Forbes: Adding Fizz

Global 2000
Adding Fizz
Naazneen Karmali, 05.10.10

The Bhanu General Store on the busy Faizabad highway outside Lucknow city in North India is a minimarket crammed into 1,700 square feet of space and open from 8 a.m. to 10 p.m, seven days a week. Owned and run by 40-year-old Sanjay Singh, Bhanu is one of 7.7 million kirana (grocery) stores that form the backbone of India's retail distribution network: 95% of all consumer products are sold through such mom-and-pop outfits.

Collectively they form a powerful lobby that has so far successfully stalled the entry of big, foreign retail chains into the country. Indian regulations don't as yet allow foreign companies in what is referred to as "multibrand retail," though cash-and-carry stores aimed at the wholesale market are permitted.

Even large Indian retailers have faced a rough passage. The Reliance Fresh chain's grocery stores, a venture of billionaire Mukesh Ambani's Reliance Group, were stoned when they first opened. And mighty Wal-Mart dare not use its name in India: Its two cash-and-carry stores in the northern state of Punjab, which it runs in a joint venture with the Bharti Group, are called Best Price Modern Wholesale.

But Singh senses that despite the regulatory protection he enjoys for now, change is definitely in the air. Already he's witnessed the arrival of new malls in Lucknow. Lately there's an emerging view in New Delhi that opening up retail trade could rein in mounting food price inflation. "In the future I'll be competing with big supermarkets," he frets.

Help is at hand: Beverage giant Coca-Cola's latest mission is to prepare India's mom-and-pop retailers to take on big-box stores. Its Indian unit has launched a drive to send small shopkeepers back to school to teach them Modern Retailing 101. Dubbed "Parivartan," which means "change" in Hindi, it is equivalent to a Coca-Cola-University-on-Wheels. The course takes place on a bus that's been fabricated into a 24-seater classroom. Since its launch in November 2008 the Coke bus has been crisscrossing the countryside, targeting kirana stores in second- and third-tier cities, mostly in northern and western India.

Coke's mobile university is on the road six days a week, covering 75 store owners on average in a day. In bigger towns the course is conducted in a rented hall so as to accommodate a larger group. So far 40,000 retailers in 600 towns have undergone this training free of cost. Coke's goal is to reach 100,000 retailers in the next 18 months, says Ramesh Datta, a former B-school dean who was hired in 2007 to oversee its virtual university. To achieve that target Datta is adding more classrooms: Two buses join the fleet this year and two more by 2011.

Coke executives insist that this endeavor is purely about earning goodwill, not profits. "This isn't about Coke at all. It's about teaching the little guys 21st-century retailing practices," says Atul Singh, president of the Indian unit. He recounts that the idea sprang from an encounter between Coca-Cola Chief Executive Muhtar Kent and India's former commerce minister Kamal Nath at the World Economic Forum summit at Davos in 2008. During the meeting the minister suggested that Coke should help India's traditional kirana stores, which were feeling threatened by the imminent arrival of big chains.

Vested with that mandate, the local team in India looked to Brazil and Chile, where Coca-Cola University, its training arm, was running a course for retailers selling Coke products. But rather than transplant that model, they decided to target all shops, not only those stocking soft drinks. To prepare the training module, as many as 7,000 store owners were interviewed. From their feedback, they concluded that a mobile class should supplement a brick-and-mortar one.

On a recent morning shopkeeper Singh boarded the Coke bus at the Break Point Dhaba, a highway eatery frequented by truck drivers, not far from his store. The two-hour class he attended was conducted in his native Hindi by a teacher dressed in a business suit. Says Singh: "I'm glad I made the time for this. I learnt a lot." He plans to implement tips on jazzing up the storefront and keeping customers loyal. (Coke also gives attendees a $2,000 accident insurance policy.)

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While Coke may say that its mobile class isn't aimed at selling more of its beverages, the company does end up benefiting. "It's only natural that once they've attended the course, storeowners will buy more Coke products and give them bigger shelf space," says Arvind Singhal, chairman of consulting firm Technopak Advisors. Kuldeep Singh, who owns the 125-square-foot Singh Store in Punjab's Ludhiana city and took the course in January, says that his sales are up 15%, mostly by selling more soft drinks.

Evidently there's a business purpose lurking behind Coke's altruism. Sizzling sales in India and China helped offset a decline in volume in the U.S., enabling the soft drinks maker to post an overall 3% increase in sales volume in 2009. The Indian unit was up 30%. (PepsiCo India had a similar gain.) To keep that momentum Coke must make deeper inroads into the rural heartland where 72% of the population lives and per capita consumption of soft drinks is still low--4 servings per person annually as compared with 450 servings in mature markets.

Atul Singh's protestations aside, there's evidence that the effort is advancing Coke's sales. For example, in Punjab, where Coke's bus has been trawling through the smallest of towns, the company's products are now sold in 90% of all retail outlets. Overall, Coca-Cola is aiming to expand its reach from 1.2 million to 5 million retail outlets by 2020. Preaching to their owners may well be the fastest way of hitting that target.

Wal-Mart and other supermarket operators also are big customers for Coke. But there's no necessary conflict here: In fact, Wal-Mart has its own program for boosting the kirana sector, to which it sells as well. And when it comes to a global soda brand, apparently there's a growth market for everybody.

Big Numbers: Big Market

But mostly small stores--for now.

$435 billion Current size of India's retail market.
$595 billion Estimated size in 2015.
5% Share of large retailers in total retail sales.
10% Estimated share of large retailers by 2015.

Source: Technopak Advisors.