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Riding the Retail White Tiger  

Balram Halwai, the chief protagonist in Aravind Adiga’s Booker-winning novel, talks of two Indias spanning the rich-poor divide- India of the Dark and India of the Light. Not surprisingly, such a spectrum exists in Indian retail as well. Much ink has been spilt detailing the India of modern retail, of swanky malls, 40% CAGR, titanic battles for share of wallet amongst a handful of biggies and how 100% FDI is imminent and bound to change the Indian shopping paradigm. Contrast this ‘India of the Light’ to the 12 million odd kiranas , myriad paanwallahs and mom-n-pop retailers- who know little about assortment & ELDP, can do little about scale & volume-leveraging, and can only dream about efficient supply chains. In that most favourite of exercise forms, we jump to conclusions about how ‘organized retail’ will sound the deathknell for a majority of these. And therein lies a tale..And ‘organized’ is the operative word. The only reason to have a dekko at the larger retail canvas is not only the touted $500 b size, but the fact that there is actually a significant organization in the ‘unorganized’ segment. Understanding the reality of demand existing across millions of geographically dispersed small retailers, and the fact that sales depend purely on the ability to reach & ensure availability across these demand points, most consumer goods companies (including international behemoths like Unilever & Smithkline) have over the years established an efficient distribution system. This system, a percolatory approach including primary sales to distributors and in-market sales to retailers, incorporates elements of outsourcing (presence of external intermediaries) and collaborative warehousing & distribution (CNFs and distributors often serve multiple companies) which aid cost efficiency. This system works well enough to keep costs pared, and coupled with typical distributor margins of 10-15% and retailer margins of 6-8% gives fair competition to modern retail stores who typically battle high rentals & overheads and need higher margins to keep their heads above water. Apart from efficient material flow, the system also ensures that important information on consumer patterns & choices flows back to companies. By pushing the onus of “organized” supply chain to companies, a small retailer today is reasonably confident of ensuring daily replenishment at his doorstep if he so desires, for a significant part of his sourcing basket, thus leaving him to concentrate on building the convenience & consumer experience aspects in his catchment. Understanding this larger retail space is crucial for consumer companies-As it is for the modern retailer who needs to draw custom away from the kiranas pushing elements apart from pure price. Unlike the novel though, the two Indias in retail may get more fungible in the future. Major retailers have already started DSD operations with some products, bypassing their DCs and minimizing cost loading & inventory: essentially uncoupling the back-end supply chain with store operations. If Bunge can door-deliver across every square kilometer of a city, why have volumes for an Ayanagar store sit in a DC in Kundli? The jury is still out on how retail supply chain will shape up in India as boundaries blur across the retail space.

Copyright ©2008 Sanjeev Ganesh Tags:

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Oct 25

Written by: Sanjeev Ganesh:Connecting the Dots
Saturday, October 25, 2008 1:46 PM


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