Organized Retailing in Kerala –Key Issues and Challenges

Dr.K.S.ChandarsekarHead of the Department

Institute of Management in KeralaUniversity of Kerala

C.S.Siva PrakashFaculty

Institute of Management in KeralaUniversity of Kerala

Abstract

The Kerala model of development is famous for the achievements it has made in the field of social infrastructure development like healthcare and education. Things have changed dramatically in the past few years - especially the quantum leap in the IT sector. The architecture of shops in all the cities and towns in the state has changed beyond recognition. Organized retail chains are mushrooming all over Kerala. From the cities it has spread over to tier II and tier III towns and eyeing up villages now. The organized retailing in Kerala is going through a transformation and this upcoming potential market is witnessing a significant change in its growth and investment pattern. Both the unorganized as well as the existing organized domestic players are experimenting with new retail formats. The Consumer dynamics in Kerala is changing and the retailers need to keep track of this and formulate appropriate proactive planning to get the grip in this upcoming market. This paper critically evaluating growth of organized retailing in Kerala, upcoming retail formats and also very important, discussing about the issues and challenges facing by retail sector in Kerala.

Key Words: Retail Formats, Organized Retailing, Consumer Dynamics, Retailing, Kerala

Introduction

Organized Retail stores contributes 26% of United States gross domestic products and third largest employer. Our neighboring country China on the other hand has attracted several global retailers in recent decade and Retail sector provides 9% employment for the population in China. Major retailers like Wal-Mart & Carrefour have already entered the Chinese market. In the year 2008 just before recession clout , Wal-Mart & Carrefour had sales of US $ 112 Crore & US $ 186 Crore respectively in Chinese market. The global retail industry has traveled a long way from a small beginning to an industry where the world wide retail sales is valued at USD 80,00,000 Crore. The top 200 retailers alone accounts for 30 % of the worldwide demand. Retail turnover in the European union is approximately Euros 2,00,000 Crore and the sector average growth is showing an upward pattern. The Asian economies are expected to grow at 9% consistently till 2009-11.

The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2010.According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010.According to a report by Northbride Capita, the India retail industry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the total retail market. India is the country having the most unorganized retail market. Traditionally it was a family’s livelihood, with their shop in the front and house at the back, while they run the retail business. More than 99% retailer’s function in less than 500 square feet of shopping space. Global retail consultants KSA Technopak have estimated that organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06. The Indian retail sector is estimated at around Rs 9,00,000 crore, of which the organized sector accounts for a mere 4.7% indicating a huge potential market opportunity that is lying in the waiting for the organized retailer. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer.

The Indian retail scene has witnessed too many players in too short a time, crowding several categories without looking at their core competencies or having a well thought out branding strategy. The growth rate of super market sales has been significant in recent years because greater numbers of higher income Indians prefer to shop at super markets due to higher standards of hygiene and attractive ambience. With growth in income levels, Indians have started spending more on health and beauty products. Here also small, single-outlet retailers dominate the market. In recent years, a few retail chains specialised products have come into the market. Although these retail chains account for only a small share of the total market, their business is expected to grow significantly in the future due to the growing quality consciousness of buyers for these products .Numerous clothing and footwear shops in shopping centres and markets operate all over India. Traditional outlets stock a limited range of cheap and popular items; in contrast, modern clothing and footwear stores have modern products and attractive displays to lure customers. With rapid urbanization, and changing patterns of consumer tastes and preferences, it is unlikely that the traditional outlets will survive the test of time. Despite the large size of this market, very few large and modern retailers have established specialized stores for products. There seems to be a considerable potential for the entry or expansion of specialized retail chains in the country. The Indian durable goods sector has seen the entry of a large number of foreign companies during the post liberalization period. A greater variety of consumer electronic items and household appliances became available to the Indian customer. Intense competition among companies to sell their brands provided a strong impetus to the growth for retailers doing business in this sector. Increasing household incomes due to better economic

opportunities have encouraged consumer expenditure on leisure and personal goods in the country.

Indian Retail growth attributes

According to Federation of Indian Chambers of Commerce and Industry (FICCI) the major attributes for the growth of Indian retail sector as follows .

Demography Dynamics: Approximately 60 per cent of Indian population below 30 years of age.

Double Incomes: Increasing instances of Double Incomes in most families coupled with the rise in spending power.

Plastic Money: Increasing use of credit cards for categories relating to Apparel, Consumer Durable Goods, Food and Grocery etc.

Urbanisation: Increased urbanisation has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers and also aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale.

