The concept of eliminating middlemen and in turn reaching out the bottom pyramid of the society has always been effective and has benefited all. So whether it be ITCs E-choupals or telecom revolution brought by the likes of Reliance and Airtel or even Air Deccan's cheap air line model, scale always brings in cost effectiveness, better margins and expanded market for the company and at same time cheaper rates, better quality and access to variety for the consumer.
Here is another idea in the market which uses the same logic in its heart and, I feel, has the potential to transform retail landscape.
Business case:
It's been an open secret that retail sector hasn't flourished in India as fast as it was expected. Some of the obvious reasons have been:
i) Network of stores like Big bazaar/Reliance Fresh etc restricted to bigger cities.
ii) Big retailers do not offer local brands which may be inferior to the ones they offer but are in demand due to higher recall value and brand loyalty.
iii) Heavy resistance by government in terms of allowing entry in retail format.
iv) Heavy resistance by kirana stores due to the fear of loss of employment.
v) Heavy rental costs associated with buying properties which pushes up operating costs.
vi) Tendency of customer to have touch-n-feel at their nearest kirana store before buying.
vii) With only 35% of the half a million-odd kiranas in India having an efficient sourcing system, it obviously means higher costs and lesser variety to kirana stores and in turn to consumers.
Think about this-What if we combine the low manufacturing/sourcing ability of these big retail companies and combine it with huge network of micro finance institutions so as to offer products to kiranas which are cheaper (due to lack of multiple distributors), are of better quality and offer better variety to end consumer.
Let's try to see in little detail what companies are trying to do:
Big retail stores collaborate with micro finance institutions (MFIS) /banks and sources them products. MFIs in turn use their vast network to reach out to kiranas in not only cities but also in rural areas, get their orders, communicate it back to retailers via GPRS, source it from retailers and delivers orders right on the doorstep of that kirana guy. What's more, MFIs by virtue of its identity offers such kiranas interest free credit!! This allows kiranas to go for bigger chunk of purchase thereby offering better rates. What do MFIs gain..?? They receive simple fixed commission from retailers in lieu of their services.
The number of advantages it offers is limitless. Let's consider few of them:
Advantages:
i) Peaceful coexistence between retailers and kirana stores.
ii) Gives retailers an immediate reach to bottom of the pyramid.
iii) An opportunity to understand likes and dislikes of rural consumer better.
iv) No heavy real estate investment which means low operating costs.
v) More variety of products to kirana stores and in turn end customer.
vi) Social touch by allowing kiranas to thrive instead of perishing out.
vii) Involvement of MFIs/banks and need of vast network mean more employment to everyone.
viii) Consumer takes all-more variety, cheaper product all at its own nearby kirana store.
What started off with a pilot project in few retail companies has already caught eye of almost all the players. Though the concept is in its infancy stage and may offer certain hurdles but owing the potential and advantages it offers, it could be the next big thing in Indian supply chain.
Apparently Bharti is already deriving quantifiable percentage of its sales from this mode of retailing. Other companies like Future group, Metro cash n carry, Godrej & Boyce too have acknowledged the business case and are running their own pilots before rolling it out on large scale.
How can IT companies benefit out of it?
More often than not every new opportunity begins on the business side; technology then complements it, makes it faster, easier and more efficient. Now we have an apparently new way to do business, technology can always seep in at various places and fill in the gap.
Few examples that I can think of are:
i) Ensure efficient distribution from retail companies to MFIs.
ii) Retail practices must be new to MFIs. How can they ensure better sourcing, warehouse management, allocation etc?
iii) Faster order fulfillment at various stages (from company to MFI and then MFI to kirana store).
iv) Better margins at kirana level means ability to afford newer technologies like item scanning/RFID etc.
Conclusion:
Off late, we have realized the power of social networking websites which connect the urban elite and help connect millions across the world. In MFIs, by virtue of its huge client base, I see a unit which gives access to social network of rural India, and, in turn, open newer and profitable ways of doing businesses...businesses which have the potential to generate profits through the entire value chain and not just selective few.
