- Life in a metro like Delhi can be difficult, if one doesn’t have a personal vehicle. And that’s the first thing he needs to sort out, Kaushik Gupta, senior manager with a multinational company, thought to himself when his boss told him that he has been transferred to the capital city from Kolkata. Shifting base with his family, Gupta was, however, pleasantly surprised to find a safe and punctual travel option in the radio cab operators in the city.
- Cut to Chennai. When journalist K S Narayanan had to move back to Chennai to be close to his family he dreaded the daily drudgery of shopping for essentials, used as he was to the well-oiled retail machinery in Mumbai. However, the customised services and the hassle-free shopping experience in weather-controlled malls — thanks to the retail revolution Chennai is witnessing — made him wonder why he had dilly-dallied in the first place.
The winds of change might have warmed Gupta and Narayanan, but marketers say India has a long way to go when it comes to organising the huge unorganised segments of the market. Yes, the signs are all there but the so-called boom is limited to the urban markets, as a big part of Indian retail, hospitality, entertainment, travel fleet management continue to be unorganised.
In fact, a recent Pricewaterhouse- Coopers report says while the Indian retail sector is worth between Rs 18-20 lakh crore, the organised portion is just about 8 per cent. Take the pharma retail market in India that was valued at Rs 50,000 crore in 2011. The organised segment of that market was just about Rs 4,000 crore. For consumer goods, the organised modern trade format has just 5-8 per cent of the overall market.
When it comes to retail, a key reason that seems to stand in the way of wholesale reorganisation is the capital intensive nature of the business — it is often not so easy to spread the retail networks without worrying about additional working capital requirements. Rohit Bhasin, leader, retail practice, Pricewaterhouse- Coopers India, says, “Because of political compulsions, foreign direct investment (FDI) in multi-brand retail has not been allowed. The day FDI opens up to multi-brand retail, we will see a larger penetration of organised retail and the 8 per cent figure will clearly go up. As global players enter the Indian retail arena, they will come in with the capital and the know-how required for operating organised retail networks.”
Bhasin says the decision to step beyond tier 2 markets is not an easy one for retailers — they would rather exploit areas that are likely to offer better returns. “The gestation period is very high in this sector. Achieving break-even is a major challenge for players; especially in a situation when raising capital is becoming difficult, the propensity is to go to the metros and tier 1 cities first. The other reason can be related to logistics — particularly for the pharmacy and the food and grocery segments. It is not so easy to reach tier 2 and 3 cities as the supply chain networks are not well developed yet,” explains Bhasin.
Bhasin, however, adds organising retail formats in India is a function of time, economic growth and opening up of FDI in multi brand retail. And it’s not “a distant dream” because the Indian consumer has started changing and is demanding more efficient customer interfaces and better services. “Consumers across segments tend to prefer brands for their uniformity, provided cost-effectiveness is attached to the marketing proposition. An organised player with well-known branding induces confidence among its consumers in a similar way as a popular newspaper evokes credibility among its readers,” says Om Manchanda, CEO, Dr Lal PathLabs.
In a sense the ball is in the marketers’ court. “It is incumbent of them to educate retailers about the benefits of organisation and step out of their comfort zones to devise ways and means of wooing consumers in markets that remain fragmented and outside the radar of other manufacturers,” says a Mumbai-based brand consultant. Y V Verma, director, home appliances, LG Electronics, agrees. “The challenge is to educate the small retailers that the whole experience is becoming very important even in smaller cities — products need to be displayed according to the ‘planogram’. He has to identify which are the hot-spots on the shop-floor-when a customer walks in, where does she spend most of her time; they have to figure out what type of products should be kept where, at what height, and they have to take on the task of training the shop-floor executives to not just sell a product but satisfy the evolving consumer. Organised brand outlets offer advantage in terms of retailer margin, cost-benefit and inventory-management.”
This, however, doesn’t mean the 12 million mom-and-pop stores (according to a PricewaterhouseCoopers report) will cease to exist as Indian retail turns organised. “It is true that certain margin is lost in the unorganised retail value chain, more so in case of food and grocery retail. But at the same time the margin deployment is coming at a very low level of investment. Price flexed organised trades tend to work on a lower spread but at a higher investment. As such, it would be safe to say that apart from commodity products, in most places, the unorganised trade has showed more efficiency than what most people presumed it was,” says Ashutosh Tiwari, executive vice-president, strategic marketing, Godrej Group.
Tiwari adds that while most people approach organised retail format from cost and efficiency viewpoint, for the bulk of the organised traders the advantage lies at the value end and not as much at the cost end. “Here we are seeing a lot of success stories. A lot of our brands have a higher market share in modern trade/organised retail as compared to traditional trade. This is because organised retail offers us some consumer and shopper-friendly opportunities. One, introduce new products and variants specifically at an entry threshold which is a fraction of the entry threshold that was required to introduce in a traditional market. If we do not have a Rs 10 to 20 crore line-of-sight (advertisement) immediately after the launch a product, the product will not succeed. But organised retail offers us the opportunity to bring down these thresholds dramatically. This is because we can advertise and communicate in-store, super-segment or even hyper-segment the offerings, divide them into a lot of complementary slices and at an investment that is only a fraction of the investment quantum that was earlier required. This also creates a lot of value for the consumers,” he elaborates.
Travel smart
Retail might be the most obvious first stop for any discussion on organised formats, but the whole issue of travel and hotel booking/stay is becoming smoother right under our nose.
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As the average Indian has become more net-savvy and therefore a better informed customer — the largely unorganised travel service space is fast sprucing up its act. It is a far cry from the scene earlier which was controlled largely by fly-by-night operators. A big part in this whole effort has been played by the online travel/tourism companies that not only help you plan your itinerary better but help you execute the whole plan in the most cost-effective manner.
