Case Study on the Closure of Grocery and Retail Stores in Indian Cities: A 2024 Perspective

 

Case Study on the Closure of Grocery and Retail Stores in Indian Cities: A 2024 Perspective

Introduction

The Indian retail and grocery sector has historically been one of the most resilient, thriving through a network of over 12 million stores ranging from large format retailers to small mom-and-pop shops. Yet, 2024 has presented unique challenges, with reports showing that 88 out of 100 stores in cities and residential colonies are either closing down or facing financial stress. This trend highlights a shift in consumer behavior, intensified competition from e-commerce, and other market dynamics. This case study explores the current crisis in grocery and retail stores, focusing on the factors behind store closures, objectives for analysis, and strategic responses for survival.

 

Objectives of the Case Study

1. To identify the factors contributing to the closure of retail and grocery stores in urban areas.
2. To provide strategic recommendations for traditional retailers to adapt to the evolving market landscape.

 

Factors Contributing to Store Closures

1. Consumer Behavior Shifts

• Digital Adoption: The proliferation of digital platforms has fundamentally changed how Indian consumers shop, with half a billion internet users increasingly favoring online shopping for convenience and competitive pricing. The convenience of “stay-at-home” access to thousands of products, doorstep delivery, and the option to compare prices has reduced the need for in-person shopping.
• Value and Quality Emphasis: As noted in a McKinsey survey, Indian consumers are increasingly discerning, prioritizing quality and value over convenience. This trend is particularly evident in grocery shopping, were customers balance price and quality. Traditional stores may lack the resources to offer premium quality at lower costs, driving consumers toward modern retail options.
• Promotion Sensitivity: Modern Trade’s promotional offers attract 40% of shoppers who are willing to switch stores for discounts. Traditional stores often lack the bandwidth to compete with promotional offers by larger, more organized retailers.

2. E-Commerce and Quick Commerce Rise

• The Indian e-commerce market, projected to reach $99 billion by 2024, has impacted physical retail. Quick commerce—providing essentials within hours of ordering—has attracted urban customers who value time and efficiency. Around 20% of traditional shoppers have shifted to online options, especially in metro areas where monthly groceries are increasingly ordered online.

3. Economic Pressures and Price Sensitivity

• Inflation and Price Perception: A significant majority (87%) of Indian shoppers feel that food prices continue to rise, even though FMCG price growth has slowed. Cost-conscious consumers have adapted by buying in smaller quantities or choosing lower-priced stores, pressuring retailers to balance margins with competitive pricing.
• Frequency of Shopping Trips: Consumer adaptation includes more frequent grocery trips and smaller basket sizes, which can strain the inventory and cash flow management of small stores reliant on bulk shopping habits.

4. Rising Interest in Premium and Niche Products

• Consumers now seek premium and innovative products in categories like edible oils, dairy, and snacks. This shift is often driven by preferences for locally produced, sustainable, and energy-efficient goods. Small grocery stores may struggle to stock such specialized inventory, giving organized retail and online platforms an edge.

 

Analysis of the Retail Store Landscape

The analysis shows that urban and suburban grocery stores face unique challenges that cannot be mitigated by conventional retail strategies alone. The lack of technological adaptation, inflexibility in promotional offers, and limited range of premium products make traditional grocery stores less competitive. As India urbanizes further, emerging cities and semi-urban areas are expected to drive value growth, while rural areas may continue volume growth. For traditional retailers to remain relevant, they must adapt to changing consumer preferences by diversifying their offerings and exploring digital strategies.

To mathematically explore the relationship between retail shops and customer satisfaction, let’s look at a few key metrics that quantify customer satisfaction and loyalty. These metrics help link operational aspects of retail shops with customer experience, thereby providing insights into satisfaction.

1. Mathematical Equations

 Customer Satisfaction Index (CSI):

CSI = (Σ(Attribute Rating × Attribute Weight)) / (Total Number of Attributes)
Example: If weights for product quality, service quality, and store environment are 0.4, 0.3, and 0.3, with average ratings of 4.5, 4.2, and 4.0, respectively, then CSI = ((4.5 × 0.4) + (4.2 × 0.3) + (4.0 × 0.3)) / 3 = 4.23.

 Net Promoter Score (NPS):

2. NPS = Percentage of Promoters - Percentage of Detractors
   Example: If 70% of customers are promoters and 10% are detractors, then NPS = 70 - 10 = 60.

 Customer Effort Score (CES):

3. CES = (Σ Customer Effort Ratings) / (Total Number of Responses)
   Example: If the total ratings sum to 230 from 100 responses, then CES = 230 / 100 = 2.3.

