Low Cost: It’s all about perception!

There is a famous saying doing the rounds in recent times: 19^th Century globally was about roadways, 20^th century was about railways and the 21^st century is all about airways. How true!

Mainline media was abuzz over the past weekend about the most recent development in Indian Aviation – Sun Network owner Kalanidhi Maran had purchased a strategic stake in his personal capacity in Spicejet (IATA Code: SG), the second largest low-cost airline in the country by market share. While the deal has been on the table for over 3-4 months, the timing couldn’t have been better. Passenger and Cargo traffic is at an all time high since late – 2008 after the global recession and the US sub-prime crisis. Major airports such as Delhi IGI, Mumbai CSIA and Bengaluru International Airport are squeezed for space and the check-in / security queues during peak hours could take as high as 30 minutes per person. Spicejet, apart from other low-cost airlines such as Indigo, Go Air, etc. have been in operation for around five years, ever since the first low-cost airline in India, Air Deccan was launched. It has carved a niche for itself with its on-time performance and crew service standards just like its main competitor, Indigo. Jet Airways, India’s premier airline and Kingfisher, the only five-star airline in the country, also have their respective low-cost avatars, Jet Konnect and Kingfisher Red respectively, which directly compete in the same price segment.

So what’s with a media baron who is the leader in his own right in TV (Sun TV networks), Radio (S FM), DTH (Sun Direct) and many other related businesses got to do with Aviation? His critics slammed saying he lacks experience and exposure in the business to which he replied “CEO needs core competence; Chairman needs foresight”. Well said Mr. Maran. After all, he had purchased an entity which was operating in the low-cost segment. The concept of low-cost and low-fare have been misread in India for some time now. Air Deccan was actually low-cost and low-fare – the airline had minimal usage of resources (human and others) compared with many other scheduled airlines such as Air India and Jet Airways. The in-flight services were minimal and water for drinking was being sold – contrary to an almost Indian way-of-living “Athithi Devo Bhava” (Guests are treated like God). World over, low-cost airlines are the ones who are faring well even during the slowdown. That’s because their business model is like that. Scheduled airlines in India are competing on price but retain many other value-added services, which is what costs them and like how! A quick comparison between various airlines revealed that the fare difference on low-cost and scheduled airlines between Bangalore and Delhi if booked a week in advance is not more than Rs. 800/-. While Spicejet and Indigo offer the ticket at Rs. 5,476, Jetlite at Rs. 5,497/-, Jet Airways at Rs. 5,548/- and Air India at Rs. 6,210/-. 

There is a lot that can be compared between Aviation and Retail. Global experts on Macro-Economics say that for a buoyant economy, Aviation must grow twice the rate of the national GDP. That’s been the case in India since early 2000s, barring a few months of turbulence since mid-2008. The same applies for Retail. Both industries propel consumption and reflect growing consumerism and aspirational affordability; both bring in healthy competition and the uncompetitive are flushed out within a few years; both Industries grow only by scale – larger the number, higher the economies of scale. Both industries are a favourite for international players driving FDI into the country. Both provide direct and indirect employment for thousands of people (although aviation globally is reducing the number of staff per 1,000 pax, this number would continue to remain high in India due to localization issues). And both can work pretty much independently without Government support although policy decisions do affect the functioning of the industries.

