Monday, November 16, 2009

Retail musings over Diwali

Another Diwali has come and gone...and with it, the streets were littered with burnt crackers; the air got generous doses of toxic lead, magnesium and zinc pumped into it; bank balances of most families dipped while some savings went up in smoke....BUT, it certainly brought some cheer back to the faces of many retailers and their tattered income statements!

The width of the smile on the faces of retailers is only directly proportional to the growth their businesses have registered over the last Diwali season...and the past few quarters! Some have seen modest growths of less than 10% over the last season while some have seen growths of around 50%. Is it therefore a reason to cheer and celebrate? The answer is both ‘Yes’ and ‘No’.

’Yes’ because this Diwali has singularly restored the lost spirit back to retailing – it did a reverse of what the sub-prime crisis did to the economy same time last year. The oil lamps; the glowing sparklers and the whistling flower pots have wiped away, to a large extent, any tentativeness in the recovering economy – as if indicating that there indeed is that elusive pot of gold at the end of every retailer’s marketing rainbow (read budget).

And ‘No’ because; retailing has come only about six steps forward after having taken 10 steps backward over the past year! India Retail Inc has many strides to take to get back on the bus ride; from which it was jostled in the melee Wall Street created.

Now that the dust is settling down and retailers are slowly but surely standing up after that rude fall; and are dusting the mud off their clothes; it gives me renewed hope that this time around, one can expect them to exercise better discretion in chalking out their business expansion plans.

At this juncture, I’m tempted to ponder a while as to which side of the battlefield has this shakeout affected most – the swanky supermarkets or the modest mom-and-pop stores? And I am reminded of the ongoing debate whether organised retail will adversely affect traditional retail?

If the kiranas were gullible – as they were made out to be - they would have been the most bruised from this shakeout. But, that doesn’t seem to be the case. If anything, they have remained unaffected for the most part; except that the footfalls had dwindled in their stores, just as it had at the organised retailers.

The kiranas didn’t have to close down unprofitable stores unlike their pompous cousins who had a few hundred in number; spread all over the countryside and not necessarily making any money! They also didn’t have to renegotiate rentals. The kiranas don’t need a bad economy to close down unprofitable stores - the owner would have closed them down within weeks after they were opened if they were really not viable! Actually, he wouldn’t open one if he wasn’t doubly sure that his store would make money. Haven’t you heard of feasibility studies?

Will the sheer number of branded supermarkets; their inherent advantages of economies of scale and their sophistication permanently seduce the consumer away from the messy and drab looks of a neighbourhood grocery? I’m not so sure anymore that the kiranas are at any disadvantage themselves. Take the case of my friendly neighbourhood grocery where I found myself over this Diwali – First, its location. The store is in a strategic location - at the corner where the highway forks into the township catering not just to the floating traffic but also to the captive one from the neighbourhood. Kiranas seem to possess an uncanny ability to sniff out the most strategic of locations in a residential area; often long before the locality gets occupied or public amenities are made available.

I’m reminded of a very interesting practice among single-store kiranas even in evolved retail markets such as the Middle East. Every time a new apartment block comes up; the first activity you would see even before the building is ready for occupation is the inauguration of a grocery on the ground floor - started by a smart and enterprising immigrant Indian! He chooses that location because he is assured of a captive market from the residents of that building and manages to consistently maintain a merchandise mix unique to that customer base. The grocery in the ground floor of the very adjacent building would carry a merchandise mix that is at least 20% unique; to cater to the occupants of that building.

The practise among mom-and-pop stores in India is no different. You drive into a new layout or an upcoming neighbourhood and you will find the most strategic locations already taken by traditional kiranas! And they are successful in tweaking their product mixes to suit their neighbourhood preferences – In short, they practise a high degree of ‘localisation’ that is difficult for a branded supermarket – that works on a central merchandise master and centralised buying systems - to imitate.

Speak of sophistication - my neighbourhood grocery for example, uses POS machines; complete with scanners and thermal printers, over a multi-point checkout system. This necessarily means that the POS machines are linked to a server that hosts their master database and that they use a software program that tracks their inward and outward movement of inventory. I suspect these guys were using an accounting software even before they embarked upon the POS software systems.

Were these single store owners forced to embrace technology? Perhaps Not. They realised that technology has the ability to make their operations more efficient. They perhaps realised that they can no longer manually track the 3000-5000 SKUs on their shelves with a paper and pencil method of book-keeping and account for their sales through manual billing. Did they have to go beyond their means to afford a couple of POS systems and a desktop server? Perhaps not again. The investment into these two or three boxes of technology would have been a few lakhs of rupees – not exceeding two or three days’ sale of the store! This bare-bone implementation of technology in a grocery store may not be a patch over the multi-crore ERP systems that organised retailers are constantly found shying away from. Nonetheless, it is a shining example of efficient store operations by deploying the most basic retail technology even in a single-store family run business.

Has this come at the expense of manpower? Certainly Not. The grocery store in question has many other imperatives – of offering an acceptable level of customer service through the deployment of extremely agile and helpful staff. Manpower is widely used throughout the store. The store staff – teenagers in no particular uniform and found wearing hawai chappals on the shopfloor, have consistently surprised me with their product knowledge and their familiarity with all the categories. There is no in-store signage in the store; and no matter which of these boys you ask for a particular product, he would take you to that shelf or better still; go fetch the product for you! What surprises me even more is that, these stores often have a better assortment on their (always full) shelves – I’ve rarely returned with more than 5% of my shopping list un-shopped. The three cash-tills ensure that the waiting time in the queue is no longer than a few minutes. Of course, if you don’t like to stand in queues, you can always call them even to order a packet of milk and they will have your preferred brand of packaged milk delivered to your doorstep at no extra cost. Highly personalised customer service indeed! I cannot say the same of the five branded supermarkets within a one kilometre radius!

If there are three lessons I’d learn from the kiranas and apply to branded supermarkets; they would be – ability to choose locations that can intercept large swathes of traffic and are financially viable; their ability to fine-tune their product offering to the target market and their supremely personalised customer service.

I fell into a reverie ruminating over which of the two formats would be more resilient; when I heard a thud on my door. When I peeped out of the window to check; the newspaper boy was peddling away on his bicycle. I then opened the door and picked up the day’s newspaper only to see the headlines screaming....“Govt to shut doors on FDI entry in multi-brand retail”! What an irony... I open the door only to be told that the doors are to be shut?!

“Why am I not surprised?” was the first thought that crossed my mind. Trust the government to do what it does best – stonewall the prospects of a promising policy, especially after all these years of titillating the fancy of the retail community!

Now, coming back to my question.....heck, what question? The news has already sent some of the big boys scampering back to their drawing boards to restructure their business plans....and the owner of my neighbourhood grocery is sipping masala chai from a glass tumbler between munching glucose biscuits and puffing away on his beedi!