My Entrepreneurial Journey
Childhood memories often hover around a kirana store which you had frequently visited to purchase your favourite brand of chocolates or biscuits. Just outside our house we too had a grocery store owned and run by Kamal bhai – Paavan Kirana store. I loved the store and was a loyal customer. As a neighbour I got many privileges – one of them was an entry inside his stingy store. This liberty that I was allowed beyond the boundary set for other customers, must have proved him expensive as most of the time I would pick up a handful of chocolates from the jars kept on the shelves and would rarely acknowledge a correct number pocketed. I am sure this must have accounted for losses which need to be compensated whenever we meet next. After entering into this industry now I realize what a commendable job Kamal bhaidid. In absence of technology and infrastructure he managed to run his store successfully for many a decades.
Things have changed a lot from Kamal bhai’s time. Retail has become modernized today. As per the industry sources the Indian retail industry is one of the fastest growing in the world. It accounts for over 20% of the country’s GDP and around 8% of the employment[i]. It is expected to be a US$ 1.3 trillion by 2020[ii]. Out of this, organized retail is expected to grow at a rate of 25% per annum. The current market size of Indian retail industry is around US$ 520 billion (Source: IBEF). However it is important to know that in India organized retail trade only accounts for 8% of the total retail trade[iii]. Though figures seem to be discouraging, the silver lining is that India is a market where scope for further penetration of organized retail is much higher than other developed countries where organized retail is approximate 80% of the total retail trade.
The key demand drivers for the organized retail in India are changing demographic profile and increase in disposable incomes, urbanization and changing consumer tastes or consumerism.
Trends, to be noted
In 2011 the Indian Government announced reforms in retail sector and with this a road for FDI in retail opened up. Later in December 2012 FDI on Multi-brand was finally announced by the Government, making the sector really exciting and upbeat[iv]. This reformed retail sector started seeing changes in its approach to business and new trends were observed. I would list down the following trends which I feel are important for the retailer to focus on.
· Localized product mix and store formats: In a country with immense diversity and consumer needs changing at every few kilometres, it makes sense to have a customized product mix specific to the location and even the store formats can be made flexible as per the need.
· Usage of Data Analytics & Technology: With the usage of smart & high-end billing software it has become easier for a retailer to track the buying pattern of a specific consumer and create a customized profile for him. The growing impact of consumerism has encouraged the usage of technology even at small stores. Data Analytics help in maintaining right inventory mix at the store and the retailer can earn more profit per square foot by replacing the merchandize with lesser margins.
· Social Media & Customer’s Interactions: As per the research conducted by PEW research centre in January 2014, 74% of internet users spend time on social networking sites[v]. This has evolved as an important promotional tool to reach the online audience. Thus the retailers have started creating the page of their stores on networking sites like Facebook to promote and advertise. It provides an ideal platform to create one more avenue of interaction with the prospective patron.
· E-Commerce: Internet penetration has given birth to e-commerce in retail. There are 354 million internet users in India. According to the report published by the Internet And Mobile Association of India (IAMAI), internet users in India have grown by 17% adding 52 million new users this year[vi]. This has given birth to the online retail industry and since a last few years we have seen many home-grown e-tailers setting up their online shops like Myntra, Snapdeal, Jabong, Flipkart etc.
· Mobile Commerce or M-Commerce: The interesting trend of internet penetration is that out of 354 million internet users almost 60% access the internet through their mobiles[vii]. This has compelled the e-commerce sites to launch their own apps for android and ios platforms accessible through smart phones. A trend has been seen that consumers have started shifting from e-commerce to m-commerce because of easier accessibility and much easier user interface.
Today shopping is more an experience than just a mere purchase of a product one needs. The objective of any retailer is to lure maximum customers to his shop and manage more footfalls in this highly competitive retail scenario. The retail stores can be divided broadly in the following 8 categories:
· Company owned or a franchised stores – Mostly Single brand or different brands from the same manufacturer
· Speciality stores – For eg. Furniture stores etc. – Mostly Multi-brand from different manufacturers
· Departmental Stores or Lifestyle stores – Multi-brand from different manufacturers
· Super Markets – Catering to daily needs – Food & Grocery, Cosmetics etc.
· Discount Stores or Dollar Shop – Every product sold at discounted prices - For eg Rs.49 or 99 store
· Hyper Market – Large supermarket catering to daily needs like food, grocery, cosmetics etc.
· Convenience Stores – Small format stores catering to daily needs specific to the locality
· Shopping Malls – An enclosure having different formats of retail stores under one roof. [viii]
Every sector has its own baggage of challenges and retail is no exception. Ideally it makes sense for a retailer to be aware of the challenges before he decides to plunge into the sector. Based on my experience I would list down the following challenges which the retail sector is facing today:
· Global Economic Slowdown: Economic slowdown affects the flow of money in the market and thus the industry as a whole gets affected. Shopping of lifestyle products is curtailed by the customers and even the idea of eating out frequently is curbed resulting into lesser footfalls at the lifestyle stores or restaurants.
