Mumbai/New Delhi: At first glance, Garden Fresh store in Mumbai’s Kings Circle looks like any other overstuffed, old-style kirana store. Cookies, juices and snacks are crammed from floor to ceiling in the small store.
But nothing here is as it seems. The cookies are made with flax and sesame seeds, the peanut butter is organic, the tea can control blood pressure, gulab jamuns are roasted, kaju barfis are sugar free and the more than 100 kinds of snacks are all non-fried.
The store’s owner, Rahul Cheda, ran his outlet like any of India’s more than 12 million small retailers, until two years ago. He sold dry fruits, packaged snacks and sweets. Then, rising power costs, rentals, reducing margins on consumer products and of course the new style supermarkets snapping at his heels made Cheda change everything.
Healthy makeover: Rahul Cheda, owner of Garden Fresh store in Mumbai, scouts around for new products everyday, asking housewives to coook unusual foods, such as oil-free pickles and ragi ladoos. He sources products from as far as Chennai and Goa and gets dietitians to consult on creating new products. (Photo: Ashesh Shah/Mint)
“Margins for consumer products had shrunk to around 8% from 10-11%, so even if someone asked for a plastic packet (to carry goods in), we would earn nothing,” he says.
Cheda’s was among thousands of kirana stores feeling the heat as organized retail is poised to grow from its current 3% to 16% by 2012, according to a report by Technopak Advisors Pvt. Ltd, a New Delhi-based retail consulting firm.
Organized retailers, including Reliance Industries Ltd, the Aditya Birla Group, Pantaloon Retail (India) Ltd and Subhiksha Trading Services Ltd, have all started neighbourhood convenience outlets to compete with kirana stores over the last couple of years.
A government-funded survey in four cities by New Delhi think-tank Indian Council for Research on International Economic Relations, which is yet to be officially released, shows that revenues and profits of small retailers surveyed eroded significantly—a direct fallout of the emergence of the big retailers. But small retailers are also using their ingenuity to refashion their businesses to compete in a new world.
Around the country, while some kirana stores are closing shutters, others are getting air- conditioning, aisles, trolleys, computers, specialty products and associations for bulk buying and deeper discounts.
“Small retailers have lot of cost advantages and also they have become efficient,” insists Kishore Biyani, managing director of Pantaloon Retail, India’s largest listed retailer.
For instance, Deven Shah’s Rajat Stores has been selling standard provisions for 40 years, in south Mumbai’s Malabar Hill area. But as he unloads sacks of tissue rolls, and coke bottles, Shah peers at the close circuit television that hangs over the counters of butter, chocolates and hair oil. It shows the shop next door, which Shah started seven years ago, and which belongs in another world.
His air-conditioned store next door sells only imported products. There are mats to make sushi on, wasabi paste, refried beans, morels, porcini mushrooms apart from all the American junk food that the area’s upmarket residents would crave for.
While this outlet is smaller, it does double the business his provisions store does, Shah says. This is because margins for his unusual, imported products are 15-20% while those for the standard consumer products at his provisions store are 7-8%. The higher margins have afforded luxuries such as the air-conditioning and close circuit TV.
Varied range: Shoppers at the Garden Fresh store in Mumbai’s Kings Circle have a choice of imported productts apart from unusual health foods.
At his provisions store, Shah competes on price too because 45 stores in the area have formed the Malabar Hill Vyapari Mandal and buy in bulk to get the same discounts organized retailers get. In fact, a growing number of stores are looking for ways to provide the cheaper prices that organized retailers are able to offer because of their larger purchases.
Morning Place grocery stores in New Delhi’s Green Park neighbourhood would earlier give a discount of about 3% to customers running more than Rs500 in shopping bills. Two years ago, Morning Place had to double the discount on similar bills to retain customers being wooed away by discount retailer Subhiksha grocery store that opened barely 100m away.
“My business went bad ever since Subhiksha showed (television) advertisements saying they are cheaper,” says Ramesh Kumar Israni, proprietor of the store, whose business was initially down as much as 40%. “Now we also give bigger discounts to people and my business has been growing gradually.”
In New Delhi’s Taimoor Nagar-New Friends Colony Road, the heat is on as at least five modern retail chains have opened grocery stores on the stretch, including Reliance Fresh, Subhiksha and Big Apple, among others.
But at the Honey Money Top supermarket, business has grown ever since the modern retailers set shop in the area in part because it now organizes promotional events, including a lucky draw for customers; prizes include mobile phones and washing machines. But cutting margins to offer discounts and deals is a painful business that not all kirana stores can afford.
“Kirana store owners know that they have to change, but it is hard to do,” says Garden Fresh’s Cheda. He scouts around for new products every day, asks housewives to cook unusual health foods, such as oil-free pickles and ragi ladoos, sources products from as far as Chennai and Goa, apart from the imported products he gets from local traders, and gets dietitians to consult on creating new products.
Besides, organized retailers are likely to offer deeper discounts as they gain scale, making it harder for small retailers.
“Nowadays, even roadside vegetable shop owners are installing phones so that they can do home delivery,” says Dharamendra Kumar, campaign director of FDI Watch, an anti-organized retail organization. “But in the long run, they will not be able to compete on price.”
But if they cannot compete on price, some small retailers are trying to create new competencies.
“Many small retailers are becoming more responsive to customers by investing in things such as customer relationship management technology to track a customer’s previous (purchase) among other things,” says Gibson Vedmani, chief executive of the Retailers Association of India, a retail industry body. “Even in tier II and III cities, they are investing in freezers, better fixtures and other such technology.”
And, if nothing else, smaller retailers are giving their stores a makeover so they look more like the spiffier competition.
As customers get used to shopping more because they walk around supermarket aisles rather than buying from home-made lists, kirana stores are changing layouts too. Ahmed Stores, a 40-year-old outlet in a crowded central Bangalore market, also underwent a redesign two years ago.
The 1,200 sq. ft store, which used to have sacks of rice, ragi and wheat filling up the front, now offers baskets to shoppers as they browse through neatly arranged aisles. The store, which did not have a name, but was popularly called Kaka Stores, also got a brightly lit board and new name—Ahmed Stores. The family-run store now also offers home delivery.
The one hitch in redesigning the store: “Chances of somebody stealing when our workers or we are not noticing are high,” says store owner Irinjalakuda Cheeran Ahmed.
Deepti Chaudhary in Bangalore, and Vidhya Sivaramakrishnan and John Samuel Raja D. in Chennai, also contributed to this story.