The Retailers’ Association of India (RAI) organized its annual Retail Leadership Summit in Mumbai last week. Presented below are some takeaways in key areas of discussion and oration by a wide spectrum of industry players. Pankaj Joshi reports.
The big point of debate was the online retail model changing the face of the industry irreversibly. While the basic relevance of online is accepted, Rakesh Jhunjhunwala emphasized that the idea of success is to anticipate, prepare for and accept change without being in any way overwhelmed by it. Even when new technologies emerge, often it takes a good deal of time for them to become disruptive. Scale of disruption need not be exaggerated, the ready example being that the online retail segment was still to show a profitable, sustainable economic model and then build volume growth on that. Future group’s Kishore Biyani gave some numbers for perspective.
(From left) Kishore Biyani, Group CEO, Future Group; B.S. Nagesh, Chairman-RAI; Founder – TRRAIN; Rakesh Jhunjhunwala, Ace Equity Investor; Ramanathan Hariharan, Group Director & Board Member, Landmark Group; Sachin Bansal, Co-Founder & Executive Chairman, Flipkart and Mohit Pande, Country Head – South East Asia and India, Google for Work |
Big Bazaar had a cost of business of 14-18% against the local grocer who had 4-8% and the online retailers (with their discounts) operate at 48-53% cost of business. He was of the view that online retailing was doing a good job of segmenting the existing demand, aggregating existing markets and creating new markets but would not sustain and closures would happen soon wherein the offline retailers would then take over the market shares created by the online retailers. Online retail has created an impact, but when will it make money is the question uppermost in all minds. On a macro level, e-commerce in retail was 1% of the industry in 2015 and would grow to 8-10% by 2020, which implies a yearly growth of 60-70%. While the scope is tremendous, estimating timelines – where this share will grow significantly – is an ambitious exercise whatever anyone may say.
Investors in online retail were experiencing fatigue and cash infusions could not sustain. Against that Sachin Bansal, co-founder of Flipkart emphasized that investments in technology and logistics would not be commensurate with revenue growth, the online retail platform was a great opportunity to build advertising businesses and exclusive deals were highly profitable in themselves. The point he made that revenue growth still had to be the focus when the market itself was growing at a high rate, else a business would start losing relevance. However, the counter-argument made by Jhunjhunwala was, “Each and every of the companies in the Fortune 500 has been built on own cash flows and profits, and each one pays taxes. Those are the parameters to judge.”
Online presence and growth was not in doubt. The key was to bring down cost of business in online – that is what would define successful players going forward. Biyani agreed that even in offline companies like the Future group had to evolve with time and learn how to be profitable and get a good return on investment. The investor community, as represented by Jhunjhunwala, was vociferous that online needed a reality check and that even its vendors would not be uniformly profitable.
Technology has been a key factor in retail industry growing rapidly in the past two decades and more so in the past decade. Sahil Sani, CEO of justbuylife.com explained, through his own business, that with technology online and offline are not an either/ or scenario but technology in fact is an enabler.
As he said, “Justbuylife.com is e-distribution, connecting brands with retailers, specifically the mom and pop shops. Procurement for such small outlets normally means different suppliers and different credit lines, which this platform aggregates and standardizes.”
Shoppers Stop is working on multiple aspects of technology use in shopping experience, including mobile kiosks inside the store for convenience, a virtual platform called “Magic Mirror” where virtual reality helps the customer try out more combination and of course payment options to cut down lines at payment counters.
Sachin Bansal was bullish on mobile digital segment in the retail space. Going forward, his estimate was that 80% of India will access net only through mobiles and 90% of internet usage will be through mobiles. This is visible in Flipkart’s operations today, where 75% traffic to Flipkart today is from mobiles. Flipkart and Myntra together account for 93% of all mobile commerce traffic.
Where is our customer? That is the question to answer for which one should look at digital technology. The overall inference was that retail industry is still in the zone where big breakthroughs are possible, albeit fewer and infrequent. Going forward, as seen in mature industries, retailers would need to depend more on smaller incremental innovations. With more of such innovations, the probability then goes up that one will be disruptive and enable high rewards.
