The last three years have been a roller coaster ride for food & grocery modern retail in India.

Progressive Grocer’s India edition was launched in September 2007, during what was an excellent series of years for the modern retail trade in the country.

It was a year after the launch of Reliance Fresh, and a few months after the acquisition of Trinethra’s chain of 170 stores by the traditionally conservative Aditya Birla Group. Spencer’s announced its plans to raise capital for expansion, while Food Bazaar together with its value-format non-food twin Big Bazaar already accounted for more than half the Future Group’s sales.

Other than the established corporate groups, new entrants such as Wadhawan were also well into growth through mergers and acquisitions, including their purchase of Sangam, Hindustan Unilever’s experiment at retailing directly to consumers, Sabka Bazaar and The Home Store.

The four largest foreign retailers were also making their presence felt through Walmart’s announcement of a joint-venture with Bharti in August, Tesco’s and Carrefour’s intensive investigations of the market and negotiations with potential partners, and Metro’s announcement of its planned growth to 100 outlets.

The modern retail engine seemed to be chugging along strongly. But there were also spots of trouble in paradise.

Protests against the opening of corporate chain stores were seen in a few states. In some cases state administrations even formally stepped in to ask for closure of corporate chains to avoid civic trouble, and it looked as if the lights were going out even before the party had really started!

Along with the battle between modern and traditional, both sides of the debate on foreign direct investment (FDI) into the Indian retail sector were also ramping up their arguments. There was vocal opposition from emerging large Indian retailers, as well as the small traders group, while investors and some of the prominent retailers championed the cause of foreign investment.

In both debates, international examples of the damage wrought by large or foreign retailers to local economies were quoted by those opposed to corporate retailers. And in both, the developmental aspects of modern retail were quoted by proponents of modern retail and FDI.

At Third Eyesight, in early 2007 we had carried out a study (“From Ripples to Waves”) on the increasing impact of modern retail on the supply chain. Amongst the study’s respondents, both retailers and suppliers had favourable things to say about the growth of modern retail and its impact on the supply chains for various products. There was not just talk of efficiency with fewer layers of transactions and lower costs, but also of effectiveness, with suppliers reporting 10-25% higher per square foot sales in modern retail stores as compared to their displays in traditional independent stores.

After years of resisting the impending changes to their ordering and servicing structures, major Indian FMCG and food brands became busy setting up or strengthening teams focussed on the modern trade or ‘organised’ corporate customers.

The market was rich with format experimentation for food and general merchandise retail, typically between 1,000 sq ft and 10,000 sq ft, but also with a gradual growing emphasis on 20,000-80,000 sq ft supermarkets and hypermarkets.

Literally hundreds of food brands from other countries actively sought to tap into the growing Indian market, and modern retailers offered them a familiar environment and a well-managed platform for launch.

At the same time, plenty of respondents also said that they had not made any significant changes to their business. Either inertia or fear of channel conflict was preventing them from pushing ahead with newer business models.

In short, there was no dearth of action and contradiction, no matter where you looked.

However, towards the end of 2007 and beginning of 2008, we had a sense of foreboding. With the rush to expand the store network to get first to some yet-invisible finish line, both property acquisition and human resource costs were driven up by a feeling of a shortage in both. I recall writing a column around that time, urging retailers to look at store productivity as their first priority (See: Priority #1: Store Productivity, Same Store Growth).

By the middle of 2008 the crisis was evident. There was a lot of square footage, much of it in the wrong places. There were issues with the supply chain for managing fresh and perishables, those very products that drive frequent footfall into a food store. More importantly, the global financial storm had started gathering strength, reducing liquidity in the market and making investors and lenders look more closely at existing business models.

The spectacular meltdown of Subhiksha in 2008, and the more gradual but equally deep impact on other businesses was visible. And worrying. Players as disparate as Reliance, with its ambitious plans to grow into a Rs. 300 billion retail juggernaut, and the Shopper’s Stop premium format Hypercity seem to take a break to rethink.

2008 and 2009 were years that I am sure many retailers would like to forget, but they were also very valuable. Some people have compared these years to the churning of the ocean (manthan) by the devas and the asuras in Indian mythology, with the deadly poison halahal coming to the surface before the divine nectar amrit could be reached.

In these two years, we have seen stores closed, formats changed, and organisations made slimmer. Store staff have discovered how to live with small changes like higher ambient air-conditioning temperatures, and are learning the more important science of higher transaction values, even with leaner inventories. Management teams are becoming more accustomed to looking at retail metrics other than only sales growth that could be achieved from new square footage. Vendors are finding newer ways to make their brands more relevant to consumers and to the retailers.

More importantly, these years have also underlined the importance of India as a growth market to non-Indian companies.

2010 so far seems a far happier year. Income and GDP growth figures look much healthier. Real estate inventories in malls that were not released in 2007-2009 are coming on the market, many at terms that are more favourable than earlier. Retailers’ financial results look healthier.

There could always be the temptation to rush headlong into growth again. But I don’t think food retailers or their vendors should drop their guard yet.

The coming months and years need significant sharpening up of customer insight, merchandise and inventory planning capabilities and supply chains. Operational assessments, analytics, organisational capability building, are all tools which will need to be looked at closely.

We are at the cusp of the next growth curve, as the population grows and matures, and the market become more sophisticated.

Though the large-small, local-foreign debate isn’t closed yet, the much-awaited approval from the government to allow foreign investment into multi-brand retail businesses may be around the corner.

Even if FDI doesn’t happen immediately, the majors are already in or preparing to enter and ride the consumption growth that will logically happen. In addition to its support to Bharti’s Easyday chain, Walmart has launched its cash and carry operation, Bestprice. Carrefour reportedly is looking to open its first Indian (wholesale) outlet by November in New Delhi on its own, even as rumours of a partnership with the Future Group fly thick and fast. And Tesco is steadily steaming ahead with the Tata group.

And practically every month we are seeing new products and even new brands being launched by Indian and non-Indian companies.

An old saying goes: the journey of a thousand miles begins with a single step.

From the tumultuous events of the last three years, it seems that the Indian food retail sector must have travelled at least a few hundred miles already. In one sense it has. Many of the developments that we’ve seen in three years would have taken at least a couple of decades in the more mature markets.

However, in another sense, the food and grocery modern retail sector in India has only taken the first few steps, with much to be accomplished still. The sector remains fragmented, and wide swathes of the market are yet to be penetrated – not just by modern trade, but even by brands that already supply traditional retail. The blend of players and business models, not to forget the spicy regional mix of different market segments, promises valuable lessons not only for those in India but potentially for other markets in the world.

There are very big questions seeking answers. How to improve agricultural productivity so that food security is ensured. How to save the abundant harvests rather than letting them rot in unprotected storage dumps. How to ensure adequate calories and nutrition get delivered not just to the wealthy and the middle class, but also to the poorest in the country.

On the retail side, the Indian versions of Walmart, Carrefour and Tesco are possibly still in the making, and may yet surprise us with their origins and growth stories. And e-commerce is a work-in-progress that may be the dark horse, or forever the black sheep.

I think the big stories are yet to unfold, and the unfolding will be exciting, whether we are just watching or actively participating in the modernisation of the Indian food retail business.

indiaretailing.com, Payal Kapoor

3 September 2010

As the competition heats up among shopping centres, what would differentiate one from the other? The answer lies in localisation of the shopping centre in line with local tastes and preferences. This becomes all the more important, because today’s consumer is an evolved creature, who owes no loyalty to a shopping centre unless it meets her high expectations and offers a unique shopping experience.

In a poll question asked by IndiaRetailing — “Shopping centres are still not unique when it comes to retail offerings” – 68.22 per cent of the respondents said “yes”, whereas only 8.41 per cent said “no”; the remaining (23.36 per cent) preferred to stay “neutral”.

Stressing that shopping centres need to reflect local needs, tastes and habits, Devangshu Dutta, chief executive, Third Eyesight, says, “Shopping centres can get truly differentiated from one other only when they are seen as part of a city’s social and commercial infrastructure.”

He firmly believes that most shopping centres that have come up in recent years have been planned from the point of view of the land available and maximisation of capital gain or income, rather than being part of specific urban landscapes. “Thus, we have ‘characterless boxes’ which target, by and large, the same premium national brands. With such an approach, uniqueness cannot be expected,” Dutta emphasises.

Deepti Goel, head, leasing, Ambience Mall, however, does not agree with Dutta. She says, “Every shopping centre is unique and is sensitive to the specific needs of consumers. The offerings of a shopping centre are unique to the extent of identification of the mall with a certain subset of the consumer, despite the possibility of a certain overlap in some areas.”

She further says, “The mall is a social centre which offers more than just retail and, therefore, it is unfair to evaluate the uniqueness of a shopping centre by the possibility of an overlap of retail offerings.”

Right mix and match

So, what’s the way ahead for shopping centres?

The right design, along with the right tenant mix that matches the customer’s experience, is the best ingredient for the success of a shopping centre.

To create a great experience for the customers, shopping centres must understand not only the demographics of the mall catchment area, but also the consumer’s psychographic profile (their lifestyle, brands they relate to, their rational and emotional drivers and usage habits, etc).

But it appears mall rentals come in the way of shopping centres to address the local needs of consumers. “Shopping centre developers in India are mostly concerned with optimising the weighted average of rentals, hence certain categories, which might be vital for enhancing the (tenant) mix, might take a back seat in order to achieve higher rentals,” observes Dheeraj Dogra, director, mall mechanics, Beyond Squarefeet Advisory Pvt Ltd.

Stressing the need to make shopping centres a place of social gatherings, Dogra says, “A lot of retail services, such as banks, post offices, shoe repair and hobby shops, are mostly left out of the mix. Also left out are local, home-grown retailers who have strong connections within the community. It seems a majority of shopping centres boast of the same mix and, hence, are not unique. If we look at the nation’s top five shopping centres, the depth of retail mix is what makes them stand out."

Dinaz Madhukar, vice-president, mall management, DLF Emporio, says, “Shopping centres can and should be unique in their retail offerings. Each destination should strive for a personality and have a connect with its target audience. It is imperative that the brand attributes come alive when one comes to the mall.”

Giving the example of DLF Emporio mall in Delhi, Madhukar says, “The mall has carved a niche for itself in the luxury retail space. The luxury ambience in the mall is complemented by a multi-cuisine restaurant, which carries the flavour of design throughout. It is different from a typical food court, unique in its offering and yet a part of the mall.”

New trends, new shopping experience

New generation malls are no longer about shopping; they are striving to become destinations by providing a wide range of entertainment for all consumer groups.

With a huge number of new shopping centres entering the market and the existing players bolstering their position, localising the malls has become a vital tool for developers and owners of malls to attract footfall and increase retail revenues.

Thorough groundwork during the planning stage, in terms of understanding consumer behaviour, likely footfalls, retail segments potential, propensity to spend on various retail categories, profiling existing and upcoming shopping destinations within the catchment, therefore, becomes significant, as it gives insights for mall positioning.

A fully integrated strategy must involve all areas of the shopping centre, from tenant mix to facilities management to overall marketing and communications strategy. The key is to understand the market and position the “shopping centre” to appeal to the right tenants and consumers.

Sanjay Prabhu, head-marketing and business development, City Mall Developers, concludes, “The offering of brands in shopping centres is quite limited. Unless India opens up its doors and allows more brands to come in, the retail market will see stagnation soon.”