Kirana store approach in digital world
2016 was a watershed year for Indian retail, in the sense that the online retail growth which had been on the juggernaut scale for the past five years, suddenly slowed down as reality of cash generation caught up with it. At the same time, the importance
Understanding the digital consumer
The all-pervasive influence of the internet was highlighted. Namit Puri, partner at Boston Consulting Group (BCG) shared some statistics. As per the BCG, India had 70 million internet users, a figure which went to 330 million in 2016 and is estimated to be 650-700 million in 2021. If you look at the last figure, it can be said that the last figure is more than the population of six out of the G-7 nations.
In terms of online retail spends, the forecast again was of strong growth, from USD 6-8 billion in 2015 to $12-14 billion in 2016. The 2021 forecast is between $50-55 billion. It must be kept in mind that the importance of digital influence is 5x the actual online spends. This shows that connecting to the digital consumer has to be a key component of all marketing strategies.
As per Puri, brick-and-mortar retail players would be better placed to capitalise on this digital opportunity in totality, compared to their pure-play online counterparts.
Analytics was the next focus area. Jamshed S Daboo, MD, Star Bazaar had a view that data would be available more and more, but the next challenge would be where to focus. Today, shopping pattern and basket size is immediately available. But the next requirement would be lifestyle and demographics analysis, for which the buying basket data could be deeply drilled. In analytics, it is important that the right queries are raised, and that the outcome of analytics must lead to action. Today, technology is bringing down planning horizons. Analysing the customer, the order and the inventory – these three are the building blocks on which an omnichannel strategy will work.
The thrust that the present government has given on the digitisation front was underlined by P N Vijay, market investor and economic advisor to the Bharatiya Janata Party (BJP). He said that the government understands the need to be facilitators to business and avoid intervention. Once a framework allowing level playing field was created, government should step back. He emphasised on the scheme initiated by the government to finance retail trade up to Rs10 lakh without collateral.
B S Nagesh, founder of TRRAIN, showcased the impact of technology through anecdotal data. Of total 8 million kirana shop owners, around 2.5-3 lakh had modernised themselves, using technology, registering customers and so on. Just this led to creation of one million jobs, because average workforce moved from two to six people.
Collaboration as a concept
The need for collaboration was discussed from different angles. Vilas Vishnu Shinde, chairman, Sahyadri Agro Retails, gave his farm-to-fork perspective. In his 15 years of farming experience, the largest challenge was that small land holdings invariably inhibit farmers scaling up in size or investing in product quality or variety, impacting sustainability. Likewise many layers between the farmer and the consumer again hit sustainability.
Sahyadri’s model evolved from the necessity of directly reaching the consumer, making farming profitable and connecting 60 per cent of rural population of India to the retail revolution. Today Sahyadri has 6,000 farmers connected to itself, with 99 per cent revenue coming from the quality-conscious export market.
Vijay underscored the need to evaluate collaborative options from viewpoint of return on capital employed for each activity, which would always be better when companies stick to core competencies. Vertical integration, he stated, was passé. Here Kishore Biyani indicated that they did not have competency in logistics, but they had to build their own capability (in collaboration with experts from Hong Kong) because the Indian market could not meet their logistics requirements.
Ramanathan Hariharan, group director, Landmark, emphasised the importance of collaboration. He also added while collaborating, the own brand identity should not be diluted. On trial and error, Daboo had the view that at times it is not wise to overtake market. The good thing in retail is that any experiment (format, collaboration) can be done at lab scale and with small budgets. Star Bazaar tied up with Amazon because they did not have online expertise, and through Amazon they could access a new set of customers. When sourcing from farmers, Star pays less while the farmer gets more and so that collaboration works.
Bijou Kurien, consultant, L Catterton Asia, explained that the purpose of technology is to find solutions to retail sector’s pain points. Retailers are now more amenable to the possibility of working together. Even in malls, the customer experience is best when malls, retailers and the supply chain work in tandem. Mall owners become enablers to both consumers as well as retailers. Maybe there would be some data sharing arrangements between mall owners and individual retailers.
Actual execution and challenges
Thinking out of the box was one of the themes at the convention. Sadashiv Nayak, CEO, Big Bazaar had the view that they already had a lot of the out-of-box components but the challenge now was to make them come together. The execution challenge is fragmenting demand, as in identification of categories like elders or young mothers which are sizeable segments. These segments are not addressed which have specific unique requirements in their shopping sojourns.
