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FDI in multi-brand retail

I've always been an advocate of the 51% FDI in multi-brand retail in India. The many stipulations in place are commendable steps taken by the government. This will be a welcome change as it is bound to put a hold on the rising prices in the country.

But, having spent close to a month now in Milan, I have noticed one highly significant thing here. There are NO SMALL SHOPS. None. Even for the smallest thing I need, I have to walk down to the closest supermarket. Mind you, there are three supermarkets within half a kilometre from where I stay. But the point is that there are no small shops in the vicinity.

A number of supermarkets competing with each other is a good thing for the customers. It will drive down price, ensure quality, so on and so on.

I have always been of the opinion that if the kirana stores could stand the competition from the likes of Big Bazaar and Spencers, they can hold out the other supermarket chains as well and continue to thrive. But what I see in Milan has initiated some second thoughts. How is the Indian scenario any different from here? Will the kirana stores actually thrive in this new and highly-price-competitive environment?

I still think they will. But they will have to do things differently if they are to stay alive.

The supermarkets are welcome because of the increased variety and the lower prices they offer. But while they do this, the customer experience has taken a backseat. I routinely throw away vegetables (chillies and the like) which I'm forced to buy in quantities larger than I can use before their expiry date. The supermarkets offer those discounts that matter only on items bought in larger quantities. That is of little use (not on all items, of course) to someone like me. And I'm sure every urban locality has a good number of people who fit my demographic profile (student/fresh graduate). So the kirana stores will do well to target this group. They have little hope of competing with large families (4+ people).

Another pain point is the long queues that I have to negotiate for billing. Not to mention find parking space around the supermarket. Or alternatively, carry my week's worth of shopping back home on foot. There are obviously price conscious people who will go to any length to save those extra pennies. They will be the supermarkets' all-weather friends. But, for those who value comfort over small savings, the kirana stores should step up and fill the market gap.

Now, the target group that I have mentioned above also happen to be the first adopters of smartphone technology (India still has a considerably low smartphone penetration). This being the case, I see kirana stores doing what Domino's did with pizzas. I just hope they see it too, for their sake.

They need to ensure that an app is developed that will list inventory in real time. The inventory listing that a customer sees will actually be from a pool of kirana stores that are willing to deliver to his/her listed address. The listing can change with the address (even for the same user). Once s/he places the order, it is split and sent to individual kirana stores (their smartphone) depending on what items are available at what store. The algorithm can be designed to randomly select kirana stores each time to ensure fairness to all stores involved. Then each store owner takes his items to the address within 30 minutes (or the items are free) and collects payment on delivery. The store owners can be given the incentive to deliver the best goods by allowing the customers to order the kirana stores by their preference.

Win-win for the customers and the kirana stores.

The increased costs to maintain the servers for the app? Put a small price (99cents per month, say) on the app, or allow it to be downloaded for free with the caveat that user orders can be stored and used for marketing purposes at the rate of one e-mail/pamphlet a day or by showing ads on the app (less effective in my opinion).

Do you think the opening up of the multi-brand retail sector to foreign players will sound a death knell for the kirana stores? If yes, do you want to go the Mamata way and try to drive away competition or do you want to think of ways the kirana stores can innovate to survive?

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3 comments:

  1. What if the kirana stores adopt something like a prepaid card logic..?A 500 Rs card instead of cash on delivery each time they come.And how about getting recharged with different plans,based on user needs.The stores have to spend only once on a suitable PDAs and ask user to swipe in when goods delivered..

    A plan suitable for a foreigner can also be made.Happy from both ends.I guess this may help out the kirana stores to survive and compete.I am not all GYAN like u in marketing,but i just thought it could work?Am i correct?

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  2. A nice write up. You do have some good insights there. I do agree that FDI won't throw away the retailers out of business. If its going to hurt anyone it would be our domestic supermarket chains, why? well, a big chunk of customers frequenting "Big Bazaar" might easily change to the new "Walmart" in view of better offers/service/variety but most of the "Kirana crowd" will prefer to stick to Kirana atleast for the foreseeable future because if our supermarkets weren't able to influence their decision its highly unlikely the foreign stores will.
    Also even if Foreign retailers are allowed in small cities/towns the retail picture here won't be affected much by for a generation or two because a good portion of the retail business is driven by credit, right from a family account at their next door retailer to a retailer account with a supplier. One other reason might be the ease and hassle free nature of the current kirana model which will help it survive. I believe the latter is a major reason why a technology upgrade(online ordering and the likes) of current kirana stores won't be much effective and even if it were effective the Supermarkets won't make a minutes delay in incorporating it in their retail chain. The "Keep it simple, silly" model is the one which is working and will continue to do so for some time, but I do believe there is scope for a lot of improvement without giving up the inherent simplicity of the model.
    I however believe with time(3-4 decades, maybe) supermarkets may eventually setup their tent everywhere and what will happen to small retailers? Well, some would have adapted themselves to the new scenario by adopting change, some would co-exist specially in very small towns and some others I think may not even have entered the retail domain looking at the retail picture which doesn't allow too many small retailers instead would've ventured into other business lines. So no matter which way it goes from now the bottom line is "The current retailers will continue to survive and the future retailers will be the ones who have learnt to coexist and won't be affected either".

    I've never understood why this is the main point of contention, probably may never will, unless its driven by questionable motives.

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  3. Totally support the argument.

    But dont ya think the biggies (walmart etc) will be able to do a better job at the delivery thing, if they ever wanted to get to it.
    Just a thought.

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