Organized Retail has been growing at over 15% CAGR for leading retailers ever since they came into foray during the last decade. The highest growth has been for retailers nicknamed “Hypermarkets” led by Big Bazaar, a Future Group entity that commenced business in the year 2001 at a nondescript VIP Road, east of Calcutta. And the rest, as they say has been not just history, but historical! The group has managed to open over 140 outlets, over half of which were during the past 4 years. Other players in the same business include Hypercity (by the Rahejas), Star Bazaar (by the Tatas), Reliance Hyper, More (by the Birlas), Spar (by the Landmark Group of Dubai), Total (by the Jubilant Group), Easy Day (by the Bhartis) and many other local and regional players. The idea was simple – lease a big box location; project the business as low-cost, sell atleast 100 items at the lowest price possible and communicate the same en-masse. By attracting thousands of shoppers to visit the store, Retailers look to sell their products in large quantities thereby managing better economies of scale. The business would become profitable over a period of time, but only with more number of outlets selling more SKUs.  Not all the items in a Hyper are always low-cost; At the end of it, it’s all about perception – of Low-Cost. Hypers reinforce the fact that the key household items are below the selling price in the local markets; this acts as a bait to attract shoppers to visit the store. Over a period of time, consumers get hooked to the idea of shopping in a relaxed, convenient, hygienic environment where they could also save some money!

So whether it is a Low-cost airline or a Hyper, its all about perception. And there are many who are trying it hard. Only some will succeed. After all, those who do so will have people at the helm with foresight. It surely helps. 

Make it Large

While driving back home after my MBA Classes on Sunday evening, I realized I needed to buy a freshener for my Car. The nearest outlet where I could buy was the 150,000 sft Hypercity at Marathahalli, (there couldnt be a better location at Bangalore, given that most of the IT/ITES employees dwell in this area largely with annual household incomes ranging from Rs. 20-30 lakhs) that opened its first outlet in the city in March 2010, after four successful models in Mumbai and one each at Jaipur, Amritsar and Hyderabad. But would someone visit a hyper for buying a single product? Not really. But my visit was also meant to be academic. After all, I haven’t seen the newest entrant in my business in Bangalore. So I headed straight towards the store with loads of expectations. After negotiating the busy signals, I saw the store to my right side although a number of cars were parked on the other side. Wasn’t sure if they were visiting the Hyper though. Drove further ahead, took a U-Turn after half a km and drove back to the store. Mine was the tenth car waiting to enter the basement parking. The security was polite and there were signages that suggested the car parking rates (of Rs. 15/- for three hours) and that it could be redeemed on a minimum purchase of Rs. 100/- within the store. The store had two basement parking levels, enough to park over 150 cars. Bike-Parking, I noticed earlier was in front of the Mall, not more than 50 or so. Understandable, as most who visit Hypers carry more than 2-3 bags and wouldn’t be able to carry them in a bike anyway. Basement parking, while well-lit was vast and the new security staff were yet to understand the speed at which vehicles were moving. There weren’t any speed-breakers to control our Ferrarians and Force Indians (sic), a must in most of our parking lots. After waiting for the elevator for some time, decided to walk up the stairs and ended up on the northern side of the building!

When I entered the store, the first words in my mind were WoW. This was so much needed for Bangalore. With an existing dozen Hypers of such a size, this one seems to be another important location in town. To my surprise, the F&V section was at the entrance. Why surprise – because the fruits and vegetables could get damaged after the shopping trolley is full. Some logic must have prevailed the experts, I guessed. Further ahead, I found two outlets, one that sells Juices and then a Cafe Coffee Day. While the juice bar was almost empty, there wasn’t space to sit in the cafe (with over 8 tables and 24 chairs occupied). A cafe at the beginning of the journey? Well, some logic, I said. Next was Fish & Meat seclusion, well organized as there was almost no pungent odour coming out. But what happened when the trolley containing meat was brought out to shop other things? Just shut-up and put-up, I said to myself again. Next was a wide area with a signage that read – Wine and Beer. But there were only juices and dry fruits – possibly they are yet to get the mandatory license to sell alcohol. Then I found crockery brushing walls with homeware and plastics and electrical. Finally, I was at my destination – Car fresheners, although I was advised by the polite staff that they don’t keep my favourite brand Ambi Pur. Cheap and Expensive Chinese imports only, strictly. But its upto you, she said.

