GoFrugal Technologies - RayMedi Suite of Products

In the BW opinion column in Business World issue for the week 17-23 April 2007, there is an interesting statistics about sugar consumption in India. It says

“As people have got more money in their pockets, they have been eating more sweets. Sugar output has responded to the demand. From 13 million tonnes in 2004-05, it increased to 19.3 million tonnes in 2005-06. But it could not keep up with demand. Sugar price, which was in the range of Rs 17-21 a kg in January 2005, had risen to Rs 21-23 by the middle of 2006″

You can read the entire article at Procurers in Trouble

This is shocking given that India is the diabetic capital of the world and I see more and more people getting health conscious et.al. Leaving this serious thing aside, this points to the raising demand being the culprit for inflation. If increase in income levels can have close to 50% increase in sugar consumption over 2 years, imagine the increases in consumption of rice/wheat, pulses, cerels, vegetables etc.

If these statistics are really correct, the retail trade volume could really triple over the next 8-10 years, resulting in growth for both organized and unorganized retail

– Kumar Vembu

With increasing real estate prices / rent for retail space and ever increasing competition, it is getting more and more important to plan your retail business well. The location plays a very important role but at what cost, what is the revenue per square foot required for break-even and for profitable operations. Given the gross margin in your business and the average ticket [bill value] size for your type of business, what are the number of sales transactions to be done each day, what is the footfall required to achieve the sales target etc. are becoming very critical

In addition to these, the nature of shopping experience you wish to provide your customers determine the investment required [interior design is a major factor] for your business and the operating cost [number of customer service / sales agents] for your business. It is important that from the store design to the staff in the shop are determined based on the footfall, average ticket size, number of customers handled each day. It is also important to plan the number of checkout counters, the checkout process etc. are also a designed to suit your needs

To make the job of business planning and measurement easier, GoFrugal has launched a retail business planner and a retail health meter

The purpose of the business planner is to provide the break-even average sales per day, target average sales per day for profitable operations based on the gross margin, investment and operating costs. The business planner is aimed at making sure the retailers earn enough to sustain and grow their business. It is important to understand that to grow their business, retailers need to invest on technology and shopping experience on a continuous basis and it is not enough to set the store up and earn a livelihood from the operations. As most successful retail business owners are planning to relaunch their operations, in tune with consumer preferences and taste, I am sure the retail business planner will help them fine tune their plans
The purpose of the retail health meter is to give a perspective on a retail operation to the retail business owner. The health meter shows the profitability and the net return on investment for the current revenue and investments. This will help retail business owners understand how their business is doing and what they have to do to improve their returns

We are planning to improve both the retail business planner and the retail health meter with more analysis and tips on setting up and growing retail businesses. We are also planning to support these analysis as part of our retail solutions

Please feel free to share your feedback and comments to improve our business planning and analysis tools

– Kumar Vembu

Prof. Vaidyanathan of IIM, Bangalore wrote about Retail revolution — Trading away the livelihood of millions? in the The Hindu Business Line on March 8, 2007

While I agree that retailers should be encouraged to use technology including telecom and internet, I donot think the livelihood of small and medium retailers are threatened in anyway. I feel the current investments in organized retail will help improve the quality of life of people involved in retail trade

As part of my job, I read various research reports, articles and views on the growth and opportunity in retail. While numbers vary between these reports, we can still use them to see how unorganized retail will still have significant share in the retail business. Here are some numbers that I have seen in the last few months

• India’s retail trade is about Rs.10 trillion in 2006
• Organized retail share is about 3% [Rs. 0.3 trillion]. This means unorganized retail volume is Rs.9.7 trillion
• Retail trade volume recording about 15-20% year on year growth & is expected to be about Rs.35 trillion in 2015
• Organized retail is expected to have 15% share of the market in 2015
• The above means, organized retail will be about Rs.5 trillion & unorganized retail is about Rs.30 trillion

Basically, we can infer that unorganized retail volume is set to grow from Rs.9.7 trillion today to Rs.30 trillion in 2015. This is a huge growth and it offers significant opportunity for all

As Indian Consumers get more purchasing power, there is opportunity for everyone here. From the tiny trader to the global retail giant, everyone stands to benefit due to India’s growth. The fact that retail is the 2nd or 3rd largest employer means that more people stand to benefit due to investments in retail

I hope we start looking at these investments as an expansion of the overall market rather than what is one’s share in the market

So, the Kirana shop owner should concentrate on his customers and his business instead of wasting his time fighting investment in retail. At the end of the day, the new investments offers a win-win for the retail trader, people employed by retail trade and to the consumer.
– Kumar Vembu

As we see more retail chains selling fruits and vegetables, the road-side vendors are adopting an interesting pricing strategy. I felt the Yellaki Banana is getting more expensive over the last few weeks. It used to be Rs.12/- to Rs.15/- a dozen with a small fruit vendor near my home and has become Rs.18/- a dozen now. A retail chain nearby is selling the same at Rs.21/- a dozen and another chain 500 meters away is selling the same at Rs.24/- a dozen [nothing much to differentiate in the quality of the fruit as all of them are of similar size/quality]. I asked the road-side vendor why Yallaki Banana is more expensive now and does he know the price in the retail chain near-by. His response was a revelation for me. He told me, he checks the price every day and fixes his price a shade lower than the price fixed by the retail chain [so that he is very competetive and he can give better product / service]

I had a similar experience buying watermelon this season. Till last year, you pick a watermelon and the vendor will just see what you have selected and quote a price. But this year, many road-side vendors selling watermelon are equipped with weighing scale and quote a price based on the weight of the watermelon. While buying watermelon last week, I told the shop owner watermelon is cheaper in the chain store [just tried to see whether he knew the price]. Again, I was surprised by the response as this guy knew the price per kg at the chain and he also told me he rounds-off the weight to the lower kilo [5.6 kg watermelon was give at 5kg price]. He told me I will pay for 5.6 kg in the chain but only for 5kg with him [It is another matter that the watermelon that I used to buy for Rs.20/- last year is costing me Rs.30/- last weekend and Rs.35/- yesterday]

So, my conclusions : The retail chains are increasing the productivity of the road-side vendors as most of them can make more money than they used to [as the retail chains help establish / baseline the price in the mind of the consumers]. This is assuming the product is the same. In the case of fruit like watermelon and banana, the road-side vendor in his push-cart sells better quality product with better [personalized]  service and better shopping experience [bargain / have a conversation]

For now, consumers are paying a higher price for the same product [we are starting to pay for service also]. It is interesting to see the crowds inside the retail chain outlets and also watch the brisk business done by the road-side vendors

– Kumar Vembu

Over the last 2 weeks, online news portals, news papers, magazines etc. are analysing the budget extensively. There is a rare consensus on the missed historic opportunity to put India in a higher growth path

I feel there is too much attention on the direct and indirect tax rates and also the allocations and soaps to various sectors of the economy, while analysing the budget. The need of the hour are ways to reduce the compliance cost [for businesses] and the enforcement cost [of the government]. I think very little has been done in this direction

The government can learn a lot from the evolution of business over the last few decades to organize itself for more efficient administration. We have seen most businesses moving from a functional organization model to a strategic business unit model. These companies also have policy making, execution and review/audit responsibilities clearly defined.  Along similar lines, India can go for policy making bodies [which are functional], service departments [single window for every business] and enforcement agencies. Such organization can lower the enforcement cost for the government and the complaince cost for the business
Simplification of compliance, enforcement and giving businesses one interface to government, will pave the way for higher growth rates
– Kumar Vembu

There is an interesting article by Cait Murpy in CNNMoney.com on India titled India the Superpower? Think again. While I may agree with most of the statistics and the point about making a dent on poverty, we need to see things half-full rather than half-empty

India is facing a huge labor shortage in urban, semi-urban and rural areas. You cannot find enough people for agricultural jobs. You cannot find enough people for field sales/support jobs. You cannot find enough cooks, drivers, house maids, security guards, nurses, waiters, painters, carpenters, construction workers, accountants, retail counter staff etc. This is inspite of the demographic profile of India, where significant percentage of people are young and in employable age bracket. It is important to note that most of these young people are willing to migrate in search of opportunity [which was not there with the earlier generation of people]
Since retail is one of the biggest employer [after agriculture] in most economies in the world, retail becoming one of the high growth industries will help making India progress in the coming years

As more and more retail investments are made, as more medium and large companies [IT or otherwise] go to tier II cities [in search of talent], as more entrepreneur’s setup business in smaller towns and villages, it is becoming clear that the success of urban india will be replicated in the semi-urban and rural india in the next 5-8 years. I can relate our experience of meeting large number of people involved in retail business in India. Most retailers across India say a couple of things
1. Consumers are looking more for service today [and they used to look for best price in the late 90s and early 2000]
2. Manpower is getting more expensive and difficult to find with each passing day [to clean and repack food and grocery products, to arrange products in the shelf etc.]

The above indicates the need for respectably paid, low skilled jobs. Infact, training institutes and contracting agencies for such low skilled jobs in retail are opening up across the country. I am sure these efforts will bring more and more people into the employment pool [I can relate this to the IT companies recruiting people from all branches of engineering, science and arts graduates and making them IT professionals]. All these developments point to rapid creation of jobs for people with lower skills. I am sure this revolution offers great opportunity to eradicate poverty in India over the next few years [it will be much faster than we think]

Finally, I would like to quote from my personal experience of working in the US [vs working in India]. In 1994-95, when I was working in the US, I used to have this constant argument with my brother Sridhar on the productivity in India [I used to feel I was doing much more work as a Software Engineer in India than in the US]. Sridhar used to quote from the balance sheets of US companies and Indian companies to make a comparision on the per employee productivity and say that it is no-way-possible that you were doing much more [interesting, challenging and gainful work] in India. While US still ranks very very high in terms of innovation and technology, it is a proven fact that you get value for money by outsourcing work to India [get better productivity, I mean]. I came back to India because I could not accept that I was just keeping myself busier here and I am glad I could experience and be part of the progress urban India made in the last 10 years. Based on this experience, I have learnt that real action at the ground level is decides the future [and not statistics, which is history]
I am sure history will repeat on rural India in the next 5 years

– Kumar Vembu

NDTV carried an interesting story in it’s 8:00 PM program tonight. It is about the rising price of Onion, Cooking Oil, Pulses, Vegetables and other essential commodities. In summary, there was a discussion on the reasons for the rising prices of the above. Popular reasons are

• Multinational / National chains buying pulses far above the local trader price levels and hoarding them
• Future trading on the commodity exchanges
• Lack of action from government side as these goods are not part of essential commodity and also because the agricultural minister of India is busy with managing Cricket and does not have time to attend to the problems of the common man
• Higher petrol / diesel prices leading to higher transportation cost

Of the above, the reason number 1 [large chains increasing the prices] is doing the rounds for more than 4-6 weeks now. Infact, I heard it first time from a small trader in Kumbakonam during Pongal. It was repeated by Kerala’s CM and this is one of the major reasons the UPA government wants to go slow on FDI in retail

I agree that consumers are paying higher price this year for the commodities above. If this higher price really resulted in the farmer in our villages getting higher income, I think we must welcome that. Let us remember that most of these commodities have limited supply. With increasing cost of farming, increasing risks and lower yield from crops etc. it is only natural that the farmer gets the best price for his produce

Like the way globalization of / FDI in manufacturing, banking, insurance and all other segments of economy increased the opportunity and income levels of people employed by those sectors, if large investment in retail will help our farmers get better price for their efforts, let us all welcome the same instead of fighting it. Let us remember that people in city have the opportunity to earn

I think this rise in prices and the resulting inflation narrows the income / purchase power gap between the urban population and the rural ones. So, if we are sure the farmer is getting a higher price for his produce, we should go for FDI in retail to narrrow the gap in income levels between the urban and rural population

Note 1 : Let us remember that finally the prices will settle at globally competitive levels and so the Indian consumer has to pay for consumption and the Indian farmer gets the best price for his produce [assuming the government does not favour one or the other group]

Note 2 : I also find it funny that when the sensex goes up by 500 points, all TV channels celebrate the same. But, when a farmer makes extra money [NDTV did say that farmer got higher price. So, I am going by that], we look at the negative side of it. It would have been great if NDTV included a farmer in its panel so that we know how much more they made …
– Kumar Vembu

Sanjeev Sharma writes in economic times that Kirana shops should focus on niche markets and avoid competing with the chain on the product mix carried. Please read the article below

http://economictimes.indiatimes.com/articleshow/1582312.cms 

It’s an interesting article. Based on our experience with the retail market in the context of collaborative practices and tools , I feel the retail trade is in for very interesting times

I feel the advantages the big retailers had are sourcing the product cheaper [due to large volume of purchases], access to best business practices and technologies to automate the same and access to capital. But, today all the FMCG and other branded vendors [which is a significant part of the market] have already established efficient supply chains for their current volume. These major manufacturers may prefer to deal with millions of small retailers rather than few major retail chains [for obvious reasons]. We can already see signs of this trend in HLL’s supervalue stores and many other such initiatives. Also, the existing hyer-competitive environment in retail coupled with the well documented history of retail chains the world-over will make it hard for the chains derive major purchase benefits

With the advent of internet, peer2peer [p2p] technologies, mobile phones etc. technology is a commodity today and every Kirana store can access best technology at reasonable cost. The Kirana store owner is always willing to do more for less [work more for less money]. Since retail is a highly man-power intensive business, the Kirana shop’s “more for less” advantage is very difficult to counter

On balance, the Kirana stores stand a much better chance of competing against the retail chains today than the days when the Wal-Mart and Tesco grew. With the increasing difficulty in finding good quality man power, I even think that it is advantage Kirana Stores for now

– Kumar Vembu

Feel free to post your thoughts on anything and everything related to Retail here