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IMPACT OF SUPERMARKETS ON SMALL

RETAILERS IN INDIAN SUBURB

Article in International Journal of Research in Marketing · June 2011

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IJMMR Volume 2, Issue 6 (June, 2011) ISSN 2229-6883

The Journal of Sri Krishna Research & Educational Consortium

INTERNATIONAL JOURNAL OF
MARKETING AND
MANAGEMENT RESEARCH
I n t e r n a ti on a l l y I n d e x e d & Li s te d Re f er r e d e - J ou r n a l

IMPACT OF SUPERMARKETS ON SMALL RETAILERS IN INDIAN

SUBURB

A. HAMIL*; DR. X. ANTONY THANARAJ**

* Sadakathullah Appa College (Autonomous),

Rahmath Nagar, Tirunelveli – 627011
Tamil Nadu , India.
**Scott Christian College (Autonomous),
Nagercoil – 629 003
Tamil Nadu , India.

ABSTRACT

OBJECTIVES

Modern organized Retail is growing at a rapid pace in India but 96% of Indian retail
trade is unorganized. In this situation, the impact of this retail boom on small
retailers has to be studied. The research presented here builds a picture of the
changing face of retail taking place in Tirunelveli. The study is aimed at knowing the
impact of supermarkets on the sales and profit volume of small retailers. Another
objective of the study is to know the impact of supermarkets on the employment
opportunities in unorganized retail industry. Moreover, opinion of small retailers is
also sought, to identify the reason for the growth of supermarkets in the study area.

METHODOLOGY/APPROACH

Tirunelveli Municipal Corporation is taken up for the study to identify the impact of
organized retail Malls i.e. supermarkets on unorganized small retailers. Tirunelveli
Municipal Corporation is an upcoming and the fastest growing place in Tamil Nadu.
Convenience Sampling Method has been adopted and 109 unorganized small retail
concerns of various formats are selected for the study. Retailers with a floor space of
less than 500 sq. feet and located within a distance of 10 km from supermarkets
alone are taken for study.

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FINDINGS

The present study indicates that supermarkets inflicted an adverse impact on

unorganized retail outlets of various formats in targeted Indian suburb area.
Moreover, due to the growth of supermarkets there is a loss of employment in the
small retail ventures. Opinion of small retailers also identifies the main reason for
the growth of supermarkets.

PRACTICAL IMPLICATION

A very useful source in information and review of scenario should help small
retailers across the state of Tamil Nadu to face big giants more aggressively and do
better in the years to come. This paper identifies the data required for the guidance
of small retailers.

KEYWORDS: Kirana Stores, Malls, Organized Retail, Retail store, Supermarket &
Unorganized Retail.

INTRODUCTION
Organised corporate retailing is poised to become the business of the decade in India. Retailing
presently contributes about 10 per cent of India‟s gross domestic product (GDP) and 6-7 per cent
of employment. With some 15 million retail outlets, India has the highest retail density in the
world. But only 4 per cent of these outlets are more than 500 sq ft in size and almost all are
family-owned shops and establishments. The share of organized retail, currently only 4% (INR
500 bn) is projected to grow at 45% CAGR (Compound annual Growth Rate) for the next 5
years to 15% (INR 3100 bn) of the overall retail bandwidth by the year 2012, with investments to
the tune of INR 1,360bn in the retail front end during the same period. With such high growth
rates and market sizes it is visible that there is an expected outburst of organised Retail India in
the years to come.