Covering distances has become easier: with increased automobile penetration and an overall improvement in the transportation infrastructure, covering distances has become easier than before. Now a customer can travel miles to reach a particular shop, if he or she sees value in shopping from a particular location.

Catalysing factors for the future growth of Indian retail sector:

According to World Bank , India to be the world second largest economy after China by the year 2050 and also stable and investor friendly Central Government at the helm of affairs. Potential to be the third largest economy in terms of GDP in next 10 years and ranks high amongst the top 10 FDI destinations of the world. In case of tourism fastest growing tourist market in Asia. Introduction of VAT and tax reforms. High degree of professionalism and corporate ethics. Excellent Investment opportunities in Indian retail sector because of conducive macro environment. Investment of US $130 billion for the development of infrastructure, by year 2010. Sound stock market performance. Highly educated English speaking young workforce and vibrant and multi cultured cities. Huge opportunity exists, especially in semi-rural and rural areas. Till date the second largest employer after agriculture sector, for the huge semi-skilled Indian population. Offers highest shop density in the whole world. Having almost 1, 20,000 shops, across the length and breadth of the India.

Objectives of the study

1. To critically evaluate the retail sector growth in Kerala.2. To get insight on various retail formats upcoming in Kerala.3. To get insight on various domestics as well as MNC’s retail formats operating in Kerala economy.4. To critically evaluate various minor and major challenges hindering organized retailing in Kerala.

Methodology

The study was purely theoretical in nature by systematically collecting data from various secondary sources especially statistical reports of premier consultancy groups and observation.

RETALING IN KERALA

The Kerala model of development is famous for the achievements it has made in the field of social infrastructure development like healthcare and education. Things have changed dramatically in the past few years - especially the quantum leap in the IT sector. The architecture of shops in all the cities and towns in the state has changed beyond recognition. Shopping malls are mushrooming all over Kerala. From the cities it has spread over to tier II and tier III towns and eyeing up villages now. Kerala is a metropolis in every mile. A State with no urban-rural distinction, Kerala has a vibrant market of 30 million people spread over 38,863 Sq.kms. This 100% literate State has only 3.7% of the total Indian population but accounts for 12% of the Indian consumer market. Kerala is the perfect test market for products of any description, given that purchasing power, population density and physical quality of Life is the highest in the country. There has been an explosion in retailing in Kerala from past 7 years, because of foreign exchange remittance by expatriates and the high salary earned by the employees of the dynamic Kerala economy even though significant level of hindrances stay alive .

Major Retail Formats and Players In Kerala

1.Malls: These are the largest form of retail formats. They provide an ideal shopping experience by providing a mix of all kinds of products and services, food and entertainment under one roof.

Lulu Cochin Mall : Setting up is going on in cochin and expected to open during April 2011 in full-fledged mode. It is built on an area of 2,500,000 square feet More than 240 renowned outlets including food courts, restaurants, family entertainment zones and a seven-screen Multiplex will all come together to make Lulu Shopping. Upon completion It will be the biggest shopping mall of India. The estimated cost for this project is more than 1500 Crores.

2. Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a variety of categories with deep assortments. These stores contribute 6% of all food and grocery organized retail sales in Kerala.

Big Bazaar: is a chain of hypermarkets in India, with more than 123 stores in operation. It is a subsidiary of Future Group Venture Ltd's, and follows the business model of United States-based Wal-Mart. presently in Kerala they got presence in Trivandrum with two stores ,Calicut and Trichur with one each and also in future plans to expand other strategic locations too.

Varkeys Bakery and Supermarket: is the leading supermarket chain in Kerala, India. Keeping pace with the growing customer needs the first Discount Hypermarket – “V Mart” was started in 2004 at Cochin, Kerala . Both Varkeys Bakery and Supermarket and V-Mart , Hyper Market comes under the banner Varkeys Retail Ventures Pvt. Ltd. The Stores and its concepts have played a vital role in revolutionizing the tastes & shopping patterns of the people of Kerala. Providing all the needs of a household under one roof, it has made its mark as a “single stop

shop” for its customers. Currently Varkeys got 56 outlets across kerala and planning rapid future expansion in potential markets in kerala.

The Kerala State Civil Supplies Corporation: is better Known as Supplyco(Sabari Super Market) is the gateway for the 30 million people of the State of Kerala, assuring the much needed food security in a substantive style by supplying life's essentials and reaching out to the rural-poor and the urban-rich alike. It is a fully owned Government Company with an authorised capital of 15 crores, to meet the limited objectives of regulating the market price of essential commodities at reasonable prices, the growth of Supplyco for nearly three decades was tremendous and unbelievable compared to any of the similar organisations in the country. Head quartered in Kochi and operating through 5 Regional offices, 14 district depots, 42 taluk depots and around 1000 retail outlets, it has a dedicated work force of nearly 3500 to fulfill the task. Currenty it got 278 Sabari Super markets touching all districts in Kerala.

