Superior Customer Insight Is Key To Winning Round 2 Of The Indian Retail Battle

In the past, I’ve written about about the challenges faced by organized retail in India from kirana, which is the generic name given to mom-and-pop stores in India. Click here to know more about the general consensus around why organized retail has lost the first round of the Indian retail battle to kirana stores. For more on how organized retail must deliver better customer experience or risk losing Round 2, click here.

At the same time, when I look at the state of churn of kirana stores in the storefront of my housing complex in Pune, India, I get a sense that not everything is hunky-dory with kiranas either. A combination of personal experience and anecdotal evidence makes me believe that spiraling real estate cost is the single greatest threat to their continued health and well being. Take the case of the grocery store located in my building that I used to patronize for five years. One day, the store suddenly moved out. When I inquired, the storeowner told me that he simply couldn’t afford the 3X increase in rental demanded by his landlord when the store’s lease agreement came up for renewal. I also remember reading a newspaper story a few months ago in which the owner of a famous, single-unit department store lamented that he’d have earned more by renting out his store premises to a bank or call center or by placing the money he spent on renovating his generations-old store in a bank fixed deposit. (Note to readers in the Western world: Even after the Great Recession, bank deposits yield close to 10% interest per annum in India).

Against this backdrop, the jury’s still out on who will Round 2 of the Indian retail battle.

What’s clear is that, given the huge investments made in organized retail by large business conglomerates (e.g. Reliance, Tata, Birla) and first generation entrepreneurs (e.g. Biyanis of Future Group) alike, C-Suites of organized retailers are surely under pressure to find ways to win market share away from the unorganized sector and ensure that they don’t lose the second round.

Can they accomplish their goals by using their collective might to metaphorically bulldoze kirana stores? Highly unlikely. For one, with millions of kirana stores, the Indian unorganized retail sector is too fragmented for any broadbrush strategy to work. For another, kirana store owners constitute a large vote bank that no Indian political party can afford to see vanishing. The Indian government’s recent volte-face on the policy towards permitting 51% FDI in multibrand retail is adequate testimony of the power of kiranas.

Will superior customer insight be the winning formula for organized retailers?

Let me use this personal example to illustrate what I mean by customer insight. My wife recently went to a small gift store located in my building. She started off by saying, “I want a toy for a 10-year old boy…”. Before she could complete her statement, the storekeeper accurately guessed that she was looking for a birthday present for one Ravi, a boy in our housing complex who was turning 10 that day!

Unorganized retail has acquired deep customer insight after providing personalized service in a small catchment area over years or even decades. Is it even conceivable that organized retailers will be able to match them on customer insight over the entire length and breadth of the nation where they operate and without the luxury of an equal amount of time?

Yes. Organized retailers have access to social media, analytics and mountains of purchase data collected from their POS and loyalty programs. Using this combination of data and tools that are beyond the reach of kirana stores, organized retail can acquire the same – or even superior – level of customer insight across vast swathes of markets in a fraction of the time it took for kirana stores to get there. They’d still have to overcome many HR, privacy and technology challenges before they can turn this insight into ammunition for winning Round 2 of the Indian retail battle. Only time will tell whether they succeed or not.