AT Kearney, the well-known international management consultancy identified India as

the most attractive retail destination by placing India in the top positions in its Global Retail
Development Index (GRDI). India was a GRDI (Global Retail Development Index) leader from
2005 to 2007 and in 2009 and held the first Rank during these periods, took the 3rd place in the
year 2010. The main reason for this is the improvement in the Indian consumer spending. The
consumer spending is expected to grow further in the future. According to Technopak Quarterly
Report, in the total Indian GDP 59% of the amount is spent for the private consumption. Among
the private consumption spending, 54% accounts for retail spending and among the retail
spending Food and grocery ranks first. According to the Technopak Report the following
account for 94% of retail spending:

 Food & Grocery

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 Apparel

 Footwear

 CDIT (Consumer Durables and Information Technology)

 Home

 Health & Wellness

 Jewellery & Watches

 Books, Magazines and Entertainment

EXHIBIT 1

Source: “Changing India, Changing Consumption, Changing Consumers” Perspective - A

quarterly report by Technopak, Vol. 3, 2010, p. 4

In this situation the modern retail sector in India continues to grow steadily. They are
expected to grow to 3 times its current size by 2014, and add US$ 45 Billion. Unorganised retail
would add close to US$ 150 Billion in this period and there is a big question of the impact of
organized retail on unorganized retail.

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EXHIBIT 2

Source: “Changing India, Changing Consumption, Changing Consumers” Perspective - A

quarterly report by Technopak, Vol. 3, 2010, p. 8

Economic liberalisation in India is a story of contrasts and the deepening of divides. On

the one side, it exudes “excellence” and “efficiency” fuelling prosperity for a few, while the flip
side is of squalor and misery, heightened for many, without commensurate state action to
mitigate the same. The recent debate on corporatisation of retail trade has to be seen in the same
context. In a nutshell, corporatisation of retail trade in India ostensibly entails, on the one end,
speeding up of the supply chain and reduction of the number of “middlemen” between the
producer and the end consumer. On the other end, it will mean the loss of livelihood for millions
of small retailers, many of whom (as pointed out by researchers) are involved in this activity
because of the absence of alternate livelihoods.

Contrary to this, a government-commissioned report by an independent think-tank

ICRIER (Indian Council for Research on International Economic Relations) says there is no real
threat to neighbourhood Kirana stores from modern retail chains. Organised retail will only
benefit farmers in terms of getting better prices for their produce and the negative impact on
Kiranas would be short-lived. The report also reveals that consumers have gained from
organised retail on various counts. In addition, this report concludes that “While all the income
groups saved through the entry of organised retail purchases, lower income consumers saved
more.”

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EXHIBIT 3

GROWTH OF INDIAN RETAIL OVER THE YEARS

Source: “The Indian Retail Landscape: Now and Beyond “ Perspective, A quarterly report by
Technopak, Volume 01, 2010, p. 18

The sheer size of the retail sector and its inherent potential make it a lucrative destination
for both domestic and foreign organised retail industry. Of late, the retail sector in India has
witnessed frenzied activity and, according to some rough estimates, it has been growing at a
whopping rate of 20 per cent a year. Many domestic corporate houses have entered the sector. It
is in this context, that the committee‟s recommendations acquire significance as there is a fear
that organised retail will finish off the traditional “Kirana” or “pop-and-mom” stores.

The ICRIER report of September 2008, provides many a favorable view on Organized
Retail from the beginning of the report without giving much weightage on Unorganized Retail.
The report mentions that From Human Resource (HR) stand point, modern retail was expected to
create a very large number of new jobs. Since modern retailers are currently facing issues of
overall weak macros and consumer sentiment, rapid front end expansion with insufficient supply
chain investment, incorrect business models (in some cases), disproportionate real estate prices
(though, these have / are correcting rapidly), slow down of international entrants, and some
recent very public “controversies”, this job creation is expected to be weak in the short term
(2009).

REVIEW OF LITERATURE

Anuradha Kalhan, (2005), in his research paper, concluded that the sales impact on small
shops is likely to be intensified and earnings will keep falling due to the growth of organised
retail malls. In another study with Martin Franz (2009), he concluded that dominance of

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corporate retailers has consequences for the manufacturers, wholesalers and other dealers in the
supply chain who face a loss of alternative marketing/retail outlets, as monopolies emerge.
Finally, the growth of large format retail raises serious issues for the urban environment and
town planning in dense and rapidly urbanising countries like India.

