Oil shocks, financial market crashes, localised wars and even medical emergencies like SARS pale when compared to the speed and the scale of the mayhem created by SARS-CoV-2. In recent decades the world has become far more interconnected through travel and trade, so the viral disease – medical and economic – now spreads faster than ever. Airlines carrying business and leisure-travellers have also quickly carried the virus. Businesses benefitting from lower costs and global scale are today infected deeply due to the concentration of manufacturing and trade.
A common defensive action worldwide is the lock-down of cities to slow community transmission (something that, ironically, the World Health Organization was denying as late as mid-January). The Indian government implemented a full-scale 3-week national lockdown from March 25. The suddenness of this decision took most businesses by surprise, but quick action to ensure physical distancing was critical.
Clearly consumer businesses are hit hard. If we stay home, many “needs” disappear; among them entertainment, eating out, and buying products related to socializing. Even grocery shopping drops; when you’re not strolling through the supermarket, the attention is focussed on “needs”, not “wants”. A travel ban means no sales at airport and railway kiosks, but also no commute to the airport and station which, in turn means that the businesses that support taxi drivers’ daily needs are hit.
Responses vary, but cash is king! US retailers have wrangled aid and tax breaks of potentially hundreds of billions of dollars, as part of a US$2 trillion stimulus. A British retailer is filing for administration to avoid threats of legal action, and has asked landlords for a 5-month retail holiday. Several western apparel retailers are cancelling orders, even with plaintive appeals from supplier countries such as Bangladesh and India. In India, large corporate retailers are negotiating rental waivers for the lockdown period or longer. Many retailers are bloated with excess inventory and, with lost weeks of sales, have started cancelling orders with their suppliers citing “force majeure”. Marketing spends have been hit. (As an aside, will “viral marketing” ever be the same?)
On the upside are interesting collaborations and shifts emerging. In the USA, Jo-Ann Stores is supplying fabric and materials to be made up into masks and hospital gowns at retailer Nieman Marcus’ alteration facilities. LVMH is converting its French cosmetics factories into hand sanitizer production units for hospitals, and American distilleries are giving away their alcohol-based solutions. In India, hospitality groups are providing quarantine facilities at their empty hotels. Zomato and Swiggy are partnering to deliver orders booked by both online and offline retailers, who are also partnering between themselves, in an unprecedented wave of coopetition. Ecommerce and home delivery models are getting a totally unexpected boost due to quarantine conditions.
Life-after-lockdown won’t go back to “normal”. People will remain concerned about physical exposure and are unlikely to want to spend long periods of time in crowds, so entertainment venues and restaurants will suffer for several weeks or months even after restrictions are lifted, as will malls and large-format stores where families can spend long periods of time.
The second major concern will be income-insecurity for a large portion of the consuming population. The frequency and value of discretionary purchases – offline and online – will remain subdued for months including entertainment, eating-out and ordering-in, fashion, home and lifestyle products, electronics and durables.
The saving grace is that for a large portion of India, the Dusshera-Deepavali season and weddings provide a huge boost, and that could still float some boats in the second half of this year. Health and wellness related products and services would also benefit, at least in the short term. So 2020 may not be a complete washout.
So, what now?
Retailers and suppliers both need to start seriously questioning whether they are valuable to their customer or a replaceable commodity, and crystallise the value proposition: what is it that the customer values, and why? Business expansion, rationalised in 2009-10, had also started going haywire recently. It is again time to focus on product line viability and store productivity, and be clear-minded about the units to be retained.
Someone once said, never let a good crisis be wasted.
This is a historical turning point. It should be a time of reflection, reinvention, rejuvenation. It would be a shame if we fail to use it to create new life-patterns, social constructs, business models and economic paradigms.
(This article was published in the Financial Express under the headline “As Consumer businesses take a hard hit, time for retailers to reflect and reinvent”.
Remember the year 2000? After Y2K passed safely, that year some optimistic analysts predicted that India’s modern retail chains would reach 20 per cent market share by 2015. Two years after that supposed watershed, another firm declared that modern retail will be at around that level in 2020 – but wait! – only in the top 9 cities in the country. Don’t hold your breath: India surprises; constantly. As many have noted, “predictions are tough, especially about the future!” What we can do is reflect on some of this year’s developments that could play out over the coming year.
In many minds 2019 may be the Year of the Recession, plagued by discounting, but that demand slowdown has brewing for some time now. However, there’s another under-appreciated factor that has been playing out: while small, independent retailers can flex their business investments with variations in demand, modern retail chains need to spread the business throughout the year in order to meet fixed expenses and to manage margins more consistently.
