Organized retailing and e-commerce are two channels that have brought in superior supply chain capabilities and hitherto unseen price efficiencies that have brought down the end cost for the customer.
More than 85% of retailers have not been able to meet their original vision and have had to rethink their goals. A lot has been said about the disruption caused by the revolutionary pace of digital access which has made retailers rethink their strategy and value proposition.
A large number of retailers encountered myriad challenges of execution in an environment where the quality of real estate, talent, and infrastructure were not keeping pace with the expansion plans of the retailers.
The new challenges retailers around the world, including indian retail industry is facing today include engagement, digitization, trust, and disruptions.
The Challenges Retailers Face
Four major reasons many offline retailers have struggled are:
- On-ground realities being different than envisioned – Major retailers announced massive plans to expand and grow in an under-penetrated market, but the ground realities they encountered allowed only a few of them to remain true to their envisioned scale of business. 90% of the retailers could not achieve their envisioned scale.
- Executional challenges – The industry is dominated by suppliers that have a stronghold over retail margins. Although the balance of power between suppliers and organized players is changing, organized retail’s low contribution to the suppliers’ overall business continued to pose a challenge on extracting higher intake margins. Added to this, Indian customers being value-conscious puts pressure on price points, resulting in lower size per transaction.
- Dilution of value proposition – 35% of retailers failed to achieve scale on account of the lack of a clear value proposition. In an attempt to simplify operations and scale rapidly, retailers positioned a largely homogenous offering that did not reflect a deep understanding of local customer preferences and mindsets. Moreover, challenges to profitability and capital allocation for scale limited the investments in strengthening the value proposition for customers.
- Competition from well-funded online players – Physical retailers were hit hard by the emergence of e-commerce as an alternative channel. E-commerce sites having frequent sales and discounts caused a shift in consumer preference towards online retail. Approximately 48% of consumers preferred online shopping because it provided better prices and discounts.
There are close to 10 million stores in India and about half a million distributors. Less than 2% have been digitized so far.
Organized retail in India accounts for 8% of an approximately 600 billion USD dollar market. Compared to the size of other South East Asian markets, this figure indicates the tremendous scope for growth for organized retail in India, both in terms of penetration as well as predicted CAGR till 2020.
Many macroeconomic fundamentals continue to boost India’s high-potential retail market. These include:
- India is one of the fastest-growing economies in the world. It has the second-largest population and accounts for 17%3 of the world’s population and 3% of global consumption.
- India has the highest consumption growth amongst the top 10 countries ranked by size of household final consumption expenditure (HFCE).
- Per capita income in India has nearly quadrupled since the start of the century, rising from 452.4 USD in 2000 to 1,593.3 USD in 2015. This has put more disposable cash in the pockets of consumers, who are not hesitant to spend it.
- The consumption growth in Indian retail industry can be attributed to the democratic rise in affluence, which is not limited to just the metros or a limited income bracket.
Trends Brands Are Adopting
Brands have a large distribution play and they have worked with small stores for years. But they were always dependent on data from distributors and thereby pushed the product to small stores rather than understanding what is sold by region.
- Reliance Retail plans to use artificial intelligence, machine learning, blockchain, and cloud computing to help kiranas become competitive. With this move, it will gain data of 900 million Indians, which will help it become a full-stack data company. Not only will it have B2C consumption data, but it will also have B2B data from kiranas and Jio.
- SnapBizz, which makes point of sale (PoS) machines and billing solutions, offers an on-demand video platform for small stores about the offers available on various products, helping them increase margins by pushing up sales.
- Bizom provides sales force automation and supply chain automation solution, increasing sales force productivity and sales growth
- Mobisy has created a network of its own distributors or stockists, all of which are multi-brand. This allows a kirana owner to get products of various brands from one stockist. The platform tracks order management, distributor management, a retailer app, BI and analytics, field force management, claims management, van sales automation, and channel management.