Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday

Retail special | ‘You can’t win the Wal-Mart game by being a Wal-Mart’

Retail special | ‘You can’t win the Wal-Mart game by being a Wal-Mart’
Comment E-mail Print Share
First Published: Mon, Dec 10 2007. 10 31 AM IST

Updated: Wed, Sep 17 2008. 03 31 PM IST
The retail story in India is of particular interest to Darrell Rigby. As the head of Bain & Co.’s global retail practice, Rigby says the uniqueness and size of the Indian market not only makes it interesting, but also attractive.
Rigby, who joined the Boston-based business consulting firm in 1978, specializes in corporate strategy and global retailing, and has led assignments in a wide variety of industrial and consumer verticals including technology, health care, retailing and financial services.
The 55-year-old American founded and launched Bain’s Management Tools Survey, a global survey on the usage, satisfaction and effectiveness of several widely-used management tools among a broad range of senior executives in 1993. And for the past 14 years, he has published Management Tools: An Executive’s Guide, containing the 25 most popular and pertinent tools. The study has expanded to include a survey of executive attitudes towards current management trends.
Rigby, who is a Harvard Business Review author on strategy issues, including innovation, managing in turbulence, and change management, is a management graduate from the Harvard Business School. When he is not speaking or writing, Rigby spends time fly-fishing and travelling with his family.
Rigby, in an exclusive interview with Mint, spoke about the great retail opportunity and challenges of the Indian retail space on the sidelines of the India Economic Summit 2007, organized by the World Economic Forum and the Confederation of Indian Industry. Edited excerpts:
Everybody says India is a difficult market to crack. What are the specific challenges retailers face?
I would say it is different from any other market in the world. There are so many different consumer segments in India, with different needs, and consumers here are accustomed to being treated very specially. These people are used to having grocers create products for their most loyal customers. The delivery is often taken care of and, sometimes, even special credit is extended to specific consumers. They expect more than standardized services and products. I think any multinational retailer that believes it can come to India with a single standardized approach will be sorely mistaken. So, it’s going to take a very special approach for retailers entering the Indian market.
So, what’s the way out? What would determine a foreign retailer’s success in India?
There are a number of ways in which companies can succeed in entering India. Some of them are already using methods such as partnering with a company that already knows the market, infrastructure and requirements for success here.
I think another possible entry strategy would be picking a particular segment of the market, figuring out how to succeed with them in a particular geography and then, over time, rolling out to additional segments and additional geographies.
But I think it’s going to take a fair amount of research upfront to understand the specifics of the consumers and specific geographies rather than just coming and buying up real estate, setting up store and assuming that what has worked in the US or France or England or Germany will succeed equally well (in India).
Diversity in India is far greater than even traditional growth markets, and you have to couple that with infrastructure constraints that companies here have to work with, not forgetting some of the socio-political ramifications.
What are the opportunities for retailers in India?
I think the growth in gross domestic product as well as customer expenditure say that the market is going to be very attractive in terms of size and growth rate. I think the question that retailers need to ask themselves is, why does India need a new retailer? What are the unsatisfied needs that I believe could take care of that are not currently met? Because the consumers that I have spoken to are quite happy with the shopping experience here. But that would change over time as income levels grow.
If you were to look at Indian food 20 years ago, you would not have seen a lot of pizza and burgers that the population probably then did not think that they would want.
So, it’s not always possible for consumers to anticipate what their needs are going to be, but as income levels continue to grow and as they are exposed to additional kinds of retailing and additional products, their aspirations will continue to rise and they would probably be demanding products that they don’t anticipate today.
But I think, what is important for retailers entering India for the first time is to be patient, and acquire a deep understanding of the consumers.
Is this the route modern retail took in other countries? Did they, too, fear big players weeding out smaller retailers and mom-and-pop stores?
Aspects of evolution are different, but similar in terms of infrastructure. What, however, is unique to India is the way consumers here are satisfied with their retail experience.
In China, the big retail evolved in big cities that enabled development of infrastructure. However, the government in China worked at developing existing capabilities in some of the rural areas by providing training, finance and skills to local retailers.
In China, if retailers want to open a store, they would set up a mall, unlike retailers here in India, where real estate is at a premium.
Also, the rapid development of retail in China was possible because of its giant leap into overall growth.
Even in markets well penetrated, specialized retailers have done well. Some of the small businesses may get wiped out, but many do well because of individualized services and being present in niche market segments.
You cannot win the Wal-Mart game by being a Wal-Mart, but by being what Wal-Mart cannot. There will always be segments that would want preferential treatment, and would not like standing in the queue or helping themselves at the store.
How different or similar are retail trends in India compared with the rest of the world?
The retailers with whom I work (and) that are looking at this market consider India an interesting part of their global portfolio. So, they think of markets in the West, and sometimes markets even in China, as being larger at the moment and therefore, more immediate.
But there’s a sense that in the long term, India is going to be very important to every global retail(er).
Therefore, there is a need to begin understanding the market and testing it. Finding innovative ways is appropriate even now, but the requirement is geared more towards the future than it is (towards) today’s revenue.
Even though modern retail demands greater infrastructure in terms of real estate, supply chain and information technology, it also facilitates the development of that infrastructure.
With the greater scale and the economies that come with it, people can afford to start developing infrastructure and IT systems because there’s enough volume now to justify those fixed costs. Infrastructure tends to develop value.
What’s your take on foreign direct investment policy (FDI) in India and the government’s stance of allowing FDI only in front-end retail at the moment?
Any retailer looking at India is not expecting the FDI policy to change soon. They are trying to find creative ways to do business.
When you are opening doors to strangers, you are bound to be thinking if they are going to be generous guests or selfish, demanding entrants.
So, there’s a fear that they might offer better pricing initially, but later they would go back to hiking prices. Allaying fear requires trust, and that requires time.
The good thing is that the dialogue is already becoming healthier. However, unlike other sectors in India, retail is perhaps going to take a longer time because of the larger socio-economic ramifications.
In the entire contest of Indian-owned and foreign-owned retail, there would be a small percentage which would never be able to compete with the big daddies. And that’s something which is true for all markets.
However, unlike the US or the UK, there are no safety nets in India and, therefore, the Indian government is justified in being cautious because the sector has a larger social ramification.
But that’s not so much of a stumbling block because even in countries without FDI regulations, retailers still go in with alliances and joint ventures to learn and understand the market first, before spreading out on their own.
What’s a good model for retail?
A good model will need to have sound market analysis and an understanding of the market, target audience and individual geographies.
Secondly, it will look at skills that need to be brought in, and what can be acquired through partnerships.
Third, the knowledge of what the retailer can do well and what it can learn from others.
A smart way to invest would be in a phased manner rather than putting in billions of dollars at one go, given the dynamism of market factors and the need to change accordingly.
Retailers will also need to figure out ways to deal with current infrastructure and invest and source from local markets to remain competitive. Also, the ones which invest in training (and) skill development will be clearly ahead of others.
In fact, growth of retail is good, since it helps create jobs. It also develops people management training that creates entrepreneurs who can set up their own businesses by leveraging insights gained from retail learnings.
Comment E-mail Print Share
First Published: Mon, Dec 10 2007. 10 31 AM IST