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Assignment 2 Organized Retail (Spencer’s) Vs. Kirana Store Indian Retail Market India is the only one country having the highest shop density in the world, with 11 outlets per 1000 people (12 million retail shops for about 209 million households). Rather we can see the democratic scenario in Indian Retail (because of low level of centralization, low capital input and due to a good number of self organized retail).
Indian retail is dominated by a large number of small retailers consisting of the local kirana shops, owner-manned general stores, chemists, footwear shops, apparel shops, paan and beedi shops, hand-cart hawkers, pavement vendors, etc. which together make up the so-called “unorganized retail” or traditional retail. 5 The last 3-4 years have witnessed the entry of a number of organized retailers6 opening stores in various modern formats in metros and other important cities. Still, the overall share of organized retailing in total retail business has remained low.
Nevertheless, the macroeconomic landscape indicates that the domestic retail industry has immense scope for the modern as well as traditional retailers to co-exist. Through a balanced regulatory framework and competition policy, both the traditional format and the modern format can continue to grow, eventually closing the gap between the organized and unorganized sectors. Organized retailing will: (i) promote quality employment; (ii) improve business process practices; (iii) spur investments in support industries; and (iv) enable the modernization of the fragmented traditional retail industry.
Modern retail business focuses on maximizing customer footfalls and capturing rising volume and share of the customer wallet. While the competition strategy is largely price focused, the model works by: (i) improving sourcing efficiencies; (ii) expanding product assortment; (iii) differentiating service; and (iv) enhancing the store ambience. Thus, there are four drivers of modern retail’s “one-stop shopping model”: price, product, service, and ambience. Spencer’s Retailer Spencer’s differentiates itself on product quality, assortment of imported food products, and shopping experience.
Leveraging on the perception of high-quality imported goods that was attached to the old Spencer’s & Co. brand name, Spencer’s business strategy focuses on an array of food-related products and activities spanning across intercontinental and domestic culinary, and chef demonstrations. Spencer’s follows the “duck and duckling” (pyramidal) strategy for its retail expansion and cost benefits in back-end procurement; it has a small set of destination stores (Spencer’s hyper), followed by the supermarket format (Spencer’s Daily), and a larger set of convenient store format (Spencer’s Express and Fresh) located close to the local neighbourhood.
The company incorporates the cluster approach in its “hub-and-spoke” business model to gain economies of scale in sourcing, logistics, and promotional activities around its multiple retail formats. Each state is more or less regarded as a cluster consisting of a small set of hyper, in between supermarket format stores, and a larger set of express stores. The spread of stores serves as spokes to a single distribution centre, the hub. Each hub also functions as a central point to a number of repackaging centres, and collection centres in the cluster region.
Spencer’s Retailer vs. Kirana Stores A typical outlet of Spencer’s is about 5600 sq ft providing employment to average 23 people per retail outlet. The annual sale per square ft is around Rs. 7700. If this numbers are compared with the Kirana stores (unorganized retail outlet) the shop is of size appr. 500 sq ft, run by 2-4 people and annual sale per square is not more than Rs. 1000. The two retail outlet can be compared on four parameters: price, product, service, and ambience. Product Spencer’s & Co brand name, Spencer’s differentiates on high-quality food assortment.
Overall, across all formats, 30 per cent of the food is speciality food, other 30 per cent is imported food products, and the rest is regular domestic food. In the hypermarket segment, 45 per cent of the merchandize is equally distributed across garments, electronic goods, and other white goods. The rest 55 per cent consist of FMCG, staples, and fruit and vegetables. On the other hand, an average Spencer’s Daily store contains a higher share of FMCG products, staples, fruit and vegetables, and some general merchandize.
An Express store consists of fruit and vegetables, bakery and chilled and dairy products. However, the Spencer’s Express product mix differentiates from the regular kirana stores because it is a mixture of imported, intercontinental, and domestic food products. In order to expand on the assortment of food products under the Spencer’s banner in hyper and superstore formats, the Spencer’s strategy includes concessionaire contracts with food chains known in their respective region, Spencer’s has also tied up with “Life Skill” to roll out pharmaceutical products across Spencer’s hyper stores in the south.
Although Spencer’s has a separate subsidiary Cellucom for mobile phone retailing, however, the hypermarket format contains around 5 per cent mobile phones. Spencer’s keeps a mix of private and branded labels in the FMCG, staples, and clothing in its hypermarket. On the other hand local Kirana stores generally don’t enter into a legal contract though they also get the product from the nearby region. This relation is more at personal level than at professional level. Price Considering its focus on food products, where margins are low, Spencer’s pricing across multiple food products is similar to the price available in the market.
But, Spencer’s attempts to capitalize on the purchase of the balance 10 per cent of differentiated imported and speciality food products of its customer basket. Additionally, the company is also building its positioning to maximize its margin on differentiated general merchandize products in the electronics, plastic goods, and ceramic product categories. In the case of fresh food and vegetables, pricing is standardized daily based on the APMC market pricing. Spencer’s gains around 10-15 per cent margin on fruit and vegetables.
In FMCG products, the gain is generally between 18 per cent and 20 per cent. In the hypermarket format, branded FMCG products are sold at 15-18 per cent margin because FMCG products are discounted nearly 2-3 per cent lower than the MRP price. In staples, private labels are priced between 5 per cent and 10 per cent cheaper than the branded labels. In the case of private label clothing, the maximum gain is around 50-60 per cent, but private labels are priced around 20-30 per cent lower than the branded labels which have an overall 30 per cent margin.
Kirana stores generally don’t offer any discount on the product, they sell it at MRP. Services The main different between the two is Spencer’s never give credit to it customer, while it is a very common practice for Kirana Stores. Apart from that generally the Kirana Store retailer has the bonding with the near by customer, he understand their needs much better that the organized retailer understand their customer. Though organized retailer has all the system in place to provide best service and solve customer grievances, unorganized can do it better because of long term relationship with customer.
Ambience Organized retailers have comparatively much better ambience than unorganized. Particularly for Spencer’s, separate spaces are sold to external brands and products are placed on shelves by keeping their popularity and publicity in mind. Competing brands are kept side by side. SKUs that are bought on a regular basis are kept on the right hand side, the reason being that most people are right handed and the eye movement goes from right to left. Fruit and vegetables are kept in the first part of the store because of its volume and to attract customers.
Reasons that Kirana Store Survive 1. In smaller towns and urban areas, there are many families who are traditionally using these kirana stores offering a wide range of merchandise mix. Generally these kirana shops are the family business of these small retailers which they are running for more than one generation. 2. These kiran shops are having their own efficient management system (like better understanding of customer need) and with this they are efficiently fulfilling the needs of the customer.
This is one of the good reasons why the customer doesn’t want to change their old loyal kirana shop. 3. A large number of working class in India is working as daily wage basis, at the end of the day when they get their wage, they come to this small retail shop to purchase wheat flour, rice etc for their supper. For them this the only place to have those food items because purchase quantity is so small that no big retail store would entertain this. 4. Similarly there is another consumer class who are the seasonal worker.
During their unemployment period they use to purchase from this kirana store in credit and when they get their salary they clear their dues. Now this type of credit facility is not available in corporate retail store, so this kirana stores are the only place for them to fulfill their needs. 5. Another reason might be the proximity of the store. It is the convenience store for the customer. In every corner the street an unorganized retail shop can be found that is hardly a walking distance from the customer’s house.
Many times customers prefer to shop from the nearby kirana shop rather than to drive a long distance organized retail stores. 6. This unorganized stores are having number of opportunities to cut their costs. They incur little to no real-estate costs because they generally operate from their residences. Their labour cost is also low because the family members work in the store. Also they use cheap child labour at very low rates. As they are operating from their home so they can pay for their utilities at residential rates.