No "More" - is this victory of the "Kirana Stores" over organised Retail?

Aditya Birla led "More" brand of Retail Stores has decided to get "realistic". The company has decided to concentrate and expand more in the Hypermart arena rather than the Supermart arena. The company has in the recent past closed nearly 70 supermart stores as they were not profitable (high rents, catchment issues and poor footfalls. Not very surprisingly, Aditya Birla group is not the only one to take this strategy. Kishor Biyani's Future group, Reliance Retail, and Spencers have also taken similar approach in the recent past. The so called boom in the Organised Retail seems to have been at least partially busted in the "Groceries and General Mart" category.

The question begging to be asked is what happened? Everyone (mostly let by "analysts" and consultant reports) believed that Retail is going to boom in India. Organised Retail which was only 7 % will go upto 25% in 5 years and that the era of Kirana or Mom and Pop Stores is going to eventually get over. There was a major scare amongst that segment of the unorganised retail too. In many parts of India there were protests to shut down these oragnised retail stores. Reliance Retail had even exited out of UP after it faced a backlash there which was supported by ill fated political parties. Kishor Biyani, Aditya Birla, Mukesh Ambani and many industry stalwarts were betting bigtime on this organised retail story. Smaller players like Subhiksha, Trinethra also entered the fray. ITC too could stay away from this. International players like WalMart and Metro firmed up their India plans.

According to a report published by PricewaterhouseCoopers (PWC) on retail and consumer industry in association with Retail Association of India (RAI), the country’s retail sector is worth $350 billion and growing at around 15% annually.

Though the interests and the story is not entirely wiped out there has thankfully been some semblance that has been brought to the thought process. The self feeding "growth" stories have been vanishing. The pshyche of the Indian consumer has now been better understood. The infrastructure lacunae of the country have been taken into account. And frankly all of this is good both for the Retail Sector and more importantly for the consumers.

Some of the main reasons why the strategy of carpet bombing the retails superstores did not take off the ground are:

1. Misconception about Catchment Area: I think many of the organised players miscalculated the catchment area. In India with a very wide network of the Kirana Stores (Mom and Pop Stores) the concept of catchment area does not go beyond half a mile at times, unless you have an assortment of SKUs which are not widely kept. Housewives who are the main customers widely believe in the convinience and familiarity as against the value of choosing the goods yourselves. This customer segment will prefer in getting the goods from a familiar store which is walking distance away.
2. Infratructure Issues: Here I think lies the major reason for some the supermarkets failing. Lack of Parking space in many of these stores makes it impossible for even the women in the working class to shop easily at these stores. This limits the catchment area even further. Many of these supermarkets are poorly designed. The floor layout is confused between stocking more and giving more convinience. Many stores don’t have the ability and infrastructure to manage “shopping carts”. This limits how much a customer can shop. So converting the footfalls into more sales value becomes difficult. Last but not the least is the way the the check out counters are built and managed is more detrimental to the shopping experience. I think the Indian shopkeeper mentality of feeling happy when people have “lined up” is affecting these superstores as well. International Retailers judge themselves by how fast can one shopper check out. Indian Retailers believe in lining up their customers and feeling happy about it. All these reasons result in poor footfalls and lesser repeat purchase.
3. High Rentals: Indians will not drive 10 miles to shop for groceries. Hence the super marts have to get closer to the cutomer. This means that the property costs and rentals are going to be more prohibitive.
4. Poorly Managed Loyalty Programs: The hurdle of credit and familiarity (main advantages of the Kirana Stores) could have been managed well by having neatly designed and managed Customer Loyalty Programs. KYC is manadatory for Mutual Funds. I wish it was mandatory for these retailers too. I will pen down more on the problems with the Loyalty programs of the Grocery Retailers in detail later. For now, I will just say that a better CRM tool will make a huge difference if one supermart has to compete with the local stores.
   

All this has led me to believe that the Kirana stores don’t have to really worry about the competition from the Supermarts for now. They still bring in a lot of value to the customers. However the number of stores are making it difficult for them to be profitable as well.

Related link on how international Retailers are thinking about Footfalls