Customer attributes were also discussed. Hariharan stated that since customer wanted instant gratification, he would tend to move on when he did not see value and then getting him back would be more difficult. While aspirant customers were increasing, the majority of the customer base is still value focussed. Only if a large group of basic consumers rise to mid level consumption, will the average size really go up for retailers. Then only could they offer better value.
Bringing down costs and improving transaction speed were universally agreed challenges. Puri stressed that companies would need to create partnership networks. They would have to treat digital as ‘core’, not just an add-on in their strategy. Then only would it be possible to really harness the power of big data. There must be a complete reimagining in companies’ minds of the consumer’s journey, from the perspective of new and upcoming technologies.
Kishore Biyani, Future Group’s CEO highlighted the macro-challenge the sector faced -- namely the higher consumption would depend on higher per capita income, which would need GDP growth and more jobs. Today, 120 million consumers are the size of the top consumption layer, a figure which needs to rise substantially and that too with the underpinning of jobs being created.
Going beyond collaboration, Hari Menon, CEO, Bigbasket stressed that their focus was on quality as a strategic imperative. They would never consider going down the discounting path for customer acquisition or retention, but would rather focus on investing in the product quality benchmarks. Their challenge was to manage the monthly 5-8 per cent attrition among his 30,000 bluecollar workforce which was responsible for 99 per cent on-time efficiency across 50,000 deliveries a day. In terms of all industry benchmarks, Bigbasket has emerged as globally competitive. Even Dhruv Chandrie, COO, Shop CJ Network, indicated that they had progressively got out of discounting/ couponing in the last year. Shop CJ had been able to sell 30 product categories in a day, and was now raising its platform to make the number 50. Keeping focus on quality and ease of process would ensure the customer comes back for another transaction.
For effective delivery, a company must have customer empathy. Building technology is important but delivery ultimately is through human agents at the doorstep. Damodar Mall, CEO-Grocery Retail at Reliance Retail summed up the modern retail as having to work hard and use technology to go to the level of the kirana store in terms of empathy. With or without technology, kirana stores have always seamlessly managed communication and high levels of client satisfaction in a business model that has 50 per cent home delivery.
When technology has a human being in front, it is business magic. A human interface, according to Mall, has actually increased the basket size. Nayak reiterated that customers now and then need to discover hidden value – a proactive organisation, some facility in critical times like demonetisation period, redesigning product portfolio and delivery at festival times and so on.
Biyani summed up his 25-year journey in retail as being reborn every third year now. Old homogeneity had given way to new diversity. Keeping oneself relevant, in tune with change, was the imperative. He talked of needing to keep experimenting, accept reality and mistakes, to destroy and to rebuild, on a constant basis.
Retail journey in India and going to the next level
Indian retail is currently at $600 billion and the next target is $1 trillion. The year 2016 had already been seen as a watershed year and Chandrie underlined this. He gave many examples of disruption – Uber, driverless taxis, artificial intelligence beating humans at chess and (not the least) demonetisation. He emphasised that companies must learn to go with flow.
Shop CJ’s business model is focused on tier II and tier III urban areas, with middle-income housewives as the key clients. The question the company asks itself is – how do we be relevant and keep being relevant for the next 20 years, so that we can be in business.
Menon shared an interesting data point that at the beginning of 2016, Bigbasket had 70 per cent orders coming from desktops and 30 per cent from apps. But in just one year, as of now, they have 70 per cent coming from apps, which is a total reversal. The dominance (and convenience) of apps has manifested into more frequent orders and much smaller size, a kind of impulse shopping. This means that the company now must look at the monthly buy value from the client, rather than the basket value. The change could be handled simply because Bigbasket had built the backend across two years, raised execution capabilities and then focused on pushing sales in the marketplace.
Giving a different angle, Govind Shrikhande, MD, Shoppers Stop, stated that organised retail must understand that their customer understanding is only of 5-10 per cent of the Indian population and that they have a long way to go.
