Sumita Thakur: The last time you spoke to ISBInsight, you said that the Indian kirana stores are here to stay. Why is the fate of Indian mom-and-pop stores different from those in the West?
Siddharth Singh: India is a fundamentally different market compared to the West, say the United States (US) or Europe. For kirana stores to survive anywhere, they have to differentiate. Take the example of the US. You will find that the stores that are differentiating well have a distinct value proposition. They are surviving the onslaught of stores like Walmart or Kroger. Stores that are unable to differentiate are not going to survive.
As large format retailers or what we call Modern Trade Outlets (MTOs) in India increase in numbers, they can provide better selections and prices. In India, the distinctive feature is that we have a large, diverse population unlike any other country in the world. The degree of heterogeneity in India is mind-boggling. Now that itself provides more opportunities for retailers, especially small retailers and mom-and-pop stores, to survive in their own niches. In addition, India is a country of 1.3 billion people, but every region and district has its own unique characteristics. That provides further avenues for smaller stores to differentiate.
Most importantly, the value proposition that these stores offer is somewhat different from what smaller stores offer elsewhere. For example, in India, you will find kirana stores in local communities, where the store-owner or shopkeeper knows the people in the catchment area by name. The shopkeeper orders things especially for consumers he knows. Sometimes, customers don’t even have to go to the store to place an order. The kirana store provides personalised delivery services as well. Sometimes the store holds the purchases until the customer can come and pick them up. If consumers want to pay later, they can pay later. The shopkeepers even provide credit without a collateral.
In India, you will find kirana stores in local communities, where the store-owner or shopkeeper knows the people in the catchment area by name.
So, if you combine all these factors, the kirana stores offer a distinct and compelling value proposition for many segments of consumers. Can these services be easily replicated by MTOs and other larger format stores? I don’t see that happening in the foreseeable future because these are highly specialised and localised services. A lot of them are based on personal interactions. Therefore, I see space for kirana stores to survive in India and co-exist with MTOs.
What do you think are the key aspects of India’s changing consumption scenario?
First, India is unique because we have not gone through the regular development cycle in terms of technology. You see heterogeneity in India– all the way from villages, where you have almost little or no infrastructure, to cities that are as good as other developed cities in the world. As they are developing, these remote areas are leapfrogging into newer technologies. For example, you will find many people in the rural areas using internet on mobile directly. They have bypassed the PC era completely.
Second, some of our research shows that while income is increasing, its distribution is not concentrated in large cities. Studies show that the Tier 2 and Tier 3 cities are showing faster growth. Overall, consumption is spread out across the country and is not concentrated in metropolises.
You will find many people in the rural areas using internet on mobile directly. They have bypassed the PC era completely.
One interesting connection is between consumption and income. The other dimension is where these purchases occur. They may happen through larger format stores and directly through the internet. If you consider the overall ecosystem, you will find this pattern to be unique.
Third, there is movement of people from rural to urban areas, but not in the same way as in many other countries. In India, people from rural areas do not move to major cities. Instead, people from rural areas are moving to cities that are close to them. So, you see a large growth in Tier 2 and Tier 3 cities.
Overall, consumption is far more spread out and localised in terms of preferences. Moreover, this consumption ecosystem uses technology that one would not expect in such remote areas.
There is also a lot of speculation about internet penetration in India. How much of it is customer engagement? And can it be monetised?
Numbers can be misleading, particularly in India. By 2025, some studies say that we will have more than 800 million people who will have access to the internet. But what does that access mean? A big chunk of them would be on mobile. A lot of mobile traffic may not be directly exploitable because of the quality of mobile services or smartphones. So, websites have to be ready for this discrepancy.
Access to the internet by itself means very little. Its importance lies in the value it creates by enabling people and companies. From that viewpoint, especially given that the infrastructure is lacking in remote areas, access to the internet via mobile allows a lot of people access both to goods and services and to information that would otherwise take a very long time to reach them through traditional routes. If a company is able to innovate and create value using this direct channel such that consumers find it compelling enough to make purchases, then the internet can be a huge boost for it. If not, then the internet would just provide consumers with access to information.
The real promise, in my view, lies in innovation for the Indian market. For example, in Uttarakhand, I saw this company, Air Jaldi, started by an American, an Israeli and two Indians. Air Jaldi is providing internet to remote areas in Uttarakhand. They started from Pithoragarh where you could not have imagined good internet connectivity a few years ago. Now this access is helping businesses such as homestays reach consumers throughout the country even though the businesses might be located in remote areas of Uttarakhand without good road access. Customers can make reservations to stay in these homes on the internet, and then go there for unique experiences. These homestay programmes are supported by the government but they would not succeed at all had there been no internet.
