India is undergoing a Tsunami of sorts with scams and policy issues. The question of allowing 51% FDI in multi-brand (& 100 % in single brand) retail has come to occupy the prime time public mind share. The government & those in favour of FDI argue that it is a part of economic reforms that will generate 10 million new jobs in retail, will bring in much needed dollars to support the economy, bring supply-chain efficiency in the sector, elimination of the middlemen and a direct gain to primary producers /farmers. Those against the FDI are arguing that the large chains will wipe out the small ‘kirana’ stores and small retailers, will create new middle men, disrupt diversity & traditional systems and kill employment.
I see this issue on a wider sociological phenomenon of change while economists take care of the numbers. This change also brings in some upheaval, voicing of the hidden needs, emergence of new needs and hence drives innovation in the society. Here are some nuances of this change and how it will drive innovations in retail, supply-chain and consumer experience. All that is articulated does not necessarily support or reject FDI but articulates the connected side-effects.
Changing retail texture of medicine shops in smaller cities of India
Wal-Mart entered China in 1996. Today after 340 shops in 125 cities, 90,000 employees and a annual sales of $7 billion (less than 3% of what Wal-Mart makes in USA) it is far less than what was expected from the Chinese market. One of the reasons cited is that unlike western countries, where people like to live in suburbs and drive to large stores in the outskirts of the city, the Chinese preferred living closer to the city center. Long drives, in heavily populated Chinese cities are not as smooth as could have been in the western countries. India! It is no different. Leave aside the initial ‘curious crowd’ for a few months, chances are less that people will travel 20-30 km just to pay a little less for month’s grocery. If people do go there then stores must ensure that they have the entire ‘zing thing’ that Indian consumers are now used to. India’s own brand Big Bazaar did bring the very first India centric innovation in organized retail like open grain retail, tiny service additions like on-the-spot dry and wet grinding and a complete food-court in ‘Shop-Eat-Celebrate’ mood of CENTRAL.
Another upcoming innovation worth watching is Future Group’s KB Fair-Price shops. These are smaller format just-around-the-corner stores which will be running on a franchise model. For all we know, the visionary Kishore Biyani would have probably also thought of the credit and home delivery which kirana stores offer to the regular customers. It would be interesting to see if the large trans-national companies adopt this model in India.
MEGATREND: AUTHENTICITY & PERSONALISATION
The other day on the way back from our Sunday eating out ritual, we came across a ‘leafy veggie seller’, selling on this busy street on his improvised auto-rickshaw. He said that by 10pm he would be sold out. My wife fell for the fresh stock of leafy veggies. This person drives around 20 km with a stock of worth around Rs.1500 (all sold out in a matter of 5 hours). His differentiation: Fresh out of the farm+ Personal connect with those who buy regularly from him, where he actually gets to oversell +Specialization ‘Leafy only’. No supermall can match this. Concept of a car-boot sale is new to India and it is coming with a tweak- instead of a car, it is a load-carrier auto-rickshaw. In times to come, we will see more of these specialized and slightly elevated small retailers serving the daily needs of Indian consumers. This is a white space as far as organized retailing is concerned.
In the Rs. 35000 crore consumer durables industry in India today, the Korean giants, LG and Samsung together have around 30 to 40 percent market share in varying categories. Indian brands like Onida, Voltas, Godrej and Videocon were once written off against the superior Korean products have made a formidable comeback. While R&D is still not fully centered in India for many foreign brands (unlike Whirlpool), a lot of focus on ‘India Insights’ and related product research is surely heating up the innovation quotient in this industry. My company has been part of several such research and design exercises with Korean as well as Indian brands, which was unimaginable to be happening on Indian soil a few years back. Godrej’s refrigerator boasts of several innovations which were borne out of deep research. Now a global innovation story, “Chotu-kool” the mini-refrigerator for bottom-of pyramid consumers was designed, manufactured and innovatively distributed by Godrej, was borne out this steeped desire to understand Indian needs better than anybody else. Core mantra of insight and innovation is finally taking over the scale & distribution. Consumers have proven that only durability they want is ‘constantly right’ product. Brands and countries don’t really matter.
We can see that the bar on organised Indian retail has already been set high. It will be interesting to see if sheer scale can scale this or more ingenuity and innovation will come to play. Consumer is winning for sure in either case, irrespective of the government.
(this is an abridged version of the an article I wrote, awaiting publication)