Of course, the scene is far from being perfect. For the players, becoming organised will require investment in technology and human capital, as well as automation and standardisation to support real time inventory and balance the demand-and-supply pipeline. Keyur Joshi, co-founder and chief commercial officer, MakeMyTrip, says the tax structures need to be supportive of the needs of a nascent industry that is trying to organise at a massive scale.
“When MakeMyTrip first tried to consolidate the hotels inventory and bring it online (in 2009), we faced many challenges. We had to actually invest in automating our hotel-partners so that customers visiting our website could access this inventory real-time. Small boutique properties were either apprehensive of the investments required to ramp up their technology platforms, or it was not financially viable for them,” says Joshi.
He believes that being part of an organised sector will provide a stronger representation for the sector. “Despite creating more jobs per million rupees of investment than any other sector of the economy, the travel and tourism sector has not received its due in terms of sops, special benefits or policies to fast-track growth and seize the advantages,” he points out. A World Travel & Tourism Council estimate indicates the tourism industry in India is likely to generate US$121.4 billion of economic activity by the year 2015 and become the second largest employer in the world (employing 4,037,000 people, directly or indirectly) by 2019.
With most players in this segment being small and medium enterprises, marketers say the key challenge is to bring them all under one comprehensive umbrella and create a regulatory framework that is credible, so that even the smaller players find it advantageous to be a part of it.
That’s the story in inter-city/inter-state travel. For intra-city travel, which is still largely unorganised, a whole host of operators have burst onto the scene trying to bring some method into the madness. With about a dozen players across India cashing on this lucrative market — that included players such as Mega, Meru, EasyCab, Select Cabs, Delhi Cabs, Mumbai Gold, Fast Track, Metro Cabs, Quick Cabs, and women-driven cab services like Priyadarshini Private Cabs, Go For Pink, and For-She — the business is set to boom and spread to new cities. These radio cabs are air-conditioned cars equipped with state-of-the-art GPS-based communication technology and most have well-groomed drivers. The service is supported by a 24x7 customer call centre and in most cases you can book online as well.
A pet peeve among these operators is scarcity of trained manpower — trained not just in the art of driving but in dealing with consumers, in building relationships. So most operators end up investing in training their personnel, besides building the fleet and the back-end. Sharing his experience, Siddhartha Pahwa, chief executive officer, Meru Cabs, says, “In the early days even the consumers did not understand how this service is going to be any different from the local taxi service used by them. Urging them to make a call to a customer to book a cab rather than hail a taxi on the road was a new experience.”
Pahwa says whether it is retail or fleet operation the need of the hour is grooming passionate managers. And it is an added advantage if they come from a completely different industry — they bring new consumer insights and management ideas and redefine the whole business in the process.
Test result
Another industry where trained professionals have changes the face of business relates to healthcare.
Even a couple of years back, a visit to the neighbourhood pathology shop would mean walking into an ill-kempt dimly-lit hole-in-the-wall establishment, strewn with strange looking vials. The smell wafting through the room wouldn’t be particularly pleasing, while the man at the counter would typically wear a don’t-bother-me-look. In short, one wouldn’t want to enter a pathology shop, except under dire circumstances.
Circa 2004, all of these began to change. In keeping with increased awareness about best practices on patient care, pathology shops — by now christened as medical diagnostic establishments — started looking their part. Smart, neon-lit hoardings went up in place of old and worn-out signages; glass-panes replaced rickety doors; dingy rooms metamorphosed into well-lit and well-ventilated rest areas. And, the new personnel, most important of all, are handpicked professionals trained in patient-care.
While patients certainly did not complain, there were solid economic reasons which prompted new-generation entrepreneurs and dyed-in-the-wool businessmen from the organised sector to enter the sector by mid-2000.
The medical diagnostics market was about Rs 5,000 crore about seven years back. Now, it has touched Rs 8,000 crore, growing at a steady rate of 15 per cent every year. However, what’s interesting that the organised segment continues to grow at a much faster clip of 30 per cent. Being recession proof and offering good returns, does it really take rocket-science to explain why entrepreneurs — new and old — made a beeline for this market?
As of date, the top five players within the organised sector in revenue terms are Super Religare Laboratories (SRL: FY12: Rs 500 crore), Dr Lal PathLabs (LPL: FY’12: Rs 325 crore), Metropolis (FY’12: Rs 300 crore) and Thyrocare (Rs 100 crore). A handful of others (about 20 city level players) constitute a market of Rs 275 crore. Many players are offering a combination of pathology and radiology services to patients.
This market is also faced with many hurdles. “The biggest roadblock is the absence of a level-playing field,” says Om Manchanda of Dr Lal PathLabs. “For an organied player such as Dr Lal PathLabs in an unorganised medical diagnostics market, initial corporate overheads are very high. Apart from the salaries, issues like cost of air-travel and holding banquets at quality hotels provide a strain on the finances. A local player faces no such expense heads. Therefore, it is only beyond a certain inflection point that an organised player starts making profits in newer centres.”
The absence of quality standards is another big impediment to organising the unorganised pathology markets. “The bigger, organised players align themselves to international medical quality standards, and are forced to reckon with associated costs. Then, there is the issue of unethical doctor referrals, where some unorganised players tend to pay off doctors in return of their support,” Manchanda adds.
So there you have it: across segments there is a concerted push to get markets organised. But while the benefits are obvious, players are still grappling with issues relating to the availability of capital, trained professionals and ensuring quality. And the consumer is waiting for the pieces of the puzzle to fall in place.