impact of organized retail

8/12/2019 Impact of Organized Retail

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6. Impact of organized retail:

The organized retails have been argued to be beneficial to the farmers and the consumers while

it is seen as a replacement for the traditional retail shops. However, the situation seems a bit different in

the case of retail shops.

Over the years, Indian society has witnessed a change in lifestyle, faster pace of urbanization,rise in disposable income and educational level and awareness. This conspicuous change has opened

ways to the mega players of world to set up retail businesses in India. In past few decades, largeretailers have experienced substantial growth around the world. Moreover, since the economicliberalization of 1991, the Indian middle class has expanded greatly which has created a robust and

growing demand of organised retail markets. However, a number of concerns have been raisedregarding the advent of retail revolution in India and its impact over the traditional retail stores(Kirana Stores), farmers, the employment and the economy of India.

6.1 Impact on Traditional retail stores:

According to the report of Indian Council for Research on International Economic Relations (ICRIER)

the unorganised retailers in the vicinity of organised retailers saw their volume of business and profit

decline. However, the report supports that there is no employment loss in this case. It is believed that

both the formats can co-exist. In fact, when modern trade help create new categories, the spillover effectis helping generate more demand in kirana stores as well.

Other studies have estimated that traditional fruit and vegetable retailers experienced a 20-30%

decline in incomes with the presence of supermarkets.

According to one study by Nelson,since 2006, when most big retailers either entered the retail space or

began expanding their network, sales in local kiranas have grown in the low single digits even less thanthe GDP growth rate, while modern trade has grown in strong double digits, though at a much lower base.For instance, sales at modern stores grew 34% in 2006 and 29.3% in 2010. Traditional stores could

increase sales only 1.5% in 2006, but improved the growth rate to 6.2% last year

6.2 Impact on Farmers:Current organised retail procures 60-70% from wholesale markets rather than farmers. There

has been no significant impact on backend infrastructure investment. It claims that they are paying

more to the farmers, but the truth is that they are at present procuring from the existing Mandis(markets) all across the nation, and not straight from the farmers, so there is no question of payingbetter returns to the farmers. However, the organised retail sector can have a significant impact overthe farmers as they could remove supply chain inefficiencies through direct purchase from farmersand investment in better storage, distribution and transport systems. Moreover, FDI, in particular,could bring in new technology and ideas (DIPP).

6.3 Impact on employment:The growth of organised retail will enhance the employment potential as it will drive the

growth of a number of activities in the entire supply chain which in turn will open up employment

opportunities for many people especially rural and semi-urban youth. Moreover, with the green signalof FDI in India mandates the retail firms to source a fix percentage of manufactured products from thesmall and domestic enterprises. Therefore, it has huge potential to boost to SMEs.

6.4 Impact on the customers:Since the organized retail is emerging in Indian context, it is changing the structure of buying

habits and customers demands. These organized retail players play a price war by keeping low pricesto attract more and more customers. Also, the numbers of players are increasing in this industrywhich is making competition among the operating firms stiffer. As a result of which the customers willbe awarded with a wide spectrum of choices of low priced but good quality products.

Benefits of organized retailing to consumer can be summarized as:

1. Beautiful interiors with entertainment facility and extremely pleasing ambience


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2. Mall offers much more than just shopping

3. Huge gaming zone where kids can utilize the time at the optimum

4. Malls are always being constructed at prime location and in high profile areas. The changing

trend, convenience of shopping, getting variety of items under one roof attracts and induces

people of all age group to frequently visit malls.

5. Generates employment opportunities, direct and indirect, for thousands of people.

7. Constraints to growth:

Unlike in the past, the debate today is no longer whether food and grocery retail in India wouldgrow but rather how fast can it grow and what challenges need to be overcome. Tata Strategic

Management Group (TSMG) projects that organized F&G retail in India could grow to Rs. 1750

Bn (at current prices) by 2015 representing ~11% of overall F&G sales.

