Organized Retailing in Kerala –Key Issues and Challenges

Dr.K.S.Chandarsekar
Head of the Department
Institute of Management in Kerala
University of Kerala

C.S.Siva Prakash
Faculty
Institute of Management in Kerala
University of Kerala

Abstract

The Kerala model of development is famous for the achievements it has made in the field of
social infrastructure development like healthcare and education. Things have changed
dramatically in the past few years - especially the quantum leap in the IT sector. The
architecture of shops in all the cities and towns in the state has changed beyond recognition.
Organized retail chains are mushrooming all over Kerala. From the cities it has spread over to
tier II and tier III towns and eyeing up villages now. The organized retailing in Kerala is going
through a transformation and this upcoming potential market is witnessing a significant change
in its growth and investment pattern. Both the unorganized as well as the existing organized
domestic players are experimenting with new retail formats. The Consumer dynamics in Kerala
is changing and the retailers need to keep track of this and formulate appropriate proactive
planning to get the grip in this upcoming market. This paper critically evaluating growth of
organized retailing in Kerala, upcoming retail formats and also very important, discussing
about the issues and challenges facing by retail sector in Kerala.

Key Words: Retail Formats, Organized Retailing, Consumer Dynamics, Retailing, Kerala

Introduction

Organized Retail stores contributes 26% of United States gross domestic products and third
largest employer. Our neighboring country China on the other hand has attracted several global
retailers in recent decade and Retail sector provides 9% employment for the population in
China. Major retailers like Wal-Mart & Carrefour have already entered the Chinese market. In
the year 2008 just before recession clout , Wal-Mart & Carrefour had sales of US $ 112 Crore &
US $ 186 Crore respectively in Chinese market. The global retail industry has traveled a long
way from a small beginning to an industry where the world wide retail sales is valued at USD
80,00,000 Crore. The top 200 retailers alone accounts for 30 % of the worldwide demand. Retail
turnover in the European union is approximately Euros 2,00,000 Crore and the sector average
growth is showing an upward pattern. The Asian economies are expected to grow at 9%
consistently till 2009-11.
The Indian retail industry is the fifth largest in the world. Comprising of organized and
unorganized sectors, India retail industry is one of the fastest growing industries in India,
especially over the last few years. Though initially, the retail industry in India was mostly
unorganized, however with the change of tastes and preferences of the consumers, the industry is
getting more popular these days and getting organized as well. With growing market demand, the
industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected
to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2010.According to
the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is
the most promising emerging market for investment. In 2007, the retail trade in India had a share
of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also
expected to reach 22% by 2010.According to a report by Northbride Capita, the India retail
industry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector
will be 20% of the total market share. It can be mentioned here that, the share of organized sector
in 2007 was 7.5% of the total retail market. India is the country having the most unorganized
retail market. Traditionally it was a family’s livelihood, with their shop in the front and house at
the back, while they run the retail business. More than 99% retailer’s function in less than 500
square feet of shopping space. Global retail consultants KSA Technopak have estimated that
organized retailing in India is expected to touch Rs 35,000 crore in the year 2005-06. The Indian
retail sector is estimated at around Rs 9,00,000 crore, of which the organized sector accounts for
a mere 4.7% indicating a huge potential market opportunity that is lying in the waiting for the
organized retailer. Purchasing power of Indian urban consumer is growing and branded
merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even
Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian
consumer.

