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Published in the Vision 2000. 4(1), 35-40.

RETAIL MANAGEMENT IN INDIA : SOME GLOBAL ISSUES

By
MRINMOY K SARMA

School of Management Sciences

TEZPUR UNIVERSITY, ASSAM

Abstract
Indian retailing, though enjoys many unique features, is still done in a primitive way.
Barring a few exceptions, Indian retailers, particularly FMCG retailers, are not in a position to
implement world class practices of supply chain management. The concepts of Quick
Response or Efficient Consumer Response are unheard of in Indian retailing. The two bases of
modern retailing management, the Electronic Data Interface and a mutually respectable
partnership among retailers and suppliers (the manufacturers) are missing to a great extent in
Indian context. Also, Indian marketing channel members are performing some unnecessary
tasks, which makes the channel structure heavy and inefficient. Though these inefficiencies are
observed in all retailing irrespective of industry, the symptoms are more evident in Indian
FMCG retailing. Inefficiency in retailing leads to lower profitability of the retailers and lower
service outputs for the consumers.

Ways and means to strengthen the position of the retailing industry, doing away with
the causes for the inefficiencies, therefore, are to be taken up in an urgent manner. Such
measures may include establishment of retailers co-operatives, merger and buy-out, use of
technology to the greatest possible extent, setting up of nonstore retailing centers and increase
in franchisee network.

Introduction
Indian retailing industry is a big business by itself. Its total turnover was estimated to be
Rs. 4,79,568 crore in 19961. It is expected to grow at a fast rate in the recent future due to
recovery of the Indian economy. In the most conservative estimate, this turnover left the

retailers with at least Rs. 47,956 crore ( taking the average margin @ 10% of sales ) as gross
profit. Big in size and turnover, Indian retailing industry is characterised by certain attributes.

The network of retailers reaches every nook and corner of the country. So any product

produced anywhere in the country can be easily accessed by the buyers from any location. Thus
the spatial convenience of Indian retailers is vary high. According to ORG-MARG2 the total
number of all kinds of retail outlets in India was 51,30,000 during 1996-97. This means one
retail outlet exists against an average of almost 190 persons

Secondly, in India the retailing industry is an unorganised lot consisting of, in most of the

cases, small entrepreneurs. And the virtual omnipresence of the Indian retailer can be attributed
to these small entrepreneurs only.
The second attribute gives rise to the following characteristics

Power of the retailers, as such is very less, and in many cases it is negligible. This

weakness has been exploited by the manufacturers and the stronger partners of the marketing
channel. The retailers, in general, abide by the terms and conditions set by the manufacturers
and other big brothers of the channel.

The manufacturers cannot directly reach all retailers in a particular geographical area.

Therefore, the manufacturers cannot maintain the desired relationship with the retailers, which
in turn, makes management of the channel complicated. This also makes the possibility of a
direct feedback loop from the retailers almost remote.

Therefore, the member operating between the manufacturers and retailers become more

powerful as they can block the channel of communication between the two. So the dependence
of retailers on other channel members increases to a high extent. Thus the participation of
retailers in the flows of marketing mix becomes lower than desired.

The financial strength of the Indian retailers, in general, is very low and hence the

investment capabilities. This makes the retailers more dependent on the other channel
members.
However, these characteristics are peculiar to the small retail outlets and may not be
present at every kind of retail level. According to the ORG-MARG study referred to above,
the number of smaller retailers (having turnover less than Rs. 20,000 pa) is estimated to be

27,71,200 and the number of retail outlets with turnover more than Rs. 1,20,000 per annum is
only 3,59,100.
In recent times, however, more and more big retail outlets are coming up in the metros
and cities of the country. Many business houses now are thinking of opening up a retail chain
of their own. Spencer and Co. Limited (retailing arm of the RPG group), Vitan Industries
Limited, Pantaloon, Shoppers Stop, to name a few, have already in the business with a big
bang. All of them have got very ambitious plans to get into the new millennium. Pantaloon, for
example, has got 40 strong chain of franchisee and 12 stores owned directly by them. RPG
Group plans to increase their outlets to 50 FoodWorld, 18 Health & Glow, 8 MusicWorld from
present 27 FoodWorld and 2 MusicWorld outlets by the end of the year 1999. Likewise,
Archies has got a good presence in the market through a very successful and efficient
franchisee network.

