Mumbai: At a recent retail technology summit in Mumbai attended by the country’s large organized retailers, consultants and other stakeholders, Anil Kankariya didn’t bother with power dressing, preferring a jacketless, informal look.
Appearances can be deceptive. Kankariya represents a new trend emerging from India’s small-town hinterland, that of small family-owned stores expanding in scope and ambition and doing better in certain formats than the large retailers.
Kankariya is the owner of Navjeevan Super Shop, which started as a grocery store 48 years ago in Jalgaon, Maharashtra, about 400km from Mumbai.
“I am in retail by birth, by education just a commerce graduate. We are competing with corporates who run their retail businesses with MBAs. By attending such conferences and upgrading our knowledge we too will become MBAs,” said Kankariya, who often tells his children that they should expand the business to turn it into a Wal-Mart.
Fighting competition: Kirana stores are upgrading their service, merchandise assortment, layout and lighting. Photo: Only Pix
Kankariya’s confidence about growing bigger also comes from being part of a network of 17 like-minded traditional retail store owners. This grouping comprises more than 40 stores that have similar layouts, category sorting, technology platforms and promotional offers.
Mumbai’s Sarvodaya super market is part of a growing trend of traditional stores adopting modern practices to meet changing consumer demands.
The network was formed two years ago when Kankariya came across Chetan Sangoi, owner of Sarvodaya Super Market, a 40-year-old store in Dadar West, Mumbai. Sangoi had upgraded his 2,500 sq. ft. traditional retail store by replicating the look and practices of more modern stores in 2003, after Big Bazaar launched its store at nearby Phoenix Mills in 2002.
The need to upgrade was also driven by changing demographics, as about three-fourths of shoppers are below the age of 35. “These people did not want to shop at the general trade store and we did not want to lose our consumers and wanted to grow. The latest trend is modern trade and freedom of choice,” said Sangoi.
Within six months of the change, Sarvodaya’s revenue grew from Rs35 lakh per month to cross Rs1 crore, said Sangoi. Navjeevan’s revenue grew six-fold in the first year of a similar transformation.
For Sarvodaya, the change wasn’t easy. It required a shift in mindset for the retailer to prize revenue growth over margins. “Whatever offers we had we passed them on to the consumer and saw our sales grow,” said Sangoi.
More importantly, manufacturers such as Nestle India Ltd, Hindustan Unilever Ltd (HUL) and Procter and Gamble Co. needed to change the way they regarded these stores and treat them on a par with other modern retailers.
“It took over three years for Unilever (the first manufacturer to give it modern retail status) to get on board,” said Sangoi, who still finds it challenging to convince manufacturers to partner with him for delivery or customized promotions and schemes for new stores that come up in small towns. These are towns such as Rahata, 4km from Shirdi in Maharashatra, with a population of less than 100,000, or Moodbidri, close to Mangalore in Karnataka, with a population of just 60,000.
Most consumer packaged goods manufacturers have different sales teams and strategies for modern retail and for the more traditional, family-run corner stores.
Until its classification changed, Sarvodaya missed out on category management and promotional offers as it was being serviced by the traditional retail sales unit of the manufacturers, despite upgrading the billing system and changing the layout to self-service shelves.
Modern retail is growing at 28% annually, faster than the general trade’s expansion rate of 15%. However, the first category formed just 6.1% of the overall Rs1.6 trillion consumer packaged goods market as of December 2011, according to research firm Nielsen. But its importance is growing. Sales of home, personal care and food products in these stores is now nearly one-third of the sales of such products in traditional stores in 17 major Indian cities, Nielsen said in a study released in May.
Traditional retailers know they need to evolve to stay relevant to Indian consumers.
“Upgraded kirana (neighbourhood grocery) stores with improved service levels, merchandise assortment, layout and lighting will be the biggest competitors to modern retail as they have a customer-friendly approach and fit into our lifestyles,” said Piyush Kumar Sinha, professor of marketing and chairperson of Centre for Retailing at Indian Institute of Management, Ahmedabad. Sinha is currently studying the evolving kirana retail business model and says that upgraded stores already form a sizeable proportion of the overall general retail trade across India.
There are 46 such upgraded stores in Mumbai that have become a part of the modern retail network for Hindustan Unilever, said an HUL sales executive who didn’t want to be named. To be included in the modern retail network, sales from such outlets need to be higher than what they are at the average general retail store, apart from having a self-service layout and automated billing systems, he said.
Beating the benchmark
“Across India there could be a few thousand such stores. We value their contribution and believe that over time they will become a significant number,” said Sameer Suneja, managing director, Perfetti Van Melle India Pvt. Ltd, maker of Alpenliebe, Chlor-mint and Happy dent confectionery. Perfetti has identified such stores on the basis of their revenue and categorized them as “mini-modern stores”. It has both modern and traditional retail teams working with them for customized solutions.
“The trend started with the metros and is catching on in other towns as well,” said an HUL spokesperson.
Stores such as Sarvodaya in Mumbai have sales of Rs8,000 per sq. ft. and upward. On average, the 40 stores across their network have sales of more than Rs3,000 per sq. ft., said Sangoi.
This is actually much higher than the benchmark for modern retail’s convenience formats, where average sales are required to be Rs1,000-1,200 per sq. ft. to break even in cities such as Mumbai, Bangalore and Delhi. In Pune, Ahmedabad, Chennai and Kolkata, where rentals are cheaper, sales of Rs800 per sq. ft. would be sufficient to break even, said Abheek Singhi, leader, consumer practice, India, partner and director at Boston Consulting Group (BCG).
To be sure, the convenience format of large retailers is floundering. In April this year, Aditya Birla Retail Ltd closed over 10% of its More super market retail chain stores and exited from cities such as Mumbai as the cost of operations was too high.
Reliance Retail Ltd, which had imposed a two-year freeze on its hyper-market and super market format expansion following the 2008-09 economic slowdown, has fine-tuned its Fresh supermarket retail business model. Store sizes are being kept uniform at 2,500 sq. ft. for optimal efficiency after expansion was resumed last year.
“Organized retailers are yet to crack the code for success in the small neighbourhood retail store model,” said Laxman Narasimhan, director and leader of Mckinsey and Co.’s global consumer and shopper insights practice.
The challenge is differentiation. “There is not much difference between the convenience modern retail format and a general trade retail store in terms of merchandise assortment or pricing unlike hyper- markets that have a clear value proposition or have larger variety under one roof,” said BCG’s Singhi, who expects the contribution of such stores to overall organized food and grocery retail to drop from 50% in the future.
Meanwhile, with online shopping picking up in India, sites that specialize in groceries are looking at the well-penetrated general trade retail stores for last-mile connectivity.
AaramShop.com, for instance, has more than 2,200 general trade retailers listed on its website. People are increasingly ordering groceries online, even using mobile applications. “A hybrid model such as ours provides convenience of general trade and also e-commerce,” said Vijay Singh, chief executive officer, AaramShop, a Delhi-based start-up that launched operations eight months ago and is now looking for investor funding to expand.