KOLKATA: In a bid to increase their presence across the retail spectrum, industry biggies are increasingly looking at tapping the unorganised segment, which accounts for nearly 96% of the sector. Retailers like Metro, Reliance, Bharti-Wal-Mart as well as the Future Group are either floating business-to-business ventures (cash & carry) or roping kiranawalas in as franchisee partners to get the first mover advantage.
The idea is to open new revenue streams in the unorganised segment and become more competitive. The move will also help the retailers build their image at a time when organised retail is being widely criticised for displacing the mom-and-pop stores, industry sources claim.
Retail analysts attribute the partnering of kiranawalas and big retailers to attractive prices being offered by these cash & carry venture for its merchandise. “Since the demand of these kirana stores is small, their bargaining power becomes limited. But if they source from cash-and-carry outlets, they manage to save an extra 3-5% on their sourcing cost,” said Mr Arvind Singhal, chairman, Technopak Advisors, a retail consultancy.
While players like the Future Group and Bharti-Wal-Mart are in the process of rolling out their cash-and-carry outlets, Reliance Retail is busy drawing up such plans as the business also tends to generate much higher turnover. “We are also exploring the franchisee model to partner with the smaller stores in segments like food & beverages, farm products, FMCG, pharmaceuticals, lifestyle, apparels and footwear,” said a top Reliance Retail official.
German major Metro Cash & Carry is currently the biggest player in this segment. The business potential can be gauged by Metro's 80,000-member strong client base in Kolkata alone where it intends to open its maiden outlet by December 2007.
These cash & carry ventures improve supply chain of the mom-and-pop stores through their modern trade infrastructure and systems. “This not only makes the small retailers competitive in the range of offering and price but also lowers their transaction costs,” Metro Cash & Carry India's deputy MD Gerardo Monzillo said.
Metro, industry sources claim, often provides its merchandise to small retailers at unbelievable discounts to ensure their loyalty. “They do some crazy promotions. For example, if a kiranawala is able to source goods from distributors by keeping a margin of 5%, a cash & carry outlet may provide higher discounts of say even 25%,” said R Subramaniam, MD at Subhiskha.
Future Group CEO (innovation & incubation), Damodar Mall, said: “The categories that we plan to keep will be significantly localised and the pricing will be such that even the mofussil retailers will find it profitable to buy from us.”
“While yielding lower margins as a percentage of sale, B2B is an interesting business because of significantly higher volume throughput it can generate. Hence, it makes an interesting business for the group to be in,” he said. Incidentally, the group's first B2B venture christened 'KB's Wholesale Market' is coming up in West Bengal.
On the benefits of entering into franchisee arrangements with small kiranawalas, a senior industry official said, “The move will help the retail bigwigs to expand their brand footprint besides improving the earning potential of the smaller stores.” The quest for partnership with smaller stores doesn't end here. Metro has plans to launch training academies for the kiranawalas replicating their model in Turkey. These academies will train kirana owners on the latest practices in accounting, merchandising and store operations.