The Challenges:
Though large number of business houses is coming forward to open up retail chains,
they will have to face certain difficulties in bringing in excellence in their operations.
The management of supply chain (SCM) can be taken in the first place. The whole
concept of SCM, in fact in Indian consideration, holds good for the manufacturers rather than
the retailers. That is, Indian retailing is not yet exposed to the concepts of SCM, which is still
today the predominance of the manufacturers. And as such the retailers are bound to face
difficulties in this area.
The Indian supply chain is more dependent on middlemen rather than on the retailers
unlike their counterparts in modern economies. This over-dependence can be attributed to the
lack of power of retailers in the channel. As described earlier, to reach the retailers, the Indian
manufacturers are to take help of other channel members like C&F, Distributors (exclusive or
otherwise) and wholesalers among others to a great extent. In many cases it is felt that the
middlemens involvement in the flows of the marketing channel is more than required for a
healthy retail industry. Figure 1 is contrasting the degree of participation of some of the
members in the flow.
As the chart (Fig. 1) reflects, some of the channel members like the C&F perform lot of
additional tasks than what is desired for overall efficiency of the channel. C&F agents

involvement in ownership is very high in some cases, whereas, its participation in this flow
should be limited. Likewise, risk associated with C&F should be limited, while, in Indian
practice, they carry very high risk. Retailers should have more involvement in supply chain
management, whereas, in practice, Indian retailers have nothing to do with supply chain
management. Desired involvement of Indian retailers in negotiation is very high, while actually
it is left to perform little negotiation with the suppliers. And as a fallout, the retailers are left
with very negligible gross margin (10-12%) than needed to be strong enough to lead the
channel.
On the other hand, Indian channel structure is more complicated than that of modern
economies. Figure 2 contrasts Indian retailing with a modern one with regards to physical
flow of goods and promotion.
The structure of modern retailing is flat and lean; while the same in Indian context,
specially in case of FMCG, is very long (as depicted in Fig. 2 above). In modern retailing,
increasing internalisation of wholesalers (McKinnon, 19863) by retailers is seen, whereby the
retailers are performing the functions of wholesalers themselves either by buying out the
wholesalers in the process or bypassing them to reach the suppliers (mainly original
manufacturers) directly. As a result, the channel structure has been able to do way with many
unnecessary members making it more efficient than ever before. But the Indian channels still
follow the traditional structure to route goods from the manufacturers to the retailers. In the
meanwhile, many middlemen emerge to make the structure longer and inefficient. As
mentioned earlier, this happens mainly because of weak position of the Indian retailer in the
overall channel hierarchy. Figure 2 also compares two important flows of the channel
structure- promotion and physical flow of goods both in Indian retailing and in modern
developed retailing. In the Indian context the promotional effort to reach the retailers will have
to come through at least three middlemen. This means that retailers are unreachable for direct
promotion by the manufacturers. This necessitates separate promotional centers at distribution
level, which must be less efficient in terms of investment than the modern structure. Same
holds good for other flows of this channel. This may be one of the most important reasons of
high cost of distribution in India.

This analysis clearly shows the difficulty Indian retailers are facing in managing the
supply chain. Almost all retailers (big and small) do not deal with the original manufacturers
directly. The retailers reach is limited only to the distributors or stockists , which are in many
cases independent business houses. This is also one of the reasons for limited bargaining
capacity of the Indian retailer (and in case of small retailers this is almost nil). The failure of
Kerala Retailers Association (Kerala Vyabasahi Ekopana Samithi, with 65,000 retailers as its
members) in 19964 to persuade original manufacturers including Hindustan Lever Limited,
SmithKline Beecham and Godrej to increase their retail margin is a very prudent example of
helplessness of the Indian retailer. Success in bargaining, and thereby ensuring a stronger
position in the hierarchy, is in fact , been achieved here and there recently by the localised big
retailers like FoodWorld in Chennai5. FoodWorld is buying at a large quantity and trying to
source it from the original manufacturers of unbranded food products like rice mills etc. Also,
Vivek and Co. is another retail chain from Chennai with 11 outlets have been reported to be
successful in dealing with as many as 50 companies and 120 active suppliers6 .
As far as relationship between manufacturers and retailers are concerned ,Kumars
(1996)7 observations that there are inherent tensions in any relationship and limits of trusts are
inevitable where a mutually exclusive relationship is difficult to achieve, are very much present
in Indian environment.
In figure 3 Indian retailing is put into the relationship matrix offered by John
Fernie(1998)8.Indian retailers are at this moment is in the position Drunk with Power which
suggests that they are more dependent on manufacturers, specially in case of FMCG products.
The ideal position for whole supply chain is the box just above this. However, if retailers are
to lead the chain they will have to strive to attain the position Hostage .
Use of electronic medium in management of supply chain is another gray area of Indian
retailing. The concepts of Quick Response (QR) or the Efficient Consumer Response (ECR)
are unheard of in Indian retailing. Electronic Data Interface (EDI) and better partnership among
the channel members (as mentioned above) are essential for implementing these concepts.
QR, in fact, helps in reducing lead time between the order placement ( by the retailer) and
merchandise delivery. The very concept revolves around quick transmission of order and
execution of the same in the minimum possible time. ECR is one step forward and links the
consumers demands and preferences with the QR network. A leaf in this regard can be drawn

