Orgnaised retail - Challenges for the players

Well, I have already given my take on the prospects of organised retail in India. Taking it a bit further, today let me look into the challenges for all the players involved.

 

For any serious player in the organized retail space - regardless of it being an Indian or foreign one - space is a serious issue. Yes, the kind of space that is required for setting up a mall is a premium in India, especially now as the realty sector is witnessing an unprecedented boom, amidst fears of a 'bubble in the housing sector'. Land prices are shooting through the roof, not only in Tier I cities, but also in Tier II and, to some extent, Tier III cities. Increased prices mean that the players will have to invest a lot more in land (if they want to own the space) or fork out more as lease rentals.

 

Then there are the much-talked-about supply chain deficiencies in the Indian agri-sector. Procuring all the necessary agri-products, grading them, and transporting them to the various cities can all be logistical nightmares for the players. Rural connectivity in India is, at best, literally a bumpy ride and at worst, non-existent. The players will have to invest heavily in all these support structures.

 

All these inadequacies can be reasonably assumed to find a reflection in the costs of operations of all players. Thus, higher costs to the end-consumer seems inevitable at least in the short-run, unless the retailer - with deep pockets - decides to bear it all (Highly unlikely, let me add!).

 

Next comes the biggest challenge of all - winning over the Indian consumer. Wal-Mart or Reliance or anybody else, will find this the most daunting task. Understanding the consumer psychographics and acting on them is a must to succeed. Indians are a discerning lot and cannot be taken for a ride. The footfalls have to be translated into sales. To assume that it is a cake-walk will be like lulling oneself into complacency. It is not to be forgotten that Wal-Mart had bit the dust in countries like Germany and Korea. Biggies like Reliance need to take caution, because this is a new business for them. Players like Shoppers' Stop and the Futures Group too need to tread carefully as they expand into new locations.

 

As outlined in an earlier post, local mom-and-pop shops are already feeling threatened by organized retailing. News reports suggest that some kirana-wallahs are up in arms against a Reliance store in Ahmedabad. There are also reports that prices of some grocery items are rising as the biggies are doing bulk purchases (As an aside, if that is indeed the case, it calls the bluff of all those who said India is self-sufficient as regards food; is the supply so short as to get exhausted on bulk purchases by someone?).

 

In my view, organized retail will have the immediate effect on a consumer state like Keralam. Here, very little production takes place and people will be ever-ready to switch over to a lower-cost alternative. What can the kirana-wallah do? A lot, if you ask me.

 

As with everything else, there is already a trade union for small traders in Keralam, viz. Kerala Vyapari Vyavasayi Ekopana Samiti. It is a cash-rich organisation. It can bring together all its members' shops and give them a new brand identity. With the cash available, it can contribute to sprucing up all the shops and endow them all with some distinctive features. It should try to replicate the operations of organized retailers in procuring materials and thus exploit the scale efficiencies. Quality has to be ensured and a new brand shop can be created. With the right ideas and will, sky is the limit and they can pose a veritable challenge to organized retailers. The office-bearers of the Samiti should realise that unionism is to be used for activities like these and not for downing shutters on every hartal day and on silly grounds!

 

If this succeeds, it can be replicated in other states too, right?