Profitable Growth in India's Retail Industry
Posted on Fri, Nov 25, 2011
I was in Bangalore, India last week doing a corporate education program for a global IT company with a very strong presence in India as well as throughout the world. This was my third trip to India and I learn a lot each time I’m there. I’m sure that all of you readers are familiar with the story of how Thomas Friedman was inspired to write his best-selling book, “The World is Flat,” after visiting Bangalore, India back in 2005. The book talks about how the Internet, broadband communications and advances in computer hardware and software have leveled or "flattened" the global economic playing field for India and other emerging and growth market countries.
But one aspect of the Indian economy that remains mired in the last century, both in statistics and in actual observation is its retail industry. India is often called a “nation of shopkeepers. Approximately 97% of the value of retail trade is done through what we would call small “mom and pop” stores, commonly called "kiranas" in India. Just to give you an idea of how many and how small these shops are: there are about 11 shops for every 1000 people in the country ….45 for every 1000 in the capital city of Delhi. (Here in the U.S., the land of consumerism, the number is about 4 out of every 1000. ) Moreover, almost all of the retail stores in India occupy an area less than 500 square feet!
All the stories you’ve ever heard or photos, videos, and movies (e.g. “Eat, Pray, Love”) that you’ve ever seen about traffic in India are absolutely true, but 10 times more dramatic when you’re actually in a taxi as the driver skillfully maneuvers through the dusty, bumpy, crowded streets of any of its major cities. But the slow pace at which the car is usually moving enables you to observe the myriad of small shops that line the roads. What do these stores sell? Who shops in these little stores? Do they make any money? Based on my limited experience in India and my interaction with Indians that I have meet while there, the answers are: “every possible consumer product,” “the people in the neighborhood, “and “apparently they make enough to survive.” For small, family-owned businesses, "making a living" is often more important than profitable growth.
Now, as announced in yesterday’s business press, the Indian government has finally agreed to allow foreign companies to own and operate retail stores in the country. And, of course, you know what this means…. Wal-mart (and Ikea and Carrefour et. al.) is coming to town! Wal-mart is already a partner with Bharti in India in a wholesale joint venture. (Bharti is a business powerhouse in India and among other thing is the owner of the country’s #1 mobile service operator: Airtel.) By coincidence, in last week’s class, I taught a case called” Wal-mart and Bharti: Transforming Retail in India class about this particular Indian joint venture. At the conclusion of the case, we were speculating about what Walmart’s chances would be if they in fact were allowed to enter the retail market directly. We’ll soon find out.
In my next blog, I will say more about what I think Wal-mart has to do to succeed in India. As big as they are in the United States, its record of overseas’ success is not consistent. But if successful, India could be a key factor in Wal-mart's profitable growth strategy. The factors that I’ll consider are all spelled out in our courses: Business Acumen: Your Key to Success and Marketing Mastery: Your Key to Success. More on all of this next week.