The coming of the big players in the retail market would be the last nail in the coffin for
the friendly neighborhood Kirana stores. The personal touch one used to get from the service of
Kirana stores, would be a thing of the past. These were the views of Sreejith A et al (2007).
These views clearly depicts that there would be an impact of Organized Retail on Unorganized
Retail Stores like Kirana stores.

In two different studies Mathew Joseph, et al (May 2008 and September 2008)
researchers in the Indian Government Think tank ICRIER provided the view that there is no
impact of organized retail on unorganized retail. Kiranas have major disadvantages on all
customer perception scores except location. Thus there is more possibility for the customers to
shift to organized retail formats this was the view of Paromita Goswami et al (2009).

Mohan Guruswamy et al (2005, 2006, 2007) emphasized the dangers of the FDI in
India‟s Retail Sector. They identified that Indian retail requires more investment when its doors
are open for organized retail through Foreign Direct Investment, it will create an adverse impact
on unorganized retailers, Indian employment and on Indian manufacturers. Kamlesh Kumar
Rathore (2009) identified in his research that the unorganized retailers in the vicinity of
organized retailers have been adversely affected in terms of their volume of business and profit.

Shankar Gopalakrishnan, et al (2009), explored the implications of Corporate Retail on

India‟s Economy. They concluded that the development of Corporate Retail leads to the
agricultural crisis, a decline in land fertility and water availability, a collapse in both urban and
rural employment, declining food security, price volatility in essential commodities, and
resulting pauperization and inequality. In addition, the total lack of regulation on growth of
corporate retailers in urban areas is leading to skyrocketing demands for water and electricity
supplies.

The review of literature provided above show that more studies have been done on the
impact of organized retail on unorganized retail in India. Most of the studies have provided the
results that there is a possible impact on small unorganized retail stores except the studies done
by the Indian Government Think tank. As a researcher, one should raise a question on the
prudence on this view. The results of ICRIER may be true for the study areas of six Metros. But
the applicability of the organized retail concept on whole India is yet to be investigated. Due to
this fact this research attempt has be made to know the impact of organized retail particularly
supermarkets, on unorganized retail particularly Indian sub-urban.

OBJECTIVES OF THE STUDY

1. To know the impact of supermarkets on the sales and profit volume of small retailers.

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2. To know the impact of supermarkets on the customer base of small retailers.

3. To identify the reasons for the impact of supermarkets on small retailers

HYPOTHESIS

h0 - There is no association between the type of retail store and sales of retail stores after
the commencement of supermarket

METHODOLOGY

Totally 125 shops were targeted as respondents in the study area, of which 109 retailers
were taken for the study discarding respondents with inadequate answers and slackened
response. Due to paucity of time, Convenience Sampling Method has been adopted to choose the
sample respondents. Among the 109 respondents 38.53% belonged to grocery (Kirana) stores,
22.94%, from general merchants dealing with cosmetics alone, 12.84% of the respondents were
hawkers, 8.26% respondents were Petty shop owners, 6.42% respondents were Vegetable or
Fruit stall owners, a same percentage of respondents were Stationery Store owners and other
types of retailers constitute 4.59%. Care has been taken in selecting the respondents in such a
manner that they are mostly situated in the vicinity of organized outlets i.e., supermarket.
Respondents having their establishment beyond 10 Km from the supermarkets have not been
taken for the study.

Tirunelveli Municipal Corporation area has been chosen as the study Area. The study
area is a sub-urban city, but does not fall under the definition of Tier I, II or III cities. This
corporation consists of Tirunelveli, Palayamkottai and Melapalayam Municipalities along with
15 village Panchayats. This city is an upcoming place having rich heritage and a 2000 year long
history. This city consists of 8 supermarkets and cherished with so many traditional retailers.
This study would be appropriate on this area as many more corporate retailers have planned to
extend their outlet in this city. This study would help small retailers to prepare themselves to
face the competition from organized retailers and to adopt themselves to retain their customers.
The majority of the unorganized retailers in the study area are having the floor space of 100 to
200 sq ft.

