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DEMOGRAPHIC CHANGES TO DRIVE RETAIL

Business Standard, MUMBAI, 30 November 2006

The growth of financial sector was to a large extent responsible for the current consumption boom in the country and that there ought to be further collaboration between financial service providers and retailers to keep this going, said Suman Bery, director general, NCAER, at the National Retail Summit 2006.

“Sentiment is a big driver behind consumer behaviour and retailers should get ready for a bumpy ride ahead,” he added. Commenting on other factors that will boost growth, Roopa Purushothaman, chief economist and strategist, Future Group, pointed out how increase in the number of women in the consuming class would give a boost to retail.

“Increased participation of women on the professional front will result in an increased demand of 10 per cent over the next five years while per capita income will be boosted by five per cent by 2015, 12 per cent by 2025 and 25 per cent by 2050,” she said adding that at present, the country was at a ‘sweet spot’, where it could improve its demographic ratios.

Ireena Vittal, partner, McKinsey & Co, clarified a few myths surrounding the sector saying that changing demographic patterns and not changing incomes would determine the consumption patterns in India.

“Increasingly, as women and younger people enter the consuming class, the product mix will undergo a tremendous change,” she said adding that because of that reason, it wasn’t possible to compare the consumption mix in India at present to the kind of consumption mix seen in other countries, when they were at a similar stage in retail.

Devangshu Dutta, CEO, Third Eyesight, pointed out that it was important to look at an Indian model of retail development given the kind of disparities that existed in the Indian market.

“It is as important to share the growth downwards as much as we are pulling it upwards in terms of aspirations,” he said.

Though the retail sector in India is expected to grow rapidly over the next few years, analysts point out that this will definitely not be a smooth ride.

As the market develops, it will see its share of ups and downs, and just because it’s at a nascent stage does not mean that the going will necessarily be good.

Retail as an Economic Engine






















Retail as an Economic Engine

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Zoozoo merchandise launched by Vodafone and Shopper’s Stop

Reported by Nikita Rana

For Brand Equity, on ET Now (a TV channel run by the Economic Times, Bennett Coleman Group)

17 November 2009

ZOOZOO_ET_NOW_Devangshu_Dutta.jpgThey’re egg-headed, have squeaky voices and formless pale bodies, but the viewers seemingly can’t get enough of them. Vodafone’s Zoozoos have now ventured into merchandise. The reason: public demand.

"Everyone loves the commercials. It’s almost like public demand, where people wanted some part of Zoozoos which they could own," said Rajiv Rao, National Creative Director of Ogilvy and Mather.

For the moment it’s just Zoozoo T-shirts, but one can look forward to the soon-to-launched Zoozoo mugs, linen and bathwear. They’re all set to shine at Shopper’s Stop. But are the takers queuing up?

Vinay Bhatia, Vice President, Marketing & Loyalty (Shopper’s Stop) states, "There are millions of Zoozoo fans in this country. There are more than 300,000 people who are members of the Zoozoo fan-page. Given those kind of numbers you can imagine the kind of market potential for merchandise of a brand like Zoozoos."

The Rs. 1,500 crores merchandise market in India is dominated by Disney, which has a share of Rs. 500 crores. Bollywood commands a share of Rs. 50 crores. The sector is small and competition is tough. So will the Zoozoos be able to carve a niche for themselves?

Kumar Ramanathan, Chief Marketing Officer of Vodafone Essar, clarifies, "We’re not interested in the size of the business. See, if it is business which we’re after then we would define the demand, size of market and all that. We thought this would be a decisive way to keep the connect in a much more visible, tangible manner, and bring the character to some kind of life."

In that case, what’s in it for Shopper’s Stop?

Vinay Bhatia explains, "When we’d done movie merchandising, in the case of Om Shanti Om, a movie which we merchandised for exclusively, we did about Rs. 6 crores of turnover. In recent times we’ve done a hit movie called Love Aaj Kal, where we did about Rs. 1.5 crores of turnover. A movie is typically restricted to about 6-8 weeks of key selling. I think in the case of an advertising character it is a number of years where the whole thing plays out."