· Unorganized Sector: An Indian consumer is as emotional as he is rational. A retailer needs to ensure that he creates more and more patrons for his store and not just a plain customer. Mom & Pop stores have survived the organized retail onslaught on the Indian market mainly because they bring in the human element largely missing from the organized retail in India.
· High Real-Estate Costs or Exorbitant lease and rentals: In case of Urban India this is a major issue being faced by retailers today. High real estate costs or rentals are making the survival of large format stores and hyper markets difficult. In Ahmedabad itself we have seen the closing down of many malls, hyper markets and even a chain of super market, largely for this reason.
· Man-power crisis: Like any other industry retail is also facing a dearth of qualified staff to manage its huge retail space.
· Margin Pressure: Squeezed up profit margins, largely in food-grocery retail segment, make it difficult for a retailer to survive as the service expectations of the customer remains high but a lesser margin at his disposal makes it difficult for him to match the expectations. Because of wafer-thin margins in food-grocery retail, the gestation period for a retailer to earn or to reach the break-even in business also gets prolonged. This results in the retailer losing patience and finally into the closure of the store.
Retail Entrepreneur’s Journey
Being a person of advertising and media throughout my professional career I was fortunate to work on different brands and was fascinated by the stories around the brand development. I remember once accompanying my employer to a famous communications B-School and was so impressed by his presentation that I started fostering a dream of emulating him. When finally I decided to bid adieu to my professional career and look for viable options of entrepreneurship I reminded myself that I am not going to launch a business but I am going to launch a brand. Thus my fascination with brands continued in my entrepreneurial journey as well. Here, I am narrating my thoughts on what goes into brand development and what steps are needed to manage and sustain the brands created by first generation retail entrepreneur intertwined with my own story.
· Creating a retail brand: With a boom in real estate market, Juhapura promised development but it remained devoid of a proper organized retail outlet which can provide convenience of purchase to the residents. It was in this gap that we found a huge opportunity to start an organized food-grocery store in the area in early 2004.
With the vision of bringing convenience to the locality, we started Hearty Mart in February 2004. It was positioned as ‘Sabse Khass Ghar ke Paas’; as it was a neighbourhood store which was equipped to cater to the basic needs of the area. Thus it was destined to bridge the gap between demand of daily needs and the options of supplies available.
Creating a brand is a tough call. As the great David Ogilvy has said:
“Any damn fool can put on a deal, but it takes genius, faith and perseverance to create a brand.”- David Ogilvy
My learning says that there are four basic steps which a retail entrepreneur should follow to create his own brand. The steps are as follows:
Step 1: The retail entrepreneur needs to create his own credibility by way of employing fair practices among his stake holders - investors, partners, employees.
Step 2: With efficient services and ensuring good quality products to his customers he can create a credible image of his own store; for this he can employ loyalty programs and promotional activities. A personal touch is required. He should interact with his customers regularly and try to create patrons and not mere customers. Shop patronage helps in fighting competition.
Step 3: Once he is successful in retaining his customers and has created a strong loyalty for his store/firm, he can start creating his own in-house private label.
Step 4: By consistently maintaining the service levels, storing and producing good quality products, engaging with the customers by way of innovative communications and employing on ground activities at his store, he can create a sustainable brand image for his private label and a store as well.
Thus Branding for the first generation entrepreneur is not merely creating an image of his store. This comes at a much later stage. Branding starts with creating his own personal image as a reliable retail entrepreneur since it would have a cascading effect on the other aspects of his business.
· Leveraging a retail brand: There is no fun if you create a brand but do not leverage it. We have seen that many corporate retailers enhance their brand salience by way of creating a network of stores. For a retail entrepreneur it is not so simple, given that he does not have a deep pocket similar to his corporate counterpart. A well thought of decision, weighing all pros & cons should be taken as any wrong step might kill the efforts gone in the brand creation.
Ideally, the first step is to identify those challenges which might hinder his growth process. As discussed in the earlier section, among many challenges the two big challenges a retailer (mainly food-grocery) faces are:
o Squeezed Up margins
o Higher Real Estate costs
In order to have better margins a retailer can replace the inventory with the products of higher margins and try to earn a decent profit. This is just a short-term strategy and might not be helpful beyond a certain point. The other strategy would be to bring in more footfalls at his store and thus earn better margins on turnover. This again has its own limitation as every locality has a limited scope. Hence the long-term strategy for growth is to open multiple stores.