IMPACT OF SUPERMARKETS ON THE SALES VOLUME OF SMALL RETAILERS

The study explores the possible impact of supermarkets on the sales volume of small
retailers. Modern retail formats have many added features to attract shoppers. When a buyer
wants to explore new things in his buying he may make a change in his place of buying. Many
studies show that there is a possible shrinkage of sales volume.

TABLE 1: IMPACT OF SUPERMARKETS ON THE SALES VOLUME OF SMALL

RETAILERS

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Before After

Sl. Sales Volume in Starting supermarket in the vicinity

No. Rupees
No. of No. of
% %
Respondents Respondents

1 Less than 1,00,000 10 9% 22 20%

2 1,00,000-1,50,000 12 11% 26 24%

3 1,50,001-2,00,000 37 34% 30 28%

4 2,00,001-2,50,000 38 35% 22 20%

5 Above 2,50,000 12 11% 9 8%

Total 109 100% 109 100%

The above table shows that before the commencement of supermarkets in the vicinity of
small retailers, majority (35%) of the small retailers were having a sales volume of Rs. 2,00,001
to 2,50,000, but after the commencement of supermarkets majority of the small retailers are
having the sales volume of Rs. 1,50,001 to Rs. 2,00,000. It envisages that majority of the small
retailers were having a reduced sales volume of at least Rs. 50,000. It is clear from the above
analysis that small retailers, who had higher sales volume before the commencement of
supermarkets, were experiencing a reduced sales volume.

The above discussions show that commencement of supermarkets has made an impact on
the small retailers, but the impact need not be on all types of small retailers. An attempt was
made to know whether the impact is on all types of small retailers or on a specific type of small
retailers with the help of a hypothesis.

TABLE 2: OBSERVED AND EXPECTED FREQUENCIES ON THE REDUCTION OF

SALES OF SMALL RETAILERS AFTER THE COMMENCEMENT OF
SUPERMARKET

Percentage of Reduction

Type of Shop No Reduction 10% to 25% 26% to 50% Above 50%

O E O E O E O E

Petty Shop 9 2.06 0 3.63 0 3.22 0 0.08

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Kirana Stores 0 9.63 22 16.95 19 15.03 1 0.39

Vegetable/ Fruit Stall 1 1.61 1 2.83 5 2.5 0 0.06

Hawkers 14 3.21 0 5.65 0 5.01 0 0.13

Stationery Mart 0 1.61 2 2.83 5 2.5 0 0.06

General Merchant 0 5.73 17 10.09 8 8.94 0 0.23

Other type of stores 1 1.15 2 2.02 2 1.80 0 0.05

Total 25 25 44 44 39 39 1 1

The calculated Value of χ2 is 109.68, but the table value of χ2 for the degrees of freedom
18 at 5% significance level is 28.87. As the calculated Value of χ2 is much higher than the Table
Value thus the hypothesis does not hold good and therefore it can be concluded that there is an
association between the type of retail store and reduction in sales of retail stores after the
commencement of supermarkets. In other words the sales of all formats of small retailers are
affected due to the commencement of supermarket in the vicinity.

IMPACT OF SUPERMARKETS ON THE PROFIT VOLUME OF SMALL RETAILERS

The reduction of sales volume may naturally reduce the profit volume of a business
concern. But, small retailers, in order to compensate the loss of income, may increase the profit
margin. An attempt has been made to ensure the impact of supermarkets on the profit volume of
small retailers. The following table explains the fact.