The Indian retail scene has witnessed too many players in too short a time, crowding
several categories without looking at their core competencies or having a well thought out
branding strategy. The growth rate of super market sales has been significant in recent years
because greater numbers of higher income Indians prefer to shop at super markets due to higher
standards of hygiene and attractive ambience. With growth in income levels, Indians have started
spending more on health and beauty products. Here also small, single-outlet retailers dominate
the market. In recent years, a few retail chains specialised products have come into the market.
Although these retail chains account for only a small share of the total market, their business is
expected to grow significantly in the future due to the growing quality consciousness of buyers
for these products .Numerous clothing and footwear shops in shopping centres and markets
operate all over India. Traditional outlets stock a limited range of cheap and popular items; in
contrast, modern clothing and footwear stores have modern products and attractive displays to
lure customers. With rapid urbanization, and changing patterns of consumer tastes and
preferences, it is unlikely that the traditional outlets will survive the test of time. Despite the
large size of this market, very few large and modern retailers have established specialized stores
for products. There seems to be a considerable potential for the entry or expansion of specialized
retail chains in the country. The Indian durable goods sector has seen the entry of a large number
of foreign companies during the post liberalization period. A greater variety of consumer
electronic items and household appliances became available to the Indian customer. Intense
competition among companies to sell their brands provided a strong impetus to the growth for
retailers doing business in this sector. Increasing household incomes due to better economic
opportunities have encouraged consumer expenditure on leisure and personal goods in the
country.

Indian Retail growth attributes

According to Federation of Indian Chambers of Commerce and Industry (FICCI) the major
attributes for the growth of Indian retail sector as follows .

• Demography Dynamics: Approximately 60 per cent of Indian population below 30

years of age.
• Double Incomes: Increasing instances of Double Incomes in most families coupled with
the rise in spending power.
• Plastic Money: Increasing use of credit cards for categories relating to Apparel,
Consumer Durable Goods, Food and Grocery etc.
• Urbanisation: Increased urbanisation has led to higher customer density areas thus
enabling retailers to use lesser number of stores to target the same number of customers
and also aggregation of demand that occurs due to urbanization helps a retailer in reaping
the economies of scale.
• Covering distances has become easier: with increased automobile penetration and an
overall improvement in the transportation infrastructure, covering distances has become
easier than before. Now a customer can travel miles to reach a particular shop, if he or
she sees value in shopping from a particular location.

Catalysing factors for the future growth of Indian retail sector:

According to World Bank , India to be the world second largest economy after China by the
year 2050 and also stable and investor friendly Central Government at the helm of affairs.
Potential to be the third largest economy in terms of GDP in next 10 years and ranks high
amongst the top 10 FDI destinations of the world. In case of tourism fastest growing tourist
market in Asia. Introduction of VAT and tax reforms. High degree of professionalism and
corporate ethics. Excellent Investment opportunities in Indian retail sector because of conducive
macro environment. Investment of US $130 billion for the development of infrastructure, by year
2010. Sound stock market performance. Highly educated English speaking young workforce and
vibrant and multi cultured cities. Huge opportunity exists, especially in semi-rural and rural
areas. Till date the second largest employer after agriculture sector, for the huge semi-skilled
Indian population. Offers highest shop density in the whole world. Having almost 1, 20,000
shops, across the length and breadth of the India.

Objectives of the study

1. To critically evaluate the retail sector growth in Kerala.

2. To get insight on various retail formats upcoming in Kerala.
3. To get insight on various domestics as well as MNC’s retail formats operating in Kerala
economy.
4. To critically evaluate various minor and major challenges hindering organized retailing in
Kerala.
Methodology

The study was purely theoretical in nature by systematically collecting data from various
secondary sources especially statistical reports of premier consultancy groups and observation.

RETALING IN KERALA
The Kerala model of development is famous for the achievements it has made in the field of
social infrastructure development like healthcare and education. Things have changed
dramatically in the past few years - especially the quantum leap in the IT sector. The architecture
of shops in all the cities and towns in the state has changed beyond recognition. Shopping malls
are mushrooming all over Kerala. From the cities it has spread over to tier II and tier III towns
and eyeing up villages now. Kerala is a metropolis in every mile. A State with no urban-rural
distinction, Kerala has a vibrant market of 30 million people spread over 38,863 Sq.kms. This
100% literate State has only 3.7% of the total Indian population but accounts for 12% of the
Indian consumer market. Kerala is the perfect test market for products of any description, given
that purchasing power, population density and physical quality of Life is the highest in the
country. There has been an explosion in retailing in Kerala from past 7 years, because of
foreign exchange remittance by expatriates and the high salary earned by the employees of the
dynamic Kerala economy even though significant level of hindrances stay alive .

