Retailing Case Study

Modern Trader Stores

Corner Shops Make Most of Discounts at Big Stores
Owners throng big retailers as margins are much better than those
offered by FMCG companies
At a recent store launch in Aurangabad in Maharashtra, Rob Cissell,
CEO of the value retail format at Reliance Retail, chanced upon two
customers pushing down overflowing trolleys. A quick chat with
them revealed something that Cissell hadn't seen even in China
where he had spent three years with Walmart as chief operating
officer. "They were kirana shop owners who usually drive over 100
km to buy a wholesale store. (On this occasion) they decided to try
out our hypermarket (Reliance Mart). And they said we have better
prices and a better range," says an astonished Cissell.

Cissel is not the only modern retailer in India who has picked up the trend of kiranawallahs lining up outside
hypermarkets for deals on days of discount and bargain offers that are more that what fast-moving consumer
goods (FMCG) companies offer them. Future Groups Big Bazaar has noticed it ever since it began its 'Sabse Sasta
Din' scheme on Republic Day in 2006. However, of late kirana owners have found many more opportunities to
procure consumer products as retailers offer yearly, monthly and even weekly discounts to beat the slowdown
blues, literally turning air-conditioned aisles of their stores into a flea market.
What gets the average kiranawallah excited is the huge margin on offer. Take, for instance, Ganesh Patil who runs
a small grocery store in Mumbai's western suburb of Borivali. At his store, a two litre bottle of Coca-Cola sports a
price tag of . 65; the thrifty Patil was able to purchase it for just . 39 from one of the modern retailers recently
during an Independence Week sale. That makes his margin a whopping 40%. The same product sourced from
company's distributor would have earned him just 9%. Another example: Patil purchased a 2 kilo pack of Surf Excel
Quick Wash, which bears a price-tag of . 320, for . 260 during the same period from the same hypermarket. Our
margin for these products is more than double what we get from company's distributors, contends Patil, who
spent over . 80,000 at the recent shopping spree at a larger rival's store. Retailers including Future Group, Reliance
Retail, HyperCity and Aditya Birla Retail arent too chuffed with this new breed of consumers. We offer discounts
for consumers and not for resellers. We don't encourage such buying trends as our suppliers are affected, says
Damodar Mall, director, strategy, at Future Group.
And they are trying everything - from capping heavily discounted products to monitoring spending patterns of
frequent consumers to discourage resellers. We try to restrict buyers from purchasing a large number of
products of a particular category. They can buy as man products as they like at full price. But during discount sales,
one can't buy more than 12 pieces of a product, says Ashutosh Chakradeo, head of buying & merchandising at
HyperCITY Retail.

Experts, however, say that such opportunistic kiranawallahs are still a speck on the organised retail
landscape. Kirana owners may buy from modern retail stores, but that would not contribute
significantly to overall sales. In small towns, it is also a novelty factor for smaller grocers to go to the
nearest satellite towns to buy from larger formats, but the volumes here again arent very high.
Hence, such a trend is not sustainable in the long run, says Roosevelt DSouza, executive director,
Nielsen India.
In addition, FMCG companies arent feeling threatened not yet, at least as modern trade
accounts for between 7% and 10% of their total sales. There is always a possibility of such modern
retailers becoming a sort of semiwholesale channel for kiranawallahs. But to offset that we try to
avoid giving huge discounts on best-selling or popular products so that the price disparity between
large and small retailers is cut to an extent," says B K Rao, general manager at Parle Products.
Ironically, the trend of kiranawallahas buying from modern retail is gaining ground at a time when
political parties in the country are debating on whether foreign direct investment in retail should be
allowed; the oppositions argument is that if international retailers are allowed to open stores in
India, buying could shift from millions of mom & pop stores to larger rivals. As long as modern
retailers use their clout to source products at significantly cheaper prices than their smaller
counterparts, traditional store owners will continue to view them as a lucrative procurement
alternative. That can change only when cash and carry outlets such as those of Metro, Walmart and
Carrefour multiply from just a handful now into hundreds.