The reality of hybrid solutions (online plus offline) was also touched upon. So far they have done well, but there are disadvantages in acceleration of hybrid business model, because cost of transaction is higher in case of online transactions. Ultimately retailer orientation is not technology, but customers. Mahesh Murthy, founder Pinstorm put it succinctly that retailers ultimately try to create a remarkable experience. A product exists on the shelf. A brand is what registers in the mind of the buyer.
How could retailers modify themselves in a bid to be relevant and stand out? The Shop CJ Network, for instance, has gone to the extent of having demonstrated 30 different recipes to sell a microwave, to show its uses beyond the heating and reheating. They have also understood that Hindi speakers constitute only 40% of the Indian market and other languages are also relevant for marketing.
IKEA was excited with India as a market because it offered new raw materials like jute, bamboo and so on which could catalyse innovation at the production end. Patrick Antoni, the Country Communications Manager gave a proper dimension to the effort. He stated that yesterday’s retail was about location; today’s retail is about segmentation. Loyalty concepts do not work the same way, as they did with cards and points and catalogues. Now technology has moved beyond.
Disintermediation can be one of the aims or achievements; it cannot be an end-journey in itself. Sadashiv Nayak, CEO Big Bazaar stated that collaboration would be a good method in innovation, because everyone has a role which they play out – wholesalers, brand creation partners, logistics providers and optimizers (areas like working capital). Retailers should identify a need, create an idea, find a way to use it and create the ecosystem that delivers value.
Zivame.com has built an online business without a face-to-face in a product (women’s innerwear) where credibility factor is essential and has to be developed.
Richa Kar, founder explained the process. The focus was on constant communication, visual merchandising was being done on the site with a storytelling element in each product being demonstrated. The helpline staff was well-trained, so the callers got comfort of a personalized and helpful experience. This innovation helped create market share for an online business in a predominantly offline sales market.
Mahesh Murthy explained that that new brands like Gmail and Whatsapp did not win on the basis of ad spend. They won because they used the medium of people. The close proxy of that today is digital. Digital is today the largest medium of communication in India, with a reach of 360 million users.
Where does the spark come from? Within the business parameters, you have to get one communication insight. It has to come from the purpose, whether it arises from research or just a gut reaction. As he put it, “Purpose is vital because that is what makes you remark-worthy. Once you are there, word-of-mouth will lift you anyway.”
Metro Shoes had started Mochi, another brand in the same business with a focus on youth. In a year both brands had roughly the same sales. There was clearly innovation at work. Mochi was more colourful, fashionable and youth-oriented so there was clearly a differentiation. Rafique Malik, MD, Metro shoes emphasized that in the process of client retention and development, one should be clear about one’s basic brand strengths and growth should never be allowed to dilute them.
A large part of the evolution going forward would be in food retailing where both stores and online sellers are enthusiastic about getting more market share. One perspective on online food retailing is that India suffers from feast and famine simultaneously across different parts. Online companies are trying to bridge the price gap and sell at standardized prices.
There is a clear visible shift in preferences of consumers in food. Basket buying is going up, and ready-to-eat food segment is seeing huge growth. Cuisine is no longer the sole selling point; it is the day/ life/ family stage which also matters. Today, there is no problem in demand, nor is there a problem in supply. There is a constriction which is the supply chain, due to which the sector presents an hour-glass figure.
Damodar Mall, CEO Grocery Retail in Reliance Retail touched two key points that food retailing in itself is the business of raising customer expectations on quality, and sourcing is the key to maintaining quality. Hari Menon, CEO Bigbasket.com was all for an ecosystem because trying to do everything wouldn’t work. The focus now for Bigbasket is to get deeper into the sourcing chain.