Major Retail Formats and Players In Kerala

1.Malls: These are the largest form of retail formats. They provide an ideal shopping experience
by providing a mix of all kinds of products and services, food and entertainment under one roof.

Lulu Cochin Mall : Setting up is going on in cochin and expected to open during April 2011 in
full-fledged mode. It is built on an area of 2,500,000 square feet More than 240 renowned outlets
including food courts, restaurants, family entertainment zones and a seven-screen Multiplex will
all come together to make Lulu Shopping. Upon completion It will be the biggest shopping mall
of India. The estimated cost for this project is more than 1500 Crores.

2. Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a

variety of categories with deep assortments. These stores contribute 6% of all food and grocery
organized retail sales in Kerala.

Big Bazaar: is a chain of hypermarkets in India, with more than 123 stores in operation. It is a
subsidiary of Future Group Venture Ltd's, and follows the business model of United States-based
Wal-Mart. presently in Kerala they got presence in Trivandrum with two stores ,Calicut and
Trichur with one each and also in future plans to expand other strategic locations too.

Varkeys Bakery and Supermarket: is the leading supermarket chain in Kerala, India. Keeping
pace with the growing customer needs the first Discount Hypermarket – “V Mart” was started in
2004 at Cochin, Kerala . Both Varkeys Bakery and Supermarket and V-Mart , Hyper Market
comes under the banner Varkeys Retail Ventures Pvt. Ltd. The Stores and its concepts have
played a vital role in revolutionizing the tastes & shopping patterns of the people of Kerala.
Providing all the needs of a household under one roof, it has made its mark as a “single stop
shop” for its customers. Currently Varkeys got 56 outlets across kerala and planning rapid future
expansion in potential markets in kerala.

The Kerala State Civil Supplies Corporation: is better Known as Supplyco(Sabari Super
Market) is the gateway for the 30 million people of the State of Kerala, assuring the much
needed food security in a substantive style by supplying life's essentials and reaching out to the
rural-poor and the urban-rich alike. It is a fully owned Government Company with an authorised
capital of 15 crores, to meet the limited objectives of regulating the market price of essential
commodities at reasonable prices, the growth of Supplyco for nearly three decades was
tremendous and unbelievable compared to any of the similar organisations in the country. Head
quartered in Kochi and operating through 5 Regional offices, 14 district depots, 42 taluk depots
and around 1000 retail outlets, it has a dedicated work force of nearly 3500 to fulfill the task.
Currenty it got 278 Sabari Super markets touching all districts in Kerala.

3. Specialty Stores: The retail chains, which deal in specific categories and provide deep
assortment in them are specialty stores. The penetration of specialty stores in Kerala is so
significant from the down the line ,especially in mobile phones, CD’s, Books selling ,Fitness
products etc.

4. Discount stores: These are the stores or factory outlets that provide discount on the MRP
items. They focus on mass selling and reaching economies of scale or selling the stock left after
the season is over.

Margin Free Market: is a co-operative venture of the Consumer Protection & Guidance Society
and the management, which came forward to take up the responsibility of launching it. Margin
free Market chain in Kerala helps consumers buy products for prices discounted from Maximum
Retail Price (MRP) since January 26, 1994. Marginfree chain today has more than 400 plus
shops in and outside Kerala. Annual turnover exceeds Rs. 720/- Crore (INR 7.2 billion). The
total discounts to consumers exceed Rs. 80/- Crore (INR 800 million).

Maveli Stores: is a venture of the The Kerala State Civil Supplies Corporation (Supplyco) under
the Government programme of market intervention, pulses and spices are purchased and sold to
the consumers at subsidised prices fixed by the Government. Now the Maveli Stores has become
a prominent name among the consumers in the state. Supplyco operates through Maveli Stores
and Mobile Maveli Stores throughout the state covering almost all the panchayaths. Quality
products and subsidised pricing are the twin advantages, which Supplyco extend to the
consumer.

