and retailing is one of them. Business Analytics, Big Data, Small Data, Internet of Things, etc. Have been supporting the growth of retailing by offering seamless and result-oriented products, service and consumer connectivity.
Disruptive Innovation in Product Development
Product innovations have been helping the growth of retailing in a big way. ‘Vada’ is a much popular South India snack. But many in the modern days find it difficult to make them at home. A company by the name ID Fresh Foods in Bengaluru began its operations in 2006 by making and selling freshly made ‘idli’ and ‘dosa’ batter. The company’s vision was to prepare and share healthy batter with the whole world, their customers worldwide, just the way they make the batter at home. The product becomes a big success because people loved the healthy, preservative-free batter. The company now serves millions of homes across India and the Middle East.
After the success of the batter now, the company focused on its innovation in ‘vada’ making. A ready batter filled in a squeeze container which, on inverting and squeezing into the vessel full of oil during preparation, forms the automatic shape of the ‘vada’ with a hole in the centre, as it should be. This makes it very convenient for anyone to make the age-old traditional ‘vadas’. The product has become an instant success in the marketplace and it has found space in the shelves of many supermarkets in South India. Such product innovations augment demand in the market and retailers fulfill such demands by stocking and selling these innovations.
Consumer Power and Disruptive Innovation Impacting Retailing
‘Jallikattu’ is a popular traditional Indian sport in which strong men who have the capability to control overcome the raging bulls. This has been a dangerous sport played in the southern parts of India, especially in Madurai in Tamil Nadu on every 15 January, one day after the Tamil festival of Pongal. The day is devoted to decorating and honouring the cows and bulls that help farmers in the farm.
It is also the day when people test their capabilities to overcome the raging bulls in an open area. People have have been seen to die and get hurt too in the process of overcoming and controlling the strong bulls, So the Supreme Court banned this sport a few years ago. In December 2016, crowds and crowds of people joined together in a massive gathering over a fortnight in protest of the ban in the marina Beach in Chennai. Day by day the gathering gained momentum and the number of people especially the youth, the college students gathering from all over Tamil Nadu became uncontrollably huge. It was a massive protest and finally the Government of India allowed the sport to be played with a reversal of the decision of the Supreme Court. Such is the power of a mass movement. Now look at the products of Patanjali, which has a similar mass consumer movement in its favour. Patanjali with its innovative, natural, healthy and organic product range started giving many global FMCG majors a big run for their money.
Healthy, natural and organic products may sweep the minds of consumers and those making and selling these products in retail may become greatly successful.
Recent news carries the information of the readiness of one more spiritual guru, Pandit Sri Sri Ravi Shankar, who also plans to open 500 of his retail stores selling products that may be very similar to Patanjali’s merchandise sold in their retail stores. Responding to such natural and healthy competition, even the multinational companies have come up with the launch of similar products.
Colgate’s Vedshkti toothpaste is a relevant example of a recent launch that is targeted to compete with Patanjali’s toothpaste ‘Dant Kanti’. Such product innovations may centre on good quality, proper pricing, great service and timely fulfilments.
A mass consumer movement may happen in future towards sustainability. It may be a huge sway in favour of recyclable, organic and eco-friendly products.
Innovations in these areas would disrupt old products on the shelves and retailers along with consumers would readily adopt them. While process innovations may help manufacturers in big ways, product and service innovations would make huge result-oriented disruptions in retailing in India.
(The chapter was first published in the book ‘Retail Beyond Detail’, by Dr. Gibson G. Vedamani)