Demand Side

Penchant for fresh/home-made and value consciousness- The Indian consumer, unlike his westerncounterpart, has a penchant for freshly cooked food over packaged food. This is a result of dietary

patterns, poor electricity supply, low penetration of refrigerators and a family structure where oneof the primary roles of the housewife is feeding the family. The Indian consumer is extremely

value conscious. A TSMG study indicates that packaged food players need to drive down prices by

almost 35-40% to be comparable on cost with homemade food.Diversity of tastes and preferences- Multiple cultures, languages and religions have a huge bearing

on the tastes and preferences of the Indian consumer. This will pose a challenge for players

aspiring to develop a pan Indian presence.

Willingness to travel- Given the current density of retail outlets in India, retailers will have tomotivate the consumer to trade convenience with price, range and ambience.

Supply SideSourcing base and efficiency- The fragmented agri supply base coupled with an inadequate legalframework make it difficult for retailers and food processors to procure quality produce at

competitive costs directly from farmers. The small size of the food processing industry further

limits the supply options.Real estate availability and cost- Rentals account for 7-7.5% of the total costs for organized retail

in India against global benchmarks of less than 3%. Real estate availability and costs will continue

to remain a challenge in the retail industry with factors like adequate parking, ambience and

proximity being the key drivers of footfalls.Manpower availability- As organized retail expands, there is expected to be a dearth of skilled

manpower. The lack of institutions and courses for different aspects of retail management will

have an impact on the overall supply of quality manpower.Brick-and-mortar stores have established locations, brand names, and a large customer base. Amajority of consumers still prefer to buy groceries from a retail store. They may like to smell the

vegetables and squeeze the fruit, or they may like to unwind from a long day by walking among

the fresh breads of the bakery. Consumers also trust the grocery stores they have known for manyyears, and like to shop where they feel assured the quality is consistent and the price is right. But

probably the biggest challenges for e-grocers are in order fulfilment and


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home delivery. Supermarkets aggregate demand by allowing customers to come to the stores, and

therefore customers do the order picking and delivery. According to Procter & Gamble, traditional

in-store shoppers who pick, pack, and deliver their own products now save the industryapproximately 13 percent of the total cost of sales (Tapscott and Ticoll, 2000). For e-grocers, the

more deliveries in a given area, the lower the costs per delivery. Except for a few cities, Americans

who can afford computers and Internet access are more likely to live in suburbs, which meansmore driving and fewer deliveries per hour for any company that orders home delivery.

8. Business models:

Online food retailers generally use one or

any combination of four approaches todistribute grocery orders to customers. .

The following describes the online groceryapproaches of some of the more

established retailers:

Shadow warehouses (pickup).

The advantage of the drive-through pickupis the time savingsonline shoppers can

often collect their groceries without havingto get out of their vehicles. The approachsucceeds because of its efficiency; on theother hand, the absence of personal contactcan hamper both marketing and customer

service efforts.

Shadow warehouses (home delivery). Similar to the first approach, home delivery managed from acentral distribution center is frequently used by pure online retailers that do not have traditional retailstores. Even traditional retailers that offer home delivery, such as Tesco, are opening centralized shadow

warehouses to benefit from more efficient picking and delivery.The efficiency and time-saving features of this approach can be valuable to customers, but the level ofcustomer service involved can also make it comparatively expensive.

Store-based (pickup).This business model allows customers to pick up pre-packed groceries fromtraditional retailer outlets. This approach is easy for traditional grocery retailers to adopt within their

existing structures. But customers often see little difference between online and offline channels and,ultimately, may prove unwilling to pay a premium for the service. When moving into the online business,traditional food retailers often choose to offer both click-and-collect and home delivery from their stores.

Store-based (home delivery)-Traditional retailers entering the online business often take advantage oftheir retail outlets and pick customers' products for delivery from their existing stores. In-store picking is

waning in popularity among retailers because of delivery inefficiency, costs, and availability.