5. Convenience stores: They are comparatively smaller stores located near residential areas.
They are open for an extended period of the day and have a limited variety of stock and
convenience products. Prices are slightly higher due to the convenience given to the customers.

Reliance Fresh: is the convenience store format which forms part of the retail business of
Reliance Industries of India which is headed by Mukesh Ambani. Reliance plans to invest in
excess of Rs 25000 crores in the next 4 years in their retail division. The company already has in
excess of 560 reliance fresh outlets across the country. These stores sell fresh fruits and
vegetables, staples, groceries, fresh juice bars and dairy products. A typical Reliance Fresh store
is approximately 3000-4000 square feet and caters to a catchments area of 2-3 km. currently
there are 23 outlets operating across Kerala.

Spencer's Retail Limited: operates convenience stores in kerala. It offers fruits and vegetables,
foods, fast moving consumer goods, staples, and frozen foods; personal and home care, baby
care, home furnishing, entertainment, and fashion products; and apparels and footwear. The
company was founded in 1863 and is based in Kolkata, India. Spencer's Retail Limited operates
as a subsidiary of RPG Enterprises. Currently there are 17 outlets operating across Kerala.

6. E-tailers: These are retailers that provide online facility of buying and selling products and
services via Internet. They highlights the products assortment, price, features in websites and the
consumers could chose the products and get the bill payment through plastic money and next
day get the products at the door steps. A lot of such retailers are booming in kerala, as this
method provides convenience and a wide variety for customer. But it does not provide a feel of
the product and is sometimes not authentic. Examples are Amazon.com, Ebay.com, etc.

In Kerala E-Retailing is at its premature state even though digital divide gap is very low. Within
short span of time this segment will surely get good momentum because of cultural shift and
changes in living style. Some of the Kerala based e-retailing initiative websites are given below.

www.manoramaonline.com
www.futurebazaar.com
www.qrs.in
www.keralarcade.com
www.allinoneindiangrocers.com

Organized Retailing issues and challenges in Kerala

Encumbrance From Central and State Government:- Even though the central government is
highly positive toward organized retailing in India opposition parties are demanding to put
curbs on mega players so that unorganized retail sector could be protected . In practical
situation this will open the venue for small unorganized sectors to perform well with offering
value added products and services for consumers and over a period of time unorganized chains
get the opportunity to go for consolidated organized operation just what seen in Bangalore . The
oppositions should also consider the scope of improvement in employment by welcoming
organized retail chains. Allowing 51 percent retail FDI in single brand retailing is a welcome
move in this direction. It is expected that the government will come up with good FDI policy
that could extend the FDI allowance of 51% or more in single/multi band retailing in India ,so
that more number of foreign players get the opportunities to come up with joint venture and
make Indian consumers satisfied with better competitive products and services .

In Kerala the very recent attitude of ruling party is so significant in case of retailing in Kerala by
opposing and preventing the entry of retail giants and serving the economy. They straight away
put danger signal to domestics as well as MNC’s for no entry. The victim’s included Reliance
Fresh , More, Subhiksha , Spencer Etc. The Kerala government also drafted a bill by amending
Kerala Essential Commodities Act so that the government can intervene in the retail matter and
also the government imposed strict licensing and clearing procedure of hindering the entry of
organized chains in Kerala.

Perplexity: The comparable operation of convenience stores, supermarkets, hypermarkets and

specialty stores in the Kerala economy always puts confusions among the consumer groups
especially because Kerala middle class still alien about organized retail concept. The Issues and
problems in one retail format could be perceived and used as yardsticks for evaluating and
judging other formats in Kerala by the consumers.

