BIG RETAIL'S BIG BLUNDERS

Reliance Retail chief Mukesh Ambani and others who've bet big on organised retail taking off must be cursing themselves for getting the equation wrong. First, they hugely underestimated the problems in getting large enough tracts of land close to residential areas to set up their shops as a result, they've achieved just a fraction of their targets (while Bharti Wal-Mart is already talking of opening its stores with a year's delay, Reliance has achieved just 20-25 per cent of its target of setting up nearly 1,000 stores by March 2007).

Second, this was before the really big opposition even kicked in, in the form of UP Chief Minister Mayawati and the protests in West Bengal and so on.   Wednesday will see the biggest ever rally (between 50,000 and 100,000 persons are expected to attend) against big retail in Mumbai's Azad Maidan, and will bring together all the disaffected, the small kirana shops, the middlemen, and the unsuspecting. The country's farmers fall in the last category since they don't really get affected. If, on the other hand, big retailers do manage to eliminate the middlemen and procure directly from them, their incomes should go up substantially. But the middlemen who could get hurt are putting up the farmers and, it would appear, Reliance and others did not estimate the strength of this opposition, just as they've underestimated the power of those who don't wish to give up their land for SEZs.

That all this should happen when the economy's growing at the fastest pace ever and is creating more jobs than ever before (between 1999-00 and 2004-05, jobs grew at 2.93 per cent per annum, or three times the rate they did between 1993-94 and 1999-00) makes it even worse. After all, it is when jobs are growing fast that those getting displaced by big retailers should complain the least.

So what were Big Retail's big blunders?

Great expectations Trap: The way the story went, customers would get dramatically lower prices for everyday groceries (something that takes up 45 per cent of the household budget) and farmers would earn at least a third or more as big retailers began procuring from them directly. But none of this has really happened, and may not either.

The country's First Retailer, Kishore Biyani, for instance, says he plans to set up 1,500 no-frills 2,000-square-foot fair price shops (KB's Fair Price Shops) in city neighbourhoods over the next two years, which will give customers 10 per cent off MRP on national brands and 20 per cent off on local brands. The model is adapted from Subhiksha, which has 800-900 such stores. While firms like Reliance are not talking of the discounts they are offering, most are changing their models to set up more small neighbourhood stores as opposed to the earlier big-box formats, which would have been located too far away from most customers to offer anything more than limited value. The Shivam/Garg stores in my neighbourhood offer 8-10 per cent discounts off MRP on national brands anyway so, what's the big deal? And if a Reliance/Bharti/Biyani is going to do just the same, what's the point of having them, especially given that small kiranas provide employment to around 40 million people, many of whom could lose their jobs once big retailers come in.

Wrong private label strategy: This is related to the expectations trap. As part of the strategy to reduce consumer prices, and I suspect equally largely, as part of the strategy to get the stock markets/investors charged up, most big retailers talked of an aggressive private label strategy. Big retailers, the story went, would no longer just buy consumables/durables from a Hindustan Unilever or a Voltas, but would get them custom-manufactured and thereby cut consumer prices by 20-25 per cent. The greater the private label share, the more excited investors got. But the problem with this strategy is that it's only after you've got enough stores and sales that making your own products, and of a certain quality, can work. So, when customers walk in to a big retail store today, they still find most goods are those manufactured by well-known firms (the discounts on which are low) and the quality of store labels is far from uniform.

Opening too many fronts: Despite what the Icrier study says on how kiranas will not lose out to big retailers, it was always obvious that if big retail made big enough inroads, kiranas would oppose them. So you had expect big retailers to try not to open up more fronts, and concentrate on taking care of this one perhaps by building up customer loyalty through offering bigger discounts, maybe even importing cheaper substitutes from places like China, using a well-oiled supply chain and superior logistics (to use the Subhiksha ad-line, Morcha against Kharcha).

Yet, what do big retailers like Reliance go and do? They open up another front by talking of procuring directly from farmers. Sure, fruit and vegetables are a lucrative segment, considering they add up to around a tenth of the family consumption basket, but this was asking for trouble since it allowed the opposition (the middlemen in the mandis) to conjure up the possibility of retailers taking over farmers land. In any case, setting up a cold chain and getting farmers to supply produce of a uniform quality takes years, so a low-key approach with model farms, like Bharti has done, was always a better idea. A very small part of the turnover of Biyani's Big Bazaar, by the way, comes from fruit and vegetables.

Retailers like Reliance have already changed their model dramatically once before. It remains to be seen what they do now.

Other logical forward integration projects for DLF could be IT Services, Cement and textile Mills, Steel, Acquaculture - after all everything needs land. Bull markets love these kind of diworsification but it is only when the lights are put on that we can identify who is wearing what?

Originally posted by basant Other logical forward integration projects for DLF could be IT Services, Cement and textile Mills, Steel, Acquaculture - after all everything needs land. Bull markets love these kind of diworsification but it is only when the lights are put on that we can identify who is wearing what?

So true sirji, and apart from others I would be really looking out what Tango and Charlie of kokilaben would be wearing The way they are 'diworsifying' I think all they will have is just the the fabric from Daddy Rambo's textile business (if Mukesh ko apne chote bhai ki laaj rakhni hai to woh shayad kapda share karega)...