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Monday, November 28, 2005

Long and short of Indian retail

Shorts and longs are terminology used in the financial markets. Going long is synonymous with buying a stock and the expectation that the company would do well. Selling short implies the opposite – expect something to get worse. My colleague Jeremy Levine wrote about his ‘shorts’ and ‘longs’ here. Two recent articles on the Indian retail sector triggered this post on my ‘long’ and ‘short’ views on Indian retail.

Retail in India is an extremely interesting area, where companies are still experimenting to get the right mix of store formats and categories. While Bessemer still cannot invest in Indian retailers due to FDI restrictions, I follow the sector quite closely out of personal interest. Large retailers, with chains of stores following similar formats, are just beginning to make their presence felt and India’s largest retailer is still short of $500 million in revenue.

Here’s an idea that I’d go short on. From the Business India dated November 21 – December 4, 2005:

__ has kick-started the yoga wear segment with its new brand named “Urban Yoga”. What’s more, the brand has two ranges “Body” and “Soul”. In the next six months, __ plans to open at least 10 exclusive outlets across the country. In addition, it also plans to open yoga centres through which it hopes to attract more converts to yoga and, naturally, by extension to Urban Yoga. If __ has its way, Urban India will be moving towards spiritual fitness dressed in Urban Yoga.
I am sure you can trace which company this is, if you want to. This is fantastic news for yoga enthusiasts who are worried that their clothing isn’t as well coordinated as their postures or want that extra performance boost to their suryanamaskars. I am aware of specialty retail and all that, but doesn’t this whole idea seem a little too niche.

Moving on, Food & grocery retail is as non-niche as it gets. This category accounts for nearly half of India’s consumer spend and is still dominated by mom-and-pop ‘kirana’ stores. I read an article that Chennai-based food retailer Subiksha will be opening over 70 stores over the next month in other South Indian cities and is looking to expand into North and West India as well (I cant seem to find the link). I am ‘long’ on Subiksha and view their format to be best suited to the Indian market for food & grocery retail. Their approach combines the local low-overhead front-end of Indian kirana shops with the efficient supply chain of a large retailer. Subiksha’s shops are no-frills (sub-500 sq ft, non-airconditioned), do not allow consumers to walk through the store to browse products (no aisles – no wasted area) and well distributed (they aim to have a store within 1 kilometer of any household – I suspect they are close to this target in many parts of Chennai). The consumer experience is similar to that in the kirana store – no browsing, option of home delivery, proximity of store to their residence allowing frequent buying in small lots. Their USP is a Walmart-style everyday-low-price (5-10% less than MRP and/or their nearest competitor), enabled by combining centralized buying and an efficient supply chain, with their simple (and inexpensive) store format.

The other retail format that is gaining prominence is a big-box type format, adopted by Big Bazaar and Giant. These are large shops with over 50,000 sq ft area that offer a wide range of goods in one location (e.g. food, grocery, utensils, furnishings, apparel, even appliances). By definition, such large stores are fewer in number, and their consumer catchment area could span a 5-10 kilometer radius. Big-box stores also offer low prices, similar to Subiksha. Big-box stores are well suited for retailing apparel and durables, which tend to be more infrequent, larger ticket-size and event-driven purchases. To succeed in food retail, they would require (similar to the US) good roads, cheap fuel, high car penetration, large refrigerators and storage space. Then, consumers could drive to such stores on weekends and stock up in large lot sizes. Almost all these factors don’t hold in India. While the in-store experience is superior to Subiksha’s format, getting to the store and back imposes tangible (Rs. 50-100 per trip) and intangible (inconvenience & time) costs. Further, several of these shops are located in malls that people visit as an entertainment destination. Lugging around large bags of rice and wheat don’t gel well with this. I am told (and haven’t independently validated) that apparel accounts for over 75% of Pantaloon’s profits from their big-box stores, which would be consistent with my expectation. Having said this, I do expect the larger format to dominate categories such as apparel, consumer durables, furniture and home furnishings.

I see two challenges for Subiksha’s format. First, the consumer experience at the store isn’t great. While the average Indian would readily trade this off against savings of several hundred rupees a month on the grocery bill, they could lose upper middle class and affluent consumers who spend disproportionately more. Second, to get to $1 billion revenue, Subiksha would require well over 1000 stores! Handling this many stores (including several that may be franchised) poses an enormous control and managerial challenge. Subiksha has so far adopted a gradual expansion approach, taking care to ensure quality and consistency across its outlets. Hopefully, they’ve now figured out how to manage this complexity, as they expand aggressively outside their home state.

36 Comments:

At 2:48 AM, Anonymous AA said...

Very interesting post. Can I make a request? If you have the links for the brands/names(eg Subiksha) would you link to them? I know I could find them in Google - its just easier, if you have it and it is included in the blog post.

