Retailers’ cooperative: A way to take on multi-brand foreign retailers invading India
Forming a cooperative that shares a common brand name, common design for store-fronts, central purchasing of quality goods as competitively as Walmarts do, will enable existing family stores to retain their independence and ownership, and yet derive benefit of staying under a large umbrella of a professional management
Invasion of multi-national multi-brand retailers such as Walmart is now imminent since Foreign Direct Investment (FDI) in that sector is now legally encouraged by the UPA government. As it is, even today, retail outlets with foreign brands have begun to dominate the marketplace in several segments. It is clear that this will progressively cut into the standalone retailer’s market. For an increasing number of family-run small retail stores the choice would not be between growing slow or growing fast but between growing slow and closing down as their profits evaporate. It has happened everywhere in the world and Indian retailers too can't save themselves from extinction, unless they can counter it some way. In India, common people have to be innovative to fight their government to survive. Here is a solution that will help them not just to survive but to thrive!
Branded foreign retailers have tempted many such stores to ride their franchisee “Brand Wagon”. The fear of survival and the greed for a rapid growth is making them surrender their independence; their identity. Franchisee route is not possible in case of multi-brand global retailers. The only beneficiaries in this whole gamut of allowing FDI in multi-brand retail will be the foreign multi-nationals and their Indian capitalist class partners. Many retailers are however, yet holding on, with a belief that their neighbourhood goodwill will help them to fend themselves from these branded chains. Some others are simply ignoring the reality, or are too proud to bother. I however, believe that there is way for the small retailers to hold their own, and grow faster and more profitable without surrendering their identity like those who opted for branded franchisee ventures. I feel, from my own experience, that they have an alternative route.
There is no doubt that succeeding or surviving in today’s demanding economy, a lot of retail businesses need to undergo major changes in the way they do business. One finds that the store-fronts are changing and customers are sensing refreshing friendliness. Still many stores have no resources or courage to invest more. Stores are too small to grow with outside capital and borrowing money isn’t easy anymore. Besides, investing more money alone may not help them in facing competition from the big chain stores. It must be realised that more than money, most importantly, they lack advantage of bulk purchase as well as brand equity of their newly emerging competitors. Today, a name is the first act of branding that serves as a customer hook. This is today’s marketplace reality.
During the eighties, I had a pilot called MTB Plan that worked well for over hundred small-scale television manufacturers. MTB stands for Materials, Technology and Brand name—the three aspects of business that prevents small enterprises competing with big players. As chairman of ET&T Corporation, I allowed MTB member SSIs to use the ET&T brand name for their TVs. We standardised on the best and the latest TV design, and gave them access to the best, arranged central procurement of all parts in bulk, reducing their cost by 32%. As the consequence in 1987, ET&T brand 14" black and white TVs achieved over 40% of the national market share. The core of the MTB Plan involved sharing a common brand name and its shared publicity, central quality assurance and central professional materials management.
I believe that there is a scope for hundreds of speciality retailers to come together to form a co-operative venture and share, as its member owners, the benefits of a centrally managed operation driven by professionals. They will create a brand and offer a good quality product at low affordable prices for their neighbourhood buyers. See what an able and committed professional like my friend V Kurien did for the farmer cooperative in Kheda district. He took on the mighty multi-national like Nestle as well as the labour unions who opposed the cooperative. He made Amul India’s answer to multi-nationals of the world. I got many thought inputs from him.
I feel sure that forming a cooperative that shares a common brand name, common design for store-fronts, central purchasing of quality goods as competitively as Walmarts do. This will enable existing family stores to retain their independence and ownership, and yet derive benefit of staying under a large umbrella of a professional management. My proposal is ideally suited for speciality retailers like opticians, sari shops, stationery stores, drug stores, toy shops, cloth merchants, etc.
The biggest advantage of such a cooperative lies in four important areas. First, cost of setting up business will be very low, since all such stores already have low-cost space, unlike the multi-brand foreign retailers. Second, in case of shop-keeper’s cooperative, every retail outlet is owner-managed and therefore, highly motivated. Good management training will also help to develop professional administration of the store and high quality customer relationship. Third, these brand owners have huge traditional long-established and emotionally attached clientele from the locality. Fourth, such locality retailers are never competitors, if the membership is given to one store in each area. A retail stationery shop in Dadar is not a competitor to one in Mahim, nor is one in East Mulund of the one in West Mulund.
Creating brand equity of their own will start with a common name for the shops of all member retailers. Retailers normally have an emotional attachment to the store’s name—in many cases their family name. But one should realise that branding your family shop under a common name has many benefits. Understanding the objectives behind a name change is important. Unlike a franchise, under the proposed cooperative framework one can do so without risking the ownership of business and one’s independence. Under a franchise framework, one loses one’s identity along with the name. Under a cooperative format one shares the ownership of the brand. In today’s highly competitive environment, the strongest brands are those that transcend their speciality service to form an emotional connection with the customer. The key in name creation ensures that it creates a distinct identity that becomes an icon and aids the communications campaign to support the new name. One has to understand that a store’s new name is a smart opportunity to communicate a new or refreshed point of view.
A retailer’s co-operative, if professionally managed, would prevent multi-brand retailers to hurt Indian traders. It has several advantages like lower risk, highly enhanced buying power and professionally evolved strategy for running your business better. A lower risk because the umbrella cooperative shall accept most of the legal and operational risks involved in running a business, you assume less risk at the unit level, far superior buying power as a co-operative of few hundred retailers, negotiating power on products, supplies, and services increases, helping lower costs, better logistics and higher quality assurance. Finally, you have a professionally structured strategy for running your business better. Cooperative can use talented professional executives who focus on the big picture issues without getting bogged down by exhausting day-to-day administration.
The low overhead costs of the member shops, motivated proprietary management of each outlet, as against the hired management and strengths of unified purchasing, will give the cooperative an edge over the top-heavy multi-brand stores modelled over an international franchisee concept like Walmart.
Please click here to access other articles from PS Deodhar.
(PS Deodhar is founder and former chairman of the Aplab Group of companies. He is also the former chairman of the Electronics Commission of the Government of India and was an advisor to late Prime Minister Rajiv Gandhi on electronics. He also was the chairman of the Broadcast Council in 1992-93 that set in motion the privatisation of the electronic media with metro channels.)