FDI in retail was considered to be a landmark change in Indian market structure. The idea was that creating an organized retail infrastructure, by allowing FDI as well as huge Indian Corporate Investments, will result in a win-win-win situation for the Customers, Retailers and the Producers. The trickle down effect of this was expected to benefit the agricultural sector in the long run, for the retailers would have locked up agricultural produce well in advance.
We saw retail chains coming up in many parts of India. True, they were no patch for what exists overseas. Space limitations, cramped layouts, limited choice, dubious quality of products and hazardous billing procedure turned away the consumers. Our organized retail forgot the cardinal principle of Super market buying. Shopping has to be an experience in a Super Market and not an ordeal, as is the case in many Indian Super Markets.
The Super Market concept thrives on high volumes. It also meant that in a Country like India, so used to the mom and pop shops, there has to be a Consumer Behaviour Change for the concept to become successful. The volume has to come from the middle class, who wont mind buying for Rs 200 per day, for a month but would shrink at spending Rs 5000 for the same goods once in a month, the latter the bread and butter of Supermarkets. Any behavioural change has to be over a minimum 5-7 years span. The super market chains that started initially just did not have the staying power. The overheads were high, mainly electricity charges and rent, making the concept unsustainable. Added to this is the fact that the business model that exists today is a low asset based one. The space is rented, the inventory in the super markets not paid for in advance. The finanical institutions who funded the project initially are fighting shy of this sector once it became clear that the model is not a profit making one and the risk for them is high in view of the lack of asset coverage. Big Bazar started closing shops and now Subhiksha, one of the pioneers and better run super market chains enjoying good brand equity, is on the verge of liquidation after incurring a loss of Rs 800 crores. Even Reliance has not been doing well. The root cause lies in that these so called Super Markets are more like mini markets. The future lies in 2 or at the most 3 major hyper markets per major town. But considering the time it takes to move from one end of a city to another (even in C class cities) due to heavy traffic, I am not sure even this will be a good idea.
So is it back to the neighbourhood shop? Only time will tell.
We saw retail chains coming up in many parts of India. True, they were no patch for what exists overseas. Space limitations, cramped layouts, limited choice, dubious quality of products and hazardous billing procedure turned away the consumers. Our organized retail forgot the cardinal principle of Super market buying. Shopping has to be an experience in a Super Market and not an ordeal, as is the case in many Indian Super Markets.
The Super Market concept thrives on high volumes. It also meant that in a Country like India, so used to the mom and pop shops, there has to be a Consumer Behaviour Change for the concept to become successful. The volume has to come from the middle class, who wont mind buying for Rs 200 per day, for a month but would shrink at spending Rs 5000 for the same goods once in a month, the latter the bread and butter of Supermarkets. Any behavioural change has to be over a minimum 5-7 years span. The super market chains that started initially just did not have the staying power. The overheads were high, mainly electricity charges and rent, making the concept unsustainable. Added to this is the fact that the business model that exists today is a low asset based one. The space is rented, the inventory in the super markets not paid for in advance. The finanical institutions who funded the project initially are fighting shy of this sector once it became clear that the model is not a profit making one and the risk for them is high in view of the lack of asset coverage. Big Bazar started closing shops and now Subhiksha, one of the pioneers and better run super market chains enjoying good brand equity, is on the verge of liquidation after incurring a loss of Rs 800 crores. Even Reliance has not been doing well. The root cause lies in that these so called Super Markets are more like mini markets. The future lies in 2 or at the most 3 major hyper markets per major town. But considering the time it takes to move from one end of a city to another (even in C class cities) due to heavy traffic, I am not sure even this will be a good idea.
So is it back to the neighbourhood shop? Only time will tell.
