From Kirana to Kopitiam: A Case Study of the Changing Indian Retail Industry
Using the PESTEL Framework to Analyze the Transforming the Indian Retail Industry
We explore the Political, Economic, Social, Technological, Environmental, and Legal forces that impact the Indian Retail Industry using the PESTEL framework. This framework is especially pertinent and relevant as it lends itself to a thorough macro analysis of the industries and more importantly, provides a useful lens by which one can view how broader forces and trends shape the evolution and transformation of the industry.
All Politics is Local the Political Forces at Play in the Indian Retail Sector
To start with, Political factors play a significant role in determining the fortunes of the Indian Retail Industry. While governments in the Western world tend to deregulate and liberalize the industries based on free market and capitalist principles, the Indian Government, thus far, has been hesitant to throw open the Indian Retail Industry to foreign competitors.
Where it has done so, it has proceeded haltingly as can be seen from the way it allowed FDI or Foreign Direct Investment into Single Brand Retail but not Multi Brand Retail. This means that foreign retailers can set up shop and sell products of a particular brand under one roof but not open stores where everything is available under a single roof.
While this has led to much lobbying by giant retailers such as Walmart and Tesco and Target, the fact remains that the Indian Establishment does not want to displease the Trader segment which forms a significant and crucial voting bloc that comes in handy during fundraising and election time.
Indeed, no discussion on the Indian Retail Industry would be complete without mentioning the role of the Kirana and the Small Shop lobby which is both numerically and financially powerful.
Economic Factors Shaping the Future Evolution of the Indian Retail Industry
Having said that it is also the case that the economic forces at work throughout the world and especially in Indian would sooner or later lead to the Indian Retail Industry becoming more transparent and global in nature.
This is mainly on account of both changing consumer preferences as well as the sheer impact of the economies of scale as far as the operations of the retail industry are concerned.
For instance, the world over, Mom and Pop stores or the equivalent of the Kirana stores have found it difficult to survive the onslaught of Big Retailers mainly as the latter have deep pockets and also because they operate on a scale which means that they can give attractive discounts which the former cannot match.
Also, automation ensures that efficiencies accrue which on top of the inbuilt advantages of size and convenience means that sooner or later, the Indian Retail experience would see more malls and supermarkets when compared to the neighborhood stores.
However, the Kirana stores are unbeatable as far as servicing the Bottom of the Pyramid consumers is concerned.
Indeed, given the fact that India is still a rural economy despite urbanization, it is clear that the unparalleled penetration of the Kirana stores in the hinterlands, as well as the inner city neighborhoods, means that they are not going to disappear completely.
The Aspirational Indian Consumer and the Changing Social Mores and Attitudes
The changing social mores and the consumer choices and preferences are the key drivers of the Indian Retail Industry. Compared to previous generations, the youth and those in their 30s have been exposed to Western modes of living since they grew up after the liberalization of the Indian Economy and especially with the internet and the Smartphone revolutions.
In addition, with more and more Indians traveling abroad on tourism, work, or to visit their relatives, they see for themselves what Western consumers prefer and how Western retailers service them.
Thus, the social forces of liberal mindsets and the economic forces of free-market capitalism combine to create a consumer base that is impatient with the traditional modes of shopping and consumerism and this is driving the transformation of the Indian Retail Industry.
It is also the case that older Indians also find it convenient to shop in Malls and online portals and this is another critical factor impacting the transformation of the Indian Retail Industry.
ECommerce and mCommerce Revolutions and Technology Led Consumerism
Talking about online and mobile shopping, the emergence of the eCommerce and the mCommerce sectors can be thought to be the most important trends in the last decade or so. Indeed, homegrown companies like Flipkart and foreign ones such as Amazon have seen their revenues grow manifold ever since they established a presence in India.
Thus, technology led shopping and consumerism makes the Indian market a very exciting prospect. This is the reason for the American retail giant, Walmart, acquiring Flipkart recently wherein the former wants a pie of the mouthwatering action in the Indian Retail Space.
Apart from this, it would not be an exaggeration to state that the proliferation of Mobiles and Smartphones in India has allowed it to bypass the traditional evolution from landlines to mobiles and instead, leapfrog directly into the Smartphone and Mobile era.
Thus, the technological factor that is transforming the Indian Retail Sector is evident from these trends. Also, last mile connectivity issues have been mainly sorted out wherein it is now routine for Indians of all incomes and hues to either order online or through phone and have their goods delivered to their doorsteps free of cost.
Again, the better coordination in the consumer value chain between the consumer, the merchant, and the delivery personnel is mainly being driven by technology.
