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.

Retailwire hosted an interesting discussion on ethical consumerism, based on Andrew Benett’s description of the decline of hyper-consumerism, and the emergence of a more conscious, frugal consumer in his new book, “Consumed: Rethinking Business in an Era of Mindful Spending”.

In a recent article Benett identified 10 public figures who also act as beacons for mindful consumption. The list includes people as diverse as US first lady Michelle Obama, talk show host & actress Ellen Degeneres, investor Warren Buffet, PepsiCo CEO Indra Nooyi  and rapper Ludacris.

Of course, Ellen, Ludacris or Oprah have a communication reach that most marketers would kill for. Walmart pushing sustainable technologies in its supply chain could possibly achieve more than many governments around the world would hope to, because its powerful carrot of buying budgets is far stronger for many vendors in Asia, than the sticks of legislation. Many of these are genuine, praiseworthy attempts.

However, much as I would like to believe that all celebrities and high profile businesses are evolving into mindful, careful consumers, that would be a gullible step too far. In the current economic climate, consuming too conspicuously is just “not done.” But that may change as markets improve, jobs expand and incomes rise again.

Having said that, if the current fashionable rash of mindfulness raises the profile of concerns around over-consumption and waste, if it actually drives us towards more sustainable behavior and be more gentle to the planet and our future generations then, well, the end justifies the means.

Andrew Benett’s list is here: Top 10 Public Figures Who Are Also Mindful Consumers.

And this is the discussion on Retailwire on this subject.

India’s traditional skills in textiles, intricate craftsmanship, and creativity in producing a range of design-intensive products have enticed buyers from all over the world. India retains a strong and sustainable position among the top five exporters of textiles and clothing in the world.

India’s textile exports are currently weighted in favour of raw materials and intermediate products leading to ‘value-leakage’, which is a major concern from the long-term competitiveness perspective.

Within India, Delhi holds a position of prominence and can play a significant role in capturing additional value within the country. As a sourcing destination and as a gateway to the rest of India’s textile and apparel sector, Delhi provides unique value in product development and design, and a tremendously flexible supply base.

This capability is especially critical in an unpredictable market where retailers and brands are looking to source ever-smaller quantities of product, increasingly closer to the season.

According to the Director (Merchandising) of one of the largest US retailers sourcing from India, “Delhi scores high on responsiveness, and is more enterprising. It has the capability to handle extraordinary fabrics and is strong in interpretations of artwork.”

The apparel cluster in Delhi-National Capital Region (Delhi NCR) includes locations across four states, and accounts for about twenty five percent share in the country’s current apparel exports. If Delhi’s apparel cluster were to be treated as a country, at US$ 2.6 billion (Rs. 12,000 crores) of apparel exports, it would fall within the Top-20 list, ahead of countries such as El Salvador, South Korea, Philippines, Peru and Egypt. Moreover, being a labour intensive industry, apparel cluster offers immense employment opportunities in NCR, already with current direct employment of over 1 million as per Third Eyesight’s estimate.

A study carried out by Third Eyesight has identified an additional growth opportunity of over US$ 5.5 billion (Rs. 25,000 crores) both in its current markets and products, as well as new product opportunities.

For many buyers, sourcing from Delhi NCR cluster is still restricted to beaded, sequined, and tie-dyed blouses, dresses and skirts. While Delhi remains strong in these products, it now also sells funky denim and jersey wear to young fashion brands, men’s tailored suits to American brands, and women’s undergarments to Europe.

Delhi now offers a base both to international buyers looking at buying finished products, and to Asian, European and American manufacturers looking at setting up alternative manufacturing locations that can tap international as well as the Indian market.

Going forward, the key stakeholders of the Delhi NCR apparel export cluster – individual companies, industry associations and the government need to urgently undertake adequate action steps as the competition is gearing up and the perceived strength of Delhi NCR cluster at the moment may not remain a USP of this cluster in the future.

The Delhi NCR apparel export cluster strategy report along with action steps and key implementation areas was presented at an industry seminar ‘Discovering Growth’ in New Delhi. The seminar was hosted by GTZ in partnership with Small Industries Development Bank of India (SIDBI) and Apparel Export Promotion Council (AEPC). The seminar was attended by the key stakeholders of the Delhi NCR apparel cluster including leading apparel exporters, buying agencies and retailers.

Retailwire raised a pertinent question recently about social media and marketing. In marketing as in life, it is all about timing. The question was whether retailers and brands should be concerned that they are moving to Facebook at a time when large numbers of teenagers are abandoning it? 

Having said that, I’d like also to take a different look at those stats. Demographics and physically addressable market aside, the question is what proportion of your potential customers are receptive to the brand in that environment.

At the moment, Facebook is not a medium amenable to classic interruption marketing. (Although it may become that in the future, just like Youtube, with Google ads popping up across the bottom of the video.)

Neither is the Facebook user’s primary purpose brand loyalty or looking at marketing messages. The average Facebook user has enough to keep him/her busy or distracted, without getting on to a brand’s page. That video of a mother with laughing quadruplets is far more likely to get viewed and shared than any of your marketing messages.