To reduce dependence on festive demand, retailers like Big Bazaar and Reliance have been inventing shopping events like Sabse Sasta Din (Cheapest Day), Sabse Sachi Sale (Most Authentic Sale), Republic Day / 3-Day sale, Independence Day shopping and more for the last few years. In ecommerce, there’s the Amazon’s Freedom Sale, Prime Day, and Great India Festival, and Flipkart’s Big Billion Day Sale. This year retailers and brands went overboard with Black Friday sale, a shopping-event concept from the 1950s in the USA linked to a harvest celebration marked by European colonisers of North America. (The fact that Black Friday has a totally different connotation in India since the terrorist bombings in Bombay in 1993 seems to have completely escaped the attention of brands, retailers and advertising agencies.) Be that as it may, we can only expect more such invented and imported events to pepper the retail calendar, to drive footfall and sales. The consumer has been successfully converted to a value-seeking man-eater fed on a diet of deals and discounts. With no big-bang economic stimuli domestically and a sputtering global economy, we should just get used to the idea of not fireworks but slow-burning oil lamps and sprinklings of flowers and colour through the year. Retailers will just have to work that much harder to keep the lamps from sputtering.
Ecommerce companies have been in operating for 20 years now, but the Indian consumer still mostly prefers a hands-on experience. The lack of trust is a huge factor, built on the back of inconsistency of products and services. The one segment that has been receiving a lot of love, attention and money this year (and will grow in 2020) is food and grocery, since it is the largest chunk of the consumption basket. Beyond the incumbents – Grofers, Big Basket, MilkBasket and the likes – now Walmart-Flipkart and Amazon are going hard at it, and Reliance has also jumped in. Remember, though, that selling groceries online is as old as the first dot-com boom in India. E-grocers still struggle to create a habit among their customers that would give them regular and remunerative transactions, and they also need to tackle supply-side challenges. Average transactions remain small, demand remains fragmented, and supply chain issues continue to be troublesome. Most e-grocers are ending up depending on a relatively narrow band of consumers in a handful of cities. The generation that is comfortable with an ever-present screen is not yet large enough to tilt the scales towards non-store shopping and convenience isn’t the biggest driver for the rest, so, for a while it’ll remain a bumpy, painful, unprofitable road.
Where we will see rapid pick-up is social commerce, both in terms of referral networks as well as using social networks to create niche entrepreneurial businesses – 2020 should be a good year for social commerce, including a mix of online platforms, social media apps as well as offline community markets. However, western or East Asia models won’t be replicated as the Indian market is significantly lower in average incomes, and way more fragmented.
As a closing thought, I’ll mention a sector that I’ve been involved with (for far too long): fashion. In the last 8-10 decades, globally fashion has become an industry living off artificially-generated expiry dates. A challenge that I have extended to many in the industry, and this year publicly at a conference: if consumption falls to half in the next five years, and you still have to run a profitable business (obviously!), how would you do it? Plenty of clues lie in India – we epitomise the future consumers; frugal, value-seeking, wanting the latest and the best but not fearful about missing out the newest design, because it will just be there a few weeks later at a discount. If you can crack that customer base and turn a profit, you would be well set for the next decade or so.
(Published as a year-end perspective in the Financial Express.)
Retail is such a pervasive and dynamic a sector of the economy, that it is impossible to identify a single point at which modernisation began. I’ve met countless people who perhaps entered the retail sector during the last 15 years, and who mark the beginnings of modern retail around then. There is no doubt that there has been an explosion of investment in retail chains in the last 2 decades, but we need to acknowledge the foundation on which this development is built. The current titans of the sector are standing on the shoulders of previous giants who have created successes and failures from which we are still learning.
This piece is not an exhaustive history of the evolution of the retail business in India, nor a census of all the brands operating in this sector, but the aim is to capture the flavours of the phases of development. (PDF available here to download.)
If we were to trace back the growth of “organised” retail (mind you, I dislike that word!) or modern retail to the first retail chains, we will have to cast our mind back more than a hundred years. While many businesses of that time have disappeared, a few pioneers continue to survive, straddling three eras: the British Raj, the Socialist Raj and the Liberalised Lion economy. The businesses that continue to stand, having been through multiple transformations, include:
Fifty Years of Independence
The 1950s and 1960s remained fertile times, post-Independence and before the heavy-handed Socialist Raj truly began squeezing the life out of Indian businesses. Leading textile companies such as DCM, Bombay Dyeing and Raymond, and footwear companies such as Bata and Carona established chains of retail stores including company-operated stores as well as authorised dealers operating under the companies’ banners.
The 1980s brought the Asian Games, colour television, and a new up-to-date car model to India, all marks of a new vibrancy. Over the 1980s, a new retail wave was led by indigenous ventures such as Intershoppe (launched by a fashion exporter), Little Kingdom and The Baby Shop (children’s products), Nirula’s (fast food) and Computer Point (home computers, PCs and accessories). Many of these were certainly ahead of their time: the critical mass of consumers had yet to develop, the business infrastructure was inadequate, and funding norms were unsuitable to the capital-hungry business of retail. Unlike the textile companies that had large manufacturing and trading businesses, these new retailers were like shooting stars, glorious but visible for only a short period of time. This period, unfortunately, also witnessed the degeneration and disappearance of some of the older stalwarts such as DCM and Carona that were beset by labour disputes, management issues and disconnection from the transforming market.
