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A Disintegrated Market Structure

There is no doubt that the retail market in India is huge. According to a study by management consultancy firm, at Kearney, the marketsize for 2000 has been pegged at Rs 4,00,000 crore in 2000. In a number that is relevant to organised retailers like RPG, though, only Rs 20,000 crore of this amount is accounted for by the organised sector. This is likely to double in the next five years, at an annual growth rate of 20 per cent. However, unorganised retailers and smaller retail chains have inherent advantages that include low-cost structure, negligible real estate and labour costs, low tax liabilities, and a familiarity with customers.

The biggest challenge for RPG's retail push lies in its ability to offer superior service and a wider range to customers without charging more than the neighbourhood retailer does. At one level, experiential learning acquired from its existing stores can help RPG address this issue. For instance, it realised that it makes sense to sell pani-puri, a traditional Bengali and Marwari snack, in smaller packs in southern India. Goenka says the group is creating a database based on information collected from its existing outlets. With nearly 1,500 families visiting each outlet every month, the database could prove a veritable goldmine.

At another level, the only way in which the RPG Group can hope to compete with low-cost operations is by creating an efficient supply chain. The hypermarts will play a large part in this: any organised retail chain requires a critical mass before it can integrate and automate its supply chain. However, the success of hypermarts in the first world is built around the existence of suburbs. Working couples from the US suburbs drive to the nearest hypermart (in their Chrysler mini-vans) once a month and stock up on groceries and the like. Spot any in India?