Bring 'em on.... Local retailers ready to face the Giants

As India gets set for its big retail boom, with majors like Reliance and Bharti-Wal Mart entering the fray with their aggressive retail strategy and reach, far from feeling the pressure, mid-sized retailers are confident of holding their ground, reports Moneycontrol.

The Indian retail scene has been bombarded with news of big-ticket deals and retail forays by some of the major industrial houses of India like Reliance and Bharti. However, up until now the existing mid-sized super-markets such as Spinach, D-Mart and Haiko, had not be dominated by any group.

Spinach for instance, has 5000- 7000 sq ft stores and medium sized 2500 - 3000 sq ft stores. The company, at present, has 15 stores in Mumbai and boasts about sourcing fruits and vegetables directly from the farmers in Maharashtra and the neighbouring states, which they say, helps them provide customers with vegetables and fruits at a much lower price compared to the local vendors in the market.

India's largest private company Reliance Industries- with annual revenues of $20 billion - is spending $5.5 billion to open Western-style supermarkets and modern convenience stores in 784 cities across India. Within four years, Reliance Industries Ltd. intends to build 100 million square feet of markets and super-centers.

Interestingly, many of these mid-sized super-markets believe that given the size of Indian population and consumption power, the market is ready to absorb many new players.

Dippankar Halder, CEO at Spinach believes that the huge food sector of India has the capacity to accommodate many more players, including Reliance and Bharti.

“What most hyper or super markets have done today is to Indianize the western model, however we are essentially westernizing the Indian model. We want to connect with the local vendors to know each area and understand its consumption habits better. The food sector in India is huge, but it has been faced with a lot of internal challenges. If we are good locally, one challenge is conquered. Our aim is to replace ‘Kirana Stores’. I feel the market is big enough to accommodate many players,” says Halder.

Haiko Supermarket, another mid-sized player, which launched its store in Mumbai in 2000, doesn’t seem threatened by the big brothers coming into the business.

Senior Officer Marketing, at Lake Wood Malls, the company which owns Haiko Supermarket, Rajat Jain says, 'We do not feel threatened by the big retail chains because we feel our target audience is different. The 'local' aspect that we provide is unique to us. Huge retail chains may open stores that are far from residential areas, and when it comes to food and groceries, people prefer stores that are close-by.'

Jain adds that bigger deals or discounts that may be provided by huge chains due to their capacity is also not a threatening factor since Haiko can boast of its after sales services like very flexible exchange policies etc. While right now Haiko has just one plush outlet in Mumbai it hopes to open more stores soon.

With Wal-Mart's entry into India, retail majors could be in a hurry to open more stores. Reliance expects to have 1,000 stores up and running by early next year and Pantaloon aims at 50 Big Bazaars by January.

Reports indicate that the Aditya Birla Group will invest Rs 9,000 crore, over the next 7 years on its retail business. The plan is to have 3,000 supermarkets and 200 hypermarkets in 100 Indian cities.

The Birlas are scouting for space in cities like Amritsar, Jalandhar, Kanpur, Allahabad, Lucknow and Indore and hope to hit the shelves sometime next year.

Deepankar Sanwalka, a retail expert at KPMG Consulting says, “While it is true that there is space for mid-level retailers, the bigger players might just come and tie-up with these mid-sized retailers. A lot of them might get taken over by the big chains, since for such operations scale is required. Many of them could be converted into franchisees.”

He also throws light on the fact that the deal values that bigger chains can provide by way of wholesale will definitely be much better than the mid-size retailer. At the same time Sanwalka says that the Indian retail model has space for 6-8 big retail players since right now only 3% of retail market is organized and even in the next 6 years only 10% will be organized.

Players like SPAR International have already attempted to bring together small, independent retailers together and thereby compete more effectively with the giant retail chains even though its joint venture partner Radhakrishna Foodland pulled out of the deal since reports indicate that they were not willing to part with their brand or share their wafer thin margins with SPAR.

The key issue in India is to manage a smooth supply chain right from the farmer level right upto the retail level, say experts. While, chains like Wal-Mart are known to be experts at the retail model, Reliance too aims to build a 21st-century retail supply chain from growers to grocery-store shelves, in a chain that Reliance Chairman Mukesh Ambani calls 'farm to fork.'

So while some experts suggest that organized retail should address the 30-35% crop and food wastage in India, and hope to reduce it drastically, the immediate concern is whether independent retailers choose to come under a common brand or retain their brand and hope to withstand the pressure from the big boys.

Source : Moneycontrol.com