Numero Uno, an indigenous denim brand, was launched in 1987 soon after VF’s American denim brands were launched, and it took nearly a decade for Numero Uno to reach other geographies in India. Nirula’s, one of the oldest fast food restaurant chains based in North India, expanded across the Delhi NCR in the 1980s and 1990s, and also explored other cities, albeit with mixed success.
Future Group, which today has a large retail and consumer brand portfolio, launched trousers under the name Pantaloons in 1987, initially as a distributed brand, and then denimwear under the brand name Bare. Within a few years the company also launched exclusive stores by the same names, to provide focussed visibility to the brands. About a decade of growth later, the group launched its first large format store under the Pantaloons name, but by now covering a much wider range of products, which became its launch pad for achieving scale.
The RPG group that had acquired Spencer & Co. relaunched it in 1991 in a spanking, new format as Spencer’s in Bangalore, and a short few years later rebadged it again as Foodworld in a joint-venture with a foreign partner. It subsequently went on to launch other formats such as Musicworld and Health & Glow.
Also in 1991, the Rahejas converted an old cinema into a department store, Shoppers Stop, aiming to provide an international shopping experience, although initially focussed on menswear. The store added women’s and children’s sections in subsequent years and the second store was launched four years later after the first one. Subsequent large scale retail expansion only came about towards the end of 1990s.
Little Kingdom is a notable example that I would like to dwell on briefly (partly for the purely personal reason that it was my first retail job!). The business was launched in 1987, headed by alumni of the illustrious IIMs around the country, built on processes and IT systems that could have been the envy of many retailers even 25 years later. The company – Mothercare India Limited – was the first purely retail company to start up and launch a public issue in 1991. During the early 1990s, it was the largest retail chain present across the country, in its categories. In 1991, it also attempted to bring the first home computer, Spectrum, to forward-thinking parents through a mix of in-store sales and door-to-door direct-selling. It was admittedly one of the first to expand internationally, opening a franchise store in Dubai in 1992. During its short life, the team launched multiple brands and formats, including Little Kingdom, Ms (a womenswear brand), The Baby Shop, and became a partner to the international giant VF Corporation’s Healthtex children’s brand and Vanity Fair lingerie brand in India. But, by the mid-1990s – financially overstretched between multiple brands and formats, and backward integration into manufacturing – it was gone.
Physical retail was not the only avenue being explored for growth during these decades. An Indian company imagined replicating the success of western catalogue companies, and launched the Burlington’s mail order catalogue retail venture and even became a joint-venture partner of one of the world’s largest catalogue retailers, Otto Versand (Germany). Other models included direct sales business, such as the Eureka Forbes introducing vacuum cleaners through demonstration parties (which was emulated for the Spectrum home computers mentioned above). With the growth of private television channels, products also began being promoted during non-peak hours through infomercials, though serious TV shopping was still a few years away, coming up in the mid-2000s with dedicated teleshopping channels.
The Foreign Hand and Corporate Retailing
The 1980s and 1990s also saw the launch of international brands from global giants such as VF Corporation (Lee, Wrangler, Vanity Fair, Healthtex), Coats Viyella (Louis Phillippe, Van Heusen, Allen Solly), Benetton (UCB and 012), Levi Strauss, Lacoste, Reebok, adidas, Pepe and Nike, grocery retailers such as Nanz (a three-way German-US-Indian partnership) and Dairy Farm International (with RPG Group’s Spencer’s Retail) and Quick Service formats such as Domino’s, McDonald’s, Pizza Hut, Baskin Robbins and KFC.
India was reopening to business, global management consultants were writing glowing reports about the untapped potential of the (mythical) 200 million middle-class customers and global retailers wanted to own part of the action.
Due to the lack of large-format stores and suitable environments, international brands that entered the Indian market during this phase needed to create exclusive stores to ensure that the brand could be communicated holistically to the consumer, in an environment that was more in the brand’s control, and many of them were, in a sense, “forced” to become retailers in India.
However, around 1996, a very senior member of the cabinet is reported to have said, “Do we need foreigners to teach us how to run shops?” It was an unexpected condemnation, coming as it was from a person and a party otherwise seen as champions of an open economy. It slammed the doors shut to foreign investment and, to my mind, the sector is still yet to fully recover from that ban and the policy contortions that have come over the years to allow international brands and retailers to play a more active role in the market.
Internal weaknesses compounded the decline or exit of some of the businesses. Nanz folded due to various operational challenges and lack of adequate experience. British retailer Littlewoods’ wholly-owned subsidiary pulled out of the market due to problems back home, and in 1998 sold the sole store to the Tata Group, which eventually renamed it Westside.
