WILL THE MOM AND POP STORE SURVIVE THE ONSLAUGHT?

INTRODUCTION

Retailing in India is predominantly unorganized. According to a survey by AT

Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is
UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized.

We are known as a nation of shopkeepers with over 12 million, the highest outlet
density in the world in the world with an estimated turnover of $ 200 billion.
However a disturbing point here is that as much as 96 per cent of them are smaller
than 500 square feet in area. This means that India per capita retailing space is
about 2 square feet (compared to 16 square feet in the United States). India's per
capita retailing space is thus the lowest in the world. Another point to note is
that only 8 % of our population is engaged in Retail whereas the global average is
around 10-12%.

Traditional retailing has established in India for some centuries. It is a low

cost structure, mostly owner-operated, has negligible real estate and labour costs
and little or no taxes to pay. Consumer familiarity that runs from generation to
generation is one big advantage for the traditional retailing sector. However this
is set to change with the entry of the corporate sector into the retail domain.

The question that is being discussed, given the corporate onslaught with big bucks
and deep pockets, what will be the impact on the traditional mom and pop store?
Will they survive this or will they fold up and leave the field only to the major
organized retail players?

The answer could be a co-existence. The major advantage for the smaller players is
the size, complexity and diversity of our Indian Markets. If we look at the
organized retail players, most of them have opened shop in the Metros, Tier 1 and
Tier 2 towns. Very rarely do we find organized players in the rural areas and we
have more than 70% of the population living in the rural areas.

So what could be the scenario? One of the fallouts of the organized retail
onslaught would be that the smaller stores in the areas where the majors operate
could get squeezed out. The superior purchasing power of the majors and the volume
of business generated can result in lower prices thus moving the custom away from
the traditional store to the organized retail. The customer loyalty today is
towards the price. This fear has manifested itself in Metros, Tier 1 and Tier 2
towns by the unorganized retail staging strikes against the majors and trying to
influence Government policy toward the retail majors and making it difficult for
them to operate. In UP, the Government has banned organized retail major based on
the demands of the unorganized sector. While this may happen in the short run, in
the long run the majors will come back and cannot be dislodged. The rising
disposable income of the techies today, who having been exposed to top of line
retail outlets in the foreign countries, will sooner or later generate a demand
for the same facility. At this juncture, the majors will step and service this
need.

Another factor that is to be considered is that data. Data on income distribution

of households is insufficient in determining market size for different consumer
products in India. This is because of the lack of homogeneity of the consuming
class and the varying prices of a single product in different parts of India. For
example, vegetables generally cost more in Mumbai than in Chennai, hence
vegetable-purchasing power for identical income groups would be different in the
two places even though they are the two biggest cities in India with comparable
populations. In other words, purchasing power is location-specific, not income
specific. Consumption habits of households are therefore better determinants of
consumer market size than income distribution.

Another factor in the favor of the unorganized retail in rural areas is our
mindset. Organized retailing also has to cope with the middle class/rural
psychology that the bigger and brighter a Sales outlet is, the more expensive it
will be.
Given the above, it is too early to predict the erosion of the mom and pop stores
in India. This is also proved by countries where Wal Mart the world’s biggest
retailer operates. The smaller stores have a peaceful coexistence in these
countries with the number one company in the fortune 500 list.