May 2, 2006

Can Unorganized Retail Be Saved in India?

Posted by Bizaholic | 12:34 AM | , with 8 comments »

In India, retailing is the buzz word these days. Everyone is seeing the glorious future of retail. Many retail aficionados have also gone to the extent of writing the obituary of mom and pop stores. Personally, I don't share such enthusiasm. I very strongly feel that if mom and pop stores become extinct, it will not be because of the inherent strength of organized retailing or external environment, but because of their own unwillingness to innovate, survive and flourish.

Why modern retail is a threat?
Indian retail is estimated to be worth Rs 12,60,000 Crore (around $280 Billion). Of these, 97% is unorganized retail made up Mom & Pop stores, Kirana stores, Paan shops, etc. Only about 3% is in organized retail with players like Pantaloon, Shopper’s Stop, Subhiska, Food Baazar etc. And all of a sudden, an extraordinary interest is being shown by big players like Reliance as well MNC giants like Wall Mart to enter this market. In fact, Reliance is quite bullish and ready with a coffer of Rs 3000 Crore and target revenue of Rs 90000 Crore by 2010. And the organized retail segment is estimated to capture 10-12% of the retail market by 2010. This means snatching at least around Rs 110000 Crore of business from small stores that line up your neighbour or the stores that are scattered around the town. And considering the fact that most of the thrust in coming years will be in metros, mini-metros, and bigger towns, the biggest brunt of this organized retail onslaught would be the small stores in big cities. Definitely in a country of over 12 million unorganized retail outlets, this could be a cruel blow. Or, is there a way out for these small unorganized retail outlets which employs roughly 40 millions people in India and is the highest contributor to India’s GDP from service sector?

USP of organized retail?
Organized retail plays the entire game from three strong pillars:
  1. Price advantage due to bulk sourcing and robust supply chain
  2. Variety
  3. Paucity of time
Price is a big factor in purchase decisions all over the world, more so in India. Given a choice, Indian consumers will go the place which offers a 20% discount instead of buying the same stuff from their neibourhood store that sells at MRP. Organized retail players source in bulk hence they get the best price available. As a result of this, they offer heavy discounts on MRP and lure the price conscious customer to its stores. Also, they source directly from consumer goods companies, and get better margin as no intermediary in the chain. All these result in organized players offering 10-20% discount on almost all categories.

Secondly, organized players provide a variety that a small store cannot provide. Small stores play the retail games with a fairly low working capital and hence are extremely selective in what they stock. Organized players, due to their store size and investment capability, are able to keep a variety of brands, thereby offering a wider choice to consumer.

Thirdly, due to hectic lives and changing life style, today’s consumer has paucity of time. She simply doesn’t have as much time as before to do shopping. And this paucity of time is an element that organized retail finds to exploit. A consumer, hard pressed for time, often finds it much more convenient to shop for all her needs under a single roof rather than hop from shop to shop. In today’s fast paced world, time saved in shopping means more time spent with family. So if a consumer gets her monthly ration, clothes, toys, books, stationery, accessories, shoes, etc. all at a Pantaloon or Shopper’s Stop, it makes sense to her as well as makes her happy.

What Mom & Pop stores stand for?
Mom & Pop stores have their own set of uniqueness. They are mainly about three things:
  1. Personal touch
  2. Care
  3. Know their customers and their family well enough.
Just think of your neighbourhood kirana store. He knows that Mrs. Sharma takes Pillbury atta and Mrs. Prasad takes Aashirvad atta. He knows which brand of toothpaste and salt is used by which household in the locality. Every time a consumer visits the shop, half her job is already taken care of by the friendly store owner. So all the while your stuffs are getting packed you can just check some of the new stuff while listening to the latest gossip of your neighbourhood. It’s all so much fun because the store keeper gives a personal touch to your shopping. As a customer you trust him.

Your neighbourhood store is also very caring. He does all he can do to make your shopping experience as comfortable as he can. He treats the consumer like a queen and even asks his shop boy to deliver the heavy baggage full of daal, chawal, aata, sabun, tel, etc. to your house so that madam could not have much trouble. Compare this with the cold behaviour of staff from Food bazaar or any other such organized retail chain. All that the staff of an organized retail chain worry about is how to sell you more than what you need and also what you don’t need.

