The first attempt to bring together small, independent retailers under an umbrella and thereby compete more effectively with the giant retail chains being rapidly set up has received a setback.
The Netherlands-based SPAR International's foray into India has hit a major roadblock.
Radhakrishna Foodland, SPAR's local partner and master franchisee for the Mumbai region, has pulled out of the venture.
Unlike international retail chains - like Wal-Mart, Carrefour - who invest in a retail network, SPAR is an association of wholesalers who come together to support retailers.
SPAR's basic premise is that independent retailers suffer when the big boys enter the business, since they lack the scale, technology, and expertise to compete with the latter.
SPAR lends its brand and expertise to these small players for a token fee. Retailers are able to compete better with retail chains by consolidating their buying and widening their offerings, while wholesalers gain by way of assured business.
It all sounds good in theory. In India however, independent retailers, much as they liked the concept, were not willing to part with their brands or share their wafer thin margins with SPAR.
Thus, against a target of 16 SPAR stores of 8,000 sq ft each by September 2006, Radhakrishna Foodland could set up only two stores - in Juhu and Thane.
The franchisee agreement expired at the end of September and has not been renewed. Though talks between Spar and its former Indian partner are still on, Radhakrishna Foodland CEO Raju Shete said the two outlets could well be renamed Foodland Fresh if the talks fail.
"Nothing has gone amiss, but we found that independent retailers, whom we were trying to convert, didn't relate to SPAR. For emotional reasons, they didn't want to part with their brand while SPAR does not do co-branding," said Shete.
Besides, with margins already under pressure, retailers are not willing to part with the one per cent (of sales) licence fee SPAR charges.
While SPAR may appoint new franchisees in India, Shete saw an opportunity in the crisis. "We found that a lot of retailers relate to the Foodland brand a lot more," he claimed.
"We felt we should have smaller shop floors, not more than 2,000 to 3,000 sq ft under the Foodland brand. SPAR as a brand, given the higher investments, could work better with hypermarkets," said Shete.
So, through a private firm, Radhakrishna Foodland Consumer Services, Shete has promoted 10 Foodland Fresh outlets in the Mumbai suburbs and Navi Mumbai.
Foodland deals with 83 independent retailers, 15 of which have agreed to co-brand their stores as a Foodland Associate. Professional managers, who man the Foodland Fresh stores, are being groomed to take over as franchisees like it works in the McDonald model.
The endgame is similar: create a common brand under which independent retailers can come in, if they wish to.
But unlike SPAR, the Foodland approach is more flexible and lets them retain their name, if they see more value in doing so.