Friday, October 26, 2012

McKinsey underestimates traditional retailing alternatives in Emerging Markets

My published comments:

Full Comments:

I think the authors have missed two critical variables which will have a key role in determining the shape of retailing in emerging economies:

1. Real Estate Values

2. Transportation (not of the goods to the stores but for the consumers)

Mom and Pop stores may look archaic from a modern retailing and logistics perspective but they can generate high per square foot revenues at minimal costs. A very critical variable in economies such as India where real estate is at a premium.

Building mega-stores and hyper-marts in less crowded areas is sub-optimal because then lack of transportation makes it difficult for consumers to reach them and cart their purchases from store to home.

Also most consumers do not visit the Kirana store, a quick phone call ensures that all grocery items are delivered to their doorstep. In many cases the storekeeper knows the shopping list and delivers the products on a periodic basis. Not only that, they can fine tune the list and supplies based on local conditions - increase sugar and oil quantities ahead of a major festival, unrest brewing in the neighborhood - double up on the milk and eggs etc.

So viewing the mom and pop Kirana store as just a retail outlet will not suffice. It is essentially a close-to-the-customer customer service continuum. Most consumers believe that big stores will not be able to provide that level of service.

I would not call them "buggy whips"; Bicycles in an era of fast cars is a more apt analogy - both coexist and people are increasingly realizing that despite the faster, sleeker cars, the humble bike is not such a bad idea after all.

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