from the vision of ECR - Europe:9 (an initiative to implement ECR in European countries)
which is to work together to fulfill consumer wishes better, faster and at less cost. The two
basic pillars of Efficient Consumer Response- the EDI and better partnership give rise to faster
product replenishment (which is also known as Efficient Replenishment) . In the whole process
the retailer increases service outputs in terms of lower inventory coupled with negligible
waiting time, and higher assortments and variety.
Though the use of computers are increasing day-by-day in Indian retailing , this is in no
terms near the required efforts to fulfill the objectives of ECR or QR. However, some brave
retailers like FoodWorld with its 17 outlets

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, for example, is linked on-line with its central

warehouse (at Guindy, Chennai). This ensures that the Stock Keeping Units (SKU) are
supplied timely to the outlets. For critical SKUs , if the inventory level touches a defined
minimum level, message is sent automatically to the warehouse for fresh supplies. Another
large retailer, Vitan Department Stores and Industries also has got on-line inventory
management. Nevertheless, the Indian retailing will take many years to go fully on-line which
their counterpart Wal-Mart of US had achieved even before 1992. The diagram shown in
figure 4 is a refined model of fully on-line supply chain management to suit Indian context.

In figure 4, the circle covering all Distribution Centers(DC) , Suppliers and Head
Quarters of the retail chain is the symbolic information shell. The information shell operates
round the clock receiving, processing and dispatching information from the retail outlets, DCs
, suppliers and HQ. Every player is in active two-way touch with each other enabling very
quick and flawless use of information. Electronic Point of Sales (EPOS) feeds the local server
which in turn sends the processed and filtered messages to the information shell; and these are
then accessed by the addressee. Any request for stock replenishment, for example, may be sent
to the DC for action with intimation to the HQ. The HQ may intervene during the process any
time. The DC then takes action accordingly. If replenishment is possible the transporters are
alerted and the indent is executed. Otherwise, the HQ is approached for a purchase order to the
relevant supplier. The supplier then physically sends the products to the DC or directly to the
indenting outlet as per the terms of sales.
To achieve this level of sophistication Indian Industry will have to fulfill the following
musts -

1.

Retailer level computerisation including Electronic Point of Sales (EPOS)

2.

Supplier (manufacturer) level facilitation

3.

Computerisation of all Distribution Centers(DC) , including other members of the

channel.
4.

On-line link among all the institutions mentioned above.

Retailer level computerisation would ensure EDI between the Electronic Point of Sale

(EPOS) and the server installed in the outlet. The front line Electronic Tracking Facility like
scanners makes this easier. The outlet level server then is linked to the Distribution Centers
(either owned by the retailer or by other agencies) . DCs in turn is connected to the suppliers
Servers. This requires a very complex software alongwith a very efficient hardware. There
would be constant information flow in the network. Whenever there is any situation, which
warrants action, the network takes necessary steps in this regard. Since every member is linked
both ways to each other, the efficiency of the total system depends upon individual efficiency
of the members. Even if one member of the network is not working efficiently, the overall
system is bound to slow down or even collapse.
Now that Indian business houses are ready to go on-line intermittently, apart from a few
giant manufacturers like Hindustan Lever Limited11 , very few are exploiting the unlimited
features of the technology beyond a certain level. However, the trend is getting in and many of
the organisations at various levels are trying to use information technology in their day-to-day
business.
Infrastructure bottleneck is another area of concern in Supply Chain Management.
Indian road and railways are nowhere comparable to the international standard. Therefore, the
real time taken in execution of an order cycle is much more in India than its developed
counterparts. Wal-Mart completes the order cycle in less than 36 hours12, whereas any Indian
company will definitely take days to complete a big order cycle.
The credit card is still scarce in Indian economy. Apart from the metros and some big
cities the infrastructure to handle magnetic card is not present at all. This would make
Customer Tracking difficult and almost impossible, besides other difficulties associated with
implementation of full EPOS systems. Even if the plastic money is available liberally, only the
high end of the market is expected to use this in a day-to-day basis. Thus a large number of
Indian retailers customer would never use this.