If your brand isn’t interesting, engaging, and open, you can’t have the conversations that a platform like Facebook facilitates. If there’s no on-going conversation, your chief Facebook officer is wasting the company’s time, money and internet bandwidth. Logout. Now.

The entire discussion on Retailwire is here: “Marketers Move to Facebook As Teens Move Away” (needs a free sign-up).

My first brush with Zara and Inditex (Zara’s parent company) was in the 1990s, when we were comparing product development and supply chain best practices for another European retailer.

In 2002, after writing a case study on the Zara business model, I was (and continue to be) surprised at the number of downloads from the website (referenced at the bottom of this article).

In 2004, the interest at the Images Fashion Forum was so intense that the Q&A after the presentation exceeded the allotted time, to the extent that I was almost declared persona non grata by the organising team!

I’m glad to say that we’re all still friends and, together, witness to the logical next phenomenon: the much anticipated Zara store launch in India in May 2010. And what a phenomenon! On a high-footfall day, at full price, the Delhi store looks as if the merchandise is being given away for free.

In 2006, India was the 8th highest source of traffic to the Inditex website (more than half a million, almost 2 per cent of the total); incredible, considering that the other Top-10 countries already had Inditex stores. Although Zara finally signed a joint-venture with the Tata Group, I’m pretty sure that those thousands of other rejected prospective Indian licensees and franchisees must be getting their Zara-fix now as customers.

What does the Zara launch mean for the Indian fashion and retail sector? Is this the beginning of a new era? Should we expect Zarafication of the market, where the customer is driven by fashion, and the supply chain will turn and churn products faster than ever before? Should other international brands and Indian fashion brands be worried?

A peek at history is useful here. It is said that when Spanish conquistadors landed on the shores of the Americas they managed to conquer the land and the people through a combination of guns, germs and steel. [Credits to Jared Diamond for that evocative phrase.] That is, the Spanish carried guns and fine steel swords but, most importantly, they also carried diseases that were alien to the local population. In many places, the weakened and leaderless indigenous people were simply too battered psychologically and physically by disease, to fight the colonisers.

Keeping that in mind I would say, Zara’s entry is a warning bell only if your business is suffering from recent financial and operational illnesses. It is only dangerous if your team are psychologically weak, and would be overwhelmed just by the thought of the supply chain wizardry that Zara has deployed in its business internationally. It may be fatal for sleepy marketing teams whose only strategy has been to spend lots of money on advertising in season and on mark-downs after the season.

But it’s not doom and gloom for brands and businesses that have a competitive spark of life. If you’re prepared to learn, Zara’s business can provide lessons on how to create a product mix that doesn’t stay on the shelf for months, and on how to create the buzz and excitement around the brand.

Zara’s business success in India is not a foregone conclusion. Let’s look at the facts.

Zara’s business model in its home market was built on getting up-to-date fashion into the market before anyone else, and at lower costs. Its prices encouraged fashion-conscious consumers to buy more frequently, and though its limited production quantities were a way of reducing risk, it added to the allure of the brand. In most overseas markets, however, Zara is a somewhat more premium brand. The “value-for-money” for the brand rests on fashionability rather than product quality.

The Indian consumer base, on the other hand, is less fashion-sensitive than the European consumer. This is not equivalent to being less sensitive aesthetically – Indian consumers can tell good design from bad; allowing, of course, for varying taste! However, value consciousness drives many consumers to buy during discount sales with delay of 2-3 months, rather than buying current fashions at full price. This can be a problem for a brand that thrives on change.

Zara will initially have a limited physical footprint. It is targeted at the premium to luxury end of the market, fitting a certain physical profile of customer. Its products that are imported are disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time. So, there is time available to Indian businesses that want to adapt their business model, and learn from this new competitor.

With the product development strengths and the agility that Indian apparel companies have displayed in the past, there is no reason why Indian brands cannot compete effectively with Zara on their home turf. When it comes down to it, I think Indian businesses (the small ones, with less “organisation” and “process” orientation) are fast on their feet in identifying design trends and are able to responding to the trends with products being available in the market very quickly. I would call them the Indian “baby Zaras”.

So the real question is this: can these Indian “baby Zaras” learn to be disciplined and structured, and learn to scale up their businesses?

Could we, perhaps, even see some people creating copies of Zara’s styles and bringing them to the market quickly at much lower prices (in effect doing a Zara on Zara)? Let’s not forget, what is today an 11-billion Euro business was once a contract manufacturer to other retailers, and Zara started with one shop carrying low-priced versions of products inspired by those of high-fashion designer brands.

The coming years promise to be interesting and I think we should watch out for an Indian version of an Inditex emerging in the next few years. It remains to be seen whether it will be from among the existing players in the domestic market, an exporter who is a contract manufacturer for western retailers (as Inditex once was), or someone totally new.

The people who should be really worried are those international brands whose product mix in India is weak, whose prices make you want to marry a rich banker, and whose brand ethos is totally unclear. To them I would say: Zara has you in its gun-sights.