Arindam Roy Chowdhury & Smitu Malhotra

Indian economy is an eccentric cauldron of various layers and segments of consumers. Modern retail, since its inception in India, has been chiefly focused on the urban youth, which, till now, has been driving the growth of the Indian modern retail. This strategy, although having worked during the early phases of the development, might not suffice for further growth, as it tends to neglect a large portion of the population.

The Indian retail market is standing at a crossroads today. On one hand, we have an extremely large, diverse and fast-growing retail marketplace fuelled by technology and infusion of FDI. As per IBEF, the Indian retail market is expected to reach $1.1 trillion by 2020 and e-commerce has a potential to reach $120 billion by then. The overall size of modern retail is also expected to grow at 24%-twice the growth rate of overall retail market in India during this time. On the other hand, we find that modern retail chains are often unable to penetrate the market beyond the middle and high-income groups in cities. E-commerce giants like Flipkart and Amazon have been constantly imbuing money into Indian retail market and are yet to see a reasonable profit. When seen from a marketer’s point of view, today’s Indian economy provides a unique, peculiar situation for modern retail, which has been struggling to delve deep into the lower rung of the Indian population. As per Ajay Shriram, chairman and MD, DSCL, ‘Organised retail in rural India is a difficult proposition.’ However, one cannot deny that once the lucrative creamy upper layers of Indian urban population market are saturated, the rural sector with 65% of population might provide a significant area for growth of modern retail. Seeing from that angle, today’s modern retail, so far, has barely scratched the surface of the total potential retail market in the country.

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Any purchase decision depends on two things-ability to buy and willingness to buy. Although retail as an industry can do little for upping the former, it definitely has the capacity to modify the latter. However, modern retail in India seems to be concentrating its efforts in an extremely limited population segment, while missing areas with underlying potential.

Unaddressed segments

A careful inspection of different consumer segments in India will reveal that modern retail is mostly targeted towards the urban youth (age group 15-45 years). This segment also typically includes the most affluent section of the society-people who are likely to adopt new technologies faster. In fact, their needs are spearheading the growth of online retail market. Tech-savvy, always on the go, the members of this group spend considerable time online and thus present an enormous opportunity for retailers to tap in through mobile advertising, location tracking, Google analytics, online-offline synergetic outlets, social media marketing and AI-run applications like Amazon Alexa and Google assistant, etc.

In cities, large shopping malls have branded showrooms, attracting a crowd that largely represents the young, middle class and higher income group people; on the other hand, the lower middle class and the poor in the city rarely visit these stores and are more dependent on small roadside shops or local family stores for their purchases. Even megastores like Big Bazaar, which run regular discounts and adopt EDLP (everyday low price), do not greatly attract the lower economic rung of the population.

To explain this phenomenon, one has to understand the psychology of consumers from different levels of economic affluence. A person from lower middle class or below may be seen looking for more affordable products, often in smaller quantities, from small stores and outlets. They often indulge in bargaining and buy less numbers of products. Most of their transactions happen essentially with known shopkeepers who may not mind selling them on credit due to the relationship built over years. On the contrary, megastores hardly sell in small quantities when it comes to packaged products, they offer discounts for large quantities or expensive items, and there is no scope for bargaining. The feel of the store is upmarket and the general shoppers buy in large quantities-at times enough to make a person buying in smaller quantities feel inferior.

Indian suburbs and villages pose another set of challenges for modern retail. Large format shopping malls are being seen in tier-3 cities, but they are yet to enter rural India. These places are small and have less population density compared to cities. Here the issues are the lack of logistics infrastructure and demand volume to support the supply value chain. Lesser degree of positive awareness among people is also a problem in these areas, and together they are hindering the entry of modern retail deep into Indian rural market.

Another market spectrum that modern retail is missing is the older population (aged 55 years and above). Unlike products for the youth, possibly the only products in India that target the elderly are insurance and medicine. This is strange, because India has a population of 10 crore senior citizens and 35% of them are estimated to be financially independent. Moreover, this population is also set to double by 2020 with significant increase of internet literate people in that group. This chunk of senior citizens are well-to-do (due to large sums of money received at the time of retirement and other savings), and generally having few liabilities to spend on. Many have access to smartphones and the smartphone proficiency among them is also rising. Although they are seen to be sceptical about spending money online, this will soon change as people now in their early-50s and mid-40s enter this bracket. These people represent a potential market and, if targeted properly, can be of great value to marketers.

Scouting ways

We need to understand the needs of each group of people and what they are willing to spend to meet their needs. The urban youth is tech-savvy, and depending on the products, generally do not mind paying a premium. They are often overexposed to advertising. Therefore, an advertising effort that stands apart from the general advertising trends holds a good chance of success among them. Technology-driven applications like omnichannel approach, mobile advertising, self-serving kiosks and AI assistants have higher success potential with this group.

Capturing the market in rural areas and suburbs can be tricky and will depend on addressing the unique customer needs. Rural income is often seasonal and, therefore, villagers’ buying capacity varies through the year. Moreover, rural needs are often met by local shopkeepers who operate from own houses and have very low overhead costs. They also enjoy high trust among the local people. To prosper in this scenario, modern retail must match in points of parity while offering points of differentiation to attract attention. One of the concepts that can be used here is ‘micro selling’, which facilitates selling in small quantities and on credit in exchange of personal details.

Creating logistics efficiencies can be another issue in rural markets. To counter this, modern retail shops in rural markets can form a close-knit network and e-commerce giants may choose to collaborate in logistics to increase the overall operational efficiencies in terms of both economies of scope and scale. This will help modern retail, including e-commerce companies, to minimise the costs and create higher revenue, while offering greater value to the population and improving brand presence, stepping up its chance of survival in rural markets and later, prosper.
To capture the senior citizen market, it’s important to perceive elderly people’s needs-which are to be respected and feel special. Added to this, studies have shown that older people do not want to feel old and are likely to reject a product that carries a perception tag of ‘for senior citizen’. To address this, modern retail must make use of integrated marketing communication that can depict a product as useful for the senior citizen as for the youth. Also, modern retail and e-commerce giants can stimulate spending by senior citizens by offering special senior citizen’s coupons and deals while incorporating their details in the CRM database. Large shopping malls can also create areas where the elderly are encouraged to come, sit and enjoy-eventually increasing their familiarity with the place and the offerings.

Lastly, no growth comes without hindrances. One cannot deny that the average low income, lack of infrastructure and logistics in smaller towns and rural India is a challenge. Modern retail thus should follow the path of gradual expansion and focus more on building a close-knit value chain for rural markets, while understanding rural capacity and needs, and accordingly tweak its logistics for maximum efficiency. At the same time, modern retail should focus on the growing elderly segment. So, while it might seem an uphill task to cater to the rural market and the elderly, given the large potential size of these markets, the rewards can be worth the effort.

Chowdhury is 2018 alumnus of PGDM General Management, XLRI; Malhotra is associate professor of Marketing at XLRI Jamshedpur. Views are personal