Weather Retailing

"Everybody talks about the weather, but nobody does anything about it." -- Editorial, Hartford Courant, 1897

Weather has become an important factor in determining what people buy. An unusually heat wave might cause consumers to stock for soft drinks / energy drinks, umbrellas, sun creams, t-shirts / skirts, etc and a cold wave causes consumers to buy more of cold creams, sweaters, soups, movie rentals, etc.

Keeping a tab on weather also helps retailers create a better baseline for planning merchandise, accelerate markdowns, prepare for margin markup & marketing promotions and other such activities.

Incorporating weather in inventory planning can either be Tactical and Strategic in nature.

1. For tactical purposes one can adjust inventory at the floor level thereby increasing or decreasing “merchandise density” meaning if a store manager knew that tomorrow would be a very hot day, he would stock more of cola bottles thus increasing merchandise density.
2.  For strategic planning, retailers need to incorporate long-range weather forecasts into business planning. For e.g. if unusual rains or cyclone is expected in a few days, retailers can source for umbrellas or rain coats.

Although, weather can be a determining factor in predicting sales, retailers have no more than 5-7 days of forecasts, but this period alone can help retailers outperform their competitors.

Sampling section in a supermarket

Fact A:
Over 20,000 new products are added to Global New Products Database every month, that's 650 products a day.

Fact B:
According to Mintel, 69% of survey respondents, could not remember a single new product launched in 2008.


With so many of new products going into oblivion, how does a retailer create a win-win situation for both the manufacturers and consumers, at the same time profiting from this phenomenon.

Consumers like to try out new things all the time, they like to experiment, sample them, watch them. Why cant retailers dedicate an entire section to new products. This helps the retailers to gauge interest levels in new products while it brings back consumers to the retailer.

For more information, check out Global New Products Database website and Google CPG Marketing Blog

New Age Retailers

Consumers are more net savvier than ever before and are looking for discounts, promotional codes, coupons before making their purchase decisions. According to Google Retail, search for promo codes increased by 55% YOY compared to 2009. Below are some of the retailers who are taking advantage of this new trend.

1. http://www.slickdeals.net/ - This site helps users upload the best offers in town and thereby help each other. It helps consumers share knowledge on the deals and thereby help them in making better shopping deals
2. http://www.retailmenot.com/ - Lists information on the top coupons of the day. The site is pretty global with coupons listed from US, UK, Germany, Canada, India, Australia, France & Netherlands.
3. http://www.groupon.com/ - The site lists one great deal everyday. Retailers are benefited by having new customers, and customers are benefited by a good deal. The company works behind the scenes to ensure that the product advertised is good enough for consumers and it helps the retailers by ensuring that they have a minimum number of customers who can take advantage of the deal
4. http://www.woot.com/ - Similar to Groupon, whereas Groupon works at a local city level, woot is national.
5. http://www.pricewatch.com/ & http://www.pricegrabber.com/ - This site helps users compare prices and watch for good sales or discounts. Based on user criteria, this site gets the deals for those specifications. This is called online comparison shopping.
6. http://www.swoopo.com/ - Auction site but very similar to a lottery system but with a lot of user interaction that makes bidding interesting and keeps us on our toes. Beware you might be addicted.
7. http://www.bigdeal.com/ - A Bidding site, where customers bid for new electronic items, site similar to Swoopo
8. http://www.gilt.com/ - Invitation only site but anybody can get themselves invited. For people (men, woman and childrent) who are fashion conscious and want good bargains, this is the site to go.
9. http://www.retrevo.com/ - This is a site for electronic lovers. This is what the company has to say about the site “Retrevo uses artificial intelligence to analyze and visually summarize more than 50 million real-time data points from across the web to give shoppers the most comprehensive, unbiased, up-to-date product information they need to make smart, confident decisions about what to buy, when to buy, and where to buy.” But the biggest takeaway from this site is that we can determine the best value for us (in terms of specifications) for a given price range.
10. http://www.cowboom.com/ - A Best Buy company site, good deals for electronics goods, especially the daily deals.

If you guys come across any other interesting sites, please let me know.