When we faced the similar situation we decided to start a new store in Vadodara. We were discouraged by the real estate costs and we had to shelve the idea of opening a branch of our store there. But without implementing multiple store strategy we knew that survival of our business was bleak. It was during this time that a professor friend gave us an idea to look into rural market and start a franchise. The idea looked really appealing and we seriously thought of pursuing it.
National Council of Applied Economic Research (NCAER) reports, rural India is home to 720 million consumers across 627,000 villages
The rural market is a promising market as it comprises nearly 720 million people living in almost 627,000 villages, covering 128 million households (Source: National Council of Applied Economic Research (NCAER))[ix]. In other words rural population is thrice of its urban counterpart in India. Rural India accounts for 2/5th of the total consumption in India[x]. Thus, the industry players have started looking towards rural market and are devising strategies especially for the rural consumer.
The e-Choupal project, launched in June 2000 became the largest Internet-based corporate intervention in rural India. E-Choupal’s network reaches out to more than three million farmers in over 35,000 villages through 5,050 e-Choupal kiosks that ITC has set up across six states covering 3.5 million e-farmers. (south and west, Punjab). (Source: The Marketing Whitebook 2007-2008, pp. no. 111)
Professor C.K.Prahlad has defined the rural market in a most appropriate manner. He has said:
"If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up." – Late Prof. C.K.Prahlad in (The Fortune at the Bottom of the Pyramid)
However entering into a rural market is not as easy as an urban market. It is more personalized and it is the word-of-mouth that works here. We entered the rural market by way of tapping our social network of an enterprising community, mainly into Punjabi restaurant business in urban Gujarat but having a rural base. Let me add here that the people of this community helped me in setting up Hearty Mart at Juhapura in 2004. They provided the domain expertise of the knowledge of food-grocery to my business since farming is their main occupation at rural level. They are better known as ‘Cheliya Muslims’ and hail from the villages of North Gujarat. With the idea of starting our franchisee model we approached two aspiring entrepreneurs of this community at Ilol village, near Himmatnagar and eventually in 2007 our first franchise was launched.
This gave boost to our brand – Hearty Mart, as with this our innovative franchise model was launched. This franchise model helped us in fighting the above mentioned challenges.
o The franchisee owner was a farmer himself and had enough space at his disposal. Thus the real estate cost was no more a deterrent here.
o Secondly, since he was the native of the village where the franchisee started, he got acceptance from the local people and he could create patrons easily and a steady footfall was ensured.
o Selling the merchandise on credit is a practice more prevalent in rural market and this poses a big challenge to the retailer. In case of Hearty Mart model this was curbed to an extent as the franchisee owner being a native of the village knew customers personally and he took the risk of credit on himself.
Rather than opening our own branch the franchisee model worked much better as it brought a feeling of empowerment to the villagers and they were happy to see a person from amongst them owning a modern organized retail store.
· Sustaining a retail brand: This is the third and most important aspect of brand creation. Our franchise model was launched in Ilol but it needed a backhand support. Since Ilol was the first franchisee in 2007, ours was a network of just two stores then. This did not help much and the pressure on us started mounting as our franchisee at Ilol was heavily dependent on us for helping them in procuring merchandise at an economical cost and we were also concerned about justifying our franchise fee.
If a strategy of brand sustenance is not worked out, brands might die soon. We knew this fact and started thinking upon ideas on brand sustenance. A community’s rural base had been targeted by us for a franchise model. As already mentioned this ‘Cheliya’ community is into restaurant business and quite well known for its Punjabi joints in major cities and urban Gujarat. We devised a backward integration strategy of creating a separate business which would be into bulk supplies of food-grocery, spices to the restaurants. This would be a part of a value chain. It would purchase in bulk for the restaurants owned by them, this bulk purchase would give us benefits of economies of scale which would passed on to the franchisee and thus help them procure food-grocery economically.
Value-Chain of Hearty Mart
This strategy helped us in developing a new company with different sets of entrepreneurs – Hearty Mart Enterprise Pvt Ltd. This business gradually picked up well and it has become a backhand support to our franchisee. We are creating our private brands in this company which are being sold through our network of stores. With Hearty Mart Super Market and Hearty Mart Enterprise Pvt Ltd in place, we launched an in-house ‘Franchise Development Cell’comprising of leading managers from both the firms. It works as a consultant to all the franchisees and help them with ideas and strategy of growth. Now with a proper support system in place our franchisee network has started soaring in the rural market.
During one of the visits to our franchisee in a village, a common friend told me that Kamal bhai was not keeping well. I paid a visit to him at his native village along with my team. During the course of conversation on a lighter note I mentioned the debt I owed to him by having pocketed the many chocolates from his store. He smiled and said the only way to pay back would be to make Paavan Kirana Store – a Hearty Mart franchise.
(Nadeem Jafri, Founder & Chief Mentor, Hearty Mart, www.heartymart.com)