15 Nov 2019 17:35 IST

Challenges for 7-Eleven store chain in India

The global convenience store brand is set to foray into India, but it might not be smooth sailing

Today, very few convenience stores can be found in India and there are several reasons for this. As mentioned in the previous article, 7-Eleven, an international convenience store chain, is poised to enter the Indian market, and it would be interesting to see what is going to happen in this space.

Global players bring with them years of expertise, systems and processes, capabilities in supply chain management, as also deep pockets. The supply chain capabilities might be a major and key competitive advantage as convenience stores are primarily about packaged and branded products. As such, the challenges of grocery, in terms of sourcing, the legal constraints, and the repacking work, can all be avoided.

However, it might not all be smooth sailing in capturing market share. Some of the key impediments are:

Legislative obstacles

The Shops and Establishments Act defines the functioning of any retail outlet. Although, the model Act has been notified and recommended, many States are yet to adopt it. For example, in Tamil Nadu, the provision to open an outlet 24x7 has only been notified in a gazette. What this means, in simple terms, is that it can be changed or revoked. For any convenience store format, this is going to be a major challenge.

The biggest constraint is going to be the practice of maximum retail price (MRP). Convenience stores in most countries have higher prices to cover the incremental costs of such a format. This will not be possible in the Indian context, unless they operate only with store brands. From a shopper’s perspective, a format offering only store brands might have limited appeal.

Cost structure issues

Indian retail is already struggling with high real estate costs and rising manpower costs. Convenience stores, by definition, are located all over a city or a town. As such, rentals are bound to be exorbitant across several locations. Even if this gets averaged out with locations having lower rentals, the location choice driven by footfalls would lead to above average real estate costs.

A 24x7 operation requires three shifts of eight hours each. It could even require a few people operating a fourth shift if overlap of manpower is required. Clearly, another layer of cost gets added to the business.

Shopper orientation and behaviour

The Indian shopper has still not evolved to ‘just in time’ purchases. The majority follow a planned purchase pattern and a defined buying cycle. This means that very few shoppers would be inclined to want anything at 2 am. If this becomes a defining factor in the store operation and an outlet’s opening hours are not 24x7, it would defeat the basic premise of a convenience store.

The alternative is to follow the pattern of the small, standalone shop which opens early in the morning and closes late at night. In such a case, the competitive differential becomes blurred.

Existing competition

The existing competition, the standalone stores, have a distinct cost advantage as also a locational advantage, in terms of penetration. This would not be easy to replicate.

That it why the development of convenience store formats coming to India is an interesting area to track, and it would be worthwhile to see how these challenges are managed.