Adjacent to it was a Salon and a couple of eating joints – one that sells Ice-Cream, and two other small ones that sold almost everything that was edible. One of them was aptly titled “Nashta-Chai” – liked the name and was intrigued to see their offering. “Delicacies from the streets of India”, screamed the tagline. After asking for six out of the 30 item menu, ordered a portion of Bhel Puri, a typical delicacy from the streets of Mumbai and Kolkata. Except for the paper plate and plastic spoon, there wasn’t anything local to go by. Spinach corn sandwich @ Rs. 74, Margherita Pizza @ Rs 84/-, Cappuccino @ Rs. 39/-. And possibly the only local delicacy Bisi bhela Bath @ Rs 74/- and the ubiquitous South Indian Filter Coffee @ Rs. 29/-. What’s so local, I guessed. Probably the boys who prepared them with love and perfection were. No Bill was given, just a small piece of paper scribbled with words!

Impatiently, stood up to continue my tour, errr, shopping. The travelator took me to the first floor, which greets visitors with gym equipments, tread-mills and bicycles. My wish to buy a bicycle was still not achieved as there was no BSA or Hero cycles. Some phoren brand that I couldn’t relate to or agree with for cycling within the locality to buy vegetables and enjoy fresh air! The next area was Electronics and mobile phones. As always, this is the most crowded areas. I have stopped visiting these sections anymore – have vowed to myself that I would pester the staff only when I close to deciding what to buy – I haven’t even made my mind on the brand or type, LCD, LED, Plasma, whatever. Next in line was Home furniture, a miniature furniture bazaar with half-a-dozen model rooms. This section leads to men’s, children’s and womenswear. In between was Crossword Book store. What is the book store doing in silo? I guessed. Sssshhhh. Came the answer almost on the spot. There were a few seats where some were trying hard to browse through the books – No, the books weren’t sealed, but there wasn’t any light where they were seated. The cashier empathised with me and said he also had the same feedback. We both hoped that somebody would do something about this. Good luck.

After picking my weekly pick of print media - Time, Newsweek and Business India, I proceeded further ahead through the kids clothing, casually picking a small toy and a dress for my daughter. I was almost done and was impatient to bill and leave. While coming down on the travelator, I noticed that the homeware and crockery shelves were looking full. In this business, an indication of which category is doing well through the day is the disruption on the shelves. By looking at the number of “facings”, one could say how popular a category was. If those hundreds weren’t shopping anything across various areas that I passed by (except the avid book readers and enthusiastic browsers), then what are they doing? Bingo – here was my answer. Most were filling their pantry since it is the third week of the month and they would need to top-up the shelves at home.

Surprise Surprise – 6 out of 30 cash tills weren’t working (Sunday, 8pm). No more than 2 trolleys and their families of 4-5 could stand in each Q. I went past twice to find the lowest crowded Q and succeeded in one. Surprise Surprise again – on the impulse bin were six units of Ami Pur – the very SKU that I came to this outlet. With a glad smile, picked the same and billed along with other items. The Bill amount was Rs. 450/- (and magazines were Rs. 195/-). So, a total spend of Rs. 645/- for someone who came to buy a single SKU that cost only Rs. 99/-. That’s the power of Hyper-Retail. It is so compulsive, that needs would be remembered as one walks by. When I pulled the car off my parking lot, I realized that the spacing was adequate even is some car drivers hadn’t parked well within their yellow lines. But to my horror, the ramp-up was just 7 feet or so! The adept-driver-in-the-making in me was lucky to have pulled off unscathed, but it was more a miracle than skill.

So, do Hypers do well just by having a larger box – making it larger than existing ones in the market? Not really. What separates the BEST from the others is not multiple facings of the same SKU, 3 dozen cash tills and larger complexes, but really the way it is retailed. Hyper, as the name suggests means BIG and Wide. The variety needs to be really deep and wide. Across categories. My wish to our friends in the business – Make it Large, but not just the size of the building. To ensure, we spend money and time not just during the first visit, but every time thereafter. Wishes.