The curtain raiser
The major factor which fixes the adoption of organised retail is the well established food retailing system of neighborhood Kirana stores. The Kirana’s have proved themselves as capable enough to meet the customer’s daily needs. The only thing which the Kirana’s are lacking is the overall shopping experience from organised shopping centres and that’s why modern trade is making its way in the crowd. The trend in food and grocery retailing, however, has started with a growth concentration in the South. Though there were family owned traditional retail chains in South India such as Nilgiri's as early as 1904, the retail revolution happened with various major business houses foraying into the establishment of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. In the Indian context, a countrywide chain in food retailing has been pioneered by Big Bazaar and Reliance fresh only. Since then many big Indian corporate players have jumped into the lucrative business of establishing retail chains throughout the country.
Supply chain – ushered in modern retail
With the deep pockets in organised retailing it is very easy to put up shiny stores but the hard part is supplying them with fresh, clean and safe vegetables and fruits through an efficient supply chain that links farms and consumers, country and cities - here lies the revolutionary achievement. At the moment, India has one of the most fragmented produce-supply chains on the planet. 30 percent of all fresh produce is lost or gets spoilt before it reaches the market. On an average, after getting plucked from the field, the fresh produce passes through six or seven middlemen before a consumer can buy it; resulting in tortuous journeys, big markups and poor quality damaging the products at the end.
Therefore, one can say that the most rewarding effort lies in replacing the existing supply system with efficient network of international quality of supply chain but adapting it rightly to Indian conditions.
Supply chain in organised retailing is as important as somewhat of a cornerstone of any business; it has occupied the centre stage of modern trade. "The days of competitive advantages was all about marketing which is now a past. It's now all about the supply chain” – speak the experts. Today the consumers are more inclined than ever to look at the small print on the back of packaging that tells them about the point of the production of the goods and the route of the supply chain through which the products were ultimately routed to the point of sale. In today’s just-in-time economy, retailers, manufacturers and service companies all have to depend on the chain of processes of production, procurement and supply of the products, components and services they need in order to meet the requirement from customers. They are majorly dependent on the suppliers and therefore, required to trust and honour the relationship for an uninterrupted service.
However, in today's increasingly globalised, technically-automated and all the way connected society, the issues of trust and dependence are still not as clear as they should be. In fact, in conventional supply chain process, companies had to develop effective partnerships with their partners where trust and responsibility were not that importantly focused.
But in modern trade when companies those are usually competitors but come to work together on specific projects or joint supply arrangements, may become suppliers to each other, which necessitates the sharing of sensitive information and access to a degree of operations that benefit both the parties.
Moreover, supply chain management is becoming important not only as a mechanism for ensuring that products are on the shelves, but also it is vital enough for the sustainability of the players in the organsied retail industry.
Specifically in food retailing, it’s the freshness and quality of the product that matters the most and to achieve these two parameters retailers have started procuring directly from farms.
In the process the key component, the farmers are definitely upbeat about selling directly, but they are still wary. Although the retail chains wanted to ink a deal with the farmers and even tried out the partnership model, the point is that the farmer needs a fixed price and that too over a certain period.
So, now the retail chains have to pay the farmer a higher price, bear the cost for an effective cold chain system and other necessary infrastructure but also has to put a reasonable price tag on the products at the end.
But the key question still remains – that are pointed at the retailers only - Will farmers be benefited in the process? It seems to be a competition that will bring down the margins of costs but the savings will be pocketed by the retailers themselves because it is a different universe altogether. The farmers are needed to be taken care of by creating a win-win situation for both the sides otherwise the whole system might get collapse.
Eliminating the odds
The food retailing basket mostly comprises of fast-moving, short life cycle fresh products in offerings which demands a highly modified and a bit complicated supply chain process. Working with the suppliers and getting them in sync with the fast paced process pose a challenge for the organisations. To overcome the hurdles the key component that is needed to make it work effectively is the proper utilization of technology supported by highly evolved system of information technology.
Technology adds in synchronizing and balancing the system at the lowest cost and resulting in a high customer service level. Technically evolved supply chain process can help retailers assess tradeoffs to meet their customer’s needs, but in a way that allows them to make a profit. Supply chain planning helps dramatically increase forecast accuracy, streamline product introductions, assess promotions and create plans attuned to the market; and supply chain execution provides transportation, warehousing and inventory management to ensure cost effective order fulfillment and on-time deliveries.
But the complication still remains unsolved as to how to set up an efficient supply chain in a place where the roads are crowded and crumbling, the power supply is so irregular and interrupted, the water is still somewhat unsafe and the bureaucracy is so complicated and arduous? How to transform a structure so deeply entrenched with so many political burdens? And, finally how to drag a wasteful, archaic system further to the evolved times of 21st century?
It is surprising that a country with a strong feeling like “Everything else can wait, but not agriculture,” as stated by our first Prime Minister Jawaharlal Nehru, still follows the age-old food-distribution legacy of the 1940s and ‘50s. In 1966 the government introduced a new law that banned farmers from dealing directly with retailers and forced them to sell through licensed middlemen, called ‘mandis’. As a result: a grossly inefficient system developed in which farmers are divorced from market feedback and often have to wait months to be paid. What is even more surprising is that the current system is not doing anything about it and after that there is nothing to comment on.
Last but not the least
The country’s shopping sector is currently dominated by more than 12 million Kirana’s, most of them tiny, dusty and offering a small and unreliable selection of goods. But still the Kirana’s will remain the replica all over; the intensity of penetration can be stunted but cannot be scratched. As Kirana’s have the advantage of quick accessibility which give them the fast buyer advantage and even by home delivery the organised retail formats are not able to swamp them on this recital.
The mid way for this glove game can result in formation of organised retail chain in small formats replicating the typical Kirana formats which will replace the Kirana’s with accomplished supply chain and enhanced present-ability of SKU’s/Products for aggrandized shopping experience. The antithesis of the mid way can be the crookedness of organised retail to Kirana’s or the other way round. Finding this feasible the pioneer of organised food retailing - The Future Group, has decided to supply their private brands to Kirana stores later this year; the private label will include food as well as non food items. At the same line the second colonizer Reliance retail is also coming up with something same in planning to sell its private labels to mom-and-pop stores. Initially, the group would sell private labels in apparels and later the food and grocery items, as the perish-ability of food products is still a concern area.
Either this way or the other, the service providers need to change their offerings constantly to collate with the dynamic customer buying behavior. The expectations from the dispenser will remain uncertain irrespective of its domain whether it is the age-old Kirana store or a neighbourhood store from an organised retailer chain.
Originally published by me on 18th June 2009 in India Retailing Magazine accessible through the below link