Another site which has come to notice is

11. http://www.couponchief.com/ - The site is similar to retailmenot.com but one distinctive feature of this site is that it pays consumers to share links to coupons. Now who wouldn't like this. Also, liked their blog section, where it has posted deals for not so common retailers like Kaplan, Hobby Lobby, etc.

Ocado

Ocado lists only those items that are bought monthly ( childrens stuff, horlicks, rice) that people wouldn’t think of cutting back, preferably high value and high margin items.
The idea is to negotiate directly with the manufacturer and pass on the benefits to consumers.

Click here to access Ocado

Sustainability Initiatives by Retail Firms

Over the last couple of years, retail firms have steadily sought to reduce their carbon impact on the environment. Initiatives have come in the form of energy efficient buildings, reducing the amount of packaging materials used in the products, introducing bio-degradable carry bags, reducing the number of carbon miles of its products (partly by stocking products that are manufactured or produced in that particular region).

Retail firms and especially the big firms like Wal-Mart, Tesco have the power to influence its suppliers and thereby bring about an permanent change in the way our environment is affected.

According to a recent survey by Management Consulting Firm Capgemini, 87% of global customers stated that a sustainability factor will have a major influence in their buying behaviour. And this percentage is only going to increase with sustainable products costing as much as their non-sustainable counterparts.

No wonder that Tesco has come out with a supermarket that it claims to be "Zero Carbon Supermarket"

Toilet Mall

Yeah, you heard it right. An entrepreneur from kenya has come up with a novel concept of providing basic sanitation to its citizens. Not only is the mall fulfilling a need for consumers to have clean and comfortable access to sanitation facilities but it also provides for a convenience store and ancillary services such as shoe polish.

Amazon into private label mood

Of all the retailers present be it offline or online, Amazon seems to be the most inventive and engaging with its customers. Their sense of "recession" means to go for newer opportunities. After having come up with kindle, they are now keen to sell private labels online under the "Pinzon" name. Amazon.com has a page dedicated to a line of products for the home including furniture, bedding, sheets, kitchen gadgets and more, proclaiming, "Pinzon Style is Your Lifestyle."
More about it here.

Going green can be profitable for corporations while serving its corporate social responsibilities

For a whole new generation being “green” is much more than being part of the hippy culture and for corporations it is a matter of running businesses consciously. Our planet is getting fragile by the day due to less availability of portable water, increased landfill by non-recyclable garbage and global warming due to increase in green house gases.

According to a research by Industrial ecologist Sangwon Suh of the University of Minnesota, service sector--such as banking, hospitals, computers and retail stores, amongst other businesses account for more than one third of industrial greenhouse gas emissions in the U.S. and this might be the case around the world. With such a big stake, it is time for the retail sector to adopt green practices. Currently retail companies have not focused much on such initiatives as it involves upfront investments in new recycling units, researching for bio-degradable packaging materials, overhauling existing structural materials for a more efficient building materials and introducing energy saving lighting systems and cooling systems.

But the benefits that accrue by going green will far outweigh the costs in the long run. For one, a new generation of people that consists of Generation Y and Generation Z are more conscious of the environment and are prone to buy eco-friendly products. According to a survey by AMP Insights[1], 69% of Gen Y will consider a company's social and environmental commitment when deciding where to shop, and 83% will trust a company more if it is socially/environmentally responsible.

In fact they will be willing to pay a little extra as well. Research by Maritz designed to track Gen Y’s brand awareness among several popular clothing retailers predicts that 47% percent of the respondents are willing to pay more for environmentally friendly services, products or brands. Out of this percentage, the vast majority (77 percent) cited their “care about the environment” as the reason behind their willingness to pay more, with other qualifiers, such as “it’s the right thing to do” (21 percent) or “so that people know I’m environmentally aware” (2 percent) trailing behind. No wonder Wal-Mart consumer’s adoption for green products increased by 66% in 2008 compared to 2007[2].

