Intensifying retail war

Friday, 25 March 2011 09:21 -     - {{hitsCtrl.values.hits}}

The retail chains in the country have already entered a promotions war and are on the initial stages of a price war; before long new entrants to the hyper market category will further intensify these cold wars and indirectly influence supermarket chains, fast-food chains, fashion chains and so on.

Hypermarkets are business models that focus on high volume, low margin sales. And a hypermarket would easily cover from 150,000 square feet to 230,000 sq feet, usually located in the urban or suburban outskirts and with a range of 200,000 brands of products, usually considered a one-stop-shop.

Competition

It is always healthy to have competition, but just as the saying goes, the medicine that cures could also kill; too much competition could intensify social and economical problems, out of which the largest threat will be posed to the small retailers who are struggling to make ends meet.

The market

Opportunity should be drawn weighing the buying power of the people. Irrespective of the published Government policies of poverty elevation, weightage should be placed upon the average expendable income per household. How many will actually step into a hypermarket to do their regular shopping?

We should also consider the concentration of population across the country. Not more than 30% of the population will be around Colombo and Gampaha. Consideration should also be given to the geographical distribution of socio economic classifications of A, B and C categories to strike feasibility of flooding the towns with hypermarkets. Increase in traffic congestions is another consideration, especially during the time band of 6-8 p.m.

Change needed in value chains

Unlike the traditional value chain for retail industry, where the firm infrastructure was important in terms of ground space and parking, in an intensified competitive situation, the value chain of all retailers would change, giving priority to operations and inbound logistics.

Although marketing and sales in terms of advertising, promotions and customer loyalty packages count, it will make less impact in times of a saturated market conditions. Operations can be further classified as physical in-store operations or web based or both. Inbound logistics should be taken care of through supplier and quality control.

Take the example of Walmart – in one era, it was the benchmark for retail chains across the world in terms of offering lower prices and a few years later the supplier network crashed due to over pressure for thin margins. Supplier selection is vital in retail markets since it is the point of value that creates a difference. At the same time, in a saturated market of retailers, there is a large threat of suppliers crashing in times of a crisis.

Way out

It’s the same situation in the Sri Lankan mobile communications industry for the past two to three years. Saturated markets, absolutely no loyalty in customers and extensive investments in advertising and promotions have resulted in the ailing margins of the service providers. And now, the best strategic move could be for the loss makers to divest or on a more positive note, merge with one of the leaders.

Growth in industry is healthy for any country, but external and internal factors should also be considered. It will be not far off before retail networks of other countries will establish in Sri Lanka with the emergence of tourism and opportunities opening up.

It is better that local retailers collectively manage market share strategically leaving apart cut-throat competition and identify gaps in distribution before someone else does and later pay stakeholders with takeovers and mergers like the communication industry is witnessing now.

(The writer is a Chartered Marketer and holds a BBM from the Bangalore University. She could be reached via fernando.romanthi@gmail.com.)

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