Though quite a few retail chains have sprung up in India in recent years and some international chains to have evinced some interest in the Indian market, the adoption of the retail chain idea has been rather slow. Currently, only 2 percent of retail sales in India flow through formats such as supermarkets and retail chains. Research by reputed agencies indicates that no spectacular spread in this regard is likely to take place in the immediate future. For instance, studies conducted by CORE on the feasibility of large retail chain operations in India have revealed that in the short term, the spread would be rather limited and that retailing would continue to depend on an outlet universe that is large and scattered, rather than a few large retail chains.
Reasons for the Slow Adoption:
There are many reasons for the slow pick up of retail chains.
The format does not suit India: While the format suits the urban areas, it does not suit the rural areas in a country like India, organized retailing is confined to class A cities, the 23 largest cities. About 82 per cent of organized retailing comes from the top six cities and another 12 percent in India. The scattered location of consumers has been the main deterrent to the rapid spread of the idea in the rural areas. The preference of the consumers to buy from small, neighborhood stores, frequently and in small lots is the other factor. And, the rural markets account for a sizeable share of the total market in India.
Purchasing patterns not very conducive: Even in Urban centers, the purchasing patterns of the Indian consumers differ from of westerns. Whereas in the West, the purchases are spread better over the month, in India purchases are by and large made in the first week of the month. This perhaps has a correlation to the pattern of payment of wages. While people are paid weekly in the west, they are paid monthly in India. Purchasing patterns differ also because of the differences in the eating habits of people. In fact, product life cycles of many food products differ between India and the West; in India, they are relatively longer.
Inadequate growth of brands: Inadequate growth if brand is another factor. In India, branding was almost non-existent in convenience products until recently. This has naturally inhibited retailing through sophisticated chains. For over 45 years, from the time of independence, India’s economy remained a regulated one and the consumers were denied access to international brands.
Supply chain problems: As suppliers are not properly organized in the country, replenishment of stocks poses problems for large chains. Source development also poses special problems, as the country is not yet organized for large scale operations. The issue of timely deliveries is further compounded by infrastructure constraints.
Being family businesses, retailing enterprises have limitation in expansion: Yet another reason of the slow pick up of mega retailing idea in India is that is that all along retail enterprises have been family concerns. And, family businesses usually have a limitation in expansion.
Example of Vivek’s: The Vivek’s (formerly Vivek & Co) of Chennai, is an example. For the past several years, it remained rather small because of its family character. During the three decades from 1965 to 1995, it had just three showrooms. It was a family concern and remained for along time, a single store outfit, managed by the father and assisted by his three sons. Once the father grew old, the sons started managing the business. And, because there were sons engaged in the business, the enterprises went in for the three showrooms. In recent years, however, it has emerged as a major chain, as it has shed its family business character. Now, it is actually the largest consumer durable chain in the country. It has big sales volumes and multiple locations.
Real estate problems: Real estate is an integral requirement of large scale chain store operation. One needs a large number of stores in each city to achieve optimum scale. Also, big chains have to operate in several cities. Real estates thus become crucial. That is why groups that have been in real estate and Hotel business are more comfortable in branching off into retailing.
Investment constraints: Investment constraint is another reason. It is a way related to the real estate problem. First, in India investment per se is scarce. Second, investment in retailing is not seen as particularly a lot of money add wait for 6-7 years for returns. The investments in property usually comes to Rs 8-10 crore per location,. Also, further investments are needed for putting up the store and towards information technology supply chain management etc.
Things have changed a lot during last decade because of large corporate companies taking interest in setting up large retail chains including Tier II and Tier III. They have the requisite investment capacities and sourcing products from direct sources like manufacturers and farmers. This enables their consumers including Rural consumers to buy their needs at the most reasonable rates.