Apart from tapping into a new segment of consumers, some retailers have improved their bottom-line (profits) by employing eco-friendly practices as well. IKEA Canada has reduced its energy consumption in its stores by 25 percent by implementing new energy management practices and technologies while Wal-Mart stores cut its energy use by 30% by incorporating energy-management systems[3]. Aldi the fastest growing discount retailer is opening up environmentally friendly stores with the aim of a 30% reduction in its utility footprint[4].
Not to be left alone, major consumer product companies like Estee Lauder, Whole Foods, ConAgra, Procter & Gamble, and Unilever have also teamed up with packaging providers to develop sustainable packaging that uses recycled and renewable content, to reduce raw materials in weight and volume, and promote the use of biodegradable materials[5]. The reduced size and use of lesser quantity of materials will help manufactures reduce the cost of products sold. According to Carbon Trust, an independent company set up by UK government, a 20% cut in energy costs represents the same bottom line benefit as a 5% increase in sales. No wonder, Wal-Mart has asked its suppliers to cut packaging by 5% by 2013. This they say will take the equivalent of 213,000 trucks off the road saving 66.7 million gallons of diesel[6] besides improving their profitability.

With such monetary benefits, it is the right time for retailers to take the green initiatives. Some of the areas where retailers can focus are
1) Implementing energy management systems that offers control and monitoring of building services performances and allows for settings to be changed quickly and easily.
2) Going for LED lighting
3) Using advanced refrigeration systems that require less conventional refrigerant and experience lower rates of emission.
4) Increasing overall recycling of solid waste from stores apart from reducing reliance on plastic and paper grocery bags and finally
5) Use of building materials that reduce leakage of heated or cooled air from the store.

For retailers, social responsibility and green initiatives can go hand-in-hand resulting in more loyal customers while managing costs. It is important that as responsible citizens retailers take a pledge to go green and what a better day to do so than today being the World Environment Day.

Sources:

[1] http://www.usatoday.com/news/nation/2006-10-23-gen-next-cover_x.htm
[2] http://www.bluemapinc.com/resources/WalmartGreen.pdf
[3] www.environmentalleader.com/2008/08/27/wal-mart-canada-stores-to-cut-energy-use-30
[4] www.gourmetretailer.com/gourmetretailer/content_display/news/e3i71ba0ba389e5e5bea8e3f4fef9fd25bb
[5] http://www.environmentalleader.com/2009/05/29/con-agra-pg-among-honorees-for-sustainable-packaging/
[6] http://walmartstores.com/FactsNews/NewsRoom/8628.aspx

Discount stores

The discount store fancy has now caught up in India with Reliance Retail planning to open its no-frills stores. And there can never be a better time than the present recessionary period to open such formats. Around the world, the fastest growing retailers are the ones who sell products at discounted prices. For the first time, global discounters like Lidl and Aldi have a place amongst the top 10 retailers according to a recent report published by Deloitte. Discount stores as a concept were invented by Theo and Karl Albrecht who founded Aldi Discount in 1960. Their low-cost business model is a huge success even now in Germany and abroad.

These formats are not only catching the fancy of the urban middle class families across the world who have seen their disposable income falling but it is also attracting savvy rich people who have no qualms doing value shopping for their daily needs. These stores sell goods on an average 20-30% less than a regular superstore, proving to be a big hit with consumers. No wonder, internationally major retailers like Tesco and Carrefour in a bid to capture market share are coming up with their own versions of discount format stores or are introducing value products in their assortment to attract customers who have been hurt by recession.

India has not been new to the concept; down south Subhiksha was the first modern retailer to have a discount model. It offered all products at a 10% discount and up-north D-Mart introduced a blanket 5% off discount on all products. Although D-Mart looks to be profitable the same is not the case with Subhiksha. The company owes its financial mess due to bad capital management and opening up of large number of stores without proper focus on supply chain management. Some of the initiatives that Indian retailers can implement to be profitable viz a viz its western counterparts are a) limiting the number of SKU’s to 1000 -2000 per store. This will ensure that these items are sourced cost efficiently and the high turnover of these most selling SKU’s will ensure that capital is used effectively and b) Notching up properties at reasonable prices. With the recent downturn, a lot of properties will come up for distress sale and it is a good time to rent these properties or renegotiate on old agreements.

Irrespective of how the economy behaves in the near future, one thing is clear that the discount format is here to stay.