Despite the early hiccups, India continued to attract international players on account of the high growth and changing social norms. Not only was there greater purchasing power available amongst more Indian consumers, there was a shift in consumer attitude from saving to spending. Several brands, including fashion, luxury and quick service formats, entered the market through licensing, franchising, and joint ventures.
During this period the domestic retail market also drew in more corporate houses, attracted by the apparently abundant market opportunity for them to mine alone or to act as a gateway for foreign companies interested in India. Most were significant diversifications from their existing businesses.
Tobacco, paperboards, agri-commodities and hospitality conglomerate ITC ventured into retailing through Wills Lifestyle and as well as its rural initiative e-Choupal in 2000, followed by John Players and Choupal Sagar respectively. Pantaloon Retail launched a partial hypermarket format Big Bazaar in 2001 and went on to Food Bazaar in 2002, Central in 2004, Home Town and Ezone in 2006. Reliance entered in 2006 with multiple stores of Reliance Fresh being opened simultaneously and over the next few years the company expanded through multiple formats such as Reliance Mart, Reliance Digital, Reliance Trendz, Reliance Footprint, Reliance Wellness, Reliance Jewels to name a few. Telecom major Bharti set up a joint-venture with Wal-Mart at the back end, while the Tata group tied the knot with Woolworths and Tesco in two separate businesses supplying its retail stores, even as it expanded its successful watches and jewellery businesses, as well as Westside.
Even a retail operation like Fabindia, born as an export surplus outlet of a handicraft product business found investors to back a rapid expansion spree, becoming more of a corporate retailer than a front-end for producer organisations and craftspeople.
Through the 1990s and beyond, the market remained in ferment. In 1997 Subhiksha, a small modern retail format for food and grocery was launched. Venture-funded Subhiksha expanded rapidly and over the next decade grew to 1,600 outlets. However, in 2009 the business closed down owing to a severe cash crunch, amidst accusations of criminal mismanagement and fraud.
New product areas emerged highlighting the pace of change of lifestyles, cafes prominent among them. Café Coffee Day opened its first store in 1998 in Bangalore and became the largest organised coffee chain in India by far, though it is now living under the shadow of the recent death of its founder. Barista was also launched in 1999 as India’s Starbucks-wannabe, found its footing, scaled up and lost its way, going on to be sold to Tata Coffee and the Sterling Group, who turned it over to the Italian coffee company Lavazza in 2007, who also exited seven years later. Its current owner, the Amtex Group, is itself going through financial troubles in some of its key businesses.
In the last two decades, while some retailers have gone out of business due to unrealistic business plans, mismanagement or lack of funds, most have taken opportunities to rationalise their operations by shutting down unviable or underperforming locations, aligning businesses to market needs, assessing their brand consistency across various touch points, improving organizational capabilities right down to front-line staff, and focusing on unit productivity.
It’s not just Indian retailers that have faced trouble. Foreign brands have had their own share of problems – some have overestimated the market, or their own relevance to the Indian consumer, while others have had misalignment with their Indian franchisees or joint-venture partners. A number of foreign brands and retailers have also churned partners, or exited the market outright, but most remain committed and invested in the market for the long-haul. The last few years have also seen the successful launch and humongous growth of global leaders such as Zara and H&M, even mass-market Chinese retailers like Miniso, as well as the largest investment commitment made by Ikea (about US$2 billion).
Showing on a Screen Near You
The late-1990s also witnessed a dotcom frenzy that led to a plethora of travel sites, and a few product sales businesses such as Fabmall, Rediff and Indiamart.
However, the online market lacked critical mass in the 1990s and early-2000s. Despite apparent advantages of the online business model, success depended on internet penetration (low!), the appearance of value-propositions that were meaningful to Indian consumers (questionable), investments in fulfilment infrastructure (lacking) and the development of payment infrastructure (regulation-bound). Malls and shopping centres – the new temples of retail – seemed to be sucking up all of the consumer traffic, in any case.
By the mid-2000s the business had reached just about Rs 8-9 billion (US$ 180-200 million), despite 25 million Indians being online. Dotcoms became labelled dot-cons, with an estimated 1,000 companies closing down. However, multiple changes took place in the mid-2000s, among them being the price disruption of the telecom market and explosion of mobile connectivity, as well as a renewed funding appetite among venture funds.
This laid the path for growing the second crop of ecommerce in India. Billions of dollars of investment was poured into creating India’s Amazon wannabes, the high streets ran red by ecommerce-fuelled discounts, aggressive advertising budgets (most promoting discounts) and mergers/acquisitions pushed through by venture investors.
After more than a decade of the second coming, India’s ecommerce business accounts for a market share of total retail in the low single digits. India’s Amazon – if one can call it that – is the Flipkart group, now owned by Walmart, bought at an eyepopping $21 billion valuation and still bleeding cash, and the runner-up is relentless Amazon that continues its aggressive push to own what could be one of the three largest markets in years to come. The Chinese internet giants Tencent and Alibaba are also trying to hack piece off the market, having fulfilled their aim of kicking out Western competitors from their home market.
However, the wild card has just been played by the Reliance Group – having moved from textiles to fibre to oil, the group has made its move into telecom and data (didn’t someone say, “data is the new oil”?). It has strategically pushed handsets and cheap data plans into the hands of the consumers and, according to the latest announcement on Jio Fiber, will soon offer High Definition or 4K LED television and a 4K set-top-box for free. The play is to grab as much of the customer’s share of spend on products and services (including entertainment) as possible.
Possibly the biggest driver of modern retail in the coming years will be the shift in the demographic structure of the country. The young consumers who are joining the workforce now are a distinctly different set from previous generations. This is a generation that has grown up in the liberalised economy and has been exposed to innumerable choices since their childhood. The most important factor is that these consumers are increasingly located outside the top 10 or 20 cities in the country, and are becoming more accessible as both physical and virtual access improves for them.
A large number of them may have only occasionally, or perhaps never, experienced modern retail first hand while they were growing up, but they have seen this upmarket environment emerge before them and are not shy of spending within it, even if it is only on select special occasions. Most of them are handling mobile phones (even if it is their parents’) while still in school and being socially active online even on the go. Certainly most of them have hardly ever visited tailors, growing from one set of ready-to-wear clothes to another. It is this set of young consumers whose outlook and habits will drive retailing very differently in terms of product categories and services in the future.
There is another significant set of consumers whose number is swelling annually: that of working women. As they add to the discretionary household income available to spend, they gain influence in purchase decisions, and with them the entire household’s lifestyle also undergoes a shift. There is a greater demand of time-saving solutions and convenience products to make their lives easier. Modern retail environments where their various needs can be taken care of under one roof, and convenience pre-packaged products are natural winners in this shift. Ready-to-wear products for women, grooming, beauty and personal care, women-oriented media products, processed foods and eating out get a boost. Another important shift is that, due to busier lifestyles, they are time-crunched and more likely to rely on branded products and services that they can trust. However, given the nascent stage of the market, these brands could just as well be retailers’ own labels, if they are managed well.
In terms of business, significantly greater efficiency needs to be achieved, both at the front-end and in head office and supply chain operations. Process and system-led planning and execution needs to become the norm. With India’s burgeoning population, people are treated as a cheap resource: on the contrary, each extra person can be expensive beyond just their salary cost to the organisation. Each extra person adds some friction to decision making, reducing the responsiveness of the business. Smart business will begin to realise this, and look closely at employee efficiency and effectiveness in the context of the overall business, rather than just in terms of individual costs.
Even as the retail business in India is far from saturation, and fragmented growth continues, the business will also undergo consolidation simultaneously, as large scale retail operations are enormously capital intensive. Mergers will be a strategy that will be explored to improve the viability of many businesses in this sector.
Should you be tempted to think that, squeezed between large corporates, international retailers and ecommerce giants, it’s “Game Over” for smaller domestic retailers and brands, let me say that the India retail story is not only not over yet, but continues to be written and rewritten. As the market grows and matures, retail businesses also need to differentiate themselves, investing more in product selection or even product development through private label growth to help them stand out in the market. A one-size-fits-all strategy doesn’t work in a country as diverse as India. For the size of the market, we have surprisingly few brands, many of them virtually indistinguishable from their competitors. Development on this front, of indigenous brands and product development capabilities, is an absolute must.
The good news is that already there is more talent available than ever before. Most importantly this management pool has experience of the retail sector not just in good times but during (many) downturns as well.
Eventually, what is needed is a mix that will be healthy for India’s ecosystem at large for a long time to come. This will not be delivered by a blind transplantation of international templates or a rapid-fire expansion across the country, nor by fearful protectionism or regional parochialism. It will only be achieved by the evolution of market-appropriate business models and a mature approach that can be make the Indian retailers robust enough to grow not just domestically, but possibly even globally over time.
Do you have this feeling that 2018 went by a little too quickly? Well, however quick it seemed, it was certainly momentous for retail in India.
If 2016 was marked by the shock of demonetization, and 2017 by the pains of GST implementation, 2018 highlighted two threads – the obvious convergence of the online and offline world that had been ignored for far too long, and the interest of foreign capital in India’s consumer world.
Walmart bought India’s loss-making ecommerce leader for an eye-popping US$ 20.8 billion valuation, while ecommerce giant Amazon injecting equity into Shoppers Stop, bought Aditya Birla’s More grocery chain (49 per cent through a back-end entity), and held discussions with Future Group to acquire 9.5 per cent in Future Retail. There were rumours of a mega joint venture between Reliance Retail and China’s Alibaba, and media also reported Japan’s Softbank looking at ploughing US$200 million into Firstcry. Both rivals Amazon and Alibaba were reported to be looking at Spencer’s, one of India’s oldest retail chains currently owned by the RP-Sanjiv Goenka group.
