David Vs Goliath

India has finally approved FDI in Retail. All the retail giants are now firming up there plans to enter to India. I see lots of panic in the minds of small retailers in India. According to me change is inevitable. We need big retailers like TESCO, Walmart etc in India. This will have positive impact for the customers and the vendors.
Is "The End" nearing for the neighborhood kirana store? I surely think that is not valid scenario at all.
I am confident that kirana stores can thrive in this environment. The kirana stores have to become relevant to the customers and exploit the weakness of the Big box retailers. Some of the weaknesses of Big Box retailers are 1. Customer service 2. Accessibility and convince to the customer.
Through this blogs we plan to help kirana store owners to prepare for the battle with the Goliath i.e Big Box Retailers.

FDI in Retail will support Small Retailers?

With the FDI in Retail, Big retailers will be able to invest in Indian Retail business. The economy of scale will help them to grow, but if they also understand the value of economy of convenience, they will not kill small retailers but grow with them. In fact Big Retailer cant kill small retailers. The Only way is to grow with them.
Future Group has proved this model right by its KB stores. This model not only helps future group retail to grow but also small retailer to Grow.
KB Stores - A New Direction
There is stiff resistance from Small Retailer to Big retailers. We know in past, small retailers didn't allow Big retailers to open shops in UP. The same situation may be repeated in other states also, where state government allow FDI in Retail.

The Big retailers should market them as helper of small retailers .Both can grow in India at the same time. The aim should not be to eat each others share but to increase the total share.

Co-operative Retail - Way forward for Small Retailers

There are 13 million unorganized retail players in our country. The majority of them are very small players operating in the shop below 50 square feet in size and hand carts. These are spread in 5000 cities and 600000 villages. Unorganized retail provides employment to 18 million people, the largest employment after agriculture.

Organized retail works on economics of scale & follows efficient supply chain practices. It  presents threat to the existence of unorganized retail, which has been working on the theory of convenience. Organized retail grows at the expense of unorganized retail’s market share.

Will this be possible?? Unorganized retail can with stand the storm of organized retailing. How?? Cooperative retailing is an old concept but it does hold the answer.

A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its retailer members. Retailers' cooperatives use their purchasing power to acquire discounts from manufacturers and often share marketing expenses.

A cooperative is defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.  It is a business organization owned and operated by a group of individuals for their mutual benefit.

Supply chain simplification

If there are n number of retailers and m number of company distributor there is need of n*m number of supply links. Fig 1 shows the need of n*2 (as there are m=2 company distributors). If the n number of retailers form a cooperative society and if it deals with all available m number of distributors, there is need of m*1 number of supply links. Fig 2 shows the need of m=2 supply links. This reduction of links helps in better management of distribution network and information transfer.

The cooperative can aggregate the orders of all retailers and purchase total order from company distributor. Since Order quantity is increased, cooperative can negotiate for lesser price. This aggregation also reduces the ordering cost. If large number of retail stores join the cooperative, the truck load can be bought, thus it reduces a lot on transportation cost. This reduction of cost will directly increase the profit. If cooperative passes the reduction of cost directly to customer. Everyday low pricing model can be dealt with.

Unlike Unorganized retail model, Cooperative retail model follows theory of convenience and exploit economies of scale.

Unorganized Retail sector has very low entry barrier so a huge number of Indian young men learn basic lessons of entrepreneurship in them. It is a source of livelihood for a large number of families. If organized retail is allowed to eat the unorganized retail market share, there will be huge unemployment problem. This will generate the cascade effect and vicious cycle of economics will cause organized retail to suffer for sure in the end.

These cooperative retail societies can get loans from public sector and cooperative banks and increase the size of their operations. They can also venture into the area of food processing.

The co-operative retailing can be a promising idea if they are professionally managed. There is need of specialized cooperative retail based training courses to be conducted by different B schools.

No doubt, Cooperative movement was not successful in the past, but it should not prevent us from trying to make a good idea work. Time calls up on, Let’s give another new try to this old concept.