Some of the Indian business models of Indian e-grocery stores are:

a. AaramShop.comAaramShop uses SMS and the cloud to bridge the gap between kiranawalas and tech-savvy consumers.Kiranawalas can register on the AaramShop website for free and after a vetting process, are listed on theAaramShop website as retailers, giving them an online store front for the first time.
http://www.atkearney.com/documents/10192/f0b66bc9-428f-4506-952a-022f6d8d9d7f


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The AaramShop website allows customers to choose grocery products from 141 categories and hundredsof brands. Customers add to a shopping basket, after which they can choose from a list of AaramShop

kiranas for the one closest to their residence. They can also indicate a preferred time for delivery.

The retailer is informed about the order via an SMS, and is then sent an e-mail with the details of theorder. The retailer delivers goods and collects cash from the customer. By ensuring that customers can

pay kiranawalas directlyand after they have checked their purchaseAaramShop gets around thatonline hesitancy. Importantly, its a payment model that works primarily because of the proximity ofkiranawalas to their customers, making it fairly easy to get an item replaced or exchanged. Thats an

advantage that few large retailers can match.

However, the brilliance of the AaramShop business model lies in the fact that it leverages smart

technology and the already existing inventory and delivery mechanism of the kiranawalas which helpsextend the services at absolutely zero cost to the consumers and to the kiranawalas.

AaramShops revenue model is designed to ensure that neither consumers nor kiranawalas have to pay.Instead, AaramShop makes its revenues from ads, special offers, programsand information. FMCG

companies can bank on AaramShop PRO and its brand engagement center for consumer analytics, andreal-time data on their brand's performance, and customer feedback, collected by AaramShop based onthe website monitoring and social media feedback.

b. Big basket.comIn comparison, BigBasket, that serves just Bangalore city, has over 120 employees, three distribution

hubs and 25 delivery vans. BigBaskets is a more conventional approach in the sense that it relies on its

own warehouses. Yet, its strategy is disruptive: It includes multiple warehouses and inventory; a wide

range of over 6,000 stock-keeping units (SKUs) including fruits, vegetables and meats; and plans to

expand to five cities in the first year and 12 in the second.

The business model aims at not replacing the kirana, but the need to go to a supermarket!

They are going Head to head with modern retailers. They save 10 percent in costs because things like

rent, utilities, staff and shrinkage simply dont exist at the last mile for them. And compared to modern

retails 3 percent net [profit] margins, they can get to 6-7 percent.

Currently BigBasket stocks most provisions (which it cleans and packages under its own brand) while

most fruits and vegetables are sourced twice daily from wholesale mandis or Safal, and FMCGs from

Metro Cash & Carry. It claims to be shipping nearly 400 orders a day with an average order ranging

between Rs 1,000-1,100.

Orders are delivered either the same day or at worst, the day after. The person delivering the order is

equipped with a tablet PC on which he enters a unique code that is SMS-ed to customers, in order to trackdelivery times. The tablet also lets him map routes or take instant feedback.

c. Mygrahak.comDelhi based MyGrahak.com is an online grocery store launched in December of 2010.

MyGrahak began by selling grocery and household items to customers in Delhiand NCR, but aims to

extend our service to Mumbai, Bangalore, and Chennai by 2015.


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The mission of the business framed is supreme service to the customer by using technology to break

conventional barriers. This has allowed them to offer free home delivery.

The online store provides a solution to customers by meeting their 80% of the household needs through a

list of 10,000 SKUs and enlisting new products on customers demand .

Customers can View the entire product range on his or her computer, Select and confirm the order by

viewing the cost of purchase and savings, Buy cheaper by getting a minimum 4% discount on MRP on all

FMCG products, Interact with courteous telecallers/chat agents for troubleshooting, Get free homedeliveries within 48 hours by well uniformed and courteous delivery men, avoiding the troublesome trip

back from the grocery store while also saving time, Choose to pay online or by cash on delivery,

Subscribe for information of the regular offers and combo deals by enrolling with MyGrahak newsletter,

Request new products.