The Emergence of the Eco Chic Consumer and What it Means for the Indian Retail Industry
With increasing social and environmental consciousness among the Indian Consumers, the Retail Sector has had to grapple with its business practices that were widely seen as being polluting and environmentally damaging.
For instance, the widespread use of Plastic Bags for carrying the goods brought in groceries was banned by the Courts since such plastic carry bags were found to be environmentally damaging. Unlike cloth and paper bags, the plastic bags do not decay or merge with the soil.
Hence, the courts felt that Kirana and Supermarket stores should not use them. In addition, the rise of the Eco Chic Consumer or the Consumers who insist on buying so-called Green Brands meant that such brands that are deemed to cause minimal environmental damage were found to be in demand more than others.
Moreover, with the Indian and Foreign Media focusing on these issues and how the Retail Sector was reacting, there was added pressure on it to rectify and correct their business practices.
Legal Ramifications Affecting the Sector
Apart from that, the courts and the government too took an active interest in how the Indian Retail Sector was responding to the growing social and environmental practices. The combined effect of all these trends meant that Child Labor was outlawed, Green Practices were prescribed, Food Safety was mandated, and Adulteration and Quality issues were subject to stricter fines including cancelation of licenses.
Taken together with other legal measures such as sealing of shops in residential neighborhoods as well as banning encroachments meant that overcrowded footpaths and dingy shops were now being elbowed out.
While this move was widely hailed, the fact remains that those at the lower end of the Retail Pyramid were more impacted than Big Supermarkets and Stores.
The Double Whammy of Demonetization and GST and How the Industry is yet to Recover
No discussion on the Indian Retail Industry would be complete without analyzing the impact of Demonetization and the introduction of the GST or the Goods and Services Tax.
Indeed, when compared to the other sectors in the Indian Economy, the retail sector perhaps took the biggest hit in terms of lost revenues as well as disruption of the supply and value chains.
This is mainly because the Indian Retail Sector is a Cash Driven one where Cash is King and hence, the sudden move to withdraw nearly 80% of the money in circulation led to large-scale disruptions in the way the sector operates.
The effects can be seen on the sector in terms of lost revenues on account of the days and months it took for the cash supply to be restored, the disruption to the livelihoods of the Millions of owners, traders, supplier, and employees who make up the workforce in the Retail Value Chain.
In addition, the introduction of the GST dealt another blow to the Indian Retail sector long accustomed to multiple taxation structures as well as not having paid direct taxes like Income Tax earlier.
In other words, the Millions of Kirana shops and Neighborhood Grocery Stores, the Merchants and the Traders, were simply out of the Tax Bracket before GST was implemented.
Thus, the introduction of GST meant that they all now had to register themselves as Taxpayers in addition to filing taxes every month or quarter.
While this move was intended to both simplify the Taxation Structure and Broaden the Tax Base, the way in which it was implemented led to serious and severe disruption in the workings of the Indian Retail Sector.
It would be an understatement to say that the Sector has yet to recover from the Twin impacts of Demonetization and GST fully. Indeed, one can go so far as to say that the Retail Sector was hit by a Double Whammy by the Demonetization and GST Measures.
Culture and the Glocal Approach: How to Woo the Conservative Indian Consumer
The discussion so far has examined the ongoing transformation of the Indian Retail Sector using the PESTEL framework. As can be seen from the points made so far, it is clear that the Indian Retail Sector is rapidly changing with the confluence and the convergence of all these trends.
However, a key factor that both aids as well as inhibit further transformations is the very real impact of Culture. Given that India is a socially and culturally conservative country, it remains to be seen as to how far the transformation of the Sector happens in terms of the ongoing attempts to westernize it.
Indeed, this is the reason why many Foreign, as well as Indian Retailers, have begun to Think Global, but Act Local, or to use a famous term, adopt Glocal strategies.
In other words, any retailer wishing to do business in India has to necessarily adopt a Glocal strategy wherein world-class infrastructure and consumer experiences are merged with highly localized marketing and advertising strategies as well as product and brand choices.
This is the reason why McDonalds in India sells McTikka and McAloo in deference of Indian tastes and this is also the reason why many Indian Retailers use their Indianness as a Unique Selling Proposition.
Conclusion: The More Things Change, the More they Remain the Same
In the final analysis, it is our view that the changes underway in the Indian Retail Sector would take time to have deep and meaningful impacts on the way the Indian Retail Sector operates.
Indeed, the confluence and the convergence of all the trends discussed so far means that while there would be attempts to reform and rejuvenate the sector, overall, we can expect the changes to be glacial in both the speed as well as the basic structure of the sector are concerned.
To conclude, these are the best of times and worst of times to be a Retailer in India and hence, it is advisable for all players to be cautiously optimistic and realistic at the same time as far as their strategies are concerned.
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