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Organized retail set to embrace neighbourhood low-cost stores

Organized retail set to embrace neighbourhood low-cost stores
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First Published: Mon, Mar 10 2008. 11 57 PM IST

Updated: Mon, Mar 10 2008. 11 57 PM IST
New Delhi: Drummers Dharam Pal and Deepak Bhatt are the new face of advertising for Pantaloon Retail (India) Ltd.
Well, almost.
Their job is to get the floating crowd in east Delhi’s middle-class neighbourhood to step into the just-opened discount store run by the country’s largest listed retailer. At Rs450 for four hours of attention grabbing, the pair are a steal. From keeping advertising rudimentary, getting consumers to pay for plastic bags, and to running some outlets air-conditioning free, discount stores such as KB’s Fair Price are stripping out the costs from organized retailing in India as they prepare to make inroads into the neighbourhood-store format. “It’s a frugal store,” claims Damodar Mall, Pantaloon’s head of new ventures. “The whole concept of frugality connects well with the consumers.”
Frugal store: Customers at a Pantaloon-owned KB’s Fair Price outlet in Pandav Nagar, east Delhi. (Photo: Sanjay Sharma/ Mint)
Value-conscious Indian consumers have, for decades, shopped at neighbourhood stores, often on credit and barely noticing the sweltering temperatures in mostly cramped and fully-crammed stores squeezed into a few hundred sq. ft. It’s a no-frills version they have been comfortable with, and while big retailers, new to the game, have mostly focused on glamourous, self-service, full display shelves, they are now starting to expand into the discount model, which essentially is a full store without the costs.
Pantaloon’s founder Kishore Biyani is of the opinion that KB’s Fair Price fits into his idea to reach out to the consumers hesitant to shop in shimmering malls they perceive as expensive propositions. Saurabh Chadha, head of KB’s Fair Price, claims prices at his stores are cheaper ranging between 8% and 25% compared with any other modern retailer. “We have customers coming in Mercedes and on cycles,” he says. “At the end of the day everyone likes to save.”
Indeed, a recent study by research group Nielsen Co. found an overwhelming 91% of Indian consumers surveyed voting for “Good Value for Money’ as the prominent factor behind selecting a grocery store. Chennai-based Subhiksha Trading Services Ltd has grown to be one of India’s biggest retailers by selling cheaper grocery products at stripped-down outlets.
Chadha says KB’s has a precise math on how to keep its reputation of a frugal store. Factory-packed paper carton boxes are cut on top and placed on iron racks; a sizable number of bulbs are energy-saving compact-fluorescent ones, a lone telephone line will be connected to a swiping machine if somebody wants to pay through a card, and the store will charge Re1 for consumers who want a plastic carry bag. A poster in the store with a smiling mascot, Savitaji, sums up the culture at KB’s Fair Price: ‘These guys are big misers; they won’t even give out a (plastic) bag.’
“Now, most of the consumers bring their bags,” says Dinesh Paul, business manager of the format. Paul says his sales staff initially faced “mental blocks” on asking consumers to pay for a polythene carry bag—a departure for any retailer, big or small, who are generous with carry-bags. There are other ways to keep costs minimum—unlike most of the small shopkeepers KB’s don’t home deliver, and thus they make do with fewer staff.
No wonder, it costs between Rs300-400 per sq. ft for setting up a KB’s store as against Rs2,000 of Pantaloon’s slightly high-end supermarket chain Food Bazaar, according to Mall.
Based on that, a KB’s store spread more than 2,000 sq. ft would cost around Rs600,000-800,000 compared with Rs4 million of the same size at Food Bazaar, although the Food Bazaar stores come in much larger sizes.
Company officials say the low capital expenditure and maintenance cost helps the unit to sell on wafer-thin margins and pass on the benefits to consumers. “Its just an upgraded kirana (mom-and-pop) store,” says Paul. For many of India’s consumers “it’s a transition between a kirana and malls.”
Pantaloon opened a dozen of KB’s stores in northern New Delhi in August as part of a pilot project and so far opened in the city’s western and eastern parts as well. The company plans to roll out about 250 such outlets in the next two years in the New Delhi region and overall 1,500 such stores in other cities in during the same period.
Every store will have limited ‘stock keeping units’ or fewer varieties of goods, in this case around 300 products that are the “basic essentials” for daily needs. For example, the firm will stock about eight brands of toothpaste against 70 brands available in the market or only a dozen biscuit brands instead of about 150 a supermarket would stock, says Chadha. He adds the firm would stock a limited number of some of the most popular brands that it has identified through market research.
School librarian Jaya Dev and his wife Durga Mani were surveying the store on the opening day in the Pandav Nagar neighbourhood in Delhi. The couple has in recent years switched their entire grocery purchases from the traditional neighbourhood store to modern retailers including Reliance Retail Ltd-owned Reliance Fresh and Subhiksha.
Mani doesn’t seem impressed after randomly surveying the prices of lentils, detergent powder and other grocery items. “Rates are same as Reliance (Fresh) and Subhiksha,” she says.
By around 5:30pm as Pal wraps up for the day he has added another count to his tally: Pandav Nagar was the 15th KB’s where Pal was hired for beating drums to get the likes of Mani in. While that may have worked for now, it’s clear discount retailers will have to find still more ways to keep costs down and keep Mani interested.
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First Published: Mon, Mar 10 2008. 11 57 PM IST