Subhiksha plans to increase its number of stores

IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA

Even the consumer has turned his eyes towards hypermarkets and supermarkets (see pie-chart). But will organised Indian retailers stand to gain from this consumer interest, simply by expanding their hypermart footprint? Not really. Even though disposable incomes of the Indian consumer class has increased, it is still less, compared to international standards. McKinsey in its report titled “The Great Indian Bazaar - Organised Retail Comes of Age in India” says that a typical Indian spends between $7-10 in one hypermarket shopping trip as compared to $45 in the US and $10-18 in China.

However, another school of thought believes that the growing middle class will further demand and improve expenditure patterns of Indian consumers. “By 2016 more than half of the Indian households will be from middle class and this will create more demand for organised retail in India as compared to other countries, says Roopa Purushothaman, Chief Economist, Future Capital Holdings.

Another big difference area is in that Indian retail is dominated by real estate players. Land rentals have doubled in the last two years and have created a situation where acquiring real estate at affordable rentals has become a difficult task, especially in metros and Tier-1 cities. One reason why rentals have sky-rocketed is the ambitious expansion plans of individual retailers (Subhiksha plans to increase its number of stores to 2,200 by the end of 2008 from current 1,580; Spencers targets opening 300 convenience stores and 75 large format stores by March 2009...) and their herd-mentality to open stores in the same locality to compete with each other. Moreover, despite all talks to the contrary, almost all players are concentrating their retail engines on metros and Tier-1 cities, further escalating rentals. Naqvi of Technopak states, “The ratio of rental cost per manpower cost is high in India in comparison to the ratio in international markets, which is proving to be a hurdle in the expansion plans of most of the players.” Perhaps this is the reason why retailers are now targeting Tier-2 and Tier-3 cities.

Even on the plank of credit purchases, India lags behind developed nations. For generations, Indians have been purchasing goods on credit from their local kirana stores, primarily because of the trust and loyalty of both the kirana store owner and the customer. However, such credit purchases have not really kick started in the organised format because of lack of trust and confidence between the retailer and consumer. Yes, a few retailers have tied up with credit card companies to encourage credit purchasing, but Indians are quite unlikely to use ‘plastic’ to buy their routine daal and atta! In stark contrast, global markets thrive on credit purchases.

Shakespeare once said “Comparisons are odious.” Unfortunately for her, India has always faced the veracity of critics when it comes to comparisons. Be it the Delhi Metro being compared to London’s Tube; Western Express Highway pitted against America’s freeways or Indian superhero ‘Kkrish’ pitted against Superman. Despite bottlenecks, the retail graph is only moving upward. If Americans started from A and moved to Z, Indian retail has started from Z and is now moving to A. Some say that as long as all alphabets are there, who cares whether A came first or Z? But if retailers take too much time in this backward integration journey, the prophesied time-table for success may not be really met!

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Programme :- SUPERIOR COURSE CONTENTS
Now IIPM's World-Class Education... for everybody!!
IIPM - Admission Procedure
IIPM, GURGAON
IIPM : EXECUTIVE EDUCATION
IIPM’s 36th Glorious Year of Academic Excellence
4Ps Power Brand Awards 2007
When IIPM comes to education, never compromise
Why Study Abroad When IIPM Gives You 3 global Advantages!
IIPM Ranked No. 1 B-School In Global Exposre - Zee...