Vijay added that retail was among the oldest industries in India, as it has a reference in the Bhagwad Gita too. Today India has 12 million retailers, where 43 million people work and roughly 200 million are the direct dependents. Retail has grown 24 per cent annually for the last 15 years without government support. Retail must collectively pursue one agenda – being given status of an industry. Then retailers could get finance and real estate on much better terms.
Biyani expressed the need for a dedicated retail ministry rather than having to talk to different ministries. Gateways were another matter of urgent action. China, with owned payment gateways was much ahead of India where retailers depended on international players. Chinese retailers have 2 per cent acquisition cost and 7 per cent delivery cost, and for Indian retailers both figures were around 20 per cent.
Electricity cost for retail was 8-9 per cent against 1 per cent worldwide. Even digitisation was a hit on the sector, imposing a cost of 1.6 per cent on a business whose average margins are 7 per cent. Overall, India was losing the plot by way of costs of doing business and global product cost benchmarks. The Future Group was getting its personal care products made in Switzerland (supposedly an expensive nation) at 40 per cent cost compared to what it would take in India. Clearly high cost is a malaise, especially when (as per a Future group study) demand goes up drastically as there is drop in price points. For a drop from Rs 399 to Rs 299 in a garment, demand rose by 5x.
Shinde indicated that the domestic food market is challenging in many ways because farmers must understand that Indian consumers also need the same quality and safety standards that European consumers get. Logistical support of desired quality was another issue because right now it was cheaper to transport to Europe than a distance of Mumbai-Nashik (around 165 km).
On the question of a brick-and-mortar presence being desirable, Menon was clear that they would remain a pure online play. His view was that the food business was the segment which would see more online penetration, and in fact could accommodate ten players over the medium term. He confirmed that massive thought and investment was getting into the big data space, especially predictive. In future, baskets would be sorted out, checkouts speeded up and customer could get bread delivery in the morning as regularly as the milk and newspapers.
For new retailers, it was worth listening to Biyani when he said value addition to the economy is the litmus test of any entrepreneurial venture. Most startups must look at ground realities, not those of another future world. Passion and market understanding is a key.
HARI MENON, CEO, Bigbasket.com IN TERMS OF ALL INDUSTRY BENCHMARKS, BIGBASKET HAS EMERGED AS GLOBALLY COMPETITIVE. OUR CHALLENGE IS TO MANAGE THE MONTHLY 5-8% ATTRITION AMONG OUR BLUE-COLLAR WORKFORCE WHICH IS RESPONSIBLE FOR DELIVERY EFFICIENCY. P N VIJAY, Economic Advisor to the BJP RETAIL IS AMONG THE OLDEST INDUSTRIES IN INDIA. TODAY INDIA HAS 12 MILLION RETAILERS, WHERE 43 MILLION PEOPLE WORK AND ROUGHLY 200 MILLION ARE THE DIRECT DEPENDENTS. RETAIL HAS GROWN 24 PER CENT ANNUALLY FOR THE LAST 15 YEARS WITHOUT GOVERNMENT SUPPORT. JAMSHED S DABOO, MD, Star Bazaar IN CASE OF TRIAL AND ERROR, AT TIMES IT IS NOT WISE TO OVERTAKE THE MARKET. THE GOOD THING IN RETAIL IS THAT ANY EXPERIMENT (IN FORM OF FORMATS OR COLLABORATIONS) CAN BE DONE AT LAB-SCALE AND WITH SMALL BUDGETS. VILAS VISHNU SHINDE, Chairman, Sahyadri Agro Retails SAHYADRI'S MODEL EVOLVED FROM THE NECESSITY OF DIRECTLY REACHING THE CONSUMER, TO MAKE FARMING PROFITABLE AND TO CONNECT 60% OF RURAL POPULATION TO THE RETAIL REVOLUTION. TODAY WE ARE CONNECTED TO 6,000 FARMERS, WITH 99% REVENUE FROM EXPORT. DAMODAR MALL, CEO-Grocery Retail at Reliance Retail MODERN RETAIL MEANS WORKING HARD AND USING TECHNOLOGY TO GO TO THE LEVEL OF THE KIRANA STORE. WITH OR WITHOUT TECHNOLOGY, KIRANA STORES MANAGE COMMUNICATION AND HIGH LEVELS OF CLIENT SATISFACTION IN A MODEL THAT HAS 50% HOME DELIVERY.