More for less

Discount stores offer the Indian consumer much more than the traditional kirana shops.

Suddenly what you have is not enough. India's burgeoning middle class is demanding more value. They are looking for better bargains and “experience”. For many shopping is slowly becoming a family outing. And it is this trend that explains the timing of the biggest retail revolution in the country—the coming of discount stores. These stores are what the Indian consumers were praying for—quality goods, more choices, low prices and great display.

Traditionally, a discount store is a retail format where products ranging from grocery to apparel are sold on heavy discounts in no-frills stores. Global names like Wal-Mart and Carrefour fall in this category. In India, the format is closely though not entirely followed by the likes of Big Bazaar, Spencer’s Retail, Vishal Mega Mart and Subhiksha. These stores have several features of discount stores but are “Indianised” to provide personalised service with smaller store sizes.

Today, some of the world’s best companies are slugging it out to be a part of the retail bonanza. According to the Technopak Retail Revolution Model, the Rs 1, 35,000 crore retail market is set to grow by 40% to Rs 1,92,150 crore by 2011. Of this, Rs 31,500 crore will be captured by organised retail at an investment of Rs 11,250 crore.

MONEY TODAY does a reality check of the discount revolution, trying to assess how this will affect the consumer. And whether he will emerge the real winner.

Best Buys: Discounts stores definitely sell products cheaper. Consumers should be looking at saving at least 15% on their monthly buys spanning grocery, personal and home-care products and apparel. But how meaningful is the claim of offering the lowest prices?

“A discount store can only claim to offer prices lower than the maximum retail price (MRP). But not even Wal-Mart says that it is cheapest,” says Arvind Singhal, chairman, Technopak Advisors. Agrees Sanjeev Goenka, vice-chairman, RPG Enterprises which owns Spencer’s Retail: “We don’t claim we have the lowest price. If you buy your month’s household requirements from us, you will save money. That is all.”

Unlike abroad, Indian players are not yet keen to introduce price guarantee that complements the claim of lowest prices. Says R Subramanian, managing director, Subhiksha Trading Services: “Our benchmark is to offer the lowest price and sell most products at wholesale prices. So we do not need to offer any price guarantee because our prices are visibly low.”

Product Range: The idea is to offer everything that a customer needs under one roof. It is convenient not only for the customer but is also profitable for the discount store. Big Bazaar and Spencer’s have been trying to do it since inception. But not every one agrees. Subramanian maintains that even today a customer is hardly likely to want to purchase everything from one shop. “Shopping for clothes, furniture and the ilk is still very much a planned purchase in the country. Rarely do people couple it with grocery purchase,” he says.

While the product range in discount store is definitely greater, the same cannot be said for the brands in each product category. Invariably, customer choice in a particular product is limited to the companies which offer the discount store the margins they require to pass on the benefits to the customer.

If the store offers private labels (brands owned by the retail stores themselves) then it consciously shrinks the variety of brands to promote its own. “That is in fact the biggest challenge for discount stores—to retain customer loyalty despite reducing options,” says Singhal.

Shopping Experience: A huge draw for discount stores is that they offer products like dal-chawal in an ambience that give designer boutiques a run for their money. It was difficult to believe that such plush stores offered products at prices lower than the kiranawallah.

A lot of this glitz is actually smart business strategy. Visual merchandising is an integral part of the value offered by discount stores. It allows the customer to assess his choices and then make an intelligent purchase. Studies have shown that prominent display of products can increase sales by five times.

Consumers love to indulge in the luxury of browsing through an uncluttered store while consulting family members before buying. Friendly staff members, the comfort of using trolleys for bulk purchase and efficient billing counters—the shopping experience is a quantum leap from the hole-in-the-wall kirana store. The add-ons don’t stop there. There is ambient music, food counters for a quick bite and activities for children. Services such as home delivery and phone orders add to the convenience.

Private Labels: Brand penetration in India has always been very low. Discount stores are set to change that. Till now, a majority of household purchases have been made on the basis of the consumers’ trust on the shopkeeper. The label of a discount store guarantees quality of the product which is a big draw for customers. In-store brands of discount stores also fulfil the growing aspirations of shoppers. Being able to offer labels at much lower prices, discount stores are attracting even the affluent.

The Technopak consumer study reveals that 45% of purchase decisions occur at the point of sale. The brand equity of the discount store is enough to assure the consumer that every product on its shelf is of good quality. Hence the consumer has no hesitation in switching from one brand available in the store to another if he is getting a better bargain. While Spencer will soon introduce private labels across 400 product categories, Subhiksha is first tapping its growth potential and does not have big plans in this area. “We are looking to double our turnover for the next three years on the trot. Only when we achieve our target size, will the chain venture into private labels,” he says.

Freebies Galore: No matter how deep your pocket is, the “free” tag is always exciting. Across all product categories discount stores offer schemes such as “buy-one-get-onefree” and “buy second at half price of first”. Usually, products offered for free are a part of a sampling scheme or promotion of a particular brand at the retailer’s cost. The effective discount under such schemes can total up to 80-90%. Discount stores claim that such schemes attract more footfalls and the customer is likely to buy other products with lesser or no rebate. Often, freebies are also a good way to dispose of merchandise that is not moving from the shelves fast enough.

Even as a growing number of companies plan to enter the discount stores market, experts believe that there is space only for six or seven players to flourish. With approximately 50,000 product categories on offer, it is only a matter of time when each of them settles down in a pricecum- service niche. The consumer will surely make merry. At a discount, of course.