The Rush for Retail

If you are one of those who follow business news closely, you would have realized by now that the most happening thing in India at the moment is Retail. Almost everyone, quite literally, has evinced interest in the booming Indian retailing industry and feel that organised retail is the way forward for future.

To mention a few: Reliance group has extensive plans to enter the Retail industry in a big way. The Tatas are also underway. Existing players like Pantaloon (with their Big Bazaar brand) etc are firming up for the stiff competition by having their own expansion plans. But the one that takes the cake is the alliance of Sunil Mittal's Bharti with the global retail giant Wal-Mart. This move is said to be a masterstroke from Sunil Mittal.

But, why is everyone so interested in Indian retail? The answer seems pretty simple. Indian retail market is worth a mammoth 350 billion dollars. But only a paltry 20% of this is organised retail. The rest of the market is still with the small and medium roadside vendors. Herein lies the opportunity for growth. If anyone can capture even 5% of this market share, he will be having a 14-15 billion dollar Mcap. It is this money that is luring the whos-who of world retail to India.

However exciting these big numbers may seem, organised retail has its own set of problems. Firstly, crores of Indian families have small roadside shops and that is their bread and butter. Now with the big players planning to have so much coverage, these small players will be virtually wiped out from the scene. For the time being, this may be the case for only the vendors in big metros. But with the kind of money that is set to flow in, organised retail will soon enter small towns as well. What will happen to these vendors? People who had lived respectably till now by doing fairly good business, may be forced to do menial jobs for a living. Can the government do something to help these small shopkeepers? We need to wait and watch; However, at the moment, the future seems bleak.

There exists another not so obvious, but an equally dangerous problem. The retail segment is the last part in the customer supply chain. By this, I mean, it is the retail sector which is in direct contact with the customer. Therefore, anybody who is a major player in the retail industry will have the potential to control the country's economy. Now, the critical question arises-- Should we allow a foreign player to control our country's Last Mile, as it is referred to? This is a sensitive issue which needs to be addressed with due diligence.

Hence, organised retail, seemingly attractive at the first glance has more than its share of problems. We would be better off in solving them before the retail boom kicks in.

Auto-Motive

Recently, MUL launched the small car, Zen Estilo in the B Segment market. This launch prompted me to reflect on the dynamics of the Indian automobile scene, and try to analyse the auto makers' attitude towards the Indian market.

Circa early 1990's. Indian car-buyers hardly had any choice. There were at most a handful of cars to choose from. Most of the segments had only one car. For example, Maruti 800 was the only entry-level car. A premium car almost always meant a Contessa. And the babus almost certainly flaunted an Amby.

All that changed in the late 90's when the Koreans invaded the small car segment - Hyundai with its Santro, and Daewoo with its Matiz. And since then, as they say, things have never been the same again. The launch of these cars heralded the automobile revolution in India. By the turn of the century, the market was flooded with a slew of models. The Indians had all but been crowned king consumer. Global auto companies also started seeing India in a different light. But how committed are these companies towards providing the latest and best to their Indian customers?

I'd like to start off with Toyota as an example. When Toyota, in partnership with Kirloskar, launched the Qualis, it created a flutter in the market. Finally, there was an alternative to the Tata Sumos and the Tempo Trax. But what did Qualis really have to offer other than the Toyota brand and quality guarantee? Not much, actually. Qualis is based on the Toyota Venture which was sold in South Africa in early 90's. So that means Toyota was stuffing decades old technology down our throats. In spite of this, Qualis went on to become a huge hit. It ruled as a people-carrier for nearly 5 years. It was particularly popular with the commercial and transport (read "cabbie") segment. Why? Simple - The Qualis offered an unmatched combination of comfort, power and value for money. But with launch of newer models and variants among competitors (Tata Safari DiCOR, Mahindra Scorpio etc), which also offered unmatched style, Toyota realized that the Qualis' days were numbered and went on to replace it with the Innova. That doesnt take away anything from the Qualis though.

Now, lets come to the biggest name in the Indian automobile story - Maruti Udyog. They just launched an all-new model last week and decided to give it the "Zen" badge. The new Maruti Zen Estilo has absolutely nothing in common with its predecessor, save its name. But there's more to this tale. This car is actually the previous generation Suzuki MR Wagon (not to be confused with WagonR) in Japan. Now, a new generation of MR Wagon has been launched in Japan and this old generation (5 yr old) is dead and buried. So Maruti-Suzuki decided to launch it here in India. The advantage - it allows them to keep the costs down. And the costs are down too! Just Rs. 4 Lakhs ex-showroom for a top-of-the-line stylish-looking tall-boy hatch back, 1.1L engine, 5 seater, with EPS, power windows, A/C, ABS and airbags (of course that is the introductory price). I'd call that cheap! I think that if the price (after revision) is right, and the fuel efficiency is decent, this car will be a success. So there you are - a car which is dead and buried elsewhere in the world, has every chance of being accepted here with open arms. Why? Simple - the Maruti Zen Estilo offers the right combination of style, comfort, safety and the all-important VFM.

I read an interesting statistic somewhere - that the Maurti 800, Alto, Zen and WagonR are all actually 4 generations of the same car in some markets!!!And to think that they cater to 4 different "segments" in India. Carrying forward this trend are Skoda. What sells as the Skoda Laura in India is actually the next-generation Octavia in other markets; but both these models sell side-by-side in India. Similarly we have Hyundai, whose Verna is replacing the Accent in some markets (I cant figure out why - the Verna is a totally new car, built from scratch) but in India Verna is positioned above the Accent. What I'm trying to point out here is that some manufacturers are hesitant to phase out old models early on from the Indian market, primarily because the old models also sell well; plus they are cheaper to produce.

Of course, not all manufacturers belong to this category though. Mercedes, for example, launches new models or new generations simultaneously with their global launch (Whew! what a relief, considering the fact that Mercedes sells half the cars in India, right?? :-/). Honda too, is committed to launching newer models within a reasonable time gap after the global launch. Here, we see Hyundai doing a double-face. Because as far as its higher end models (like Sonata) are concerned, Hyundai has introduced the newest model within a few months of its inception.

The third category has companies like Tata, which develop cars primarily targeted at the Indian market! I feel this is really commendable. Developing a car from scratch for the Indian market and yet keeping costs down and offering VFM (best example being Tata Indigo Diesel). Kudos to Tata.

All in all, I feel that as long as a car offers value for money, we Indians are going to buy it. It would not make a difference in the high-margin segments (like the Mercs or Honda Accords); so such manufacturers can afford to pump in latest models as and when they are released worldwide. But, in the volumes segment, companies find this practice of bringing to life, models which are dead elsewhere, as an innovative way to keep costs down. In conclusion, I would say that this new-found practice has the potential to further spruce up the Indian car market and become a strong participant in the second automobile revolution in the country. Provided the compromises made are upto a reasonable extent. Provided the technology is reasonably new (or reasonably old, depending on how you look at it). Provided the buzzword is adhered to: Value For Money. More competition and lower prices only means the customer is served better. Cheers to the "King Consumer".