TABLE3: IMPACT OF SUPERMARKETS ON THE PROFIT VOLUME OF SMALL

RETAILERS

Before After
Sl. Profit Volume in
Starting supermarket in the vicinity
No. Rupees
No. of Respondents % No. of Respondents %

1 Less than 10,000 11 10% 19 17%

2 10,000-15,000 7 6% 30 28%

3 15,001-20,000 40 37% 29 27%

4 20,001-25,000 36 33% 20 18%

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5 Above 25,000 15 14% 11 10%

Total 109 100% 109 100%

The above table shows that 14% of the respondents were having the profit volume of
more than Rs. 25,000 before the commencement of supermarkets but after the commencement of
supermarkets only 10% of the respondents could get this profit margin. Similarly before starting
the supermarkets, 33% of the respondents were having a profit volume of Rs. 20,001 to Rs.
25,000, but after the commencement of supermarkets only 18% respondents could get this profit
margin. The respondents having the profit volume between Rs. 15,001 and Rs. 20,000 were 37%
before starting a supermarket in their vicinity, but after starting a supermarket close to their shop
only 27% of the total respondents could get this profit volume. We can infer from this table that
there is a sharp reduction in the profit volume in almost majority of the retailers after the
commencement of supermarkets in their vicinity.

IMPACT OF SUPERMARKETS ON THE CUSTOMER BASE OF SMALL RETAILERS

Every business entity will have its own range of customers. Recent researches show that
the shoppers‟ inclination is in favor of the supermarkets. Hedonic value while shopping with
supermarkets is higher than the traditional retail outlets. Due to this upper class shoppers prefer
supermarkets as their place of purchase and they have a sense of pride in buying commodities
from supermarkets. An attempt has been made in this study to know the class of shoppers before
and after the formation of supermarkets in the study area.

TABLE 4: CLASS OF CUSTOMERS BEFORE AND AFTER THE COMMENCEMENT

OF SUPERMARKETS

Before After
Sl. Class of
Starting supermarket in the vicinity
No. Customers
No. of Respondents % No. of Respondents %

1 Upper Class 15 14% 4 4%

2 Middle Class 42 39% 30 27%

3 Lower Class 30 27% 60 55%

4 Mixed 22 20% 15 14%

Total 109 100% 109 100%

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The above table examines the change in the class of customers before and after the
formation of supermarkets in the vicinity of small retail formats. We can infer from the above
table that the percentage of Upper Class, Middle Class and Mixed Class consumers was
shrinking after the formation of supermarkets.

In addition to the class of customer base, an in-depth analysis is required to assert the
reduction of quantum of customers patronising small retail outlets. A deep analysis has been
made on the number of customers patronising small retailers on week days and on Sundays or
holidays.

TABLE 5: QUANTUM OF CUSTOMERS VISITING THE SMALL RETAIL STORES

BEFORE AND AFTER THE COMMENCEMENT OF SUPERMARKETS DURING
WEEK DAYS

Before After
No. of
Sl.
Customers Starting supermarket in the vicinity
No.
visiting per day
No. of Respondents % No. of Respondents %

1 Less than 25 21 19% 62 57%

2 25 – 50 47 43% 27 25%

3 51 -100 27 25% 17 15%

4 Above 100 14 13% 3 3%

Total 109 100% 109 100%

The above table reveals that on an average 25 to 50 customers were visiting small retail
stores during week days before the commencement of supermarkets in the vicinity of small
retailers, but after the commencement of supermarkets, only less than 25 customers were
visiting. This clearly shows the fact that there is a clear sign of reduction of number of
customers visiting the small retail entities.

TABLE 6: QUANTUM OF CUSTOMERS VISITING THE SMALL RETAIL STORES

BEFORE AND AFTER THE COMMENCEMENT OF SUPERMARKETS DURING
SUNDAYS AND HOLIDAYS

Before After
Sl. No. of Customers visiting per day
No. during Sundays and Holidays
Starting supermarket in the vicinity

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No. of No. of
% %
Respondents Respondents

1 Less than 25 customers 6 6% 22 20%

2 25 – 50 customers 52 48% 49 45%

3 51 -100 customers 30 28% 32 29%

4 Above 100 customers 21 19% 6 6%

Total 109 100% 109 100%

Sundays and holidays are the days freely available for the shoppers for leisure shopping.
Due to this during Sundays and holidays the number of buyers visiting retail outlets is normally
higher than the other days of the week. But the above table shows that there was a reduction in
the number of customers visiting the small retail stores after the commencement of supermarkets.

