Traditional wholesale and Organized retail

In my earlier post I had suggested that Semi Organized Retail will succeed in India.To build upon the idea I am presenting another case below.

India is a uniquely different from the west if we consider the following factors :

1.While the Retail stores big and small have been there for almost a century now,Organized chain stores are a new phenomena to the Indian market

2.In the absence of pan Indian chain stores we had bazaars and whole sale and retail markets which catered to the needs and  lifestyle  of the Indian Public.By virtue of their long innings these have a place of prominence in the mind of the Indian shopper.Their value preposition too is quite clear and each bazaar caters to a different taste and wallet size.This is something that organized retail is struggling with at the moment.image118

3.While Labor is in short supply and is therefore costly in the west,its in abundance in the country of more than a billion people.This has shaped the Indian wholesale and Retail Market very very differently.

For cash and carry models I believe that they will not be successful unless they target institutional clients and offer door to door delivery.In India if you have cash ,you don’t carry someone else does it for you.Large number of house holds are still serviced by Deliver ‘boys’ across neighborhoods.This service is free of charge and many a times if you are a regular the bill value does not matter.

4.While there may appear to be very little method in the madness and chaos seems to be buzzword if you scratch a little deeper you will find  self aligning systems very similar to those found in primitive life forms.They may look like randomly moving around but a pattern emerges as soon as you put them under a scanner and start to study their behavior.

Go to any ‘Mandi'(wholesale market) and you will know what I mean.

They may not be carrying Laptops and have fancy accounting systems but they know their business well partly because that’s what they do 24X7 and partly because it has become a part of their DNA.

5.In Organized retail we work on SOP’s and MOU’s to forge  supplier and buyer agreements but in case of traditional retail these are handed over from generations to generations.The buyer and the supplier are not only business partners but they are friends who sometimes even marry their siblings into each others families.

It is very difficult to replicate that level of trust and understanding and the spirit of co creation.The MBA’s in organized retail learn about segmentation,customer focus and value creation but in the traditional whole sale business they KNOW that that’s the only way.Survival to them means continuously reinventing themselves keeping an eye on the pulse of the market.They get their information through informal channels but the actions that follow them are fast and practical.

6.On the other hand the Organized retail lacks many if not all of the above attributes.The systems and processes neatly laid down in SOP’s and charts and tables remain there and very few retailers have been able to drive them down in the organization.The team members are young and new to the trade so while they may not do it deliberately the understanding of the importance of each step of the business process is missing.

7.Organized Retail does offer to its customers a neat and clean ,friendly shopping environment and a certain level of trust of quality as most are backed by big corporates of multinationals.

Another aspect which is important here is that of customer service and window shopping which is a big Grey area as far as traditional retail is concerned.The salesmen are often rude and do not have the finesse to deal with different class of customers.The idea of being confronted and not being able to just ‘have a look around’ does not appeal to many customers especially women.

The point that I am trying to make is that in a way both these entities can not only co exist but they can partner together for creating a unique value for the customer.How ?

Traditional wholesale  can serve as the supply chain for modern retailers as they stock bulk quantities which can ordered as per the sales lift on the image116shelves.

For trial runs of new products this could be great idea as you do not have to commit yourself to quantities upfront.A organized retailer can continue buying from wholesalers as long as the quantities become so large and predictable that owning a production line is the best option to enhance and retain higher margins.

This model will work very well for new retailers with young and image117inexperienced buying teams as they can use the skill and expertise of wholesalers who have been in the market for decades.Their understanding of local taste and price points will be far more than someone who has just passes out of college.

In fact what I am suggesting is nothing new.Almost all big retailers in the developed economies depend heavily on importers for their business.The concept of category captains is akin to what I am proposing.

In India we do not have ‘importers’ and also the organized retail market is not so big to support such operators but that gap can easily be filled by wholesalers.Those who have been touted as the biggest adversaries by an ignorant media can in fact bring a lot of value on the table for themselves and for the customer too.

I have been experimenting with the above in my business and it as worked quite well so far.

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One comment on “Traditional wholesale and Organized retail

  1. Tharris says:

    Generally I do not post on blogs, but I would like to say that this post really forced me to do so, Excellent post!

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