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Home » MBA Articles » MBA - Retail Management Articles » Retailing in Kerala

Retailing in Kerala

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Introduction

Retailing
is
considered the world's largest industry with US $ 6.6
trillion sales annually. In India, retailing is considered the largest
employer after agriculture employing over 8% of the population. India
has the highest outlet population in
the world with over 12 million outlets. The Indian
Retail Industry is still evolving as an 'Industry', and it has a long
way to go. The evolution of the Indian Retail market is quite
interesting to be studied. It has its origins in
the village weekly markets and melas, the convenience
stores, the Khadi stores and the Co-operative stores before graduating
to the present day forms of retailing. The retail sector in India can be
broadly classified into the
formal and the informal retail sectors. The informal
retail sector typically consists of small-time retailers with tax
evasions and non-conformance to labour laws. The formal retail sector,
which typically consists of large
retailers, ensures greater measures of tax enforcements
and also a high level of labour usage monitoring.
The
retail market size in India is estimated to
be around $180 billion. Retailing provides jobs to
almost 15 percent of employable Indian adults and it is perhaps the
largest contributor to India's GDP.

But the flip side is that the average size of each of
the retail outlets in India is only 50 square feet and though a large
employer, the industry is very unorganized, fragmented and with a rural
bias.
India's
status as a good IT hub for outsourcing by U.S. companies has led to
young Indians between 20 to 24 years old taking up call center jobs
straight out of college. This is a consumer
base that typically lives at home, with the family. They
have disposable income that is totally discretionary and about 20 to 30
percent higher than prevailing wages.


"We have tripled our sales in Bangalore city in the last three years,"
says Shumone Chatterjee, marketing director, Levi Strauss India. And he believes this is largely due to the effect of disposable income coming
into the hands of the 18-22 age group employed in BPO jobs.

The
important thing is that most of the income earned is basically 'pocket
money'. Many of the people in this segment live at home, so rent and
food is taken care of.
BPO is just one example. From retail to insurance entry
level jobs are aplenty. IT firms added 55,000 mostly engineering
graduates. Infosys alone recruited 10,000. This segment is very
brand-conscious.

Retailing in Kerala


Retailing in Kerala is a subject too subtle and
relevant; as Kerala is know of more as a consumer state rather than a
producer state. The introduction of Margin Free Markets have turned out
to be grand success resulting in it
becoming one of the largest retail chains in the
country.

Margin Free Markets

Margin
Free Markets is the largest retail chain in the state of Kerala and one
of the leading retail chains in India. The first outlet of this
chain started functioning on 26th January 1994 at
Thiruvananthapuram. There are currently more than 275 franchisees of
Margin Free Markets spread all over south India. The outlets are
franchises and are not actually owned by the
chain. The Consumer Protection & Guidance Society
currently control margin free markets, which is a registered charitable
institution that started functioning in 1993. The consumers are assured
of quality, quantity and the fair
price of the goods sold through the Margin Free Markets.
Any retailer can upgrade his shop into a Margin Free outlet, by sending
in an application to this society. If his application is accepted, he
has to make the necessary
investment required. These shops deal in the entire
gamut of goods required by a home for its monthly consumption, viz.,
grocery, food and non-food FMCG items, fruits and vegetables, consumer
goods & household articles. Margin
Free outlets are typical discount stores, offering
one-stop-shop convenience and self-service facility at significant
discount to its customers. Most of these customers, in time turn out to
be its permanent customers, by taking
discount cards, which permit them to obtain larger
discounts than the non-card holders. The necessity to offer protection
against the rising prices gave birth to the idea of 'Margin Free
Markets'. An enthusiastic entrepreneur named
Mr. N. Ravikumar conceived the idea. The idea turned out
to be an instant success in Kerala especially because Kerala is more of
'consumer' state than a 'producing' state.

Kerala
depends on her neighbouring states for
her consumer needs. Due to the large number of
intermediaries involved and the transportation costs, the prices are
high and there is a wide fluctuation in prices of groceries, fruits and
vegetables. Groceries and FMCG goods are
brought directly from the production units of the
neighboring states. In the process of direct purchase from farmers and
manufactures, the intermediaries are removed and a part of the margin or
'profits' earned is disbursed among
the consumers. The distribution to the different outlets
under the chain is taken as a collective responsibility and is done
with the objective to reduce the total transportation costs.

The
baseline of the chain of
supermarkets run by the society is `making consumer the
king'. "The wide acceptance gained by this concept over a very short
span of time speaks for itself," says R. Gopakumar, the
founder-president and one of the key
members of the Society. And when one juxtaposes the fact
that the people of Kerala are one of the most price and quality
conscious consumers in the country, the larger impact of this movement
dawns upon us. From a solitary shop in
downtown Thiruvananthapuram, the society has grown into a
full-fledged retail supermarket chain with a presence all over Kerala.

"While
thousands of retailers and stockists slug it out in the market place to
lure
the consumer back through lower prices, one thing is
clear for the moment in Kerala. The consumer will definitely have the
last laugh!
" www.indiainfoline.com June 30, 2000.

Though the landscape of Retailing in
Kerala has changed to a very large extend it still holds true, to a large extend even today.

Food World

Food
World is one of the biggest retail chains in India. The RPG group
opened the first Food World outlet
on May 9 1996 at Chennai, which was a 2400 square feet
store. It is the only national chain, having Foreign Direct Investment
to the extent of 49% that is permitted in India. Now Food World,
operates as a 51:49 joint venture with
Dairy Farm International of the Jardine Matheson Group, a
US $ 4.5 billion retail giant operating in the Asia-Pacific markets
with the requisite experience.

