“Can you think of a situation where there is a Shoppers Stop kiosk in Westside? “ Rahul Mehta – President of CMAI asked the audience, during the session on innovative collaborations in Retail.
“The US market has seen the conceptual equivalent of this phenomenon. During the peak Christmas season 2012, Toys ‘R’ US created a kiosk at Macy’s so that customers could order their choice, with offline fulfillment and delivery” said Mark Batenic – CEO & President of the Independent Grocers Alliance in the US.
The theme of the discussion was on whether Retailers can collaborate with one-another. There have been examples of successful, collaboration- based business models in India – the most prominent of them being AMUL. But there have also been examples of failures – e.g. loose collaborations of grocers in Rajkot and among retailers in Delhi which failed on perceptions of cartelization. More importantly the panel commented on the fact that there are a myriad range of small examples of collaboration – whether for sourcing product, dealing with FMCG manufacturers or creating collaboration across value add services (e.g. laundary pick up & Delivery services at retail outlet) which are not reported on by the media because the collaborators are small, unlisted companies. This groundswell of innovation is across cities, segments and components of the value chain.
Some other insights:
- Collaboration is more than just “bulk buying” – but its easiest to start with bulk buying since there can be an immediate commercial impact on all the participating collaborators.
- It works best when there is symbiosis – i.e. the collaborators do not compete with each other. The boundary could be geographical (same category of retail – e.g. electronics) in different cities.
- It does require the partners to give up a certain degree of autonomy – to “let go” and to trust the other partners. This is why collaboration models take time to mature. There was speculation on whether a “professionally” managed company could collaborate better than an owner-driven company, because the latter would struggle to “let go” – but that phase of the discussion was not conclusive.
- Collaboration can be a source of competitive advantage. Between the Kiraanas and the organized retail is a whole segment of mid-market retail – which was christened by Gulshan Bakhtiani (Director – Wellness Forever) as “Organizing Retail”. These retailers act like “modern” retailers – they provide cash memos, adopt technology, work on a self service model i.e they look and feel like organized retailers. But their relevance to their local catchment is high and is unlikely to change anytime soon because of their ability to cater to the individual consumption tastes of the 2 to 5 km catchment that they serve. This is most visible in categories such as food and beverages.
Collaboration can also help Indian retailers “take on” the wave of overseas retailers expected after FDI related investments materialize –a view expressed by Chetan Sangoi (Owner, Sarvodaya Supermarkets) and seconded by Mark. Its interesting to note that not all large global retailers have succeeded outside their home market (e.g. Carrefour, Metro who tried to enter the US,
Tesco’s move into continental Europe), event as consumer product companies have. See graphic below.
An important aspect of collaboration is around data sharing. In the Indian context – there is a natural resistance to sharing data because the majority of the “collaborating” community are not required by law to do so . However, once a base level of trust is established it is important to create and use data sharing techniques to add on-the-ground intelligence and build the case for continued collaboration using quantitative metrics.
- Asked what is the role of the government in creating collaboration – Mark’s view was that in India, business needs to collaborate with government to cut down on logistics cost. Specifically on pushing government to construct roads – to debottleneck the road network so that product moves to market as soon as possible. The international norm is that distribution cost is less than 2% of total cost.
Collaboration has to be a “Win-Win-Win” – the third win is about the customer. The fundamental difference between collaboration and cartelization lies in the intent – one works for the customer and the other against. A very relevant example from the US market was, as Mark pointed out – the evolution in the relationship between Wal-Mart and its US suppliers. Wal-mart has squeezed every penny of cost out of its supply chain, but that “DNA” of pushing their vendors also resulted in their US vendor base going bankrupt in the 1990’s with sourcing shifting to low cost international suppliers. At the scale of Wal-mart – this impacted job creation and purchasing power in the local community and so “came back to bite them” in a round-about way. Since then, Wal-mart has been more collaborative in its dealings with vendors.
Lessons for Indian retail:
- Collaboration can help retailers stay locally relevant; not just with the customer, but also with manufacturers.
- Building trust is a long term process. Trust is the cornerstone for successful collaboration.
- Collaboration can create a “win-win-win”.
|Moderator:||Rahul Mehta, President CMAI.|
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