Price Indexes

Price indexes are a normalized average of prices for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between time periods or geographical locations.
Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy's price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment. (Source: Wikipedia)
Some of the major price indexes are listed below:

Wholesale Price Index (WPI): The index is used to measure the change in the average price level of goods traded in wholesale market. A total of 435 commodity prices make up the index. It is available on a weekly basis, with the shortest possible measurement lag being two weeks. Because of this, it is widely used in business and industry circles and in Government, and is generally taken as an indicator of the inflation rate in the economy.

Producer Price Index (PPI): It measures average changes in prices received by domestic producers for their output. It is one of several price indices calculated by national statistical agencies.

Consumer Price Index (CPI): It is a measure of the average price of consumer goods and services purchased by households. A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same area (city, region, or nation). The percent change in the CPI is a measure of inflation. The CPI can be used to index (i.e., adjust for the effects of inflation) wages, salaries, pensions, and regulated or contracted prices. They are weighted this way: Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Others: 6.9%, Apparel: 6.0%, Entertainment: 4.4%. Taxes (43%) are not included in CPI computation.

By August 2010, the Indian government will have a new Consumer Price Index, in order to address a situation of increasing prices to rise even as the inflation rate is tending towards zero, the government has initiated action to introduce a new consumer price index (CPI) by August next year. The new index would be available with four sub-sections to reflect prices at national, rural, urban and state levels on monthly basis. The data collection for rural as well as urban India would start by July, and the new CPI would be out exactly one year after that in August, 2010. This would be done by engaging 2,400 postmen for collection of retail price from 1,200 villages in the country by June end. The postmen would be identified in May and trained them in June. Preparation for the new CPI for urban India has been completed in March. The CSO is ready for collecting data from retail outlets in 100 cities and town.

The travails of the retail industry.

A lot has been talked about the viability of the industry but given the nature of this industry and that too in a developing country like India it is bound to take some years before someone can start deciding on its fate.

Some of the present concerns are

Rental costs: the rent paid for occupation is very high and at present constitutes almost 4% of a retailer’s turnover. Whereas they constitute only approx 1-2 % of the turnover in developed nations.

Utility costs: The electricity charges are also high at almost 5% of the turnover whereas it’s less than 1% in developed countries. A Store of size 4000 sft might have to shelve an average of Rs.10 Lakh for rent alone.

Margins: Even the biggest retailer here has very little say when it comes to negotiating with its vendors. This has led to lesser margins for the Indian retailers to operate upon. The situation is completely the opposite in other countries where the retailers calculate the final price by demanding to know the price of every ingredient.

Aggregation: Fruits and Vegetables continue to be the biggest footfall driver for a retail business, but the retailer still goes to multiple sources for procurement of these items. The average farmer in India owns ½ acre of land whereas the minimum land owned in developed countries is 400 acres. With this kind of setup cost efficiencies are over looked, quality takes a hit and supply chain management becomes a daily headache. Although these conditions will continue to be present, government should atleast chip in with infrastructure development in terms of building cold chains, building distribution centers, helping farmers generate better yields and incentivising retailers who create such an environment.

Multiplication: Retail is a game of multiplication and the industry is hardly 2 years old. Even the largest retailer has 600 outlets whereas the country can take a minimum of 20,000 outlets. It will take some time before economics tilts the favor in the retailer’s hands.

Standardization: Servicing India is like servicing 26 different countries with 750 modern towns (towns with more than 50,000 populations). Spread over different geographies with different statuary laws and bizarre governmental policies it takes more than experience to set up and run stores. With different festivals for different towns and different climatic conditions engulfing different states it becomes but complex to devise marketing plans that fits all.

IT systems: The key to retail is information and information comes from data provided by the consumers who shop. It will take atleast a couple of year’s data to forecast demand and therefore providing the right product, at the right time, at the right place, to the consumer remains a challenge. With changing tastes of the new consumer class it is but difficult to give the customer what he/she wants.

Supply Chain model: Retailing in India has traditionally been a multiple hub and multiple spook model with cheap labor to service these multiple points. It is very well entrenched in the Indian psyche (be it communities or be it traditions) and is difficult to dislodge them in a short time. These communities with their distribution capabilities have been able to service the different cities and more specifically districts and towns seamlessly. When a new retailer wants to set up an efficient supply chain model in smaller cities or towns or districts it becomes economically unviable to service stores.

