Organize retail formats include departmental stores,
hypermarkets, supermarkets and specialty stores. Any store having more than 500
sq. feet is counted in organized retail. There are more than 14 million retail
shops in India, organized retail accounts for only 4-5%[i], but
it is growing at 40% per annum.
Organized retail in India will grow faster as regulations
loosen up. Government will sooner or later give in to demand of better FDI
regulations, in favor of big corporate houses. Time is not far away when Kirana stores will walk the path of
obsolescence. So how can these small stores save themselves?
SWOT Analysis
Kirana Stores
|
Organized
Retail Stores
|
|
Strength
|
Well
connected to community, Customized service, Near to customer
|
Bargaining
Power, Allows customer to choose, Volume Sales, Financial strength, Bigger
display area, Trendy
|
Weakness
|
Outdated,
relatively costlier, Less display area, Higher cost per SKU
|
High
operational cost, Not connected to community directly, Generic service
|
Opportunity
|
Growing
population and demand
|
Growing
young population, Mall culture, easing government policies
|
Threat
|
Organized
retail, Costlier space, Mall culture
|
Small
retailers, Government Policies
|
Value Chain Analysis
Kirana stores come in bottom of sells value chain whereas
organized retails are position high on sells value chain. Organized retail
commands greater margin than Kirana stores. Greater margins help organize
retailer turn into discount stores.
Kirana shops will
loose to organized retail if they don’t upgrade themselves. Their strength will
soon vanish as more and more big shops opens up in locality. This is now
happening in bigger cities like Mumbai and Bangalore. One of solution was shown
by HLL, when it started “Super Value Store” (SVS) in 2007[ii].
Backward integration
of Kirana Stores
Many solutions like formation of cooperatives, SVS has been
proposed to help Kirana stores. None of the solution is scalable and
sustainable. SVS was one-sided effort and didn’t helped Kirana stores in all SKU’s but only in related to HLL products.
Long-term sustainable and scalable solution can only be
backward integration. Kirana store has to move up the value chain to make itself
sustainable.
Backward Integration Model for Kirana Stores
This model will increase not only Kirana stores margins but also will allow them to carry minimal
stock, bigger display space. Also collective ordering will help them demand
offers similar to big organized retail stores. With help of BKG they can source
local available products like milk, vegetables, rice etc. at cheaper price,
much like organized retail chains. BKG’s can make wholesalers obsolete.
Only assumption of this model is all neighborhood Kirana stores have similar offerings in
terms of company, SKU’s. And has a web enabled mobile phone.
Cost Analysis of
Implementation
One time Setup Cost
|
|
Fixed Cost
|
|
Desktop Computer
|
25
|
Software Development
|
20
|
Total
|
45
|
BKS Cost (Monthly)
| |
Operation Cost
| |
Supervisor Cost
|
10
|
Van Operation Cost
|
10
|
Internet Charge
|
0.8
|
Labor cost
|
2
|
Total
|
22.8
|
Per Kirana Store Cost
|
0.228
|
** All figures in 1000’s
Apart from BKS cost, each store will incur individual
connectivity cost (Mobile or Internet cost)
Conclusion
Organize retail in India is still trying to stand on its
feet’s. The sector is expected to see an investment of over $30 billion within
the next 4-5 years, catapulting modern retail in the country to $175-200
billion by 2016, according to Technopak estimates. [iii]
Future of organized retail looks bright but at cost of Kirana stores. If Kirana
store don’t upgrade itself, its future looks bleak in India.
[i] www.ibef.org
[ii] http://www.financialexpress.com/news/hll-enters-retail-battle-partnering-small-grocers/189035/
[iii] http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf
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