3. Specialty Stores: The retail chains, which deal in specific categories and provide deep assortment in them are specialty stores. The penetration of specialty stores in Kerala is so significant from the down the line ,especially in mobile phones, CD’s, Books selling ,Fitness products etc.

4. Discount stores: These are the stores or factory outlets that provide discount on the MRP items. They focus on mass selling and reaching economies of scale or selling the stock left after the season is over.

Margin Free Market: is a co-operative venture of the Consumer Protection & Guidance Society and the management, which came forward to take up the responsibility of launching it. Margin free Market chain in Kerala helps consumers buy products for prices discounted from Maximum Retail Price (MRP) since January 26, 1994. Marginfree chain today has more than 400 plus shops in and outside Kerala. Annual turnover exceeds Rs. 720/- Crore (INR 7.2 billion). The total discounts to consumers exceed Rs. 80/- Crore (INR 800 million).

Maveli Stores: is a venture of the The Kerala State Civil Supplies Corporation (Supplyco) under the Government programme of market intervention, pulses and spices are purchased and sold to the consumers at subsidised prices fixed by the Government. Now the Maveli Stores has become a prominent name among the consumers in the state. Supplyco operates through Maveli Stores and Mobile Maveli Stores throughout the state covering almost all the panchayaths. Quality products and subsidised pricing are the twin advantages, which Supplyco extend to the consumer.

5. Convenience stores: They are comparatively smaller stores located near residential areas. They are open for an extended period of the day and have a limited variety of stock and convenience products. Prices are slightly higher due to the convenience given to the customers.

Reliance Fresh: is the convenience store format which forms part of the retail business of Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in excess of Rs 25000 crores in the next 4 years in their retail division. The company already has in excess of 560 reliance fresh outlets across the country. These stores sell fresh fruits and vegetables, staples, groceries, fresh juice bars and dairy products. A typical Reliance Fresh store

is approximately 3000-4000 square feet and caters to a catchments area of 2-3 km. currently there are 23 outlets operating across Kerala.

Spencer's Retail Limited: operates convenience stores in kerala. It offers fruits and vegetables, foods, fast moving consumer goods, staples, and frozen foods; personal and home care, baby care, home furnishing, entertainment, and fashion products; and apparels and footwear. The company was founded in 1863 and is based in Kolkata, India. Spencer's Retail Limited operates as a subsidiary of RPG Enterprises. Currently there are 17 outlets operating across Kerala.

6. E-tailers: These are retailers that provide online facility of buying and selling products and services via Internet. They highlights the products assortment, price, features in websites and the consumers could chose the products and get the bill payment through plastic money and next day get the products at the door steps. A lot of such retailers are booming in kerala, as this method provides convenience and a wide variety for customer. But it does not provide a feel of the product and is sometimes not authentic. Examples are Amazon.com, Ebay.com, etc.

In Kerala E-Retailing is at its premature state even though digital divide gap is very low. Within short span of time this segment will surely get good momentum because of cultural shift and changes in living style. Some of the Kerala based e-retailing initiative websites are given below.

www.manoramaonline.comwww.futurebazaar.com www.qrs.inwww.keralarcade.comwww.allinoneindiangrocers.com

Organized Retailing issues and challenges in Kerala

Encumbrance From Central and State Government:- Even though the central government is highly positive toward organized retailing in India opposition parties are demanding to put curbs on mega players so that unorganized retail sector could be protected . In practical situation this will open the venue for small unorganized sectors to perform well with offering value added products and services for consumers and over a period of time unorganized chains get the opportunity to go for consolidated organized operation just what seen in Bangalore . The oppositions should also consider the scope of improvement in employment by welcoming organized retail chains. Allowing 51 percent retail FDI in single brand retailing is a welcome move in this direction. It is expected that the government will come up with good FDI policy that could extend the FDI allowance of 51% or more in single/multi band retailing in India ,so that more number of foreign players get the opportunities to come up with joint venture and make Indian consumers satisfied with better competitive products and services .

In Kerala the very recent attitude of ruling party is so significant in case of retailing in Kerala by opposing and preventing the entry of retail giants and serving the economy. They straight away put danger signal to domestics as well as MNC’s for no entry. The victim’s included Reliance Fresh , More, Subhiksha , Spencer Etc. The Kerala government also drafted a bill by amending Kerala Essential Commodities Act so that the government can intervene in the retail matter and

also the government imposed strict licensing and clearing procedure of hindering the entry of organized chains in Kerala.