Positioning and Promotional Issues: The retailer’s communication towards the target
customers determines how well the store gets positioned in consumer mind. It is also necessary
to take consideration on Kerala culture and local language while designing communication tools.
The core purpose is to inform the target customers about the offering of the stores and sway them
to visit the store again and again. The communication tools should be based on segments
requirements to attract and the message should also clearly convey to the segments that the store
will exactly meet the expatiation level. Numerous communication and promotional tools are
available that suite with Kerala nostalgia, like Kerala touch advertising, viral marketing
enhancement, Kerala celebrity endorsement, use of local print media, penetrating FM channels,
television channels ,Covert advertisements could be used for effective communication and
promotion .
Category of Items: According to researches, 45 % of total consumption expenditure goes to the
segment of food and groceries and it accounts for 80% of total retail sales in India.
Practically it is very difficult for managing all assortments in an organized retails chain .It is
the responsibility of the retail management to identify the assortments required for the
consumers generally coming on the stores and considering location aspects and then
manage the supply chain .In addition to that if the stores could add more Kerala traditional
assortments then it will act as a catalyst for attracting more consumers .Assortment and
supply chain management could also improve stores productivity and considerably it could
reduce cost of operation .

Reminiscence: The Kerala consumers got certain unique cultural bound characters and this is
reflecting on their purchasing behavior too. They give more importance to, trust, safety,
health, reasonable price, attractive behavior, personal care and attention. Practically it is very
difficult to attract them towards organized retailing because they only shift from legacy
unorganized retail shops if they found an attractive perceivable benefit .So keeping this in
mind and coming up with right retail strategy could only work on Kerala.

Information Technology Adoption: Information technology adoption is a strategic decision in

any business sector .American and European retail giants are using information technology
as a wonderful tool for procurement, stores management, and customer relationship
management and getting significant benefits in terms of cost reduction and improved
productivity. Sensing the changes happing in the information technology world and its
adoption is inevitable in retailing .But unfortunately the adoption of information technology
by the domestic retail chains in India is very limited. The multinational and domestic Kerala
retail players should invest in the new information technology tools like bar coding and
reading, RFID, Centralized DBMS, Electronic Data Interchange, ERP, provision for the use
of plastic money and also Smart Card for enhancing the productivity of the stores. It is also
advisable to think about virtual marketing in future based on changes happing in micro and
macro environment.

Human Resource Management Issues: The retail industry according to recent reports is
growing at a rate of 100 percent. Kishore Biyani's Future Group ( Big Bazaar) retail outlet
alone provides employment to more than 18,000 people and is planning to expand its
employment base to 34,000 by June 2008. If we add to this the foray by mega players like
Reliance and Bharti-Walmart then the fear can surely turn into a misperception. India is
most attractive retail market for the second consecutive year in a row but it is lagging behind
in the retail labor index and positioned in the 8th place. At this point of time talent is in short
supply and employee churn has been high for all players. It is very difficult to get
experienced store managers to run stores. The way the sector is growing in terms of opening
stores it is very predictable that there is going to be huge scarcity of professionals to manage
stores. Currently the sector is not facing a shortage of human resources in Kerala since it is
in problem child state. But in the progressive stage of organized retailing in Kerala it is very
difficult to develop human capital in a short time span of time. Since in Kerala higher
education institutions are mashrooming over a period of time we could develop the human
resource pool requires for state organized retailing. If the upcoming talent pool in Kerala
could be properly channelized then a large committed talent pool could be developed to
fulfill the growing demand for various positions in the retail organizations in Kerala.
Issues in Supply Chain: Critical components of supply chain planning applications can help
manufacturers meet retailers’ service levels and maintain profit margins. Kerala organized
retailer has to develop innovative solution for managing the supply chain problems. Innovative
solutions like performance management, frequent sales operation management, demand
planning, inventory planning, production planning, lean systems and staff should help retailers to
get advantage over competitors

State Infrastructural Development: The Kerala state government investment in infrastructural

development directly or indirectly effects the growth of organized retail chain. Time bound
forecasted development in roads and connectivity will helps the retail sector for cost
effective logistics. The investment in power sector is also critical since the steady boom in
property development and investment and also steady increment in state power conception
this will indirectly affect the organized retail chain and also the state electricity tariff rates,
are not friendly for organized retail chains. The developmental aspects related with
information technology and telecommunications are also critical factors in case of organized
retail development.

