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'The biggest impediment to organising markets is capital'

Harminder Sahni 

Across the globe segments of markets that were highly fragmented are getting organised. Where is the push for organisation coming from — from the consumers or the marketers? Why?
The initial push always comes from marketers. But once the consumer enjoys the benefit of the organised sector, then the pull comes from the consumer end. For example the first few malls or organised retail stores were a result of marketers’ push efforts in Delhi and Mumbai, but then the pull came from the consumer side in tier 1 and tier 2 cities to be able to enjoy those same facilities.

The reason for marketers to push for an organised sector is that they can offer better, wider and newer products through proper display and demonstrations. In the unorganised sector, most items are sold over the counter and consumers are not exposed to what’s new. Also an unorganised retailer will only show consumers what they wish to push due to higher margins or to meet their targets. The rights of consumers to choose versus the marketers power to offer choice is curtailed in the unorganised sector. Another party that should be interested in organising sectors is the government, because the leakage of revenue in terms of taxes and levies from the unorganised sector is very high.

What elements of the market represent the biggest impediments to organising unorg- anised markets?
The biggest impediment is capital as the cost of organising anything at any level is very high. The initial investments are risky as they are done more on the basis of hunches and less on actual demand, so complete loss is a scary reality. Another impediment is the compulsion of the unorganised sector to fight extinction at any cost and their capacity to work on extremely low margins.

The benefits of organising markets are obvious. What are the hidden costs of selling in an unorganised market?

The cost of selling in an unorganised market includes cost of reach and delivery. There is a huge difference in delivering to 10,000 retailers versus to one retailers’ distribution centre who has a few thousand stores of his own.

Other hidden costs include the cost of capital that gets stuck with so many retailers, for carrying buffer stock at warehouses, distributors and carrying and forwarding agents, and in transit.

This raises the question of what happens in those sectors where there are no large brands, but there is a proli- feration of small, mostly not very well known brands with minimal advertising support. How do the smaller players cope up a to seismic shift of this nature?
The only way small brands can survive is through acquiring scale. The organised retail is a big boon for small brands as they can reach many more markets and consumers without having to spend on advertising and distribution. They can build their brand in collaboration with organised retailers through in-store brand building campaigns.

How are the consumer buying behaviours different in organised and unorganised markets?
Consumers enjoy the choice and liberty of an organised market and feel empowered. They spend more on any category that is organised, such as the clothing and electronics segments.

Harminder Sahni
Founder, Wazir Advisors, a consulting firm

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First Published: Mon, July 02 2012. 00:07 IST
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