Your friendly neibourhood store owner knows all about your family. He knows which school your daughter goes to and how old is your son. When you go shopping to his stores he asks you about each and every member of your family and how they are doing. So in one store owner you have someone who is concerned about your spouse’s diabetes as well as your asthma. He makes you feel at home while shopping and you feel that the shop owner is part of your family. For a Pantaloon or a Shopper’s Stop, you are just one of the 40000 footfalls that happen every day.

The Weakest Link
Perhaps the weakest link of the organized retail is price. If small stores manage to remove price disparity then a good chunk of business in certain categories might remain within the fold of unorganized retail. But breaking the price advantage of organized retail players is not easy. It’s extremely difficult and perhaps cannot be broken with conventional means. Something outrageously innovative or out-of-the-box is needed by Davids of retail to handle Goliaths. And fortunately, there seems to be such solution, at least visible to me.

Cooperative collaboration
The solution may lie in cooperative collaboration. Can a cooperative movement a la Amul happen in retail field to challenge the organized retail? Perhaps yes, with ample doses of innovativeness and entrepreneurship.

The essence of this cooperative collaboration lies in combining the intrinsic customization provided by unorganized retail with the sourcing power of a large organized retail. If unorganized retailer can match the price offered by organized players then a large base of consumers will prefer doing business with the friendly unorganized retail. This endeavours to create a powerful ecosystem of small retailers with collective bargaining powers matching that of organized retailers.

It will entail central sourcing of consumer goods by the cooperative and then passing out the goods to individual retailers along with the price advantage. It will be more or less similar to the sourcing done by the big retailers. But in the case of cooperative retailing, the goods will have to reach small stores instead of select malls. But scattered distribution of centrally sourced goods might not reduce the cost advantage of cooperative retailing. The distribution cost will not be more than the maintenance and manpower costs of organized retail chains. So at the end, price advantage will be at least equal to that of organized retail chains, or even slightly more that them.

One can start with metros, the most vulnerable to organized retail, and cater to typical kirana products like soap, oil, detergent, food items, commodities (rice, pulses, flour), and other household/ grocery items. These items are basically stranglehold of small retailers and protecting their turf in this segment is vital. Based on the response and learnings, this retail cooperative system could be extended to mini-metros and other emerging cities.

Even leading FMCG companies which cater to kirana and other such small retailers can be roped in to support them. These companies will be more than happy to strategically support this kind of cooperative retailing. Companies are never comfortable with the whims and fancies of organized retail chains and would do anything to retain their influencing power on consumers. Strategically supporting cooperative retailing can serve the purpose well for companies considering the collective size of unorganized retailers.

The key perhaps lies in coming together of a few visionary entrepreneurs who can see the value that can be created and the impact that can be made on millions of lives.


  1. Atul // May 2, 2006 at 8:14 AM  

    Brilliant Post Mayank. Worthy of a re-post on mainstream media. Do send it over to A&M Magazine or Economic Times etc.

  2. Dayan // July 2, 2006 at 6:02 PM  

    Reliance Retail is definitely a threat for entrepreneurship. Even though it
    generates 600,00 jobs this is not what companies like Reliance should be doing.
    Check this

  3. Anonymous // December 30, 2007 at 7:34 PM  

    brilliant post u did a gud job, this helps me so much in my research thanks a lot mayank god bless u

  4. swambaditya // March 29, 2008 at 11:57 PM  

    it is a real eye opener to all the persons who are particularly in their mba programs...gr8 insight...a wonderful thought...

  5. ankita // May 28, 2008 at 12:15 PM  

    hi mayank..that was a great blog..really provided me with great knowledge as i was a supporter of organized retail till working at ogilvy and mather currently.we are working on how best to do promotionb in a kirana shop, like in store kinds..can u suggest will be of great help..
    hoping you wont mind..

  6. Radha Madhavi // July 4, 2008 at 11:59 PM  

    This is quite late to add a comment. But in the recent news I have seen many a number of co-ops( by the retailers, for the retailers) coming up in the retail sector. While there are many co-operative societies coming up, do you think enterprenuers have any thing left to do? First of all, how can the outsider gain the retailer's confidence?

  7. C.V.Anil // October 15, 2008 at 11:41 AM  

    This seems to be a very good post. Good study and analysis is done. Keep it up.

  8. akkijain // September 18, 2009 at 11:59 PM  

    jst tell me one thing why do i wanna go to a kirana store when the big shops or hypermarkets are providing me better quality at low price.. only out of concern i shud not pay more money for a low quality product