In one of my own posts I looked at a McKinsey study about retail in India. The study had some interesting numbers which could be combined to come up with even more interesting stats. I tried some of that in this this post.

 
At 10:55 PM, Blogger Kaps said...

Although Subhiksha started off well, they seem to have lost track mid way. Their shops have stock out situations for lot of key SKU's and you might end up getting only 50% of your shopping list. They don't seem to be concerned about the dissatisfaction arising out of the stock out situation. If it is a kirana store, the shopkeeper would be more than willing to contact you once he gets a replenishment of the stocks.

Subhiksha's pharma retail model was far more innovative. Discount retailing was not a industry practise in pharma retailing. Subhiksha ended up procuring directly from the manufacturers. All the pharma distributors and retailers started protesting against the price competition and even threatened to boycott some pharma companies. Again the problem with Subhiksha's pharma retail was that they stocked only the fastest moving medicines. A patient looking for a rare / expensive medicine would seldom find it in Subhiksha. They would end up going to Apollo Pharmacy to find such rare medicines.

 
At 9:24 AM, Blogger Anand Sridharan said...

Kaps: I knew they had some growing pangs, but was not aware that it was this apparent to the customer. I guess I havent lived in Madras for a decade now, and my first-hand info on Subiksha is through family and during my visits. Wonder what is causing their stock-out problem? If they are trying to be too clever in doing an 80:20 of items they need to stock, it could backfire.

 
At 12:52 PM, Anonymous Ananth said...

I agree with Kaps, I have lived in dfferent parts of Chennai and Subhiksha has hardly made any impact. Food world and Nilgiris are IMO the leaders in organised retail in Chennai.

 
At 11:31 AM, Anonymous Kuldip said...

Anand,

Just to put a different perspective to the discussion, both formats have the benefit of relatvely lower real estate cost, although not always so. Given what real estate costs are (have been over the last 1 1/2 years and are likely over at least the next 12 months) I think retail will re-think its sales or real estate providers will have some large emty places. Rentals are 13-22% of retail sales currently, clearly unsustainable.

 
At 5:17 PM, Blogger Venkat Ramanan said...

Hi Anand,
That was a good post about retail in India. I thought I could pitch in too and write what I feel about Subhiksha. As has already been said by two other friends, The Subhiksha stores are not consumer-friendly and they donot adhere to the aspirations of the growing middle class - shopping for less in a shop which offers more (value, comfort, shopping feel, glitzy environs etc). Subhiksha scores only in the value criteria. In all other criterions, they miserably fail. Let me give an example. The executives manning counters in Subhiksha are more of replacements for machines or robots. They more often behave in a pre-programmed way and are helpless when stocks run out or if a product is damaged. To cut more costs, probably they are paid below market salaries and that explains this behaviour! But, Nilgiris and Foodworld offer completely different experiences and have tried to differentiate among both. I particularly enjoy a Foodworld shopping more than Nilgiris (this is only from my perspective!). Not that they are great in all parameters, especially their employees could do with a little more personal relation with shoppers (like they make no attempt to connect to the customer).. I too am interested in knowing more about retail sector in our country. Please share more information if you could!
Cheers,
Venkat.

 
At 4:07 PM, Anonymous Sudhakar Sharma said...

According to my view about pharma Retail,the Subhiksha concept is not managed well otherwise this is a good model because mentality of indian customer is to get better discounts with genuine products.It`s not been conveyed to the right categories of customers.I being a Manager-Retail in one of the pharma Retail chain in North india undestand the up & down & depth of pharma Retail.If Subhiksha can add the better merchandising like Health supplements,Diagnostics & other FMCG range in there stores with bigger stores they can make a wide difference.

 
At 12:50 PM, Blogger Prasanth said...

Agree with Kaps comments. I was initially very impressed by Subiksha's concept and still am a customer there. But as Kaps pointed out, they have frequent stock out situations and the attitude of the people manning the counters irritates a lot of customers. They do have promotional news letters which initally used to be send to me by post/dropped in my apartment but even that has stopped. I often see the promotional news letters bunched together and stacked in a dusty area of the store. Once when i asked for a certain promotional item, the guy at the counter said that no promotions were available though the newsletter specifically mentioned it. Another issue is that they do not accept food coupons (Sodexo/Ticket) which makes me go and shop in Food world or Spencers or even the neighbour hood Kirana store which accepts them.
So the concept is good but implementation is lacking.

 
At 12:30 PM, Anonymous Jyothsnay said...

Hi Anand

I was searching for Papers on Retailing in India and stumbled upon your post, a well-written observation on the category, which further triggered off a set of interesting discussions.....