Videos of the crush of curious crowds at India’s first, much anticipated Ikea went viral, and the company said it planned to open 40 locations over the next few years, upping its earlier projection of 25. Chinese retailer Miniso basically came out of nowhere and claimed to have clocked sales of ?700 crores in the very first year in the country.
But along with these cross-border “big bangs” we saw domestic confidence also quietly resurging. Indian retailers are not cowering before large foreign retailers and expensive ecommerce advertising splashes; today they are less defensive about their own prospects than they were two years ago. There is also a growing interest among entrepreneurs and corporates to create new retail businesses, which augers well for the diversity of competition and freshness of offerings in the market.
Going into 2019, one thing I can say with certainty is that the weather, economic and political – both in India and elsewhere – will be unpredictable, and might even turn stormy. Externally, retailers should “expect the unexpected”. To ensure that the business remains on track, however rough the track becomes, retailers must centre all major strategies and decisions on the customer. A theme that has been around for centuries, it is surprising how much it gets ignored in this most customer-facing business.
Retailers tend to divide customers into rigid segments. My suggestion would be to look at customers through the behaviour and experience lens and also recognise that the same customer behaves differently at different times and in different contexts – in effect there are no hard boundaries between “segments”.
It is often emphasised is that Indian consumers are “deal-seeking”. I don’t think we should treat this as a uniquely Indian thing: all consumers look for value-reassurance in unpredictable times and in uncertain conditions. Also remember that even in value-seeking, experience still rules. Retailers and brands that are solely focussing on price or price+feature comparisons are turning their business into a commodity. They are missing the long game: of defining the customer’s experience from the first moment of brand contact to the purchase and beyond.
In 2019, if you want to focus on a single competitive strategy, it would be this: for stickiness and sustainability, think about the customer’s experience, and actively design it, in every environment where the customer connects with you.
Lastly, technology is transformative, but tends to get restricted to being the contrast between ecommerce and physical retail. Indian retailers need to embrace technology in all forms, from using the zillions of transactions within the business and with the customer for developing actionable knowledge, to automating processes where unnecessary cost or time makes the business inefficient.
Having said that, keep the previous rule in mind when deploying at customer-facing technology – make customer-interfacing technology as invisible or intuitive as possible. When in doubt, learn from one of the leaders in the sector, Amazon: its 1-click ordering patent 20 years ago gave it a huge advantage over competitors, and it is now aiming to replicate the same seamless, friction-free behaviour physically with its Dash button. Or pick cues even from younger fashion businesses like Rebecca Minkoff, whose focus is on ease and convenience. The key reason for adopting technology is to remove friction for the customer and for processes that serve the customer.
I have no doubt that 2019 will be eventful – let the customer experience be the guiding light to keep our businesses off the rocks and afloat.
(Published in the Financial Express on 4 January 2019, under the title “Retail in 2019: Need for stronger brand-customer connections that go beyond purchase“)
[Accompanying Image credit: Amazon Go; CC/Wikimedia Commons/Brianc333a)]
To many, retail seems to be having an identity crisis.
Closed storefronts on American and European streets and dead malls in India and China are blamed on the growth of online retail. At the same time, the world’s largest online retailer, Amazon, is opening physical stores and buying offline retail operations in the US and in India, while the world’s largest retailer, Walmart, is busy digesting India’s ecommerce market leader. Even India’s online fashion and lifestyle websites – among them Myntra, Firstcry, Yepme and Faballey – are acquiring offline brands or opening stores. Or both.
What in the world is going on?
The short answer: consumers want choice; and retailers have no choice.
For many, ecommerce still seems to have the “new car smell” after more than 20 years, the message pitched so desperately by the founders of and investors in ecommerce companies still echoing: that this “new kid” will make customers’ lives a quintillion times better and wipe out the competition. Two decades on, and hundreds of billions of dollars of investment later, online retail is estimated to be about 12% of the global market. Ecommerce is 10% of the US market, of which Amazon takes up about half. In India the figure is in the vicinity of 2%, with that share is virtually stitched up between Walmart-owned Flipkart Group and Amazon.
Clearly, consumers value offline retail stores, whether for convenience or as holistic brand ambassadors. You can’t take away the fact that retail for us is theatre, experience, social.
Over at physical retail businesses, managers have been terrified of “channel conflict”. Senior management have squeezed resources for online, even when return-on-capital was demonstrably better than a new store. Some have refused to publicise their own company’s website through in-store banners, fearing that the customers would get sucked away from the store. It has been strange to see this opportunity being passed up – if a customer is trusts you to walk into your physical store, why would you not want to connect with them at other points of time when they are not near your store?
As I’ve written earlier, retail is not and should not be divided between “old-world physical” and “upstart online”. Successful retailers and brands have always been able to integrate multiple channels and environments to reach their customers.
For instance, British fashion retailer Next has long used a combination of physical stores (of varying sizes) as well as mail order catalogue side-by-side, and then ecommerce as the digital medium grew. Another British retailer, Argos, took another angle and embedded a catalogue inside the physical store – first a paper catalogue, and then on-screen.