Perplexity: The comparable operation of convenience stores, supermarkets, hypermarkets and specialty stores in the Kerala economy always puts confusions among the consumer groups especially because Kerala middle class still alien about organized retail concept. The Issues and problems in one retail format could be perceived and used as yardsticks for evaluating and judging other formats in Kerala by the consumers.

Positioning and Promotional Issues: The retailer’s communication towards the target customers determines how well the store gets positioned in consumer mind. It is also necessary to take consideration on Kerala culture and local language while designing communication tools. The core purpose is to inform the target customers about the offering of the stores and sway them to visit the store again and again. The communication tools should be based on segments requirements to attract and the message should also clearly convey to the segments that the store will exactly meet the expatiation level. Numerous communication and promotional tools are available that suite with Kerala nostalgia, like Kerala touch advertising, viral marketing enhancement, Kerala celebrity endorsement, use of local print media, penetrating FM channels, television channels ,Covert advertisements could be used for effective communication and promotion .

Category of Items: According to researches, 45 % of total consumption expenditure goes to the segment of food and groceries and it accounts for 80% of total retail sales in India. Practically it is very difficult for managing all assortments in an organized retails chain .It is the responsibility of the retail management to identify the assortments required for the consumers generally coming on the stores and considering location aspects and then manage the supply chain .In addition to that if the stores could add more Kerala traditional assortments then it will act as a catalyst for attracting more consumers .Assortment and supply chain management could also improve stores productivity and considerably it could reduce cost of operation .

Reminiscence: The Kerala consumers got certain unique cultural bound characters and this is reflecting on their purchasing behavior too. They give more importance to, trust, safety, health, reasonable price, attractive behavior, personal care and attention. Practically it is very difficult to attract them towards organized retailing because they only shift from legacy unorganized retail shops if they found an attractive perceivable benefit .So keeping this in mind and coming up with right retail strategy could only work on Kerala.

Information Technology Adoption: Information technology adoption is a strategic decision in any business sector .American and European retail giants are using information technology as a wonderful tool for procurement, stores management, and customer relationship management and getting significant benefits in terms of cost reduction and improved productivity. Sensing the changes happing in the information technology world and its adoption is inevitable in retailing .But unfortunately the adoption of information technology by the domestic retail chains in India is very limited. The multinational and domestic Kerala retail players should invest in the new information technology tools like bar coding and reading, RFID, Centralized DBMS, Electronic Data Interchange, ERP, provision for the use of plastic money and also Smart Card for enhancing the productivity of the stores. It is also advisable to think about virtual marketing in future based on changes happing in micro and macro environment.

Human Resource Management Issues: The retail industry according to recent reports is growing at a rate of 100 percent. Kishore Biyani's Future Group ( Big Bazaar) retail outlet alone provides employment to more than 18,000 people and is planning to expand its employment base to 34,000 by June 2008. If we add to this the foray by mega players like Reliance and Bharti-Walmart then the fear can surely turn into a misperception. India is most attractive retail market for the second consecutive year in a row but it is lagging behind in the retail labor index and positioned in the 8th place. At this point of time talent is in short supply and employee churn has been high for all players. It is very difficult to get experienced store managers to run stores. The way the sector is growing in terms of opening stores it is very predictable that there is going to be huge scarcity of professionals to manage stores. Currently the sector is not facing a shortage of human resources in Kerala since it is in problem child state. But in the progressive stage of organized retailing in Kerala it is very difficult to develop human capital in a short time span of time. Since in Kerala higher education institutions are mashrooming over a period of time we could develop the human resource pool requires for state organized retailing. If the upcoming talent pool in Kerala could be properly channelized then a large committed talent pool could be developed to fulfill the growing demand for various positions in the retail organizations in Kerala.

Issues in Supply Chain: Critical components of supply chain planning applications can help manufacturers meet retailers’ service levels and maintain profit margins. Kerala organized retailer has to develop innovative solution for managing the supply chain problems. Innovative solutions like performance management, frequent sales operation management, demand planning, inventory planning, production planning, lean systems and staff should help retailers to get advantage over competitors

State Infrastructural Development: The Kerala state government investment in infrastructural development directly or indirectly effects the growth of organized retail chain. Time bound forecasted development in roads and connectivity will helps the retail sector for cost effective logistics. The investment in power sector is also critical since the steady boom in property development and investment and also steady increment in state power conception this will indirectly affect the organized retail chain and also the state electricity tariff rates, are not friendly for organized retail chains. The developmental aspects related with information technology and telecommunications are also critical factors in case of organized retail development.