Given that sourcing assures quality, how then does one maintain quality of ingredients and scale up simultaneously? Wow! Momos sell 1.50 lac pieces and Sagar Daryani, the founder, explained that all ingredients have standard vendors and they know parameters. One must improvise/ innovate with the ingredients and have the ingredient source/ intermediary on board. They will be happy because the improvisation creates a new market category for them. The Impresario group manages fine dine, casual dining and cafes, and it has a different policy at each place.
The summary was that along with organic push, social push factor would be key in improving the quality of ingredients. Technology should be leveraged in segmentation of ingredients. The discussion covered food services, which were acknowledged as being much ahead of the supermarkets in selling food with a story and therefore creating a Fork to Farm approach to food retailing, where if a new cuisine is offered and made popular, its ingredients will be a new avenue for super markets and vendor chain. Finally, Tier II and Tier III towns need to be explored and serviced in terms of quality and variety of food brands, food ingredients and food service industry options.
The question of quantification of change in customer attitude came up. Sunil Kunders of Mindscape Computing defined it as ME-Commerce. The customer influence is now pervasive, because a transaction happens anytime and from any location. He wants personalization, which excludes spamming efforts, and the transaction components should be relevant. He is more participative now, because flow of information is now two-way and he wants greater control.
Mahesh Murthy underlined the imperative that there is a bigger opportunity today for absolute dominance in niche categories. Brands like Gmail, Facebook, Twitter, Zara, Red Bull, WhatsApp are all gorillas in their specialized segments, and their market share has been generated entirely through client acceptance and endorsement of the transaction experience they offer.
On the part of defining user expectations from online shopping, the top ones were navigation ease, personalization, search-ability and then single payment convenience. For sellers also, it was important to raise their game and provide the buyer a better experience. Latif Nathani, MD eBay India conceptualized this requirement well. On eBay, each seller has detailed ratings and buyer feedback is available on different parameters. The benchmarks are high and very often it is the small seller community who provide a fabulous experience to buyers.
Returns were discussed but the general approach was that the trust that returns policy builds outweighs marketing cost and discounts outlay to be able to generate the goodwill. The same was the case for use of augmented reality, because virtual/ augmented reality helps create a better experience, more so in the case of wearables. The immediacy to serve and intent to buy are key drivers surfacing now, as per Taru Dahiya, India sales head of Google Work.
Brands do not get limited to a tangible product anymore. Microsoft and Google are today brands with meaning beyond the underlying products. Against that, Unilever and P&G are shutting down brands gradually. There is an architectural change in brand-building now. The status of the customers is that he is digitally native; he can go physically shop or go online and can interact in many ways. The onus to connect, create a better experience and conclude a sale is on the retailer.
Rafique Malik briefly discussed how Metro Shoes built a powerful and enduring brand in a commodity industry – through operational efficiency, quality control, delivery at satisfaction levels and consistently doing all of these. Product is a medium, what is being sold is actually service.
Manish Mandhana, owner of Being Human brand said that to create an experience, there has to be service at the point of sale, quality, after-sales management. All this will generate repeat value. A product has to have quality, and from thereon there has to be communication, packaging and positioning.
Advertising becomes a key tool, more so when the consumer today has a wide choice, low memory recall and limited loyalty. Advertising helps in creating impact and awareness, from thereon will be the role of product quality, service, technology and touch points. Ad campaigns can become more effective through use of social media.
Doing justice to quality and developing a world-class product to cater to a target audience of customers, and having a purpose bigger than narrow economics, were other factors discussed which help a brand sustain, with reference to the Being Human brand.
Lakme Lever CEO Pushkaraj Shenai brought the brand down to an ethos. He said it was vital to create a culture from what the brand stands for, and get employees to buy in and through them get customers to experience this culture in their experience. Rajesh Jain CEO Lacoste India further emphasized that instead of selling, the approach should be to assist. Customers do not like to be pushed, he concluded.
Perspective of eBay India
Innovations by Flipkart
Number of sellers on Flipkart Marketplace
These represent a catalogue of 30 million products in more than 70 categories Target for 2020 is 1 million seller database
Flipkart Marketplace profile:
