Pricing

Another value proposition is lower pricing. While this is generally not observed today, eventually economies of scale and efficiencies in distribution (through improved supply chain practices) will kick in. Walmart alone has been credited to keep US inflation levels lower by up to 15%. A model of that sort is not just good, but a necessity for India. Whether the customer interface is unorganized or organized, the back-end has to be organized. Of course, there are political and social factors to be considered, but an efficient supply chain should be the highest priority for the government in tapping the power of organized retail. It will be more of a human supply chain than automated western supply chains, since the labor equation works differently in India. But it needs to be more efficient nevertheless. Competition will ensure that the savings are passed on to the consumer. Outdated taxation laws, poor infrastructure and exploitation of farmers are all issues that can be solved with strong government will. Lower prices and consequently higher purchasing power is the single most important benefit that organized retail will bring to the Indian consumer.

Customer Service

The third value proposition that can be offered is customer service. This is where the unorganized retailers are giving the big players a run for their money. With their lower overheads and flexible operations, kiranas are able to offer informal credit, home delivery and personalized service in a more effective manner than any organized player today. This will remain the differentiating factor for the small retailer for some time to come. Organized retailers should learn from their smaller brethren and adapt practices that can help improve their woefully inadequate customer service practices today. An even better approach would be to focus on the complete customer experience. For a large format retailer, that could mean adding value-added services like banking, basic healthcare, personal grooming, etc for their customers. For a specialty retailer, it might mean consultation services, installation, flexible return policies and other value-added services. Remember that a customer is not just buying products from you, but is fulfilling a need.

Whether it is product variety, lower prices or customer experience, it has to start with understanding what your customer perceives as value. Perception of value differs across different product categories and depends on what is already out there, namely the kirana offering. Organized retailers that understand this and adopt a customer-centric approach will be successful. The others can keep blaming the value-conscious consumer for their woes.

About the Author

The author is MD, All India Retail, Knowledge Partner to the Indian retail industry; www.allindiaretail.com