Brief Suggestions
To make Indian retailing world class many a challenges are to be overcome by the
industry. Some suggestions to improve the situation are offered below.
(a)

Establishment of Retailer co-operatives, which will maintain warehouses etc. to

work as a distribution centre for the member retailers can help Indian retailer attain a
respectable position in the relationship matrix mentioned above. The whole organisation will
run at a no-profit, no-loss basis. This would enable the retailers to buy the products they want
directly from the original manufacturers in huge quantity This would make the application of
the concepts of QR and ECR possible to a certain extent.. However, many inherent difficulties
may make the functioning or even establishment of such a co-operative difficult. Nevertheless,
these problems are inevitable and must be dealt with firmly.
(b)

Merger and buy-out of weak retailers by a stronger one, specially in metros and

big cities may be another step towards this direction. This would give the new retailer the
desired leverage to be world class.
(c)

Use of technology to the greatest extent possible may also help strengthening

the retailers position in the marketing channel. First step may be taken with setting up of a
network of independent firms believing in use of technology for business excellence. Then a
collection of strong retail organisations may pressurise the suppliers and other channel
members to use compatible technology. This may open the door for implementation of Q R or
ECR or other relevant concepts for the retailers.
(d)

An overall change is to bring about in the mindset of the retailers. They will

have to think differently. They must find out and satisfy service outputs of the target customers
Unless there is a drastic change in the mindset of at least large and medium retailers and as
well as that of the manufacturers, the required change is not going to come by easily. The
retailers must learn and understand to lead the chain from the front.
(e)

Setting up of more and more non-store retailing centers would also ensure a

strong retailing organisation. Non-store retailing makes implementation of modern principles

easier and less costlier.
(f)

Setting up of franchisee organisation may also help in strengthening the position

of the retailers. The franchiser can exert a tremendous control over the way retailing is done.

Transnational service organisation like McDonald and KFC are being able to offer a
centrelised control over purchase and operation. Large and medium sized retailers may take up
the concept of franchising to reach the market in a more meaningful way. Though the
management of franchisee network is difficult than managing a retail chain in view of high
level of investment and other obligations, Indian retailers should spread out its wings its in this
profitable and efficient way.

*******

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Fig. 1
Contrasting the Degree of Participation in Channel Functions by Two Indian Middlemen
- Retailer and C&F Agent in the FMCG Industry.

6
6
5
5
4
4
C&F Indian
Retailer Indian
3
3
C&F
Desired
Retailer Desired
2
2
FLOWS:
1
Physical
Possession
;
2Ownership;
3Inventory;
4Negotiation;
51
1
0Financing; 6- Risking; 7-Ordering; 8-Payment;
0 9-Supply Chain Management;
1 2 3 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 9 10

10- Physical Ditribution

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Fig 2:
Typical Flows of Goods and Promotion in FMCG Retailing

Manufacturer
Manufacturer

Distribution centre

C&F

owned by the retailer

Distributor

Retailer

Wholesaler
Retailer

Simplified Modern Retailing

Physical flow of goods

Channel Promo.

Simplified Indian Retailing

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Fig. 3:
Position of Indian FMCG Retailer in the Relationship Matrix

High

Retailer relatively powerful

DREAM POSITION

IDEAL POSITION

Hostage

Manufacturers

Lower level of interdependent

Dependance

Manufacturer is powerful
INDIAN POSITION

Apathy
Low

Effective relationship

Low

Drunk with Power

High
Retailers Dependence

Adopted and improvised from Stern and Al-Ansary(1993), Marketing Channels, Prentice Hall India, New Delhi,
4th Edition.

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Fig. 4:
Ideal Retailer Sponsored Electronic Supply Chain Management13

DC
OUTLET 1

OUTLET 2

SUPPLIER 1
H.Q.

SUPPLIER 2

OUTLET3

DC

INFORMATION SHELL

TWO-WAY INFORMATION FLOW

OUTLET4
PHYSICAL FLOW OF GOODS

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References:
1

Doctor, Vikram; Rushing into Retail, Business World, 31 May, 1999.

Doctor, Vikram; Rushing into Retail, Business World, 31 May, 1999
3
McKinnon, AC (1986) Physical Distribution Strategy of Multiple Retailers, International Journal of Retailing,
4
Brand Equity, Economic Times, Dec.26-Jan 2, 1997
5
Shridharan, R ( 1998), The Future of Retailing , Business Today, 7-21 December, 1998
6
Shridharan, R ( 1998), The Future of Retailing , Business Today, 7-21 December, 1998
7
Kumar, N (1996)The Power of Trust in Manufacturer-Retailer Relationships, Harvard Business Review, 74,
November/December.
8
Fernie, John (1998), Outsourcing Distribution in UK Retailing, Research Paper no. 9801, University of Stirling,
Scotland.
9
Fernie, John (1998) Relationship in the Supply Chain, Logistic and Retail Management, Kogan Pages, London,
28
10
Shridharan, R ( 1998), The Future of Retailing , Business Today, 7-21 December, 1998.
11
HLL, in one of its most ambitious plans is to link its factories with 4000 Redistributing Stockists and with 4.2
million Retailers on-line.
12
Stern L.W. and El-Ansary A. I. (1993), Marketing Channels, Prantice Hall India, New Delhi, 4th Edition, 80
2