Despite the coming up of over 600 malls within the next three to four years in India, the traditional retailing business would not be affected much as the consumers would still depend upon neighborhood kiryana shops instead of visiting malls and super-markets for small grocery items .
The unorganized Indian retail sector has been in existence for centuries. With the coming of the new organized retail format, the neighborhood retailers have become anxious about their very existence. A new school of thought, however, is in the process of transforming this anxiety into opportunity. The impact of modern retail will not only go into upgrading these old formats, but also typify the store owners as the new generation entrepreneurs who would adopt the concept of franchising as their new way forward. India has become a fertile ground for breeding new entrepreneurs. The markets are vibrant, capital can be arranged, and technology and deregulation keep throwing up new opportunities. As the tenth-largest retail industry and largest density of outlets, India is today written large on the business minds of global market players, attracting top majors into the country’s retailing arena and giving rise to stiff competition. Those against opening the Indian market to foreign direct investment (FDI) use a barrage of arguments. The most superficially potent one is the impact it will have on the livelihood of the millions currently eking out a living from their small retail businesses.
Changing market place
Change is inevitable. So has changed the retailing concept and infrastructure in the country. During the last few years, a wave of new formats has surged onto the retail space of India mingling with the traditional formats and sometimes replacing them. In the process of further transformation, Indian retail space has today new appearance and greater range of activities and facilities. Interestingly, this revolutionary change and people’s lifestyle have a reciprocal relation: one influencing the other. Retailing is the last mile infrastructure to access and deliver goods to consumers. Retail forms the backbone of the nation’s delivery system and its importance can be exemplified by the network of 15,000 KVIC outlets which support 4 lakh plus small and medium handicraft manufacturers across the country.
Organised retailing
Organised retailing, which aims at providing an ideal shopping experience for the consumer based on the advantages of large-scale purchases, consumer preference analysis, excellent ambience and choice of merchandise, has been adopted in a large number of Indian cities with many business houses investing in this segment. The organised sector, which began with lifestyle retailing, has now moved on to value retailing as well. While the urban market constitutes 45 per cent of India’s retail market, with top 748 cities alone accounting for $105 billion in retail sales, small-town India is the next big destination in the retail business. Consider these figures: In 2005, the contribution of smaller cities to total organised retailing sales was 15 per cent and was expected to grow to 25 per cent by the end of 2006. Organised retailing in small town India is growing at 50 to 60 per cent a year compared to 35 to 40 per cent in the large cities. The striking point is that it is the big names in the organised retail business that are eyeing these new opportunities. The rise of organised retail does not mean the end of traditional retail, for, the Indian retail sector, according to an estimate, is valued at Rs 14,40,000 crore, of which organised retail accounts for a minuscule 3 per cent. In such a scenario, questions are being anxiously asked by the local retailers as well debated in political circles. Will the unorganised retail sector be able to continue its hold on the Indian consumer, drawing them away from the attraction of the so-called organised ones? Will this sector be able to survive in the big retail environment where giants like Wal-Mart and Tesco operate? Will the international retailers prove to be a threat to the traditional desi kiryana shops? The retail scene in India is presently undergoing a sea change with the emergence of scores of modern retailing malls, stores and multiplexes all over the country, which was earlier dominated by millions of mom-and-pop stores. This change is clear and visible not only in the large metropolitan cities, but is fast invading many tier I and II cities as well. While franchising as a business model was not known in India till the early 90s, there is clearly an unprecedented interest in adopting this model today, as is evident from the growth rate of 30 to 40 per cent per year as witnessed in the last four to five years. Franchising is a well-suited business model for the entrepreneurial psyche of the average Indian businessman who loves to have ownership and control of operations. Being family-oriented, he finds it an attractive proposition to pass on the business to future generations. Despite the coming up of over 600 malls within the next three to four years in India, the traditional retailing business would not be affected much as the consumers would still depend upon neighbourhood kiryana shops instead of visiting malls and super-markets for small grocery items. Though, sooner or later, mall culture will be adopted, the focus would shift from neighbourhood retail to mall retail. However, no threat is perceived to the neighbourhood retailer today or tomorrow as the consumer would continue to depend on these shops for daily needs.
New business
Today, for all the difficulties of doing business in the country, India has become a fertile ground for breeding new entrepreneurs. The markets are vibrant, capital can be arranged, and technology and de-regulation keep throwing up new opportunities. All a local retailer would require is to upgrade to better retail acumen and such opportunities are being brought in by international retail giants and home grown retail players. What is being feared as a setback to the neighbourhood stores, the coming of giant players will be a clear boon for them. It is but obvious that these giants will build in the outskirts of large and small cities due to unavailability of large chunk of land in prime locations and the hazards that parking and traffic would cause. Though some families would frequent these large formats for their weekly shopping, most may not find it convenient to drive across town to save a few rupees. In such a situation locality shoppers would still rely on the neighbourhood stores for their everyday needs. There is another factor that would benefit small shops. Since large format retailers would not be accessible to all in a particular locality, the giants would seek franchisees from among the neighbourhood store, making arrangements for the products and logistics and back-end support. As large retailers would be sourcing goods from the manufacturers directly, the goods would be available at cheaper prices than at the smaller stores. A franchisee small store would, thus, receive goods at much lower prices than its non-franchise counterpart in the same locality. These new retail franchisees would constitute the community of new entrepreneurs.
Courtesy: The Franchising World
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