The retail revolution

How is the retail transformation that has begun, going to affect the over half million people in wholesale and retail trade, and consumers, and companies marketing to them?   There is considerable agitation about the retail revolution. Many hawkers, middlemen and small retailers have protested. Reliance Fresh had to close its operations in Uttar Pradesh.

The revolution began with the malls in large cities and towns, in which different retailers had outlets. Along with these came chain stores. These malls and new stores offered consumers bright, clean and usually air conditioned environments for shopping, going to the cinema in multiplexes that were usually a feature, and eating in food courts. The prices in the cinemas and the restaurants and food courts were higher than in their counterparts outside the malls, but competitive for manufactured goods. However, there were many flocking to the malls, who over time, paid the much higher prices for cinema and food in exchange for cleanliness and comfort. While the malls usually had outlets selling books, branded luggage, furnishings, garments, packaged foodstuffs like chocolates, cookies, etc, they did not sell household articles, food grains, vegetables, meat, fish, etc. The multiplexes adversely affected the custom at old fashioned cinemas but the booming real estate market enabled the old cinema houses to profitably convert to other uses. The old crowded book shops with little space for display and browsing have begun losing out to the new spacious book shop chains in the malls. This will extend to eye wear, footwear, etc, as branded goods enter the chain stores.

This happened in the United Kingdom over forty years ago when the retail revolution began. In 1961 I was working with Lever Brothers in the United Kingdom. The retail revolution caused by chain stores, supermarkets and self-service stores, that had swept the USA in earlier decades had reached the UK. Until a few years earlier, the UK retail trade was dominated by small shops run by the whole family, keeping long hours and stocking a variety of goods, with little space for display or for the customer to touch and feel the goods. The retailer enjoyed a personal relationship with his customers and would sometimes give credit to needy customers. Retail margins were high-well over 20%. There were a few chains of large departmental stores that were either stand alone or in chains spread over the country-Selfridges, F W Woolworth, Boots-the chemists, etc.  Selling companies employed many motorized salesmen who took orders that were delivered from the company depot and sometimes by the salesman from his car. The salesman knew the retailers on his route and enjoyed a close relationship with them. He would also display the products and put up colourful advertising material to attract customers. Many features still exist in Indian retail trade.

This cozy relationship between retailer and consumer and retailer and the companies, was disturbed in the UK when chains like Fine Fare, Sainsbury, Tesco and other food stores began to open shop. They had much larger floor areas and shelf space. Their overall sales of any product, per square foot of shelf space or per employee were far higher. Their size gave them bargaining power and they bought cheaper than the old small proprietary stores. The customer liked the opportunity to choose between the different brands on the shelves. Food products were fresh. Vegetables and fruits were selected and graded by the store so that they were of uniform quality, as were the fresh fish, meat and eggs. They were usually pre-packed. The housewife could complete her shopping at one location instead of many. While she might initially have missed the personal service of the corner retail shop, she soon learnt to happily choose for herself. These factors are relevant in India as well in looking at the future of the proprietary stores, as the new self-service stores enter the markets. .

The coming of these retail chains changed the structure of the retail trade in the UK. The old corner shop gave way to the new, spacious and well-stocked stores. Employment shifted from proprietary stores to these chains of supermarkets and other self-service stores. Personal relationships were replaced by the formality of an employee at the checkout counter. Computerization helped in better control over inventories and lowered operating costs. Psychological and traffic flow studies helped store managers to decide how to direct customer traffic in a store for maximum impulse purchases, and of high margin items. The companies had to restructure so that more educated employees negotiated with high level purchasing managers who purchased large volumes.  

Companies had to re-jig their price lists and promotions plans to allow special discounts and special promotions for getting more shelf space. Normally store managers would have restricted the facings on a shelf for a product to its actual sales and market shares. In reaction to this new competition, many proprietary retailers and wholesalers banded together to gain similar price benefits through bulk purchasing and devised their own promotions, displays, etc, to attract and retain customers. This did not stop the closure of many proprietary retailers and wholesalers except in remote locations or in boutique outlets.

In India where this revolution has started, it is urban not rural, in big towns and cities than in medium and smaller ones. It will be many decades before the new retailers make a serious dent into the numbers of retailers but they will get large volumes. The bigger cities and towns will witness sharp falls in numbers of proprietary retail outlets as old customers desert them for the convenience and comfort of shopping in the large chain stores and malls. The proprietary outlet can imitate in self service and in any case makes low margins and will be competitive if he joins with others to enhance bargaining power.

In India fresh fruits and vegetables suffer damage and deterioration estimated at 40 to 50% as they are transported from distant rural areas. The farmer receives only a fraction of the retail price. The middleman, who collects the produce from many farmers, makes a lot more. This is true for fish and meat as well. Absence of adequate cold store facilities to preserve them, and of refrigerated transportation, causes the huge losses.

The Reliance Fresh model seeks to make a profitable and sustainable business by cutting the losses due to lack of cold storage and transportation and eliminating the middlemen’s margins. The savings would be used to benefit the consumer with standard products of uniform quality, usually pre-packed, and possibly sold at lower prices than in the market, while paying better prices to growers. The company will give the farmer scientific agricultural advice and support to improve productivity, quality and uniformity in size, taste, etc.

The model is very logical. With the investments proposed it is workable and profitable. It does not allow for the immediate adverse effects on many poor people like the small roadside outlets selling fruits and vegetables, and hawkers going from house to house selling them in most of India. Their numbers may be additional to the census of retail outlets. They eke out a small living, buying and selling small quantities. The middlemen who collect produce from farmers, bring them to the neighbouring town for sale, will also lose their living. These people whose livelihoods are threatened, lead the agitation against the Reliance Fresh model.

The benefits from consistency, quality and standardization to consumers are obvious, even if prices are not lower. The Reliance model must be tweaked to ensure livelihoods for middlemen and petty retailers. This might raise costs and delay the full rollout, but it can neutralize opposition.

The retail revolution will certainly displace many proprietary urban retailers, middlemen, many specialist shops selling books, medicines, etc, and petty hawkers and roadside outlets. If they can be found alternative livelihoods simultaneously, the revolution will be quicker. But no revolution can be smooth and avoid some being hurt.