How Indian Product Managers Do Battle With Retail Goliaths [The Accidental Product Manager]

In India, mom-and-pop stores are slaying the big chains
Image Credit: Chris Piascik

Retail giants Amazon and Walmart really, really want to start selling a great deal in India. In fact, they are willing to spend billions to set up shop there. However, their success is not guaranteed. It turns out that they are going to be battling the countless number of mom-and-pop stores that are already there and these stores are not going away any time soon. How is this battle going to sort itself out?

The Challenge Of Kiranas

In India, there are a lot of people who want to buy things every day. In order to meet this need, there are tiny stores called kiranas that can be found on just about every street and in every village. These stores are generally run by families and they can run the gauntlet from being a street vendor who sells food to a shop that occupies a garage. These kiranas have the advantage that they pay low wages and have very little rent to pay all of which allow them to keep their prices very low. These firms know their customers – they cater to a neighborhood population. This allows them to offer their known customers interest free credit to purchase items, virtually instant delivery service, and other types of personalized services. All of these types of services are things that Amazon and Walmart cannot provide.

Product managers at the large firms realize that the smaller kiranas stores simply have better economics than they do. India represents a fantastic market for any firm: there are 1.3 billion people and incomes are steadily rising. On the surface, it appears as though there is no way to beat these retail stores. In India, a number of large firms have tried to break into the market and failed. France’s Carefour tried and ended up leaving. German’s Metro has only 25 stores in the country. Walmart had only been dabbling in the country until they finally decided to invest US$16B in the Indian e-commerce firm Flipkart Group. Even Indian companies who have tried to crack this market have had limited or no success. Mom-and-pop stores still dominate. Currently, small retailers control 90% of the countries $700 billion retail market. Who wouldn’t want to add entering this market to their product manager resume?

The biggest challenge for larger firm’s product managers is finding a way to change their product development definition in order to match the cost structure that the mom-and-pop firms are able to enjoy. In the U.S., the larger firms used their size to get wholesale discounts on items. Once they had these, they were then able to offer lower prices and ended up squeezing out the smaller players in the markets that they entered. However, in India this strategy does not work. The mom-and-pop shops have an edge on costs. Even though they end up paying higher prices for goods, since their cost structure is much lower than the larger players this results in allowing them to enjoy a higher profit margin. The mom-and-pop stores have a cost of labor and other operating costs of roughly 7%. At the larger firms, these costs come to 15%.

Retail Goliaths Strategies

In order to better understand who they are up against, the large retail product managers need to carefully study who their competition in India is. Often times the smaller kiranas occupy only 250 square feet of space. However, in this limited amount of space, these retailers can pack up to 1,000 different items for sale. They do this by having shelves that reach up to the ceiling in the store. The store will contain bags of wheat and rice, a drinks cooler, and a refrigerated glass display case for items such as chocolate. Ladders are used to allow customers to reach everything that they need. Rent for this type of store is $750 per month and two employees will cost $160 per month. The only real expense that the store has is the wholesale price of its goods. No inventory of goods is kept and delivery boys can drop off orders within 30 minutes.

When a large competitor moves into town, the kiranas often don’t even notice. In fact, their sales can continue to climb even when this happens. The kiranas customers do shop at the large modern stores on occasion. However, in the end they have come to rely on the convenience of their local stores. They know the store owners by name and they can get goods that they need brought to them simply by making a phone call to the store. The large international firms believe that in India, there is enough business to support all types of stores. The larger stores are starting to establish wholesale business that sell directly to the mom-and-pop stores.

Amazon product managers have started to enlist the help of kiranas to deliver Amazon orders to homes. They are also using them to store packages until customers can come and pick them up. Despite their success, the kiranas realize that they are going to have to change in order to remain competitive. One of the most important changes that they have made is that more and more of them have started to accept cashless payments via e-wallets on mobile phones. Additionally, these stores are now starting to interact with their customers via messaging applications instead of requiring their customers to call and talk with them. Some of the stores have started to use e-commerce websites to supply them with the products that they can then turn around and sell to their customers.

What All Of This Means For You

As product managers we often find ourselves in situations where we are attempting to enter into new markets. When this happens we need to take the time to review our product manager job description and study the market and determine how best to position our product in order to be successful. Product managers at some of the large retail goliaths are currently trying to determine how best to enter into the Indian retail market. This is not going to be easy to do.

If they do enter into the Indian retail market, the Walmarts and Amazons are going to find themselves doing battle with the small mom-and-pop retail stores called kiranas that are everywhere in India. Other international retail firms have tried to enter into the Indian retail space and have not been able to match the low overhead of the kiranas. What has worked for the large companies in other countries, using their size to drive prices down, won’t work in India because of the low overhead of the kiranas. The larger store product managers need to understand who they are up against. These small stores occupy a small area, have a lot of goods, and maintain a close relationship with their local customers. The convenience of shopping at the kiranas is what brings their customers back to them. The kiranas understand that they have to change in order to stay ahead of their competition and so they are starting to use apps and mobile phone to conduct business.

The size of the Indian market makes it too big to ignore. However, the large retail giant product managers need to understand that the Indian market is a unique market – what has worked well for them in their home markets will not work here. The kiranas enjoy a significant cost advantage and therefore are well positioned to head off any competition. Looking for ways to sell to the kiranas or for unique products to offer that the kiranas don’t currently offer may be the best route for the large retailer’s product managers. They know what they need to do, now let’s see if they do it!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills

Question For You: If you were trying to enter into the Indian retail market, would you partner with the kiranas or compete with them?

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What We’ll Be Talking About Next Time

The world that we live in is changing and what this means for product managers is that we need to find ways to change with it. One area that is undergoing dramatic changes is how we go about fixing dinner. It used to be that you and I would either eat out or we’d go to the grocery store, pick up some ingredients, and then come home and make a meal. However, that has all changed now. The arrival of companies that make meal kits have created a system where we now get the ingredients that we need to make dinner delivered to our house and then we just have to spend a few minutes whipping up a delicious meal. The challenge for the product managers at these meal kit companies is how to stay in business.

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