Vodafone is a dynamic brand and its ad campaigns change quickly. Ogilvy is, in fact, working on a brand new campaign for the telecom major. So what happens to the merchandise when the ads go off air, and the Zoozoos aren’t top of mind anymore?

Devangshu Dutta, chief executive of Third Eyesight, says, "When the merchandise is on the market, and the character is on air, clearly it’s going to help the merchandise and vice-versa. If the two are delinked, if the ads are not running then there is bound to be some kind of an impact because the awareness levels would dip, or maybe even the bond that you have with the merchandise would get a little weaker."

While loyal Zoozoo lovers would queue up to pick a T-shirt worth Rs. 299, it is clear that even an optimistic estimated initial sale worth Rs. 6 crores will barely make a dent in the merchandise market. And leaving aside the actual sales of T-shirts and mugs, the real question is whether the merchandise will enable more loyalty and subscribers for Vodafone.

Consumption & The Role of Retail in Economic Growth  

(Based on a presentation at the CII National Retail Summit, Mumbai, November 2006)

View the PDF of the handout by clicking on the link at the bottom of the page.

Some years ago, a very lively and friendly conversation that I was having came to a dead stop when the other person got to know that I worked with the retail sector.

Her attitude towards me immediately underwent a dramatic change. From a normal human being, I suddenly became comparable to the “lowest of the low” on the planet. I was instantly accused of being “one of those who promote others to consume more and more, endlessly” (obviously to their and others’ detriment).

That incident seemed to typify for me the mind-set that we in India had fallen into – “dukandari” (shopkeeping) is bad, because it promotes ill-afforded consumption. We have reached that mind-set due to centuries of living a poor life pre-independence and, after independence, decades of good intent but poor practice.

Contrast that with the American philosophy that not only is consumption ‘good’ and necessary for economic prosperity – it is akin to God. In fact, from my point of view, much more to the other extreme…but that is another story.

However, the Indian attitude is certainly a strange contrast, since consumption, commerce, change are well-established and accepted in the traditional Indian schools of thought. Let me offer the two following examples, from millennia-old Indian philosophy:

  • The concept of “Purushartha” that offers a balanced view to managing life, bringing together Dharma (righteousness), Artha (wealth), Kama (sensory pleasure) and Moksha (communion with the Infinite). The physical and worldly is as important as ethereal and spiritual. As Arjuna is quoted in the Mahabharata: “Without Profit or Wealth, both Virtue and (the objects of) Desire cannot be won…Do not applaud poverty”.
  • The division of life into the four ashramas, Brahmacharya (Focus on Study), Grihastha (Focus on the World, Family), Vanaprastha (Withdrawal from the Worldly), and finally Sanyasa (Renunciation). Again, while the approach is not prescriptive, the weightage offered to each phase of life is equal. And grihastha, the worldly phase, is presented as the root that allows the others to flourish.

Clearly, there is a role for commerce and consumption-led economic development in the overall re-development of India. And I believe retailing as a sector has a very large role to play in this.

Retail’s Role as an Economic Engine

If we consider the hierarchy of economic development and subsequent impact, progressively we see:

  • Subsistence farming giving way to modern farming
  • Cottage industry developing into larger scale manufacturing
  • Small towns and poor villages transforming into a vibrant and balanced urban and rural Mix
  • Fragmented retail businesses growing into modern retailing, and
  • Generic merchandise paving the path for brand developmen

In this evolution tangible (touch-feel) values give way to intangible (imagined / perceived) values that are much greater in magnitude. In fact, the inflexion point really comes when the transition to modern retail happens. While the previous steps are essential for the growth of modern retail, the reverse impact of modern retail on those very steps – manufacturing, agriculture and urban development – is huge. At this stage, the economic development starts spiralling through this feedback loop.

Why is there such a wide and deep impact of modern retail on the other sectors? The prime factors are mainly three, and all have an impact on agricultural supply, manufacturing and other SME suppliers, town planning, services infrastructure, as well as having an impact on the socio-cultural environment.