Land and Building: In Kerala the recent amendment in registration procedure and unstructured
fixing up of fair price for land in various geography landscapes ultimately created lot of
difficulties to get land for setting up of retail outlets in various potential locations. The new
amendment in building and construction act, licensing procedures, exorbitant raise in the tax rate
for the retail shops and establishment is a great challenge of the entry of new organized retail
players in Kerala market.

Kerala Culture and Tradition: Kerala people always bonded with deep culture and traditional
values and always give importance to family, relation, trust, belief, melancholy. By critically
evaluating the value system of Kerala consumer and coming up with suitable retail format with
suitable assortments is a challenging job. If a new player could do that then it is very easy to win
the Kerala consumers mind.

Rebate and Subsidy Support for State Owned Retail Chain: The state owned supplyco
enjoying so many benefits from state government in terms of subsidy, procurement ,distribution,
infrastructure etc. and it makes them competent to root their business in each every corner of
Kerala and it is acting as a great threat for private organized retail chains in Kerala. Like the
same way the subsidized pricing of margin free market also a great threat too. Since the
procurement and setup cost is too high the private players cannot satisfy the consumer by fare
pricing but they could provide quality and reliable products and services compared to the other
players mentioned above.

Procurement /Farmers Issues : Kerala is a consumer state and even though production in
spices ,rubber, coconut, sea foods are fare compared to national average ,but production in
terms of vegetables commodity is not up to mark compared to neighboring states and also the
organic farming is in it premature stage in Kerala .The organized retail chains are always tries to
get the commodities from nearest market, so that considerably they could reduce cost there by
better price distribution. This is generally organized retailers adopted in Indian economy, by this
way they are supporting the framers community and economy too. In case of Kerala the retail
chains need to go for vendor development extensively to get agricultural commodities in
continues flow and it is practically a different proposition and retail chains in Kerala heavily
dependents on neighboring state farmers ,so naturally cost of procurement goes high and
ultimately affect the Kerala consumer.

Green Marketing Challenges: As resources are limited and human wants are unlimited, it is
important for the marketers to utilize the resources efficiently without waste as well as to achieve
the organization's objective, for this good eco friendly practices for protecting nature and society
is very important and certain extend it will help for generating loyal consumer groups too.
There is growing interest among the consumers all over the world regarding protection of
environment and this phenomenon we can see in India and also in Kerala. People are concerned
about the environment and are changing their behavior. As a result of this, green marketing
practices among the organized retail chains to come and offer with sustainable and socially
responsible products and services is inevitable and this could be used as a strategic marketing
tool in future.

Conclusion :

The organized retailing growth in Kerala ultimately benefitable for the Kerala consumer society
because the inter competition will always offer better products and service at reasonable price
and better quality. The Kerala retail sector will only get good leap if there is a synergy between
Retail players, Government, Political parties and Consumer. The government should not see the
organized retailing in prejudiced manner rather should think about its contribution to economy
and society. The retail chains should be more proactive and should come up with innovative
strategies to overcome challenges to get a good start in Kerala economy by keeping track with
Kerala consumer mind, culture and also tradition.

References:

1. Christopher Knee (2002) Learning from experience: five challenges for retailers, International
Journal of Retail and Distribution Management, Vol.30 No. 11, pp.519-29.
2. Tony Kent (2003) Management and design perspectives on retail branding, International,
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5. ‘Retail detail’ The Hindu Business Line, Praxis January 2002.
6. ‘Mall Wonder’, Economic Times, 1 April 2003.
7. ‘The Benetton Make over’ The Hindu Business Line, 07 August 2003.
8. ‘Retail niches in south India see 40% growth’ , Economic Times, 11 February2004.
9. ‘Shopping malls – myths and realities’, Business Standard, 17 March 2005.
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April 2009.

Website References:

www.ficci.com
www.commerce.nic.in
www.keralaindustry.org

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