 Customer Retention Rate (CRR):

4. CRR = ((Customers at End of Period - New Customers) / Customers at Start of Period) × 100
   Example: If a store starts with 1,200 customers, gains 300 new customers, and ends with 1,000, then CRR = ((1000 - 300) / 1200) × 100 = 58.33%.

 Average Purchase Frequency (APF):

5. APF = Total Number of Purchases / Total Number of Unique Customers
   Example: If a store has 5,000 purchases from 1,200 unique customers, then APF = 5000 / 1200 ≈ 4.17.

 

Strategic Recommendations for Survival

1. Digital Integration and E-Commerce Partnerships:
• Traditional retailers should leverage digital platforms to extend their reach. Partnerships with e-commerce giants or quick commerce platforms could provide access to new customer segments, allowing stores to offer delivery services without independently setting up logistics.
2. Focus on Quality and Value-Driven Offerings:
• Small retailers should emphasize locally sourced, high-quality products to appeal to value-conscious shoppers. Collaborating with local farmers or small producers can help stores maintain competitive pricing while differentiating their offerings.
3. Adaptation to Promotions and Loyalty Programs:
• Establishing loyalty programs that offer discounts or rewards for repeat purchases can encourage customer retention. For example, a monthly discount for bulk purchases or a loyalty card that offers points for every purchase can create customer stickiness without relying on large-scale promotions.
4. Niche Product Stocking:
• Stocking niche and high-demand products, such as organic foods, locally produced goods, or sustainable items, can help traditional retailers appeal to consumers who prioritize unique and eco-friendly options.
5. Enhanced Customer Experience:
• Traditional stores should focus on providing a more personalized shopping experience, such as tailoring recommendations or offering a curated selection of products. Providing convenient options like “order and collect” or flexible return policies can also mimic the convenience of online shopping.

 

Questions for discussions

·         A grocery store has surveyed its customers to determine the Customer Satisfaction Index (CSI) based on three attributes: product quality, service quality, and store environment, with weights of 0.4, 0.3, and 0.3, respectively. The average ratings for these attributes are 4.5, 4.0, and 3.8. Calculate the CSI for this store.

·         Calculate the Net Promoter Score (NPS) if a survey of 200 customers reveals that 120 are promoters, 50 are passives, and 30 are detractors.

·         A store calculates its Customer Effort Score (CES) by collecting 150 responses with an average rating of 1.8 (on a scale of 1 to 5). What is the CES of the store?

·         At the start of the year, a retail store had 1,500 customers. By the end of the year, it has 1,600 customers after gaining 250 new customers. Calculate the Customer Retention Rate (CRR).

·         If a grocery store had 6,000 purchases in a month from 1,500 unique customers, calculate the Average Purchase Frequency (APF) for the month.

 

Conclusion

India’s retail market is witnessing a transformation driven by consumer demand for value, quality, and convenience. Traditional grocery stores, while still essential, face an uphill battle to adapt to the digital era. E-commerce’s reach, urban consumer preferences, and the allure of quick commerce have reduced foot traffic and revenue for physical stores. Yet, by integrating digital offerings, creating loyalty programs, and stocking niche products, traditional retailers can remain competitive. This adjustment period is crucial for retailers who wish to thrive in a retail landscape poised for rapid growth and continuous change.

References

To build a well-rounded case study with supporting references, consider including:

1. Reports and Industry Data:
• "India Retail Report" by India Brand Equity Foundation (IBEF), which offers insights into India’s retail sector.
• "McKinsey Report on India’s Grocery Retail Transformation," which provides trends and forecasts.
• Statista's "India Retail Market Overview" for quantitative data on market projections, organized vs. unorganized sector insights.
2. Academic Journals:
• Articles on "Retail Market Dynamics in Emerging Economies" in Journal of Retailing and Consumer Services.
• "Factors Influencing Consumer Behavior in Grocery Retail" published in the International Journal of Marketing.
3. Government Data:
• Ministry of Commerce and Industry (India) publications and the Department for Promotion of Industry and Internal Trade (DPIIT) for retail policy updates and economic contributions.
4. Books:
• Retailing Management by Michael Levy and Barton Weitz, for fundamental concepts in retail management and consumer behavior analysis.
• Essentials of Retailing by Kenneth E. Clow, which covers topics on inventory management, retail operations, and customer metrics.
5. Surveys and Case Studies:
• McKinsey’s "Survey of Indian Retail Consumers" and "India’s Grocery Landscape" as primary references for contemporary data.
• Localized case studies on mom-and-pop stores from Economic and Political Weekly, offering insights into traditional retail models.