American designer Rebecca Minkoff has taken this unification further. Without the weight of legacy systems, the brand attempts to create a seamless experience for the customer, unifying the store, in-store digital interfaces such as smart dressing rooms, the website and the mobile.
No doubt, for older companies, integrating is tough; business systems and people are in disconnected silos, incentivised narrowly. Each channel needs different mindsets, capabilities, processes and systems, to ensure that the optimal customer experience appropriate for the interface, whether it is a store, mobile app, website or catalogue. But etailers opening physical stores have their own challenges, too, tackling the messy slowness of the physical world, where you can’t instantly switch the store layout after an A:B test. They now need to develop those very “old-world skills” and overheads that they thought they would never need.
Regardless of where they begin, retailers need to mould and blend their business models with proficiency across channels. In the evolving environment, any brand or retailer must aim to offer as seamless an experience to the customer as feasible, where the customer never feels disconnected from the brand.
Varying circumstances make customers choose different buying environments. At different times or on different days of the week, even the same person may choose to shop in entirely different ways. Successful retailers that outlast their competitors have used a variety of formats and channels to meet their customers, and will continue to do so.
To my mind, retailers have no choice but to see the retail business as one, even as it is fluid and evolving. A retailer’s only choice is to bend with the customer’s choice.
(Published in the Financial Express under the title “Uniting retail: Why online versus offline debate must end“)
In this piece I’ll just focus on one aspect of technology – artificial intelligence or AI – that is likely to shape many aspects of the retail business and the consumer’s experience over the coming years.
To be able to see the scope of its potential all-pervasive impact we need to go beyond our expectations of humanoid robots. We also need to understand that artificial intelligence works on a cycle of several mutually supportive elements that enable learning and adaptation. The terms “big data” and “analytics” have been bandied about a lot, but have had limited impact so far in the retail business because it usually only touches the first two, at most three, of the necessary elements.
“Big data” models still depend on individuals in the business taking decisions and acting based on what is recommended or suggested by the analytics outputs, and these tend to be weak links which break the learning-adaptation chain. Of course, each of these elements can also have AI built in, for refinement over time.
Certainly retailers with a digital (web or mobile) presence are in a better position to use and benefit from AI, but that is no excuse for others to “roll over and die”. I’ll list just a few aspects of the business already being impacted and others that are likely to be in the future.
On the consumer-side, AI can deliver a far higher degree of personalisation of the experience than has been feasible in the last few decades. While I’ve described different aspects, now see them as layers one built on the other, and imagine the shopping experience you might have as a consumer. If the scenario seems as if it might be from a sci-fi movie, just give it a few years. After all, moving staircases and remote viewing were also fantasy once.
On the business end it potentially offers both flexibility and efficiency, rather than one at the cost of the other. But we’ll have to tackle that area in a separate piece.
(Also published in the Business Standard.)
Third Eyesight’s CEO, Devangshu Dutta recently participated in a discussion about the phenomenal growth of the Patanjali brand, from yoga lessons to a food and FMCG conglomerate taking well-established multinational and Indian competitors head-on. In a conversation with Zee Business anchor, P. Karunya Rao and FCB-Ulka’s chairman Rohit Ohri, Devangshu shared his thoughts on the factors playing to Patanjali’s advantage. Excerpts from the conversation were telecast on Brandstand on Zee Business:
(Published in the Financial Express, 10 May 2016)
In about 20 years, Café Coffee Day (CCD) has grown from one ‘cyber café’ in Bengaluru to the leading chain of cafés in the country by far.
In its early years, it was a conservative, almost sleepy, business. The launch of Barista in the late 1990s and its rapid growth was the wake-up call for CCD — and wake up it did!
CCD then expanded aggressively. It focussed on the young and more affluent customers. Affordability was a keystone in its strategy and it largely remains the most competitively priced among the national chains.
Its outlets ranged widely in size — and while this caused inconsistency in the brand’s image — it left competitors far behind in terms of market coverage. However, the market hasn’t stayed the same over the years and CCD now has tough competition.
CCD competes today with not only domestic cafés such as Barista or imports such as Costa and Starbucks, but also quick-service restaurants (QSRs) such as McDonald’s and Dunkin’ Donuts. In the last couple of years, in large cities, even the positioning of being a ‘hang-out place’ is threatened by a competitor as unlikely as the alcoholic beverage-focussed chain Beer Café.
CCD is certainly way ahead of other cafés in outlet numbers and visibility in over 200 cities. It has an advantage over QSRs with the focus on beverage and meetings, rather than meals. Food in CCD is mostly pre-prepared rather than in-store (unlike McD’s and Dunkin’) resulting in lower capex and training costs, as well as greater control since it’s not depending on store staff to prepare everything. However, rapid expansion stretches product and service delivery and high attrition of front-end staff is a major operational stress point. Upmarket initiatives Lounge and Square, which could improve its average billing, are still a small part of its business.
