Compact hypermkts can compete with 'kiranas': Study

Organised retailers should use a compact hypermarket concept to tap into India's significant retail opportunity as they can compete head-to-head with
kirana (mom-and-pop) stores, a new study has revealed.

Management consultancy firm AT Kearney, which publishes the annual Global Retail Development Index (GRDI), has issued a study on how retailers can tackle India's USD 435 billion market.

According to the report, given the sheer size of the Indian retail market, it is no surprise that many Middle East retailers, most recently Lulu, have announced that they are looking to expand retail operations to India.

Urban India has, however, been a difficult market for organised retailers to tap into. Despite years of trying, modern retail accounts for only 7% of the roughly USD 435 billion Indian market and retailers are still trying to figure out how their hypermarkets can penetrate India's cities, where neighborhood stores and local merchants, called kiranas, continue to dominate the more populated urban areas.

As per the report, compact hypermarkets are just the right size. They are 4,000- to 6,000-square-foot stores that offer the amenities of hypermarkets, but are smaller and easier to navigate.

While people in major cities want the advantage of modern retail, AT Kearney's study found that people are rarely willing to travel more than 15 to 20 minutes from home to shop. "Proximity, therefore, will always be a major
differentiator and large hypermarkets cannot penetrate every urban area profitably, while neighborhood stores do not carry enough goods, so compact hypermarkets is the obvious answer," the report says.

Unlike India, hypermarkets are an increasingly growing retail format in the Middle East. Two of the largest markets in the region -- the UAE and Saudi Arabia -- have embraced the modern retail trade concept and are slowly migrating from souk to hypermarket shopping.

The UAE is leading the trend with a couple of retailers holding around 60% of the market. Driven by its large expatriate population and high disposable income, the modern trade concept has developed fast in the UAE. The Saudi Arabian market is still relatively fragmented, with neighborhood stores still accounting for 50% to 60% of retail sales.

However, strong local players and international retailers have successfully introduced the hypermarket concept, which is expected to drive the growth in retail sales in the coming years.Hypermarkets in the Middle East originally emerged in shopping malls in larger cities and these are still considered
to be the most desirable store locations. This explains why many retailers are involved in mall construction and management, which enables them to secure space in premium locations.

"Understanding the local dynamics is crucial for retailers to be successful in their international expansion, whether it is developing a compact hypermarket in India or integrating into mall construction and  management in the Middle East or simply ensuring excellence in retail operations," commented Martin Fabel, Partner, AT Kearney Middle East.