Firstly, as retailers grow larger, into chains, the need for efficiency grows. Process and system-led planning and execution become the norm. Wastages or inefficient processes which may only be quirks in a small business, may be fatal in a larger one in a more competitive market. Second, a related factor, is the need for consistency across the chain since any modern retailer would wish to communicate certain core brand messages from each and every store. Both of these factors push the need for more structure into the supply base, whether farm or factory.

 

    The third major factor is the need for differentiation from competitors. As the market grows and matures, competitors’ offers can start looking very similar to each other. The successful players start pushing more product development, private label growth etc. which can help them stand out in the market. This has its own separate impact on the supply chain in terms of upgradation of product in terms of features, quality and benefits delivered to the consumer.
   

All this, of course, looks like the development path followed by the western economies over the last 150-years. And from the looks of it, this seems to be the development path being pushed by a lot of people in India, presumably aiming for the same result.

However, let’s pause for thought.

Need for An Indian Model

Economic growth or prosperity can be looked at in two ways – on average how prosperous a country is (in comparison with other countries), and what is the relative position of people within the country. Economists measure the second factor using the Gini Coefficient, which essentially measures the level of income inequality in a population. (A Gini Coefficient of 100% would theoretically be completely unequal with one person holding all the income in the country, and the lower the Gini indicates that incomes are more equal within the country. The more overall prosperous countries (such as the Scandinavian countries) have also more equal distribution of income within the country, while relatively poorer countries (such as in Africa and Latin America) tend to have higher Gini figures.)

The biggest problem that I see in the current push for consumption-led growth (retail-led growth) is that the focus is totally on the first measure (per capita GDP, average income etc.), rather than on the second. After decades of almost monastic self-denial, India seems now to be swinging to another extreme – an orgy of consumption.

Let me describe what I believe the problem is.

In this focus, there is a single minded focus on earning and spending “More” – if you want to fit in you need to acquire more, if you want to stand-out acquire something different (more), if you do not have something you need to acquire it (more), and if you do have something it is always good to have (what else!) more.

   

In itself is there a problem? After all, inequality is a fact of life, and can be good because it creates ambition and brings forth creative energy. But does that mean that more inequality must be better?

If we imagine the population of India to be a cylinder or a cone, we can visualise how aspirations to a better life are pulling everyone upwards. The problem arises when the aspirations that are raised cannot be fulfilled with the income available – that vacuum creates stress in the society. This is not a problem for the future; we already have ample evidence of it in our cities with the dramatically higher rates of crime related to money and aspirational wealth / spending.

   

Referring back to the Gini Coefficient, economists have also defined a certain optimal range – if incomes are too equal, then there is little incentive for self-driven growth, but if incomes are too unequal beyond that range then social injustice and dysfunction is more widespread.

India at the moment is actually rated to be almost in the middle of the optimal range. However, the business, economic and urban models being followed are more from the UK, the USA and China. And if we see where these countries are on the Gini Index, we find them outside the optimal range – on the more unequal side.

Can we even imagine the upheaval that moving along this path could cause in a country like India?!

So what is the solution? What should the Indian model be? And what role can retailers, especially modern retailers play in this?

I believe that it is high time we start creating economic growth where the maximum people are – in India’s case that is still the villages rather than the cities. Secondly, the small scale sector is the largest sector. The government needs to look more actively at policies that encourage agricultural development and the growth of small scale sector companies. If we need buzzwords to create a wave, let’s use “Agricultural Product Outsourcing” (APO) as a buzzword; let’s drive India’s strengths in “Small Production Outsourcing” (SPO)!

Similarly, retailers need not get cowed down by the mega plans announced by the likes of Reliance and Bharti – India can accommodate hundreds, maybe thousands, of farm-to-fork initiatives.

Retailers need to shift their attention from the assumed middle class (who are actually quite rich) to the true middle class. (I’ve written elsewhere about that issue.)