All the above are serious problems, business houses which can work around these issues or come up with innovative solutions will gain the first mover advantage. And this advantage cannot be replicated for a long time.

Building brand loyalty in fuel retailing

Chrysler’s new incentive program to drive their sales can be a black swan in the making. The company allows participants to pay just $2.99/gallon for a maximum number of gallons (depends on the car model) for the next 3 years, the rest of the amount will be paid by the company. Chrysler obviously seems to know something about future gasoline prices otherwise its difficult to hedge so much against soaring prices, especially when some reports suggest that prices might be as high as 8-10$ per gallon.

What the concept will definitely do is generate a lot of enthusiasm amongst car users, since consumers are now more worried about driving costs rather than the initial purchase cost of a new car.

What I don’t understand is why the program is running only for a month i.e. from May 7th to June 3rd, 2008. Hopefully the marketing team at Chrysler should be working overtime to generate a lot of publicity over this and hence drive sales all over a month period.

Men buy, women shop

One of the better articles i have come across on gender shopping ways.

Men shop as hunters, women shop as gatherers

Men, who have often been accused of being merely replacement shoppers, tend to be more utilitarian when they hit the malls and shopping centers. It's a mission. Get in. Get what's needed. Get out. Quickly.

Women, on the other hand, generally like to look around, talk to sales associates and experience the shopping. They walk around, smell perfume, touch clothes, dab on cosmetics. They want attention and they want direction.

Men are very task oriented while women are very much more about the relationship and the engagement and the interaction with the people at the stores.
"Don't point me in the direction and say aisle 6," one man said during the study. "It's better if he takes me and says, 'There it is.'"

Women told surveyors that they liked it when associates showed them different styles and new items. "I told her what I was looking for and why and she set out to find me the right suit," said one woman. "I didn't have to do anything."

And this might not be terribly surprising either: Women run into more problems when shopping than men. On the tribulations scale, women's No. 1 issue was not being able to find help when they needed it. One in three women who were so miffed by the issue that they said they would never go back to the store again.

Men's biggest headache: Parking. One in three said they hated not finding parking close to the store entrance. But very few of them said they would desert the store forever because of it.

The clerk factor
Twenty percent of women said they were ignored by sales clerks, mostly because they thought the clerks were more interested in talking with each other about their weekend plans or were on the phone with friends. A whopping 47% of those women said they would never go back to that store.
"Being ignored is a big issue for women," Courtney said. "It's a loyalty issue."
Men ditch stores, too, but their biggest reason to do so is when products are out of stock. Men complained they experienced that when shopping 24% of the time compared with it happening to women 21% of the time.

But here's the real kicker: Of those men who complained, 43% said they would never shop at those stores again; only 16% of women cited that as a reason to stay away. Some people did go back to stores they vowed never to return to -- less than one-third, according to the study -- but it took them close to a year to do so.

Both men and women told that they really appreciated a "lack of pressure" when store employees were willing to let them shop at their own pace.

Age made a difference, too, in shopper loyalty. The younger the shopper, the more likely he or she was to pooh-pooh a store for poor service. The pickiest of all groups were men 18 years old to 35 years old. "I'm not going to tell them that they're messing up," one guy said. "Let them lose business. I just won't go back."

Women and men both are four times more likely to relay a good-news experience than a bad one.

Still, when all is said and done, women are the shopping queens. They spend an eye-popping $4 trillion annually, which accounts for 83% of U.S. consumer spending.

An approach to selecting a good location for a supermarket.

Location is amongst the most important or THE important criteria for selecting a supermarket. Because all other things at a retail premise can be changed viz. merchandise, prices, people, infrastructure, but one can never decide to go for another location as the cost involved is too huge or virtually nil for big supermarkets.

Some of the criteria for selecting a store location are as follows.

First it should have an immediate catchment of 2000-3000 customers. This is because these 3000 customers will be situated in the vicinity of 1- 1.5 kms, and a consumer will not travel more than a kilometer to purchase his daily grocery. This is especially true in the Indian market since every street has some kind of food retailer servicing that locality. The trading area for this particular store is from where 60-70% of the sales will be generated.

