labels: marketing - general
South India - the retail trainblazernews
Venkatachari Jagannathan
01 December 1999

South India is definitely leading the retail revolution in India. Chennai alone boasts three mega stores (upward of 12,000 sq ft). And the big names are still heading south.

Landmark made its debut into India via the south. The RPG group has met with a lot of success with its three models of retailing in Foodworld, Health and Glow, and Musicworld, enough for the models to be studied seriously by organised retail industry and analysts alike. Both Shoppers Shop and Globus headed south after their first stores were established in Mumbai and Indore respectively.

Some southern cities offer huge opportunities for growth. Kemps is so caught up with Bangalore that it doesn't feel the need to move beyond the city.

Expansion of chains, takeovers, experiments and new formulae, they all seem to be happening in the south at the fastest pace. Chennai has proved to be the most vibrant market in the vibrant south, although when you compare purchasing power, the Mumbaikars, Delhiites and even Bangalorians would rank above Chennai's spenders. So why is Chennai attracting attention?

New corporate investments (a lot by multinationals) and cheap real estate are cited as the main reasons. Corporate investments have resulted in the city's residents enjoying higher disposable incomes, and a better quality of life. And now there are enough foreign executives, who have added to the drive to modernise the retail network.

Real estate prices are necessarily a major consideration for the retail business, since an estimated 50-70 per cent of the project outlay has to be assigned to land and brick and mortar. The fact that sales per sq ft, along with transaction values, is a measure of a store's efficiency is proof enough of the importance of the property costs. Also, the conservative 'Madrassis' are known to swear by brands. Smithkline Beecham Ltd, for example, clocks about 60 per cent of its Horlicks sales in the south, with Tamil Nadu accounting for a lion's share of that figure.

Says Oscar Braganza, chief executive officer of RPG Guardian Ltd, "Our customers are familiar with international brands and want to try out newer products." He also insists that it is erroneous to slot Chennai shoppers as conservative. roshan_mathew01.jpg (3241 bytes)Roshan Mathew, marketing manager, Lifestyle International, provides added perspective: "A Chennai shopper is a conspicuous buyer, but at the same time looks hard for his money's worth."

Mathew is making a relevant point here as far as organised retail is concerned. Value-for-money is part and parcel of the Indian consumer's psyche and that is something retail will have to focus on, increasingly. Ambience and convenience don't necessarily mean higher prices. In any case, as organised retailing expands its reach, consumers will come to expect these value adds.

On the other hand, Subiksha, the pharma and dairy products retail chain in Chennai, in fact, uses price discounting (thanks to bulk sourcing) as a major unique selling proposition. R. Subramanian, director, Subiksha Trading Services Pvt Ltd, running the Subiksha chain in Chennai, insists, "Frills apart, we should remember that everything boils down to money."

Subiksha offers a 10 per cent discount on the 'maximum retail price' of all products it sells. By doing this, the chain has raised a hornets' nest. Other pharmacies didn't like this discounting at all -- it was driving customers away from them -- nor did the state government's milk federation, Aavin. Aavin refused to supply its products to Subiksha, which was selling Avin products cheaper than Avin's own parlours! Anyway, Foodworld and Vitan, both south-based, have also started offering sales promos and discounts on select products' MRPs.

"A saving of Rs 400 in the monthly bill will be more appealing to a consumer than the half-an-hour spent in an air-conditioned store, a comfort which he/she can anyway enjoy at home, cinema theatre or other such places," argues Mr Subramanian. He may have a point there, but then such a mentality may not cut across the purchase of all product categories. It may hold true for groceries and food shopping, though.

A number of existing players in retail are also drawing up aggressive expansion plans. The Chennai-based Vitan chain of supermarkets, in order to pursue really big ambitions, recently became among the first retailers to go public to finance 25 more outlets by end-2000.

Again, the Rs 90-crore Chennai-based Vivek & Co, a consumer durables retail chain entity, recently acquired competitor Jainsons, alongwith its 14 stores -- eight in Chennai and the rest in towns of Tamil Nadu. Vivek has also managed to get a term loan from ICICI, ICICI Bank and Lakshmi Vilas Bank to fund it to the tune of Rs 20 crore to expand its current eight outlets in Chennai and three in Bangalore, to 10 in each city. The balance of the funds required is expected to be met from internal accruals and increased share capital.

b_a_kodandarama_setty01.jpg (3462 bytes)At present, total shareholder funds at Vivek are a mere Rs 4 crore. Managing director B.A. Kodandarama Setty, intends to increase that to Rs 10 crore in three years, by means of private placement or public issue.

In order to bring its entire operations online, Vivek has approached TCS for a special package. "This will, apart from streamlining our operations, also reduce our inventory holding," says Setty. The current inventory holding period is about 30 days, which Vivek hopes to reduce to 21 days.

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South India - the retail trainblazer