Land and Building: In Kerala the recent amendment in registration procedure and unstructured fixing up of fair price for land in various geography landscapes ultimately created lot of difficulties to get land for setting up of retail outlets in various potential locations. The new amendment in building and construction act, licensing procedures, exorbitant raise in the tax rate for the retail shops and establishment is a great challenge of the entry of new organized retail players in Kerala market.

Kerala Culture and Tradition: Kerala people always bonded with deep culture and traditional values and always give importance to family, relation, trust, belief, melancholy. By critically evaluating the value system of Kerala consumer and coming up with suitable retail format with suitable assortments is a challenging job. If a new player could do that then it is very easy to win the Kerala consumers mind.

Rebate and Subsidy Support for State Owned Retail Chain: The state owned supplyco enjoying so many benefits from state government in terms of subsidy, procurement ,distribution, infrastructure etc. and it makes them competent to root their business in each every corner of Kerala and it is acting as a great threat for private organized retail chains in Kerala. Like the same way the subsidized pricing of margin free market also a great threat too. Since the procurement and setup cost is too high the private players cannot satisfy the consumer by fare pricing but they could provide quality and reliable products and services compared to the other players mentioned above.

Procurement /Farmers Issues : Kerala is a consumer state and even though production in spices ,rubber, coconut, sea foods are fare compared to national average ,but production in terms of vegetables commodity is not up to mark compared to neighboring states and also the organic farming is in it premature stage in Kerala .The organized retail chains are always tries to get the commodities from nearest market, so that considerably they could reduce cost there by better price distribution. This is generally organized retailers adopted in Indian economy, by this way they are supporting the framers community and economy too. In case of Kerala the retail chains need to go for vendor development extensively to get agricultural commodities in

continues flow and it is practically a different proposition and retail chains in Kerala heavily dependents on neighboring state farmers ,so naturally cost of procurement goes high and ultimately affect the Kerala consumer.

Green Marketing Challenges: As resources are limited and human wants are unlimited, it is important for the marketers to utilize the resources efficiently without waste as well as to achieve the organization's objective, for this good eco friendly practices for protecting nature and society is very important and certain extend it will help for generating loyal consumer groups too. There is growing interest among the consumers all over the world regarding protection of environment and this phenomenon we can see in India and also in Kerala. People are concerned about the environment and are changing their behavior. As a result of this, green marketing practices among the organized retail chains to come and offer with sustainable and socially responsible products and services is inevitable and this could be used as a strategic marketing tool in future.

Conclusion :

The organized retailing growth in Kerala ultimately benefitable for the Kerala consumer society because the inter competition will always offer better products and service at reasonable price and better quality. The Kerala retail sector will only get good leap if there is a synergy between Retail players, Government, Political parties and Consumer. The government should not see the organized retailing in prejudiced manner rather should think about its contribution to economy and society. The retail chains should be more proactive and should come up with innovative strategies to overcome challenges to get a good start in Kerala economy by keeping track with Kerala consumer mind, culture and also tradition.

References:

1. Christopher Knee (2002) Learning from experience: five challenges for retailers, International Journal of Retail and Distribution Management, Vol.30 No. 11, pp.519-29.2. Tony Kent (2003) Management and design perspectives on retail branding, International, Journal of Retail and Distribution Management, Vol.31 No.3, pp.131-42. 4. ‘Retail Hotspot’ The Hindu Business Line, 22 August 20025. ‘Retail detail’ The Hindu Business Line, Praxis January 2002.6. ‘Mall Wonder’, Economic Times, 1 April 2003.7. ‘The Benetton Make over’ The Hindu Business Line, 07 August 2003.8. ‘Retail niches in south India see 40% growth’ , Economic Times, 11 February2004.9. ‘Shopping malls – myths and realities’, Business Standard, 17 March 2005.10.India’s Retail Industry: IT Market Trends and Opportunities, 2006 – 2010,Market Research Report, February 28, 2007 by Nilotpal Chakravarti, Ravi Shekhar Pandey, Senior Market Analyst. 11.Indian Retail Industry, Industry Insight , Cygnus Business Consulting & Research (Cygnus) , April 2009.12.Retail market & opportunities, India brand equity foundation , December 2009.

13.Organized Retail in India: The Next Growth Frontier, by Tata Strategic Management group, April 2009.

Website References:

www.ficci.comwww.commerce.nic.inwww.keralaindustry.org

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