Large retail chains such as Walmart, Carrefour, and Tesco etc are finding it tough to conquer emerging markets. These retailers first tried to implement the same business model that they used in developed markets, in developing ones too. This model was one of having large supermarket or hypermarket stores, located at some distance away from city centers. Most Walmart stores in America are located in suburban areas. Car ownership is high in America and gasoline prices are relatively low. Road network is also good there. Therefore American customers easily drive to suburban Walmart stores when they want to buy grocery or other household items.
In an emerging market such as India, the situation is different. Car ownership is low and gasoline (petrol & diesel) prices are higher, as a proportion of per capita income. Road network is often very poor outside cities. Customers cannot drive to a suburban Walmart store, every time they want to buy grocery, in India. So Walmart’s American business model cannot work in India.
In emerging markets such as India, the need is for smaller stores that are located near the homes of target customers. Many retail chains have started following this small, convenience store model in these markets. The commercial rent for smaller stores is also less. High commercial rent is a major problem in India due to shortage of high-quality retail space.
Consumers in emerging markets too want to have a good shopping experience. They too want to buy products at discounted prices. Retail chains just need to tweak their business model to suit local conditions more. The focus of these chains should not be too much on expansion of number of stores. The focus should be on ensuring profitability. A retail chain should open a new store once the previously opened store has become profitable. Tata group’s Trent chain in India follows this policy and therefore has been a sustainable business for long.
The potential of retail industry is huge in India and other emerging markets. According to a recent report by consulting firm, McKinsey & Company, by the year 2025 consumer spending in emerging economies will rise to $30 trillion. This will amount to half the total global consumption. Retail chains – both domestic and international – which show flexibility in term of business model and do not become too eager about expansion will definitely be able to tap this huge opportunity.