Thank you

Jyotsna

 
At 12:25 PM, Anonymous Anil Dogra said...

what i think is that all formats will gain in india because the consumers are of all varieties. they will have to tweak their plans in between, control cost, but all formats will more or less succeed.

 
At 9:50 AM, Anonymous Anonymous said...

sir - I feel at the moment which ever the formate they are following will make them suite for the time but not at the long run. Its very interesting concepts that been come up but we have not yet strike the right cord for retail that will suite the customers as per their choice. Subhiksha is no where a retail store that you can go and injoy shopping despite all their 10% hording becasue the place is not been made for that, look around for medicnes and 60% of the products are not there nor they are seriouse about arranging it. you are disappointed rather then happy to go there, moreover the treatment is not be comment at all to a customer.

Indian Retailing formate is in the bigining but still we need to be very much focus with what we want to offer to the customer as we cant be everything to everybody. From day one we should be with the right focus so that in long run we can focus to our goal or we will lose by the time international competitors enter the market.

Thanks,
James

 
At 1:02 AM, Anonymous Anonymous said...

Dear all,
a lot has been said about Subhiksha and its below par customer service, but people fail to recognise that Subhiksha is able to give huge discounts only because it runs as a no-frills store, just as our no frills airlines like Air Deccan etc. work . There is just no way you can compare Jet Airways to Air Deccan because both thier target segments are different. Similarily Subhiksha targets the price conscious customer and not the one who looks for swanky showrooms and an Air-conditioned environment.Cutting on A.C. , setting up stores off the main areas, self-help concept etc. all helps it reduce electricity bills, rentals and salaries and only thus can it rake in money to offer 10% discount on almost all items. A survey conducted states that buying all grocery needs from Subhiksha helps one save over 3000-4000 per month. What more can one ask for? So guys, do not compare the uncomparable- a value provider cannot be compared to a premium service privider

 
At 12:17 PM, Anonymous Bhupesh said...

Subiksha (Bangalore) is what I was looking for. But after some months of shopping my visits to Subiksha has reduced because now
+) I know what they stock and what they do not have.
-) Some time I do not find worth saving 20-30/- costing additional trip it or Fab Mall.

-) Their vegetable supply is not fresh, you will end up making second trip to Sabji Mandi. But yes if you want to purchase ginger they are good. :)

-) They often struggle to provide change. I hate waiting for change.

-) Every time you make a list, it is sure that you will not get all items in a trip.

I have reduced my purchasing at Subhiksha to big ticket (comparatively) items like Nandni Ghee, diapers, detergents pack.

some mentioned earlier
>3000-4000 per month.

correct it to 300-400/- and that also a idealistic figure.

 
At 12:59 PM, Anonymous Anonymous said...

Just wanted to add to what others said, Subhiksha stores are located at wrong places which do not provide enough parking and very small. Biggest problem will be of visibility. Thier colour comibination also do not reflect/appeal to customer. Young customers are favouring more towards Big Malls hence Subhiksha format may lose in the long run.

 
At 5:19 PM, Anonymous Anonymous said...

The retail format in India is evolving. We are a unique society with varied tastes, likes and dislikes, hence retail formats like hypermarkets, supermarkets, convenience stores, discount markets, et all will do well, depending on which cities they operate-mix and match. In Dubai, home of 200 nationalities, French Carrefour & GEANT Hypermarket battle with local Spinneys and Lulu chain, with a clear segmentation of their target audience and on price factors. So ultimately in the Indian market, price and convenience (as traffic increases) will play an important role. Hypermarkets in Shopping Malls play an important role as they are the Anchor tenants which are a big attraction.

The most important aspect will be the development of infrastructure to support the retail format-most important-Parking space. Cheers/Raambo/Dubai

 
At 5:39 PM, Anonymous Anonymous said...

Hi everybody!
I have just got what I was looking for. You have people have posted some of the most critical things about retail specially Subhiksha.
I am working with Subhiksha, Pune.
I have the same notion that no ac, less parking space...and other things u have stated...will it work? After working here for 6 months , I realised that those things does not matter in long run.You can go to our store in a Bermuda also..but not to other store. Our culture is very friendly. We will not insist you on buying certain products..as others do.We want to be near to your hearts. When you think of buying quality products...come to us. PAY LESS....ALWAYS.

 
At 4:15 PM, Anonymous Arup Bhanja said...

I am not sure how Subiksha will manage this growth as Big Bazaar Vishal Megamart, Food World [now also Spencers from the same RPG group] are breathing down its neck.

Prices are not that low either I have observed same prices in Submiksha and my local Kirana [in Bangalore]

Great article though!

Arup

 
At 6:36 PM, Blogger manu said...

I have rarely found Subhiksha exist anywhere in a location without competition. In the south, they frequently bang into Foodworld, Fabmall, Nilgiris and then a large list of local supermarket stores all of which provide the same location advantage as Subhiksha (parking, drive time).

