Recent news reports have declared that organized retail in India has lost the first round to kirana stores (which are the Indian version of mom-and-pop stores). Reasons for this include certain unique services provided by kirana stores like free credit and free home delivery. Also, with people cutting back on their expenses in these days of recession, they are reportedly avoiding malls and supermarkets for fear of overspending at those places.
Trying to bridge the gulf with kirana stores on these factors will worsen retailers’ already strained bottomlines without any guarantee of improvement to their toplines. Instead, by taking a cue from developed markets, organized retail can win Round 2 by implementing a few best practices that will improve their toplines without necessarily impacting their bottomlines.
A tendency to overspend at supermarkets is not unique to India. Retailers in developed markets still manage to pull in customers by using compensatory measures like loyalty points, gifts and cashbacks.
By introducing separate checkout counters for five items or fewer, organized retail can encourage visits from their loyal customers who otherwise find it too painful to visit supermarkets for small purchases because of long checkout queues occupied by weekly and monthly shoppers — especially when the alternative is a quick telephone call from their homes to their local kirana stores and free delivery in the next few minutes. Fast checkout counters are likely to be particularly effective now when many kirana stores are considering introducing a delivery charge for home delivery of small orders.
Prepaid cards for convenience are commonplace. A leading retailer’s positioning of its newly launched prepaid card around cost containment is novel and should help it to stanch the flow of its customers to kirana stores to avoid overspending. But, for wider adoption, prepaid cards must offer some tangible customer benefit — like discounts. After all, isn’t it unfair to ask someone to fork out a lot of money upfront but make them pay the same price at the till as compared to someone else paying by cash or (worse still) by credit card?
One area where I’ve seen organized retail operate in a drastically different manner in India as compared to developed markets is in the area of house brands (also called private retail labels). For the uninitiated, house brands are those fast moving items like soaps and detergents you see packaged in bland white boxes bearing the supermarket’s own brand name. I was shocked to learn that house brands in India are priced almost the same as leading brands. To me, this defeats the basic purpose of house brands, which is to attract shoppers with significantly low prices, at the same time yielding decent margins to the retailer on account of lower manufacturing, packaging and advertising costs for house brands. History is full of examples of leading retailers like Walmart and Aldi using house brands to change the rules of the game for the packaged goods industry. Given that kirana stores cannot create their own house brands, supermarkets enjoy a major advantage over them if they price their house brands more realistically. With recent price cuts making house brands around 15-20% cheaper than leading brands, organized retail has started moving in the right direction. Time will tell whether the price difference has to be still greater. Internationally, they’re around 40-50%. Of course, supermarkets will have to provide their customers with good enough reasons to ensure that the quality of their house brands is not inferior to that of the leading brands. But, this is not a new challenge and Indian organized retail can learn a few lessons from their counterparts in the developed world.
Organized retail has lamented about high pilferage as one debilitating factor in its round one loss to kirana stores. While latest technology solutions like RFID-tagging can help bring down pilferage to some extent, it’s not clear at what cost and whether organized retail will ever become free from pilferage. For, to quote a FORTUNE magazine article on Walmart, “If the pilferage from Wal-Mart were incorporated into a separate company, that company would rank 276 on the FORTUNE 500 list”.
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