Delivery (begun in December 2015) and app-orders seem logical to capture busy consumers, and to sweat the assets invested in outlets. However, for now, I’m questioning the incremental value both for the consumer and the company’s ROI once all costs (including management time and effort) are accounted for. The delivery partner is another variable (and risk) in the customer’s experience of the brand. Increasing the density through kiosks and improving the quality of beverage dispensed could possibly do more for the brand across the board.
The biggest advantage for CCD is that India is a nascent market for cafés. The café culture has not even scratched the surface in the smaller markets and in travel-related locations. The challenge for CCD is to act as an aggressive leader in newer locations, while becoming more sophisticated in its positioning in large cities. It certainly needs to allocate capex on both fronts but larger cities need more frequent refreshment of the menu and retraining of staff.
An anonymous Turkish poet wrote: “Not the coffee, nor the coffeehouse is the longing of the soul. A friend is what the soul longs for, coffee is just the excuse.” There are still many millions of friends in India for whom the coffee-house remains unexplored territory, whom CCD could bring together.
Aggregator models and hyperlocal delivery, in theory, have some significant advantages over existing business models.
Unlike an inventory-based model, aggregation is asset-light, allowing rapid building of critical mass. A start-up can tap into existing infrastructure, as a bridge between existing retailers and the consumer. By tapping into fleeting consumption opportunities, the aggregator can actually drive new demand to the retailer in the short term.
A hyperlocal delivery business can concentrate on understanding the nuances of a customer group in a small geographic area and spend its management and financial resources to develop a viable presence more intensively.
However, both business models are typically constrained for margins, especially in categories such as food and grocery. As volume builds up, it’s feasible for the aggregator to transition at least part if not the entire business to an inventory-based model for improved fulfilment and better margins. By doing so the aggregator would, therefore, transition itself to being the retailer.
Customer acquisition has become very expensive over the last couple of years, with marketplaces and online retailers having driven up advertising costs – on top of that, customer stickiness is very low, which means that the platform has to spend similar amounts of money to re-acquire a large chunk of customers for each transaction.
The aggregator model also needs intensive recruitment of supply-side relationships. A key metric for an aggregator’s success is the number of local merchants it can mobilise quickly. After the initial intensive recruitment the merchants need to be equipped to use the platform optimally and also need to be able to handle the demand generated.
Most importantly, the acquisitions on both sides – merchants and customers – need to move in step as they are mutually-reinforcing. If done well, this can provide a higher stickiness with the consumer, which is a significant success outcome.
For all the attention paid to the entry and expansion of multinational retailers and nationwide ecommerce growth, retail remains predominantly a local activity. The differences among customers based on where they live or are located currently and the immediacy of their needs continue to drive diversity of shopping habits and the unpredictability of demand. Services and information based products may be delivered remotely, but with physical products local retailers do still have a better chance of servicing the consumer.
What has been missing on the part of local vendors is the ability to use web technologies to provide access to their customers at a time and in a way that is convenient for the customers. Also, importantly, their visibility and the ability to attract customer footfall has been negatively affected by ecommerce in the last 2 years. With penetration of mobile internet across a variety of income segments, conditions are today far more conducive for highly localised and aggregation-oriented services. So a hyperlocal platform that focusses on creating better visibility for small businesses, and connecting them with customers who have a need for their products and services, is an opportunity that is begging to be addressed.
It is likely that each locality will end up having two strong players: a market leader and a follower. For a hyperlocal to fit into either role, it is critical to rapidly create viability in each location it targets, and – in order to build overall scale and continued attractiveness for investors – quickly move on to replicate the model in another location, and then another. They can become potential acquisition targets for larger ecommerce companies, which could acquire to not only take out potential competition but also to imbibe the learnings and capabilities needed to deal with demand microcosms.
High stake bets are being placed on this table – and some being lost with business closures – but the game is far from being played out yet.
The Patanjali Group has created an Indian FMCG giant in a very short span of time on the back of a three-pronged strategy:
Over time, the group has also invested in improving its manufacturing and packaging infrastructure to bring itself on par with well-established competitors.
The group has clearly focussed itself on the mass market, and Patanjali Group’s products become a “go-to” for customers who are more price-sensitive than brand-loyal. This definitely creates pressure on established brands in each of the product segments where the group is now present.
In the growing market for ready-to-cook packaged food, a new entrant would struggle to create visibility and initial demand. However, with the momentum of the Patanjali brand behind it, the group’s new product — instant noodles — has a fighting chance.
I must say, though, that the immediate opportunity would have been bigger had Maggi also not just relaunched in the market. The other aspect to keep in mind is that while a lot of food and nutraceutical products resonate easily with the Patanjali brand, instant noodles seem completely counter-intuitive under this brand’s umbrella. How much consumers will support this new launch remains to be seen.
This 2-4 minute noodles story is still cooking. Keep watching the pot!