What is modern retail? A few years ago grocery retail was limited to local grocery stores or family-run and owned grocery stores. Almost two decades there was a shift in the global retail landscape. The advent of innovation led to the rise of modern grocery retail stores like Walmart, Carrefour, Costco, and Metro which offered multiple essential products under one roof. The 1990s saw a couple of multi grocers adapting to modern grocery retail formats. This was identified as a modern retail approach. One major difference between the traditional and modern retail approach is, the modern approach is more systematic and organized. Modern retail directly deals with manufacturers or suppliers eluding middlemen completely. With the advent of technology and innovation in the retail landscape, the traditional retailing style is fading significantly. The fear of getting extinct made few traditional retailers adapt to modern retailing styles with the help of e-commerce platforms or implementing interactive, innovative retail technologies in their stores. But as the global retail landscape saw a surge of modern retail formats and a presumption was made regarding modern retail formats like supermarkets, discount stores, supermarkets, and mini markets capturing the retail sector and extinct the traditional formats. There was an assumption the modern retail formats will take over the global retail landscape despite the cultural differences and specifications. All the presumptions and assumptions were proved wrong as the traditional retailers stayed put and were resilient. Especially in smaller developing countries, the traditional retail approach is still successful and people are dependent on small local retailers to fulfil their shopping needs. Whereas modern retailing is more prevalent in developed countries like Europe and the USA. Have we ever analysed why this difference and though where have the modern retailers gone wrong? What does the future hold for modern grocery retail in global emerging markets?
The retail sector in emerging markets or economies failed to gain the desired momentum and the reasons are varied. Retail experts had predicted the emerging markets to comprise $30 trillion in consumer spending. The supermarkets or hypermarkets in developed countries were favoured for different reasons and were also suitable due to the large scale of developed infrastructure in these geographies. While making an entry in emerging markets with modern formats like supermarkets and hypermarkets several factors were in favour of developed countries. If we analyse most of the factors that were common for these countries – the city transport infrastructure was in place, per capita income was high and stable, citizens could afford bigger homes which gave them the facility to store essential goods in bulk or larger quantity. All of these made modern retail formats viable for developed countries. The emerging markets displayed other concerns for retailers, the consumer bracket was less affluent and per capita income was not very high, most of the population did not possess an own vehicle and were apprehensive to travel long distances for shopping, also the homes were not much larger and modest in size making it difficult for consumers to buy and store goods in bulk.
A recent survey report by the leading research giant Mckinsey displayed the penetration trends of modern retail in global economies from 2009-2014. The report showed Germany had the largest (85%) penetration of modern retailers. Whereas newly developed countries like Spain and Italy show a penetration close to 70%. Emerging markets have shown considerable variation in this report with China at 65%, Vietnam 20%, Brazil, and Mexico at 50% and 60% respectively. India has the least 10% penetration rate.
The above statistics indicate modern retail has not been much accepted by emerging markets. Though, a deeper study of the feasibility of this approach in such economies can yield better results. Modern retail is affected majorly by one other factor which is public policy. Trade policies of various countries also affect the growth of modern retail. Certain restrictions on foreign direct investments make it difficult for a modern retailer to make an impact in emerging markets. For example, India’s direct investment policies limit the growth of modern retail whereas China government the foreign investment which is attracted through modern trade and supports modern retail mechanism. Hence, in the last 15 years, modern retail penetration has seen a significant rise in China.
Along with the above reason, various other factors also affect the growth and success of modern retail in emerging markets. For example, citizens in emerging markets prefer money-saving and low-cost goods, there is negligible demand for ready to eat or processed foods and people tend to cook their own meals. Another major reason is emerging market economy makes the consumer rely more on local markets and retailers, preference is given to local grocers, vegetable sellers and there is a comfort that is sought by shopping within neighbourhoods. Cultural landscape, climatic discrepancies, family structures all contribute to the success or failure of the modern grocery system within emerging markets. Customers prefer less travel time while stepping out for shopping. The most important factor to prefer local shopping places is loyalty reaps many benefits to customers. The rapport shared between grocers, retailers and customers give way to benefits like free home delivery, reduction in prices, and few times availing credit too. Customers in turn remain happy, loyal, and also feel preferred. Such factors are critical to be considered in the case of emerging markets.
Supply factor study is also essential while analysing the modern retail landscape in emerging countries/markets. The trade structure in the emerging markets is traditional and informal, mostly the stores are family-owned. The store or shop premise is mostly self-owned or family-owned due to which the retailers do not have to carry the burden of paying rent. According to a European market study, these mentioned factors increase the cost-saving capacity of the traders and enable them to spend more on sourcing and enhancement of supply chain processes. This is a major challenge for modern retailers while they compete with local traders/retailers. Thus, modern retailers find it difficult to strengthen their base in such markets. The fragmented supplier base in emerging markets is another hurdle that affects the success of modern retail. In an emerging economy the local retailers, suppliers are preferred as they efficiently fulfil supply requests despite a complex network of suppliers. Modern retailers will find it difficult to source volume orders from such complex structures and hence it will not be easy to find supply partners who can cater to their large, nationwide retail network. These multiple factors clearly display the growth of modern retail has not happened in emerging markets. To sustain in these markets modern retailers must adopt a few strategies which will help them make their footprint and also help them grow in these geographies.
Proximity – the key factor for consumers!
For any customer lesser travel time to reach the store is always a crucial factor. Consumers in these markets prefer shopping within a specific budget and make multiple short trips to buy various essential goods. Small convenience stores in different areas will make it easier for modern retailers to penetrate these landscapes. The mini-market format can be adopted by modern retailers and this will help them find a footprint in local markets too.
Low prices attract more customers
The per capita income in emerging economies makes the consumers prefer discounts or subsidized rates. Low prices of goods, huge discount rates, simple offers on goods, etc. attract consumers and are points to be considered while setting up retail operations in these landscapes. Germany, the world's richest retail market is an example where discounts have a high place in the retail landscape.
City-based retail strategy
While setting up retail operations, location study is extremely essential. Basis the city demand and supply design the retailer can decide whether to operate from a city or clusters. Retailers can take a call on whether to operate from a limited number of stores or stick to a single store location.
Preference to tie up with local traders
A very favourable strategy to be adopted can be a partnership with local traders. Instead of looking at them as competitors, make them your preferred vendors/suppliers. This helps retailers to enter the local trade market and leverage this rapport to increase the business network and also minimize their capital investment. The connection with local traders gives way to increased trust among the customer base as well.
As discussed earlier success for a modern retailer in emerging markets is an amalgamation of multiple factors. But correct strategies and research regarding the emerging market landscape will definitely help the modern retail sector to find their place and establish a successful footprint in these markets.
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