The Enigma of Ethnic Expectations

Thanks to tremendous growth in the Indian retail sector, only now are variations between the major markets finally being measured. A recent RNCOS report went so far as to conclude that cultural and regional differences between markets are the single biggest challenge facing retailers today. Whether this is in fact the case, understanding the nuances of the various submarkets is fundamental to success, from the bottom up. While a shopping centre design may prosper in Mumbai, a proven merchandising mix from Chennai may not necessarily meet local consumers' needs.



What remains to be seen is what the differences really are and what they really mean for retail. If India is, in fact, a complex country in which shopping centre formats will vary from region to region, as Pantaloon's founder Kishore Biyani recently observed, how do developers then go about identifying what formats will work and where? What are the implications for retailers expanding into new regions? If cultural differences aren't actually as important as we are led to believe, then what factors may be more telling?
A recent study by Deutsche Bank points out that due to the sheer size and heterogeneity of the country, it is actually quite ambitious to think we can define the characteristics of each and every one of India's submarkets. A more negotiable starting point is perhaps an examination of the major markets in the four geographic subdivisions: north, west, south and east. For one thing, there is substantial demographic variation from one region to the next, beginning with language.
The Hindi Belt, which extends as far west as Punjab from Delhi and east to Kolkata, bypasses most major southern cities. Bangalore, Hyderabad and Chennai – all of which are demonstrating immense growth in the retail sector – require distinct advertising, signage and so forth due to their respective dialects. For major retailers coming out of Mumbai – where English and Hindi are the predominant languages of trade – the linguistic challenge can slow expansion, if not bring it to a halt altogether.
As the Center for International Development at Harvard University discovered, population and economic power together tell the tale as well. A working paper recently issued by the school suggested that the gap between the regions has become wider rather than narrower during India's economic upswing. Like Mumbai, the north including the capital region is booming. In fact, Delhi boasts a net domestic product (NDP) that is 150 per cent higher than the national average, and with a metro population of nearly 20 million, retail demand will have generated over 100 malls by 2009.
As the capital's retail sector skyrockets, however, adjacent states to the east can barely get off the ground. Bihar, an eastern state with nearly 90 million inhabitants, recorded an NDP a mere 31 per cent of the Indian mean and contains no major malls. Neighbouring Uttar Pradesh is close to 175 million people and relies almost exclusively on unorganised retail. Unlike western and northern India, the eastern retail sector persists in very traditional ways.
Current and projected mall space further illustrates the divide in retail development between the regions. While the north and west account for 39 per cent and 33 per cent of the total square footage, respectively, their southern and eastern neighbours comprise less than 30 per cent combined. In fact, over half of India's malls are located in either Delhi or Mumbai, where another 100 retail developments are expected in the next two years.
A number of factors are driving the discrepancies between regions. The cost of real estate, which is comparably high in India's financial hub and capital region, is compelling landowners to generate income from their properties. Retail rents are filling this vacuum, precipitated as well by the liberalisation of taxation laws in concerned communities.
A recent KPMG report points out that a distinctive feature of organised retailing in India is that it is predominantly an “urban phenomenon” concentrated in northern and western cities. In fact, retail demand has been significantly driven by a fundamental shift in consumer behaviour across tier I and II cities. Access to media and exposure to a globalised economy have created a thirst for western-style shopping and entertainment.
Because consumer behaviour depends on a number of factors like location and demographics, the differences from one region to another are not surprising. Whereas the spending potential has been quite substantial in the north and west for some time, the east and south of India have remained relatively conservative societies. This is where we begin to see variations in the execution of retail strategies based on culture.


For instance, the Westside store in Kolkata, which typically caters to western lifestyle fashion and accessories, includes a large sari department, an element not typical of their stores. A unique merchandising strategy such as this one is indicative of the company's awareness of, and conscious efforts to accommodate, regional and cultural differences, not least of which is the predominance of traditional women's attire in eastern India.

Traditional tendencies are, of course, more likely in rural India , where exposure to globalisation and economic growth remains comparatively low. Fashion and entertainment expenditures, which have grown tremendously in urban areas, haven't quite caught on in the countryside, where food spending still accounts for nearly 65 per cent of the market. When non-food retailers think of the east or south, therefore, they are inclined to use precaution. As populations and agricultural income continue to grow, however, the case to explore rural India and burgeoning tier III cities is indeed gaining momentum.
Not surprisingly, regional differences transcend merchandising and product lines. In an article published last year in The Hindu Business Line , it was brought to light that Tamilian television commercials are remarkably characterised by “song and dance” advertising strategies – to the extent that nearly “every brand has a song and dance commercial” on TV. This form of advertising, particularly popular in Chennai, illustrates the south's obsession with Tamil films and how deeply the movies have penetrated popular culture through to marketing retail.
In more mature retail markets, like Delhi and Mumbai, competition between shopping centres is sure to hasten mall differentiation. Developers, managers and retailers will be faced with the convergence of retail and lifestyles in an increasingly fastidious consumer base. As a result, the “event” character of shopping will be more important, a trend whereby basic need expenditures decrease proportionately, and consumer and luxury goods increase. In northern and western urban markets, jewellery and cosmetic spending is likely to triple in the next five years.
The varying degree of growth from one region to the next, and from urban centres to the Indian countryside should not be understated. Gaps, trends and opportunities are directly correlated to the level of sophistication of the consumer base. And yet, it would be a fallacy to overlook the convergence of retail trends in the major urban markets, regardless of place.
The influence of Bollywood, the maturation of Mumbai retail, and the entrance of international brands have had a profound impact on consumer behaviour throughout the entire country, but this is especially true of the big cities. According to Santosh Martin of DivyaSree Developers in Bangalore , “Consumer behaviour is becoming more amorphous with every passing day. Today, it might not be as easy to clearly distinguish between consumer behaviour in the west and consumer behaviour in the south as boundaries are dimming.”
Indeed, consumers are being exposed to similar-quality products across the country. As the spending power increases in one region, consumers are buying more and more, turning to global and mature Indian markets as a frame of reference. Martin adds: “With the retail sector opening up to international players in the near future and the continued growth of Indian retailers, we expect to see demand shoot up exponentially across the country and into tier III cities and smaller towns.”
From that perspective, with over a dozen malls anticipated by the end of next year in Kolkata, the east hasn't got far to go in order to do some catching-up. In fact, emerging markets such as these are almost at an advantage given their propensity to cultural sensitivity and reasonable accommodation.
These points of differentiation, while strengthening retail performance, are also an excellent benchmark for understanding the regional and cultural complexities of one of the fastest-growing retail markets on the planet.