The Internet is changing things in fundamental ways. It is enabling people. Now companies have to think of creative ways to exploit this connectivity.
Take the case of education. All of us realise that the education system in India is in shambles. Especially when you think about Tier 2 and Tier 3 cities, people don’t have access to high-quality basic education, let alone education about cutting-edge issues. For example, if somebody wants to learn about gamification, where do they go? The experience of the online education companies has been that a lot of people from Tier 2 and Tier 3 cities, and rural areas in India, Pakistan and Bangladesh end up accessing courses online. Otherwise they would not have access to this content. The Internet is changing things in fundamental ways. It is enabling people. Now companies have to think of creative ways to exploit this connectivity.
You noted that the pattern of urbanisation in India is different from elsewhere. How does that impact companies involved in this urbanisation?
Typically, what we observe is that people from smaller cities or rural areas in other countries come to larger cities. The result is huge sprawling megacities. In India, Delhi, Mumbai, Hyderabad, Kolkata, Bangalore are expanding very fast. More interestingly, however, Tier 2 and Tier 3 cities are expanding equally fast. Not in terms of raw numbers but certainly when you see the percentage growth.
You have places like Lucknow and Indore, which are growing fast. So, people are moving from rural areas or very small towns, say kasbas, to these cities. That means the urbanisation is far more spread out, which is a good thing for the country. But it poses an interesting challenge for companies. It means that the urbanisation experience is far more diverse.
If most people are in Delhi or Mumbai, then a big chunk of your market is metropolitan and globally connected. In that case, a company coming from the US or Europe might think that India is a huge, homogenous market. Then they can offer products that would find wide acceptance.
What is happening instead is the market looks big in terms of numbers, but it is a collection of a large number of small markets. So, while some offerings can be created for big chunks of this market, there are many offerings that will not sell across all these smaller markets. Say if you want to create something for Lucknow, it might not be a good fit for another city like Trichy.
What is happening is the market looks big in terms of numbers, but it is a collection of a large number of small markets.
Therefore, the Indian market is very complex in terms of consumer tastes, values, motivations, social issues, economic issues, government rules and regulations and so on. This makes it quite interesting but challenging for companies to come and create value at scale and make money.
Can it be done? Absolutely. Several companies have done it. Patanjali has done it amongst Indian companies, as have ITC and Unilever. But the key to success lies in really understanding the needs of the Indian consumers, their psyche, behaviour, constraints and aspirations. Next, a company needs to decide what can be common offerings across these different smaller markets and what products need to be localised. That cannot be done sitting in other countries, with armchair economics. The company has to get much closer to the consumer.
A company needs to decide what can be common offerings across these different smaller markets and what products need to be localised.
Would you say in this context that Indian brands have an edge over the other global brands?
I am not aware of any study that examines how Indian brands overall will fare relative to Western brands. But it is true that Indian brands are being more and more valued by consumers. When I was younger, a generation meant 20 years. Today a generation seems to change every 5-7 years. These younger consumers who form the bulk of the Indian market do not have the same baggage that we had. When India was not an open market, everything foreign was supposed to be better.
The newer generation, on the other hand, is very proud of being Indian. They are well-connected. They consider Indian products as good as Western products. Some studies say that these consumers prefer Indian brands to imported brands and are also turning more towards their roots. As a result, good quality products produced by Indian brands can have an edge in some segments of consumers.
The newer generation is very proud of being Indian. Some studies say that these consumers prefer Indian brands to imported brands and are also turning more towards their roots.
Is this affinity for Indian brands also a reflection on how optimistic Indians feel about their country currently?
This phenomenon is not just true for India. I think there is a trend globally where people are becoming more nationalistic and are looking at their roots. I think in India, this tendency would be longer lasting and more grounded. This is because our population is much younger. The temperament and attitude of the younger generation will sustain itself at least for a few decades. In that sense, there is longevity here that might not be true in other places.
Professor Siddharth Shekhar Singh is Senior Associate Dean and Associate Professor of Marketing at the Indian School of Business. A co-author of three textbooks with Noel Capon of Columbia University, Professor Singh has published research in top international journals such as Marketing Science and Management Science. The broad focus of his research is on how to achieve a sustainable competitive advantage. It aims to help firms identify which customers to acquire and retain, and how to profitably manage customer relationships over time.
Professor Singh has a PhD in Marketing from the Kellogg School of Management at Northwestern University. Prior to his research career, he managed several product lines and launched new products at Johnson & Johnson. He consults for industries across verticals such as media, healthcare, high technology and retail.
Edited by Ashima Sood