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.

There are a number of factors which are unique to our country which would make it
difficult for large players to spread pan India. A few of these factors have been analyzed
here.
The first 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.

◦ The second factor is that India is a Heterogeneous market which

means that other than the metros and tier 1 and 2 towns
which could support a homogenous product depth and
width, in most of the rural pockets, this homogeneity will
not be there.
◦ One of the major constraints that the organized industry
would face are infrastructural issues. Lack of cold store
chains, road networks, logistics management, power
problems and a host of other bottlenecks will certainly
impede the spread of the organized retail players in the
country.
◦ One of key issues of concern is the lack of trained
manpower which is required to manage the large format
stores Traditionally retailing in India has been a family
affair with the family members of the small retailer
carrying out the store functions. In this scenario training
was not a issue to contend with since, it was more a
relationship based selling , wherein the family knew most
of the customers personally due to long associations.
◦ The population mix as given in the diagram below
will ensure that the small stores will certainly
survive
◦

60% of our population is predominantly

rural based and who would generally
buy staples that too in small quantities. The organized retail’s pack sizes will not be able
to cater to the needs of this segment of the population of which 40% is below the poverty
line and live a hand to mouth existence.

This is very evident from the fact that despite the government’s effort in extending rural
credit, it is still the money lenders who hold sway in the rural belts and not the organized
lending institutions.

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.