Development of domestic brands is another area where retailers can have a huge impact – as we mentioned, the emergence of strong domestic brands has a huge impact on the economic profile of the country. And in most cases, the most successful brands actually grow out of small scale businesses that are commonly dismissed as mom-and-pop or pop-and-son! Modern retail can have an enormous impact in supporting the emergence and growth of these in India.

I do believe that successful retailing is not about throwing mega-bucks at real estate and advertising, or paying humongous salaries. Apologies if this sounds completely contrary to the “gung-ho” feeling that most people have about the retail sector. But the sooner we face this issue and tackle it wilfully, the better it is – for all of us, including the retailers.

We need to start looking at retailing from a completely different angle, and look at its role in creating a new economic profile of India. Retailers need to critically look at how they interact with the rest of the economy in a totally new way.

Once we are able to do that, we will also be able to make the shifts that are necessary to create a more sustainable economic environment and more widespread prosperity. And that is most definitely in the interest of the retailers. “Inclusive growth” should be more than a buzzword for retailers – it is the way for them to create sustainable growth for their own businesses.

So – in this context – if you are a retail entrepreneur, or a retail employee, what’s your resolution for 2007?

   

(c) Devangshu Dutta, November 2006

Devangshu Dutta is chief executive of Third Eyesight, a consulting firm focused on the retail and consumer products sectors. This article expresses his personal opinions and is based on a presentation made at the CII National Retail Summit, November 2006 (open PDF). The speaker panel also featured Ireena Vittal (McKinsey & Co.), Roopa Purushottaman (Future Group / Pantaloon Retail), Suman Bery (Director General of the National Council for Applied Economic Research – NCAER).

 Consumption & The Role of Retail in Economic Growth(Extract based on a presentation at the CII National Retail Summit, Mumbai, November 2006)

If we consider the hierarchy of economic development and subsequent impact, progressively we see:
• Subsistence farming giving way to modern farming
• Cottage industry developing into larger scale manufacturing
• Small towns and poor villages transforming into a vibrant and balanced urban and rural Mix
• Fragmented retail businesses growing into modern retailing, and
• Generic merchandise paving the path for brand development

In this evolution tangible values give way to intangible values that are much greater in magnitude with the inflexion point coming when the transition to modern retail happens. The reverse impact of modern retail on those very steps – manufacturing, agriculture and urban development – is huge. At this stage, the economic development starts spiraling through this feedback loop.

The prime factors for such a wide and deep impact of modern retail are mainly three, and all have an impact on agricultural supply, manufacturing and other SME suppliers, town planning, services infrastructure, as well as having an impact on the socio-cultural environment.

Firstly, as retailers grow larger, into chains, the need for efficiency grows. Process and system-led planning and execution become the norm. Second, a related factor, is the need for consistency across the chain since any modern retailer would wish to communicate certain core brand messages from each and every store. Both of these factors push the need for more structure into the supply base, whether farm or factory. The third major factor is the need for differentiation from competitors. The successful players start pushing more product development, private label growth etc.

All this, of course, looks like the development path followed by the Western economies over the last 150-years. Unfortunately, this seems to be the development path being pushed by a lot of people in India.

Economic growth or prosperity can be looked at in two ways – on average how prosperous a country is (in comparison with other countries), and what is the relative position of people within the country. Economists measure the second factor using the Gini Coefficient, which essentially measures the level of income inequality in a population. A Gini Coefficient of 100% would theoretically be completely unequal with one person holding all the income in the country, and the lower the Gini indicates that incomes are more equal within the country. The more overall prosperous countries (such as the Scandinavian countries) have also more equal distribution of income within the country, while relatively poorer countries (such as in Africa and Latin America) tend to have higher Gini figures.

The biggest problem that I see in the current push for consumption-led growth (retail-led growth) is that the focus is totally on the first measure (per capita GDP, average income etc.), rather than on the second.

In this focus, there is a single minded focus on earning and spending “More” – if you want to fit in you need to acquire more, if you want to stand-out acquire something different (more), if you do not have something you need to acquire it (more), and if you do have something it is always good to have (what else!) more.