In an exclusive interview with the London Times (17 June 2011), Kishore Biyani, the founder of the Future Group (India’s largest retailer with more than 1,000 stores in 83 Indian cities), highlighted the problems facing International Retailers such as Tesco entering the Indian market: “They won’t be able to find spaces and they will find it tough to make their out-of-town outlets work in India. The roads are not good enough.”
The prize for International Retailers is clear: a slice of an estimated $350 billion retail market. However, market access is not easy. Land in the big Metros is at a premium – Future Groups cost of occupancy is 6 per cent versus 2.5 per cent in developed world markets – leaving tier 2 and 3 cities and towns as the only realistic target for foreign traders. This is where the well honed supply chain models of the top five global retailers will come unstuck. Indian infrastructure is notoriously weak and, with severe traffic congestion in urban areas so severe it is no shock that an estimated 40 per cent of fruit and vegetable harvests rot on the way to market. Tough territory for the ECR (Efficient Consumer Response) to build ever better, cheaper and faster supply chains.
In several conversations with Anshuman Singh of the Future Group’s Supply Chain Solutions business over the past year or so, we have discussed this theme in more detail. With over thirty distinct supply chains from Household to White Goods; Fresh Food and Vegetables to Fashion, the Future Group has to make unique Indian conditions work for them. Bullock carts and handcarts are as much a part of this picture as a sophisticated truck and, the stores themselves have more in common with the chaos found in traditional bazaars than in the manicured isles of developed world retailers.
India and other Emerging and Developing markets will develop alternative retail models. Whereas modern retailing in developed markets controls up to 85 per cent of the retail market; in India this figure is no more than 5 per cent. It is not the case that these markets will move swiftly to the developed world model. In fact, the likelihood is a more hybrid approach with traditional Mom and Pop stores (kirana in India) with their neighbourhood reach, ready credit and home delivery already in place being joined by more internet and mobile shopping services to figure prominently in a far more complex retail landscape.
In the Times interview, Kishore Biyani argues that China is moving more like the west. Whilst this may be true of coastal cities, the hunt for retail growth is shifting west into areas where distribution, logistics and consumer behaviour are all less certain. This is where local players are starting to improve their operations and poaching staff from the major multinationals to do so. It is not the case that multinationals are the only ones to be able to tap into more affluent consumers and this is the point. Retail can be transformational without being homogenous across multiple markets. There is no one best way.
The same applies in Africa – which recently became a continent of 1 billion and rebounded from the crisis faster than anywhere else – where many of the 48 countries of Sub Saharan Africa are growing faster than anywhere – but on their own terms. As Stephen Ellis observes in Season of Rains (2011), businesses from China and other emerging powers may be better equipped to function in this more informal setting. Walmart * and others are right to spot the potential but would be well advised to freshen up their business models. For example, in India, the Bharti Walmart cash and carry format may just be the best way to go as it can become a useful distribution hub to support local traditional mom and pop stores.
We observe scope for a Transformational Retail model to emerge that builds on local context and, blends several retail formats from traditional to modern in response to a demographic diamond of those at the extremes of poverty and wealth being joined by a fast expanding middle class with their increasing disposable income. The point is that even this emerging affluence will not swing fully to the International model. There is real scope to explore in more detail what Kishore Biyani has long considered to be the Indian Way. In our view this is a hybrid model that combines tradional and modern approaches in a seamless service. It is adaptable to local conditions; built on affordable prices and, appropriate technology. Why use a state of the art truck when a bullock cart or a hand cart will do – after all, few trucks can negotiate the urban traffic characteristic of these markets in any case. And, mobile phones can aggregate demand and capacity at least as well as any SAP application. This is not just relevant to India; transformational retail will re-write the text books in emerging, developing and even devastated markets.
Recently, I was with friends in Mumbai and my shoes needed mending. My friend rang down to a trader on the street below and within a couple of hours a cobbler had picked up the shoes taken them away to be mended and delivered them back to my room in the apartment. “You see” said my friend. “these International retailers may think that they can compete with home delivery but they can’t compete with room service like this”. It is time to challenge mainstream retail with a transformational agenda – get product on the shelves any way you can. After all, you can’t buy what you can’t see and, there may be much to learn from the organised chaos (supply chains as well as in store) that has taken the Future Group to three times the size of its closest rival.
* In May 2011, Walmart had a $2.4 billion bid for South Africa’s Massmart, a local retailer.