All of them offer some or the other advantage over Subhiksha which compensates the 0.5% price difference. Foodworld and Fabmall offer good price offers and local supermarkets provide unmatched service. (im not mentioning kirana stores at all).

A very small fraction of people view the price tag alone. Subhiksha needs atleast ONE frill factor to complement the price tag to survive competition.

 
At 6:11 PM, Anonymous Shashi said...

I would rather recommend them to re-name their stores "DURBHIKSHA" instead of SUBHIKSHA becomes 8 out of 10 times I have visited them, I have not got what I was looking for. Their Pharma is even worse. In fact the guy in the pharma had given me wrong tablets inspite of showing him the presciption & letting him know that I did not want substitue. The subhiksha store I am referring to is in Vijaynagar, Bangalore (near HDFC bank).

 
At 6:01 PM, Blogger Naj said...

HI

Just wanted to post my comments on Indian retail, esp the Grocery section.

I had a suject during my MBA - Retail Management. I was required to do a project and my team chose Subhiksha. This was when Subhiksha was still "no-entry-for-customers" format.

We gave our recomendations and sent it to Mr Subramanian himself. Coincidence or not, i don't know, but we did see some of our recommendtions happening, esp with their " Subhiksha mera abhimaan hain" campaign.

Sadly it was all hot air - there is nothing u can have " abhimaan" on Subhikha about. The format may have changed, but the asles remain empty. Hardly any SKUs, and the so-called price difference is negligible. The store comfort in nothing to write home about.

There's hardly anything on your shopping list which ends up in ur shopping cart(basket, in Subhiksha's case) and the staff are barely around if you needed anything.

if you do manage to find them, they look at you as if you have disturbed their right to gossip during (peak) shopping hours.

Also you are forced to walk through all the asles, from entry to exit, all at one stretch like a one-way without any break on the dividers.

The last thing you can expect is change. That soap is marked Rs.13 on the pack. Subhiksha offers it at Rs 12.25. You hand over a Rs.50 note. The Girl at the desk gives you an irritated look and says "Madam, change". " I don't have change, " i reply.

"Please give 25 p"
" I am sorry I dont have any"
"OK. Your balance", she says and hands you Rs.37. What discount dou i get???

The outlets i am talking about are in Chennai - Mylapore and CP Ramaswamy Rd. I'd nvr recommend the place to any one..

 
At 12:05 AM, Anonymous Dr dinesh said...

I am seriously interested in retail store frnchaise of Subiksha at Shahjahanpur in UO). I have shops in the heart of the city and want to convert for the retqails fraenchisee f of Subiksha.
Please let me know to whome I shppould approach
Dr Dinesh K SAxena
dineshsaxenabc@rediffmail.com

 
At 4:42 AM, Anonymous Anonymous said...

I think Subhiksha is quite over-rated. In terms of shopping experience and customer service they are the worst. In Subhiksha shops the service is quite poor and unprofessional. The workers are not paid too well, and they do not have good manners. At their pharmacy they don't even have a proper pharmacist. When it comes to home delivery, it is the worst I have seen. I am in Hyderabad, and when I ordered some medicines they only brought 5 out of the 9 things I had ordered. Totally waste of my time. There is an online/ call center based warehouse called MedEx (www.medex.in) and you call them at a certain number or place order online and you get the medicines on time and the FULL order. This is called convenient service. And the best part is Medex is 100% home delivery business - they have no store front at all. I heard they are doing well. The whole ISB campus is ordering from there.

 
At 7:59 PM, Blogger kavita said...

I recently happened to visit one of the stores of LifeKen medicines for my mother's medicines. They not only attended me well but also took care to ensure that my mom's requirement are taken care of. since i dont live with my parents, i great to have LifeKen's service.
She is really happy to be a LifeKen member now. They attend to her almost all her health needs be it medicines / nutritional products / Diagnostic services also Dr's consultation.

i sincerely thank LifeKen Medicines - Hyderabad

 
At 11:28 AM, Blogger rajeev said...

i agree with what kavita wrote about LifeKen.
Though they also had some issues regarding availbilty, but they could still service me. it was a good experience. Let me share teir toll free no. 1800 425 5433.

 
At 4:42 PM, Anonymous Nigel said...

Nice post. My experience with Subhiksha was mediocre. Like you said, they must be using the 80/20 principle.
I found another relevant article and a survey study about impact of opening up organized retail on mom and pop shops. Check it out on my blog at http://chickenmanchow.blogspot.com/2008/07/organized-retail-vs-kiranawallah.html

 
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At 2:37 AM, Anonymous Anonymous said...

There's hardly anything on your shopping list which ends up in ur shopping cart(basket, in Subhiksha's case) and the staff are barely around if you needed anything.

 
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