Profitable Growth in Retail: Indian Government Regulation
Posted on Fri, Dec 09, 2011
I planned this to be my third and last blog on the retail industry in India and it seems to be great timing, because the Indian government has just decided to reverse its decision to allow foreign direct investment into the country. In any case, I want to share some personal experiences in the Indian retail sector that may provide some added perspective to the ongoing debate about whether the Indian government should allow the big foreign retails chains into the country.
1. On one of my trips to India, I developed a toothache on the plane going over. My hotel recommended me to a dentist who said I needed antibiotics to tide me over until I got home. He wrote out a prescription and told my taxi driver to go to the nearest neighborhood pharmacy. The driver dropped me off at a street corner and pointed in the direction of the store. The store was what we might describe as a “hole in the wall,” complete with a sleeping dog at the entrance. But it had four people behind the counter and was packed to the ceiling with all kinds of items. (I glanced in the glass case below the counter and spotted a familiar item: about half a dozen boxes of Colgate Toothpaste.) I handed over the crumpled paper with the dentist’s prescription and within a minute, a packet of just the right number of pills appeared. Main points of story: There are millions of small shops in India that provide even more millions with jobs. And although the appearances of these shops are not what we are accustomed to, they certainly “deliver the goods.”
2. One another of my trips to India, I was bothered by a cough that had started in the U.S. brought on by allergies. I had forgotten to bring along the medicine that my doctor in NY had prescribed. During a coffee break, I just happened to mention to one of the seminar participants my regret in not having this particular medicine with me. The participant said that by coincidence, his son was taking the same medicine for his allergies. He then said that he would call his local pharmacy and that they’d deliver the medicine to his house and so not to worry cause the next day he’d bring it for me to use for the balance of my stay in India. Main point of this story: Indian households can call their local shops for delivery of medicine (without a prescription) as well as most other common household items and food. How convenient!
3. During my free time on a recent trip to India, I went to a local mall to check out the retail scene. Large retail chains make up only about 3 percent of the total retail sales in india. The rest are accounted for by the small “mom and pops,” commonly referred to as “kiranas.” I started to browse in one particular clothing department. Although there seemed to be many sales associates standing around throughout the store, no one came to help me. I tried looking for someone in the vicinity (it was quite a big store) and couldn’t find anyone to help. Finally I cornered a sales person who had just come out of the storage area and on her way to some other activity. Main point of the story: Without even considering the differences in price and location with the kiranas, big Indian retail chains can have poor or spotty customer service. They had better get their act together if and when the big foreign retail chains are allowed to enter the country.
If someday, the Indian government finally allows foreign competition in the retail sector, I have no doubt that their financial power, business acumen and marketing skills will shake things up both for the small and large Indian retailers. And interestingly enough, there is still a possibility that the Indian government will now allow “single brand” stores such as Nike, Ikea and the Gap to operate as majority owners in India. I find this interesting because the gross profit margins of these stores are typically higher than the “multi-brand” store and these stores can be equally disruptive to the Indian retail sector as the multi-brand ones. I discuss this in previous blogs as well as in Business Acumen: Your Key to Success