OPINION ON THE GROWTH OF UNORGANIZED RETAIL IN FUTURE

TABLE 7: OPINION ON THE GROWTH OF SALES IN THE FUTURE

Sl. No. Response No. of Respondents Percentage

1 Grow 9 8%

2 No Growth is expected 28 26%

3 Unsure 72 66%

Total 109 100%

The above table shows that the majority of the small retailers are of the opinion that they
are uncertain about the growth of their business in future. Reduction of Sales and Profit of small
retailers due to the growth of supermarkets would be the reason for this disheartening behaviour.

OPINION ON THE REASONS FOR THE GROWTH OF SUPERMARKETS

TABLE 8: REASONS FOR THE GROWTH OF SUPERMARKETS

Sl. No. Reasons for the growth of supermarkets Mean Score Rank

1 Strong Capital base of Supermarkets 4.47 I

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2 Size of the Supermarkets 4.27 II

3 All under one roof 4.01 III

4 Wide Assortment in Supermarkets 3.90 IV

5 Ambience of Supermarkets 3.62 V

6 Discount offers in Supermarkets 3.49 VI

7 Facility of Self-service 3.28 VII

8 Usage of Technology by Supermarkets 3.15 VIII

9 Loyalty Card in Supermarkets 3.02 IX

10 Huge Inventory of Supermarkets 2.82 X

11 Wide Door Delivery by the Supermarkets 2.67 XI

12 Parking Facilities 2.62 XII

13 Attractive Display in Supermarkets 2.37 XIII

14 Fresh Stock in Supermarkets 2.19 XIV

15 Brand value of Supermarket 1.64 XV

The above table elucidates the reasons for the growth of supermarket. In the opinion of
the small retailers, sound capital position of the supermarket was an important reason for the
growth of the supermarket which stood first rank among various reasons. Next to the strong
capital base of supermarket mega size of the supermarket occupied the second position.
Shoppers are lured by the factor of being Big. Third reason for the growth of supermarket is the
feature of all under one roof.

CONCLUSION

It is concluded from the above analysis that all formats of small retailers were affected
due to the formation of supermarket in the study area. The supermarket made an adverse impact
on the sales and profit of small retailers. The impact is invariably on all formats of small
retailers. There is a reduction in the customer base for the small retailers. Sub-urban small
retailers feel that the strong capital base, Mega size appearance and the all under one roof were
the main features which lure shoppers.

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As a suggestive measure proactive government intervention in encouraging retail

cooperatives and developing sufficient infrastructure for Mandis would help small retailers
enhance their efficiency and remain competitive. The government (both Central and States) has
a very important role to play in safeguarding the unorganized retail formats. It has to take up the
urban redevelopment effort on a priority and also pay attention to the redevelopment of
traditional retail marketplaces for a cleaner, fresher and more shopper-friendly orientation.

Steps are to be taken to strengthen the capital base of small retailers. Small retailers may
form a cartel for making bulk purchases and such cartels alone can serve the purpose of modern
logistic services. Traditional retailers and retail property owners must come together to ensure
that pedestrian footpaths are cleared of encroachments and walkways resurfaced, public toilets
cleaned and maintained well, shop signage standardised, lighting improved, and then each shop
made to undertake some basic modernisation of its interiors so as to provide an improved
shopping ambience to the shoppers. Rather than limiting their promotional effort only to key
festivals, small retailers‟ associations should come up with exciting promotional activities year-
round to attract and retain customers.

Food is always a big draw in India, and hence the small retailers associations are to
formed to create a good repertoire of vendors and hawkers of hygienically prepared and served
local street food to compete with food-courts in modern shopping centres. It would, indeed, be
sad for everyone to see traditional markets which till recently were thriving traditional markets
fading away. Hence, the small retailers need to be encouraged and guided to modernise not only
themselves but the entire marketplace as well.

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