26-07-2012, 02:24 PM
A study on the Consumer perception towards organized v/s unorganized food retailing in Jalandhar
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Background
The Indian retail industry is divided into organized and unorganized sectors. Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.
India’s retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unparalleled shopping experience.
The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP.
Food and Grocery Retail
The food business in India is largely unorganized adding up to barely Rs.400 billion, with other large players adding another 50 per cent to that. The All India food consumption is close to Rs.9,000 billion, with the total urban consumption being around Rs.3,300 billion. This means that aggregate revenues of large food players is currently only 5 per cent of the total Indian market, and around 15-20 per cent of total urban food consumption. Most food is sold in the local wet market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household's spending on food is one of the highest in the world, with 48 per cent of income being spent on food and beverages.
Unorganized Retail in India
Retail in India is essentially “unorganized.” 94% of the retail industry is made up of counter-stores, street markets, hole-in-the-wall shops and roadside peddlers. The term “unorganized retail” is better understood when comparing this form of retail to the organized retail that one is familiar with in developed countries. Unorganized retail is characterized by:
1) Family-run stores
2) Lack of best practices when it comes to inventory control and supply-chain management
3) Lack of standardization
4) Essentially a sector populated by anyone who has something to sell
Causes of Low Productivity in Unorganized Retail
1) Labor intensity: Counter-stores in India have a very low output to labor consumption ratio. Low labor costs, failure to employ part-time labor and the absence of multitasking are the mainly responsible for the unusually high consumption of labor. This has driven down the productivity in the sector.
2) Inventory and Supply Chain Management: Unorganized retailers in India rarely track consumer behavior and sales data to improve their inventory management practices. Even among the handful of retailers that employ experience-based improvements in their business, their efforts are largely met with no support from their suppliers. Counter stores and street vendors do not have the infrastructure, exposure or credibility to form lasting relationships with suppliers. As a result retailers usually use different suppliers every time they purchase inventory. This leaves them largely incapable of strategically managing their business.
3) With 700 million agricultural labor looking to move into retail, low barriers to entry and the absence of regulation in this sector have made it a largely over-supplied sector. The excess supply of counter-stores and street vendors represents a tremendous decrease in the productivity of this sector.
4) The absence of any real competition-almost all retailers find a way to make ends meet or change their merchandise till they make ends meet-is also responsible for a form of status quo in the sector where little to no improvements in efficiency, management and by extension productivity are seen. In fact, this sector is so stagnant with respect to operational changes that no improvement in productivity is expected in the near future.