Stores are always profitable when on the main roads or the roads adjoining the main roads. This ensures that not only does it attract its core customer but also attracts fleeting population. The moment they see the store, consumers think that they have to do shopping and replenish their kitchen. Another advantage of keeping the store in the main road is that it can be easily found or its signage can be see easily from a far distance. This will promote impulse stop overs resulting in more walk-ins.

Not only should the store be in a good location but should be of an optimum size. The optimum size of a store for a supermarket should be between 4000-5000 sft. Lesser than 4000 will mean a less assortments and more than 5000 sft means losing on sales /s.ft. One does not want to have fewer assortments as this might make the consumer move to a different shop to buy his other needs whereas getting more than 5000 sft will mean providing too much more comfort to the consumer at the cost of profitability.

All other criteria being same, one should finally look into the sales that the store will generate to sustain the business.

Other than the above, conditions that determine the location of a good retail store is the presence of competitors in the vicinity. Technically no competition means the customer has no choice but to shop in one place.

But it has also been found in some cases that competition bodes well for the retail outlets. This is not very surprising as consumers will travel further if there are more stores to choose from when they get to a particular location. This idea is know as the principle of cumulative attraction.

Are hypermarkets only for the rich class?

The concept of hypermarket has always been low cost, wide range and depth in the western countries. But in countries like India, where property prices have been skyrocketing and with every retailer worth its value, entering the market, would it be the same?

I guess not. It would be difficult to position a hypermarket for the masses.A back of the mind calculation shows that to build a hypermarket you would need a space requirement of anywhere between 50,000 sft to 1,50,000 sft .Lets assume you want to build a 100,000 sft sized hypermarket, for that you would need 1,66,000 sft plot area equivalent to 65 grounds, assuming 60% ground coverage with an FSI = 1.
Assuming a ground costs on an average 3 crores in Tier – 1 cities, you would spend almost 195 crores in just acquiring the land. An additional 20 crores (assuming building costs at the rate of 2000/sft) would be spent on construction. Taking the total to 215 crores. (Scenario – 1)

In Scenario – 2, for the same 1,00,000 sft if we get an FSI equivalent to 2.5, we would end up paying 78 crores for acquiring land and another 20 Crore for building one. Taking the total to 98 Crore.















Assuming a hypermarket has most of the main categories viz a viz Food, Consumer durables, FMCG, apparel, Books, Music, Furniture, Home, Footwear. The weighted average revenues /sft generated would be around 14,000 sft/month. So the yearly turnover expected will be 140 crores(14000 * 1,00,000), out of which if we keep 25% as the margin with vendors, the margins expected will be 35 crores. Assuming 6% profit on sales (which is an optimistic figure after deducting COGS, staff, electricity, marketing, and miscellaneous expenses but excluding rent @ 4% of sales), the EBDITA will be 2. 1 Cr. Another major revenue for a hypermarket will come from selling space either through endcaps or through in store visual signage’s.

Assuming a hypermarket has 15 endcaps, they would generate approximately another 1 Crore (15 endcaps * Rs 50,000/endcap/month * 12 months). Another one crore would be generated through miscellaneous space selling. This leaves an EBDITA of 4. 1 crore / year for the retailer.A simple 9 - 12 % (depending on demand supply of money) bank interest in (Scenario – 1) alone will yield 20-25 crores a year.I cannot comprehend how hypermarkets will sustain at this rate but this is a secondary question for the moment, but given the stark scenario it would be wise for hypermarket developers to go in for a wide range of SKU’s but at the same time not too low on price.

The customer is already pampered with choice, variety, convenience, and therefore there is no reason why he should be getting rock bottom prices. By increasing the walk-ins and more importantly the average bill value one can cover the bottom-line.

Like I have mentioned in my earlier article disposable income is on the rise, consumers don’t mind paying a bit premium.

Do vegetarians pay more in a restaurant viz a viz a non-vegetarian

It looks to be true if you compare some of the rates at restaurant. For example if you took a sample of restaurants and compared the vegetarian and non-vegetarian item rates, overall the non-vegetarian rates will be 20% more than the vegetarian's rates.

