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Shoppers on side of big players

For reasons like better quality products to lower prices, customers prefer organized retail outlets. Some claim to save more than 10 per cent by shopping at such outlets.

business Updated: Dec 13, 2007 01:46 IST

India's urban shoppers, attracted more by wider choices than lower prices, are overwhelmingly in favour of letting in more branded retail chains, a sign of looming trouble for the nation's tens of thousands of small shopkeepers.

The findings — part of a survey ordered by the Prime Minister's Office at the behest of UPA Chairperson Sonia Gandhi on the impact of organised retail chains on stores — suggest the current advantages of smaller retailers are likely to erode sharply as India's nascent organised retail boomlet turns into a full-fledged rollout, one that is already on the cards based on plans announced by giants like Reliance Industries Limited, Bharti Enterprises Limited and the Aditya Birla Group.

The consumer side of the findings will likely raise an interesting public policy debate as the survey's main conclusions, reported exclusively by Mint on Wednesday, show a significant decrease in both revenue and profits of India's smaller retailers.

Indeed, the Indian Council for Research on International Economic Relations (ICRIER) study — which spoke to nearly 1,600 small retailers in four cities — already shows double-digit sales and profit declines at those retailers in a head-to-head competition with large, branded stores and a nascent decline in paid employees at small stores.

Early warning

It was precisely such fears — then not yet quantified — that led to a chorus of protests, organised vandalism and small-scale riots against branded retail. This forced the Congress president to write to Prime Minister Manmohan Singh early in 2007 to ask if the government had fully examined the impact of its retail policy. That public second-guessing then led Singh's office and the Commerce Ministry to ask for a national survey, which got underway in March. Some nine months later, there is no official word on the results of the survey.

The survey — done in Ahmedabad, Hyderabad, Kolkata and New Delhi — also spoke to just over 1,000 consumers, half of whom were shoppers at the new, branded chains.

Big is better

Mint has independently ascertained that at least 70 per cent of the surveyed consumers who currently shop at branded stores like Reliance Fresh and Subhiksha want more such stores to open up. Interestingly, more than one-third (34 per cent) of those who shop primarily at small, unorganised stores also want more branded stores opened. And in a sure sign that small shopkeepers have not been able to turn their frequent customers into loyal fans of the small, neighbourhood formats, just a quarter of such shoppers say they oppose opening more branded retail outlets. That is about the same number (24 per cent) as those who already shop at branded stores and would prefer not to have more such stores opening up.

Some 41 per cent of those who shop at small stores say they really don't have an opinion on the issue of opening more branded stores, illustrating that public opinion is still being formed as branded stores start spreading deeper into the cities.

In a significant finding, the survey shows large, branded stores are seen by low-income shoppers as providing the largest amount of savings on their daily shopping in relation to similar purchases at unorganised retailers.

Those consumers with household incomes of less than Rs 10,000 a month say they have saved, on average, 10 per cent by shopping at branded stores and as much as 17 per cent when shopping at discount stores. Households with monthly incomes between Rs 10,000 and Rs 20,000 say they are saving, on average, 7 per cent by shopping at branded retail outlets.

What's the argument?

These findings will put civic and non-governmental organisations — which work on behalf of the urban poor — in a bind as they have often argued for the small retailer on account of possible job losses at such stores in the advent of large, branded stores. But it is also widely documented that India's urban poor pay among the highest prices for various services, including daily essentials. With organised retail offering significant savings to the poor, as suggested by the survey, as well as becoming a growing source of better paid urban jobs for less skilled workers, such groups would be hard-pressed to automatically take up the cause of small retailers.

It's not about price

Meanwhile, despite conventional wisdom that lower prices are what will help branded retail, India's urban shoppers are flocking to such stores for different reasons. Out of the top 10 reasons given by shoppers for opting for branded stores, just two involve either lower prices or sales promotions. The top reasons given by shoppers are better quality products (32 per cent), multiple brand choices (22 per cent), one-stop shopping (22 per cent), newer and fresh products (20 per cent) and wider product range (17 per cent).

When asked, a majority (50 per cent) of consumers who prefer to shop at small neighbourhood stores said their main reason was the store's proximity to their homes, followed by the relationship or goodwill factor (29 per cent), availability of credit (27 per cent), opportunities to bargain (23 per cent) and lower prices (22 per cent).

Evaporating edge

As branded stores make deeper inroads into city neighbourhoods, it is likely that the biggest advantage small retailers currently have over larger branded stores — proximity to consumers' homes — will rapidly decline. The growing acceptance of credit cards and the rollout of frequent shopper cards by branded retailers is also likely to undercut the other reasons why consumers still prefer shopping at small stores.

The survey suggests that small retailers are trying to take larger stores head-on by improving store displays and increasing the number of brands in stock. Still, with sales falling nearly 16 per cent and profits falling by the same measure for small stores competing with branded retail, soaring commercial real estate prices in most urban neighbourhoods and the ability of a Reliance Fresh or a Subhiksha to have significant economies of scale, the survey's findings offer a rough road ahead for India's mom-and-pop stores.