Retailing in Kerala


By

Thomas Cris Sarasam
Student
Department of Business Administration
College of Engineering
Trivandrum
E-mail:
thomas.sarasam@gmail.com
 


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
 


Thomas Cris Sarasam
Student
Department of Business Administration
College of Engineering
Trivandrum
E-mail:
thomas.sarasam@gmail.com
 

Source : E-mail January 27, 2005

 

   

 

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