Food
World has decided to concentrate more on Food World has decided to
concentrate more on local areas rather than to go for a
nationwide presence in its expansion plans at the beginning. South India
was chosen, with focus on Bangalore and Chennai and later in Hyderabad.
They identified areas within
the city with more than 4000 households in a 2-kilometer
radius with an average monthly income more than Rs. 4000. The important
variables considered while setting up an outlet are choosing the right
location, sourcing the
merchandise and recruiting a trained workforce. A
typical store is between 3000-3500 sq. ft. in size and carries about
5500 items. Food world handles on average 600 customers per day per
store, which translates to 1.5 million
transactions per month. It is estimated that the chain
serves more than three lakh families.

Ms. Mala Morris, Manager-Marketing of Food World says
that as on 1st November 2003, Food World has 89 outlets spread
across Tamil Nadu, Karnataka, Andhra Pradesh, Kerala and
Maharashtra (Pune). Speaking on the product portfolio, she said that,
"Our strategy is to provide all the monthly household requirements under
one roof. Our product Portfolio
includes grocery of all kinds, fresh foods viz., fruits
and vegetables in fresh/chilled/frozen form, food that can be directly
consumed, food and non-food FMCG products, general merchandise required
in homes like buckets, cups,
shelves etc. Indian Made Foreign.

Liquor
is also sold at certain outlets." Speaking on the pricing strategy
followed, she said, "We follow the strategy to sell around 100-120 items
at any point of time at below
Maximum Retail Price (MRP) rates. These are generally
the key necessary items or the items for which the customer attaches
more value. In addition there are also lots of schemes and offers to
attract and retain customers." "For
procurement we follow a strategy of 'Hub and Spoke". The
purchasing for each state is done collectively to reduce costs. The
distribution to each outlet is done by Food World in such a way as to
reduce the total handling costs."

To
source its daily requirement of fruits and vegetables, Food World
participates in the early morning auctions at the major wholesale
markets and has a set of suppliers who then grade, clean, pack and label
the
products in time for early morning dispatch to the
stores. At peak season, the Fruit & Vegetable shelf in a Food World
store stocks around 125 items; making it the widest range available
under one roof in this category.

Food
World's share of the organized retail market in the cities in which it
operates is 62%, clearly a dominant share. The firm expects the number
of Food World stores to increase to 125 by the end of 2005. A smaller
version, Food World Express is also planned to be
launched in future.

Supply Co

The
Kerala State Civil Supplies Corporation (Supplyco), is a statutory body
established in 1974. It procures rice, wheat
products, sugar, pulses, vegetables and a range of
consumer goods independently from the open market and distributes them
through a network of 663 retail outlets called Maveli Stores, 11
supermarkets in district headquarters and 21
mobile Maveli vans operating on designated routes.

The
Government decides the price of articles sold by Supplyco through these
shops, and has used it as a highly effective mechanism, cutting out
middlemen and
controlling prices in the open market. Its effects on
the market are most evident during the festival seasons.

It
is a festival that remembers the golden reign of the legendary King
Mahabali, during whose reign
Kerala is believed to have prospered. Significantly, the
Kerala State Civil Supplies Corporation (Supplyco), through its Maveli
chain of retail stores, has contributed to bringing back those golden
days by assuring fair price,
quality products and insulation against evil trade
practices. Maveli offered a new experience to Keralites, which helped it
and Supplyco become household names in no time. Quality products and
subsidised pricing are the twin
advantages that Supplyco extends to the consumer.

E
tendering, introduced by the Corporation, enables participation of more
tenders from anywhere in the world, thereby increasing competition.
This ensures the entry
of genuine suppliers from the production centres of
other States. The introduction of a payment system at the receiving
depot itself also enables spot payment to suppliers. The supplier will
get ready payment on the same day as
delivery of goods through a demand draft couriered to
them. This reduces unnecessary delay and complexity in payment
procedure, which again results in the reduction of purchase cost.

The
Kerala State Civil Supplies
Corporation (Supplyco) has introduced the privilege card
facility in Supplyco supermarkets and Labham fair-price shops from the
first week of April 2005.

An
official spokesman said the card would be given free of cost to those
who make purchases for Rs. 500 and above. Others would
have to pay Rs 5 for the card. The cardholders will get a discount of 2
per cent for every purchase made.

Jewellry

Jewellery
retail is another major part
of the retailing business in Kerala. The leaders in this
business include, Allappat Jewellers, Allukas Jewellers, Josco Fashion
Jewellers, and Thrissur Jewellers among many others. Each of these
Jewellers can be considered as
retail chains as they have outlets in different parts of
the State, the neighbouring states and some even in the Middle East.

Automobiles

In
the automobile segment, the first real retailer could be
thought of as Benz automobiles who started off in 1978,
Now the state can boast of a host of retailers specialising in
automobiles including big names like Indus Motors, Maraikar Motors, and
Kulathungal Motors among others.

Conclusion

The
future of Retailing in Kerala looks bright, with the proposed entry of
majors like Hasbro Clothing Pvt Ltd (Genesis and Basics) and many
others. The government of India is already
thinking of allowing FDI of upto 76% in the grocery and
food segment of the retail chains. According to governmental Estimates,
retailing is growing at a rate of 5.7% at the national level, even
though the organised retail sector
is just 3% of the total industry.

This
would intern generate good revenues for the companies and is likely to
affect the lifestyle of the people as Kerala is know as a consumer state
rather than a producer state.


References:

1. www.thehindubusinessline.com
2. www.indianinfoline.com
3. www.blonnet.com
4. www.frontlineonnet.com
5. www.rediff.com
6. www.hindustanstudies.com/files/indianewsbrief204.pdf

7. www.manage.gov.in/PGPABM/spice/Nov2k3.PDF
8. www.indiainfoline.com/bisc/ari/bure.pdf
 






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