The Hindu Business Line

Rival formats squeeze the supermarket

By August 12, 2020October 11th, 2020No Comments

The hypermarket onslaught has hurt it more than the kirana outlet

The place I live in, in Bangalore, is a mélange of different socio-economic groups. A small patch that would have been a village with some remnants of rural life — hand pumps, water storage tanks — nestled amidst modern high-rises, malls and hypermarkets. This is true of any metro in India, where the gaon and the gullies co-exist with the ‘layouts’ and ‘extensions’.

And when it comes to the monthly and weekly shopping chore, we are spoilt for choice because, invariably, there are at least three hypermarket brands within a radius of 300 yards, not to mention mom-and-pop stores along the way.

All the hypermarkets seem to be bursting at their seams on weekend afternoons, holidays and discount windows. Where have they drawn their customers from? Is it natural growth and urbanisation, an extended catchment area or simply by snatching someone else’s customers? And surprisingly, in a retail landscape that till five years ago was dotted with kirana stores, knickknacks, ubiquitous bakeries, self-service Udupi joints and a few supermarkets, the ones that have been most affected by the hypermarket onslaught are not the kirana stores but the supermarkets — the earliest avatar of organised retail in the country.

Advantage, kirana stores

The 3,000-6,000-sq ft supermarket format brought in by brands such as Foodworld expanded further because of home-grown labels such as Nilgiris, Spencer’s and Subiksha. Those like More and Reliance Fresh were later entrants. Many of the kirana stores with good frontage and bigger space tried copying this format. The supermarket format, which once used to be on high streets and arterial roads, slowly started moving to less expensive real estate on the insides of residential catchments, with more prime real estate gravitating towards hypermarkets, stand-alone clothing, fashion and luxury brands. RIL launched ‘Reliance Fresh’ in 2007 and expanded to over 500 outlets. However, it recently announced downsizing by 100 outlets. The accent has shifted to growing its cash-and-carry format. Aditya Birla group’s More, which had a head start with the acquisition of Trinethra, also had to shut down a number of outlets. Subhiksha, which expanded at break-neck speed, went bust under massive debt in 2009.

While the kirana stores, with natural advantages of low overheads, customised service and home delivery, have retained their core customer base, they have also added supplementary purchases of even a hypermarket shopper (those who don’t feel like sweating it out at a hypermarket to buy just four urgently required items). On the other hand, the supermarket format, which once stood for superior shopping experience, seems to be getting hemmed in by all the other existing formats. These range from online grocery options that stand for convenience, hypermarkets that bring together a much higher width of merchandise, cash-and-carry formats that give value and the kirana stores that offer fast home delivery, personal rapport and facility of purchasing in small quantities. Additionally, without higher-margin categories such as apparel and lifestyle, the profitability of the supermarket is getting further compressed.

Customer stickiness

The ones who have managed to hold and grow the supermarket format are not the large organised chains, but the smaller local chains — the likes of ‘Ratnadeep’, ‘MK Retail’ who have somehow managed to have a ‘sticky’ customer base as well as tightly controlled costs. The ‘stickiness’ of customer base comes from a deep understanding of customer preferences across categories. They have not overstretched themselves geographically or financially (unlike a Subiksha that expanded quickly to over 1,500 outlets, finally running out of breath financially as well as operationally). It is critical to understand the catchment area of 3,000-4,000 houses, which may get deficient when the scale of operation is large. There is also the issue of managing critical elements of the proposition carefully, i.e., product mix/range of merchandise, pricing, check-out, staff attitude, etc.

While kiranas certainly need to evolve and stay relevant, the war within the organised space seems equally relevant. But the question is, do supermarket formats need to take a leaf from smaller retail chains like MK in order to survive and thrive?

Syed Haque is Director at VMetrologix, a subsidiary of Vertebrand Management Consulting

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