But if you look at the costs of chicken which comes to be around 60 Rs/kg, Lamb Rs 200/kg, Fish 80-200 Rs/kg, the average comes to Rs 130/kg, whichever way you see, the rates are way costlier by almost 200% than you would need to make a decent vegetarian meal.

I guess restaurants wouldn't want to show that much of price differential for vegetarians and non-vegetarians. So if you are a vegetarian you are shelling out more every time you eat out.

Are Kirana stores losing their relavance?

A big yes, gone were the days when families used to wait for the start of the month to place their monthly purchases.

With spending power/consumption expenditure (disposable income – savings) on the rise, middle class India have the option to buy anytime of the month.

The advantages that that the kirana stores enjoyed viz. personalized service, door delivery, and personal touch have have all been lost with the advent of organized retailing. Organized retailing provides a number of advantages i.e. they provide variety, quality in terms of freshness, good prices, convenienence; these factors combined with the rise of disposable incomes have made a big hit with the burgeuing middle class population.

Note: “Kirana stores” is equivalent to a “Mom and Pop Business” The term "mom and pop business" is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners.

Cigarette Economics

The MRP rate for gold flake kings (pack size 10nos) is Rs 34. The retailer sells it at Rs 3.50 per stick. At this rate the retailer makes 1 Re per pack. Assuming that this retailer sells to about 500 customers per day, he makes a profit of Rs 50. So what makes the retailer stock cigarette packets for such a low margin. Considering the fact that he could keep something which gives him more margins or in technical terms GMROF.

Big retailers on the other hand can afford to keep cigarettes, because he makes up for the cost through slotting charges. But a small retailer does not enjoy such benefits, so then what makes him keep packs of cigarettes.


I did a small research and found out what could probably be an answer to the question. It has been found that the consumption of cigarettes has been on the rise over the years. In 1980, it was 1250 per head per year, which makes it 3.5 sticks per day per person. In the year 1990 it rose to about 1800 sticks per head per year (source: World Bank report) which amount to 5 sticks per day per person.

In India a vast majority of the consumer buys cigarettes in singles rather than in packs, so if a person smokes about 5 sticks per day, he is bound to frequent the shop at least 3-4 times a day. So a retailer who sells cigarettes can also cross sell other merchandise at his shop.

Also India which has the highest density of retail stores about 12 million retail stores, and with 96% of the stores less than 500 sft, it makes sense for the retailer to pull in customers. So keeping cigarettes makes sense for him even though the margin he makes is very less.

Convinced / Not convinced, I will be happy to hear your point of view.

Pointers by Paco Underhill

1. If you were to note down a detailed account of someone who is shopping in a mall and if you asked him to write a dairy of what he did while shopping, it will not be the same.

2. With 2/3rd of purchases, you have no intention of coming back

3. Everyone’s eyes work differently when they shop. The eye of a person at the age of 60 operates differently than that of a person at the age of 20.

4. Visual displays are developing faster than writing skills

5. The CAD/CAM fellows who develop visual merchandising for shops are all below the age of 30, but they might be designing shops for all ages of people. Therefore the color viewed by them might be looked differently by the shoppers that it is intended for

6. Most of the dressing room for women is designed by men.

7. By the year 2010, the majority of professionals in NA and Europe will be women. Therefore female friendly stores/shopping malls is what will be required.

8. People inflate the time they spend in store by almost 50%. Average time spent in store is 30min for a hypermarket format and 21 min for time spent in a supermarket store. This time includes the time to walk insided a sotre, pay for your items and walk out

Success of Subhiksha (Small Store Format)

1. No frills and small retail size.
2. Focus on foods and grocery ( which constitutes 85% of sales)
3. Prices 9.5% cheaper than MRP
4. Majority of items sold are private labels, as margins on these are 3 times more than what FMCG offers
5. Indian customers prefer buying from neighborhood stores. Statistics show that 60 per cent of the grocery and food items that are bought are bought from hypermarkets, while the rest is bought from the local Kirana store.
6. While it is possible to have large spaces in global markets because there are many varieties available there, this might not be the case in India. So while you can have 4,000 sq ft for bakery in the US, you cannot have more than 500 sq ft in India as we don’t have that variety.