Our team consists of 51 employees in the areas of IT, marketing, supply-chain, merchandising, and HR

while the delivery is ensured in the whole Delhi NCR region.

The supply chain can be divided into three areas: Merchandising & Vendor Management, Warehousing,

and Delivery. There are 800 odd supplier companies. Efficient mechanisms like virtual merchandising

andCPFR (Collaborative Planning, Forecasting and Replenishment) initiative are used. The vendors have

been divided into 3 categories direct from manufacturer/brand (V1), direct from wholesaler (V2), and

strategic alliances (V3). A 7000 sq ft warehouse in Delhi to cater to product demand requirements of the

customer is set up. Delhi has been divided into various zones with mapped routes. Uniformed MyGrahak

delivery men supply products in a variety of GPS enabled delivery vehicles & motorcycles on a daily

basis.

For promotion, MyGrahak has created 5 ladders of loyalty - prospect, customer, supporter, advocate, and

partner. The first two are for customer attraction and the remaining are for CRM. To identify prospects

extensive market research, focus group interviews, and dip stick studies in Delhi and NCR is conducted.

To market to customers, ATL marketing (print, PR, and radio), outdoor activation (home to home

activations and kitty parties), and digital marketing has been used. To maintain supporters who buy more

than once, personalized teasers for their birthdays and anniversaries, leaflets communicating how valuable

they are to us, and delivery tags with feedback forms is provided. To maintain relationships with

advocates, those who recommend us to friends and family, referral cards are given with flowers.

Personlised messages are sent.

Revenue model: MyGrahak collaborates directly with the manufacturer and the whole seller for buying

majority of its products. Thus, creating a margin buffer. The buffer is used to pass some discount to the

customer and the rest flows to profit margins.

d. Atmydoorstep.comAtMyDoorsteps.com works on a model of minimum inventory which provides benefits in terms of cost

savings and faster rotation of money. These cost savings are used to provide convenience to the customersat competitive product pricing.

As for Atmydoorsteps, orders are collated based on the cut-off time and procure the orders. The idea is to

save on inventory holding costs and the investment on warehouse.

Unlike other vendors who rush to a local wholesaler, Junnarkar, the CEO, an IIM-A pass-out, heads to

Metro every morning and procures items based on the previous night's orders


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e. Seatohome.com1:SeaToHome.com started out catering to buyers who want fresh fish without chemical preservatives and

long storage periods.

The online store had its own pre-existingpurchase system and the processing plant. The quantity of

fish arrives is updated on the website and is available for purchase. The portal caters to buyers inDelhi, Bengaluru, Kochi, Thiruvananthapuram and Coimbatore.

SeaToHome.com sources fish from fishermen along the coasts in Kerala, Tamil Nadu and

Karnataka. SeaToHome.com packs fish in ice-filled thermocol boxes and dispatches it to

customer destinations via air the next day.

The minimum purchase order for Delhi is Rs 1,000, while it's Rs 500 for the other destinations.

Beef and duck may also be ordered when available.

The healthy items that the firm is promising to deliver ranging from everyday buy of rohu, catla and

pomfret to lip-smacking tiger prawns and exotic seafood items.

It is the ultimate challenge to develop an exception to this rule and the solution to this dilemma.

There are three possibilities:

1. Niche marketing: focus on a small, affluent and service oriented consumer group2. Focus on margin rich products, that sell well on the internet3. Focus on information distribution

These three solutions should be combined into a powerful Internet strategy, that should be executed in an

excellent way. But there are many pitfalls and critical success factors. The pitfalls and success factors

cover the entire marketing mix, the logistics system, information technology and internal organization

1 http://techcircle.vccircle.com/2012/09/07/fresh-fish-e-tailer-seatohome-solves-a-real-problem-in-a-

tough-to-execute-space/
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impact of organized retail

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