Firstly, foreign retailers should be judicious in selecting the markets that they want to build their base in and operate out of. India is a huge country with large disparities in prosperity, governance standards and industry-friendliness. Easier land acquisition and better infrastructure would be more likely in the western and southern states.
Additionally, states like Tamil Nadu and Karnataka have a longer history of organized retail (courtesy supermarket chains like the Nilgiris), Punjab has the highest incidence of large agricultural holdings and mechanized farming while Gujarat has a government and community much more amenable to industry. These are some of the markets that retailers should try to tap first. In fact, one has a lot to learn from the experiences of Easyday, a Bharti-Walmart JV, that initiated operations from Ludhiana, Punjab in 2008 and spent the next few years strengthening their back-end sourcing network by forging close ties with the local farming community. Consequently, Wal-Mart’s initial India experiment did not witness the kind of backlash that it seems to encounter in every new country that it enters. Today, they have expanded operations into other states, sell a wider variety of products through increasingly larger stores.
Secondly, retailers need to innovate with their store formats and make them more accessible to the average Indian consumer. A colleague working for a retail chain in the UK had once summed up the Indian situation thus – “In the West, the grocery shopper might be willing to drive up to an hour to reach her preferred retail store. In India, the only time that a shopper will do that is when she gets stuck in traffic!”
If we look at Spencer’s, Spar, Star Bazaar and other retail chains, they have solved this conundrum to an extent by operating smaller-sized stores usually located in popular shopping malls already frequented by customers. In fact, the convenience store format might be the best way to break into the Indian market. Of course, a convenience store in India will have to be bigger and need an entirely different product assortment than the traditional convenience store in the West. So, given the need to strike a balance between the availability of a market with disposable income and vendors to easily source products from, cities in Gujarat, Punjab, Maharashtra, Tamil Nadu and Karnataka become natural choices.
Thirdly, foreign retailers are bound to find India a much more price sensitive market. To win share, they will have to offer better prices and better bargains than the local kirana and also counter popular perception that retailers tend to pass on the real estate costs of their swanky outlets to the unsuspecting consumer. While bulk procurement and efficient operations will keep prices low, retailers should also use some of the techniques that they perfected in a recessionary West.
Price perception is driven by the prices of products that consumers purchase the most often. So, competitive pricing on essential items like dairy, vegetables and poultry can counter perceptions of being ‘pricy’. Also, identifying and focusing on product lines that are more ‘fast-moving’ can reduce inventory costs. Added to these, promotional campaigns like low-price guarantees (e.g. Sainsbury’s Brand Match campaign in the UK) can be effective in tackling the big-business-rogue-business sentiment. But all this requires intelligent use of data to understand and act on consumer needs. All retailers have POS data and some like Star Bazaar also have access to consumer data (through their loyalty card programme based on the Tesco Clubcard model) which will be invaluable while making these decisions.
Lastly, retailers need to choose between two operating models – either strong centralization like Tesco in the UK or greater localization like Kroger in the US. Given the earlier discussion around the lack of homogeneity in the Indian market and the strong regional tastes of the Indian consumer, I feel that a localized model will be better suited. This implies that store managers will have a greater say in deciding what products & brands to stock in their stores, what kind of marketing campaigns to run and how to communicate with the customer at the store level.