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Achyuth Punnekat
Saturday , September 29, 2012 at 00 : 04

Two ways to beat big brand retail


"No!" say saffron and red. "Yes!" says the central Hand... A poll finds citizens upset, while some selfish consumers like me smile in glee.

FDI in retail has found plenty of opponents. From the consumerist-communist shores of Kerala... to the austere but corporate-friendly Narendra Modi.

It's sad, really. That people who have never shopped at Sainsbury's; never waltzed down the aisles of Wal-mart; never taken a peek inside a Tesco, should judge big brand retail on the basis of hearsay.

Farmers will get less, they claim. Middlemen will be wiped out! Kirana stores will crumble! Consumers will be conned!

The fact is... It's all true! IF we take a good idea, add bad policy and incompetent regulation to it. In a country where consumer rights are a joke, where the farmers have to eke out a living... it is a foregone conclusion that exploitation would happen at both ends.

The BJP is right when it pointed out that

a) International retailers operate on the principal of "buy cheap and sell costlier".

b) The benefit of eliminating middlemen will go to the retailer, not the consumer or the farmers.

c) A fragmented market serves the public better than a market controlled by a few big brands.

Indian big brand retailers are struggling to survive. Primarily because business models which work in US simply don't work here. Space is scarce and expensive... Indians prefer to buy in small batches. So Wal-Mart's plan to open 10,000-50,000 sq ft mega stores could end up a recipe for disaster. Many before me have pointed out these as major reasons why big brand retail will not eat up the kirana shops. They are wrong!

The fact is, foreign big brands have the money power to change the way people shop. Eventually, the market consolidates in favour of a few big names.

But to say no to FDI in retail is not the answer. India's consumers are demanding more. Consumption patterns have changed. The younger generation is impatient for better service and better products. Nirma is no more... everyone prefers Surf Excel now. Big brand retail, if done right, has the potential to provide better quality produce and a wider range of products. But what if it's not? How will the little man survive?

When I was a kid, I was taught not to be envious of those who do better than me, but to better myself and beat them at their own game. When I grew up and did my MBA I was taught, "Change the game entirely".

Big brand retail is not a bully that can't be beaten. In fact, across the world there are examples where plucky little enterprises continue to defy the Goliaths of grocery. For example, Ocado in UK which changed the game through it's e-grocery pitch.

In India too, there is potential to beat the big boys. At both ends... So here are two answers.

One - Co-operative Retail

India has a history of successful cooperative movements like Amul. Like Prakash Nedungadi writes there is nothing stopping groups of kirana stores from forming cooperatives to negotiate with suppliers for lower procurement costs. Cooperatives doing this, and more, are nothing new. Co-op in Britain and Coop Nordik in Scandinavia continue to be popular alternative shopping venues for consumers. Even in India, cooperative-run shops like Consumerfed are big draws for consumers on a budget.

I would like to go a step further and add that there is nothing stopping farmers from forming cooperatives. For one, these cooperatives could choose to become the middlemen for big brand retail and negotiate better prices.

Or they could sell their produce through their own branded stores. Co-op Food in UK for example, runs stores which are aimed at providing convenient shopping venues for customers. So you will rarely find a co-op next to a Tesco. Instead, their business plan is to operate smaller stores in residential areas where the customer could just walk in and buy stuff.

What's more, these stores could easily provide cheaper products as their operating costs are lower. They generate employment as they would operate more numerous shops. They could also benefit from subsidies and other benefits provided by state governments to cooperatives.

Two - Symbol Groups

I remember the Polish family which ran a corner shop next to where I lived in the UK. Business wasn't booming for quite a while... But they did have the advantage of owning a large shop in a residential area, right on the main road (just as many kirana shops do in India). So when they joined the symbol group Premier Stores, their fortunes improved overnight. Gone were the seedy façade and the dimly lit interior... The whole store got a makeover and business boomed. Because they were now associated with an easily recognized brand.

A symbol group usually does not open or operate stores. Instead, they lend their brand value to independent retailers or small supermarkets. These shops are independently owned, but often operate under the brand of the symbol group. They also sell products supplied by the symbol group, along with other branded products.

Premier Foods, for example, is owned by Booker Cash & Carry which provides their Happy Shopper brand of products to retailers. A tie up with such symbol groups could prove a boon for kirana shop owners willing to make the leap from underdog to smart entrepreneur. Even better, they don't really need to pray for some such symbol group to spontaneously materialise in India. Premier Foods already has had a presence in Mumbai since 2009!

But by no means think that I am batting for the brand from Blighty. This is a business model which could be easily replicated by any Indian retailer. The fact is, the first to be hit by the entry of big brand retail are not the farmers, consumers or even big Indian retailers. It will be small supermarket chains like Nilgiris in South India, which will first feel the pinch. If they are smart, they could change the game and lend their brand to smaller kirana stores, instead of trying to compete in Red Ocean.

By no means are these examples I have provided even remotely posing a threat to the Tescos of this world. However, they are proving to be pockets of resistance. At the end of the day, a Wal-mart in India is inevitable (I hope!). Times are a changing... and so on and so forth. The smarter move for Indian retailers would be to change the game, cock a snook at the competition and cater to consumer demand.

To paraphrase Tennyson - It's better to have fought and lost, than to have never fought at all!


More about Achyuth Punnekat

Deputy News Editor