Madhukar Sabnavis: Retail brand power

Retail chains will more than redefine shopping experiences

A retail revolution is sweeping through India. Organised retailing has grown from just Rs 5,000 crore in 1999 to estimated Rs 30,000 crore in 2004""making it among the fastest-growing industries in the country. With the growth of malls, multiplexes, and hypermarkets, the consumer is being exposed to a new kind of shopping experience and services which is quietly and surely redefining her expectations from shopping. This will drive change in four areas:

Need to minimise time for shopping whenever necessary. Home delivery, express check-out counters, service and installation by appointment, valet parking""all little services that need to be offered keeping the consumer's time importance in mind.

Consumer durables and servicing marketers have not yet got on to the discipline of operating on fixed appointed times and this is an opportunity for differentiation.

Retailers themselves need to use scientific linear programming to determine optimal number of checkout counters at different hours and plan for them.

Need for all-in-one offer. With growing time constraints and choices, the consumer is getting used to having options readily at hand when she steps out to make the final purchase decision without much dissonance. Even in a category of movie watching, multiplexes give the "freedom of choice" under one roof!

Need for an enhanced look and feel of the shopping environment. With retail ambiences getting upgraded, clearly the poky neighbourhood kirana stores are becoming part of the past for the hypermarket consumer, and she will soon find it difficult to shop "regularly" at the dusty grocery shop.

This will push the consumer's overall need for greater aesthetics in many other areas. Interestingly, in the late 80s, when Titan launched its first showrooms, it had to battle the consumer perception that "swank" means "expensive".

Today with the growth of malls and hypermarkets, that has changed and consumers no longer think "expensive looking" means "expensive". To actually establish premium imagery through shopping environment is going to be that much more difficult!

Need for customer service to encourage consumers to come back again and again and buy more. Quite contrary to the thought that technology will dehumanise transactions, the truth is humans will make all the difference.

A couple of years ago, Shoppers Stop discovered that their Customer Care associates were an area of concern. There was high turnover and they were not motivated enough.

Twenty thousand hours of training over four months of skill upgrade saw a 101 per cent increase in average sales of a card member""clearly showing the value of "people" in a business of bricks and mortar. McDonald's is a standing testimony to the power of human interaction.

It may seem that in a vast country like India, this is restricted to a few urban towns. This could be myopic thinking. The revolution was brewing in South India in the 90s but seems to have taken speed in the 21st century.

Today Big Bazaar is already present in smaller towns like Nasik, Nagpur, and Bhubaneshwar. As "retail" brands see the value of volumes (like mass marketers did in the 20th century) and with the ready availability of both technology for back-end management and real estate for front-end face, business compulsions and opportunities will make them expand faster than one can imagine. Look at mobile telephony.

As recently as in 1999, it was a status symbol for the "puppy" with the few owners displaying it as something special. In half a decade, with new technology, it has become a "product of the masses"""innovative roadside "bhajiwallahs" (vegetable vendors) seeing it as a business tool and using it for home delivery orders!

Are "mass retailers" allies or competitors to "mass marketers"?

This is one big question marketers of consumer goods""FMCG or durables""need to address in the future. Historically, retailers have been conduits for deliveries of products of mass marketers. With the upgrade of their environments and services, they seem to be enhancing consumer-buying experiences.

However, simultaneously they are building brand equity for themselves within their sphere of influence. Clearly, they are able to offer consumer experiences unlike conventional mass-market brands.

So there is little reason to believe why strong "retail brands" may not decide to backward integrate and turn competition to mass marketers in categories where sourcing, branding, and selling have not too many barriers. This would see the emergence of store brands.

In the US, unit sales of store brands have been growing at more than five times the rate of national brands. Wal-Mart's Ol' Roy dog food has passed Nestle's Purina as the world's top-selling dog food, and the chain's George line of apparel has replaced Liz Clairborne in its own stores.

Close to half of the ceiling fans sold in the United States are Home Depot's own Hampton brand; an estimated 50 per cent of products sold by Target are private brands; Kroger manufactures some 4,300 food and drink items in its own plants.

When Gap, one time the largest retailer of Levis, discovered there was more money to be made by leveraging its brand equity and offering merchandise, Levis sales stagnated and slumped!

Proctor & Gamble grew its presence in Europe and increased its sales in the US by integrating its logistics and order management and thence its fortunes with the vast and growing chain of Wal-Mart stores.

Clearly, retailers, once the lowly peddlers of brands that were made and marketed by big, important manufacturers, are now behaving like full-fledged marketers themselves.

Store brand growth is stimulated by five factors:

The inability of mass marketers to innovate and sustain those innovations as competitive edges for long in many categories. So products offered by brands are actually very similar.

And the category role of reinforcing social or self-image is fairly limited. Store brands provide enough guarantee of quality through their own basic brand equity.

Consumers moving up the "diminishing return" curve. After getting a certain level of quality in many categories, consumers are unwilling to pay more for incremental quality and so are ready to make do with "acceptable quality", which store brands offer very easily.

Media fragmentation makes its more and more difficult for mass marketed brands to actually connect with consumers. So the battle moves to the market place where by sheer ownership, store brands hold an edge.

Advertising cynicism that sets in as the consumers get more and more sensitive to messages being beamed and begin to see them as "sales talk and claims". Store brands talk quietly from the shelf and in the environment that they are in.

Cost advantage, because store brands operate on much less overheads because their target markets are limited to the catchment area in and around the store and so depend much less on "expensive" mass media brand-building advertising. And above all there are fewer partners to share the "margin goodies" with.

Clearly, the impact of this retail revolution could be bigger than just the changing façade of the market place and enhancing consumer buying experience. It is a looming threat to "mass brand marketers" and the sooner they take cognizance of that, the better. Mass retailers may not only redefine shopping experiences, but also redefine market spaces.

Something worth thinking about.

(The author is with Discovery, Ogilvy and Mather India. The views are his own)

madhukar.sabnavis@ogilvy.com