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A dreamer to the core. A thinker. A writer. A marketer. A poet. A management guru in the making! A keen observer of business, organizations, leaders, society, economic environment, consumers, and innovation. A confirmed maverick who loves to turn conventional wisdom upside down!

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Monday, April 09, 2007

Indian Retail: A Nation of Shopkeepers By Design

We have the highest number of shops in world – 11 shops for every 1000 persons. I am slowly coming to a realization that this phenomenon is not by chance but has a well defined logic. This logic can also be responsible for the strong wicket on which kirana stores are playing. Indian kirana may not be the same as the mom-n-pop stores of the west and it may not meet the fate of its counterparts in other countries where organized retail flourished. The key lies in understanding the role of population density! A cursory look at countries (with significant population as well as area) where organized retail has garnered significant market share of total retail market will show that in a country with considerable area (say more than 500,000 Sq KM) organized retail flourishes when population density is low. USA has a population density of 31 person per Sq KM. Brazil has a density of 21 person per Sq KM. European Union has a population density of 112 people per Sq Km. Even China with a population much more than India has a density of 135 people per Sq Km. In India it is 332 persons per Sq KM!

What does low population density signify? It means three things:
  1. People are scattered.

  2. Mom-n-pop stores may not have enough business in the nearby areas to sustain resulting in low shop density.

  3. All needs of customers may not get fulfilled by the small base of mom-n-pop stores thereby creating a need to buy all items of need under one roof.
How is India different? The population density is very high. That means that people are concentrated almost everywhere thereby creating huge opportunities for goods and services of various kinds. This led to mushrooming of kirana and other small stores focused on local tastes and preferences. Since concentration of population meant more consumption opportunities, a cluster of small general stores developed to cater to the entire basket of consumer needs. The end result is – within an area of one square kilometer, there are approximately 40 small shops collectively capable of catering to 90% of consumer needs. This means another thing also. In a low income country like India, unlike countries with low population density, the concentration of population means enough business for these small shops to earn their livelihood. The omnipresence of small shops in the neighbourhood catering to virtually all needs makes the concept of buying everything under one roof redundant, unless there is an extraordinary cost benefit along with hassle free shopping as per the whims and fancies of the consumer.

This spread of kirana stores and other small shops and their stranglehold on the Indian retail market is like big banyan tree; it has entrenched its roots deep down the psyche of Indian consumer and it would be extremely difficult if not impossible to uproot this century old tree with thick trunk and deep roots.

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Comments on "Indian Retail: A Nation of Shopkeepers By Design"

 

Blogger Rajesh Kumar said ... (10:18 AM) : 

Yes, Mayank, old habbits die hard. Infact I wrote about it on my blog
at http://www.yaxis.in/2006/12/walmart-joins-indian-retail-revolution.html
However, I do feel shopping habbits will change over time in large cities where distances matter. The extent of change is something to watch.

 

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