Car Supermarket in India : One-Stop Shop for All Brands
Kamal Negi
The concept of multi-brand dealership for cars may be relatively new
to India and face some constraints in adapting to the Indian market.
Notwithstanding this, it does promise a number of benefits to both
customers as well as dealers. By proposing multi-brand car
dealerships, the former Managing Director of Maruti Suzuki, Jagdish
Khattar, has already given an indication that we may see a car
supermarket in India very soon.
As things stand today, a prospective customer for a car has to spend
considerable amount of time and effort to test-drive an i20 at one
dealership, get a feel of the Indica Vista at another, and again test
drive the Swift at yet another dealership. All this is because most of
the new car sales in India take place through the authorized and
exclusive distributors of manufacturers. Customers may however witness
a major change in the distribution system of cars very soon.
After Ratan Tata made four wheelers available to mass customers at a
fairly affordable price, now it is the turn of manufacturers and
channel partners to change the manner in which cars are sold in India.
Former Managing Director of Maruti Suzuki, Jagdish Khattar, is
venturing into multi-brand car dealerships. Carnation Auto, the brain
child of Khattar, has already been providing complete car-care
solutions for almost all brands of cars, ranging from quick servicing,
mechanical repairs, body repairs, accessories, insurance, car
exchange, car customization solutions with DC Design, and even service
at the customer's doorstep through a chain of workshops on wheels. He
is now planning to venture out into car retailing. Carnation does not
want to be confined to one brand or one manufacturer. It wants to
offer a host of brands from all the major car manufacturers under one
roof. From the customers' perspective, this move provides great
additional value. A customer can not only test-drive cars of different
companies at the same location, but can also expect unbiased advice
from the salespersons. More than this, when different brands are
competing on the same shelf, customers need not worry about the best
deal in terms of price and other benefits. But the flip side is, a
salesperson may be expected to have in-depth knowledge of the features
of five or six car brands. The second problem is, overcoming the
temptation of pushing a particular model just because the manufacturer
offers a higher incentive.
Though the concept of car supermarket is new to India, most of the
developed countries already have supermarkets for cars (See Exhibit
1). In developed countries, these formats deal with both new and used
cars and often with light commercial vehicles also. Customers need not
look for a franchised dealer anymore to buy a high-value pre-owned
car, as the car supermarkets have good stocks of pre-owned cars too.
How These Supermarkets Work
The operating principle of the car supermarkets is simple and more or
less identical to that of a conventional supermarket; i.e., keeping
high stocks and selling cheap. This does not mean that they compromise
on operational efficiency, but by selling a large volume of vehicles
at a relatively smaller margin, they sustain the profitability of
their business. For example, Fords of Winsford Ltd., one of the
well-known supermarkets in the United Kingdom has about 1200 cars of
all makes (33 brands) in stock. This represents a huge choice for
customers.
The other important aspect of the car supermarket business model is
that they operate from large but very ordinary sites. Generally, acres
of concrete or tarmac and a basic warehouse type building, rather than
the attractive and comfortable showroom of the typical dealer. This
keeps their operating costs low. Thus, they are able to keep the
prices of cars relatively lower.
As car supermarkets sell large volumes with relatively small margins,
a customer cannot expect to bargain on prices as in the case of a car
dealership. Dealers are usually open for a bit of bargaining even on
some premium brands, but car supermarkets generally discourage
bargaining. After all, their prices are already low.
Car supermarkets offer customers a vast selection of cars at
attractive prices, and this means there is the potential for customers
to make a significant saving compared with purchasing from the regular
dealers.
The Indian Context
Will this format of retailing cars be successful in India? There is
high uncertainty associated with this as the market conditions in
India are totally different from that of developed countries. First,
if we look at the basic infrastructure, car supermarkets need to
establish themselves away from the city, as all major cities are
already overcrowded and even in the suburbs, there are not sufficient
unoccupied plots. Even in developed countries like US and UK, where
these supermarkets are fairly common, they are located far away from
the main cities. But for the customers, it takes only a few minutes to
reach these locations because of excellent road conditions. But
looking at Indian conditions, particularly the quality of roads and
traffic management, customers may not be willing to travel long
distances, other benefits notwithstanding.
Apart from the problem of inadequate infrastructure, the preparedness
of existing dealers to shift from the traditional way of retailing to
this relatively unknown and untested model is a big question mark.
Similarly, manufacturers will also have their own concerns. Firstly,
it is hard to believe that salespersons will act rationally and will
not push a particular brand at the cost of others, particularly if
there is disparity in the incentives offered by different
manufacturers. Second, will a salesperson be able to acquire the
knowledge of all products or at least all the models in a particular
category (like hatch back, sedan, SUV, etc.), that too of different
makes? Likewise, manufacturers will not have the same control on these
supermarkets as they presently have on franchised dealerships. Apart
from this, major players in the Indian automobile industry, especially
those who operate in the small car segment like Maruti Suzuki and Tata
Motors along with a few others, follow a vertical marketing system and
work closely with their distributors to promote their brands. They may
not have the same flexibility if they have to patronize car
supermarkets.
Car Supermarket - A Reality in India
In spite of the concerns faced by both manufacturers and channel
partners, car supermarkets have made a humble beginning in India. Some
of the supermarkets already operational in India are discussed below.
JKM Group, which started business operations in 1990 with the leasing
and financing of automobiles, has set up a one-stop shop for cars with
a wide range of cars under one roof in Lajpat Nagar in Delhi (See
Exhibit 2). The showroom was opened in the year 2004 as a dealership
of Maruti Suzuki, but now it has become a multi-brand car showroom and
deals in all kinds of cars ranging from Hyundai i10 to Maruti Wagon R
to Mercedes Benz.
Though JKM cannot strictly be termed as a supermarket, its initiative
is a clear indication of what India has in store in the car
supermarket domain.
Similarly, Carnation Auto, an initiative by Jagdish Khattar, with a
vision of developing India's largest independent multi-brand
automobile sales and service network, is moving along similar lines.
Carnation already has 20 hubs across the country (See Exhibit 3). One
may think as to why one should go to a service center dealing with
several brands, especially when there is a host of franchised dealers
for each brand. But many customers get attracted towards Carnation
Auto, as it has a huge facility with the latest equipment. Waiting
time is therefore less, and at the same time customers can also avail
other services at one place. This certainly supports the view that if
a multi-brand service center can turn out to be a good venture, then
the car supermarket will surely be a success.
Effect on Competition
The onset of car supermarkets, a major shift in car retailing, is
going to affect the competition for car retailing as well as for
after-sales service. The car supermarket will provide a level playing
field to all the manufacturers, at the same time making it easier for
new entrants to penetrate the market. New entrants need not be on the
lookout for extensive distribution network, which could be an
expensive and time-consuming option. They can have instant access to
the market through car supermarkets. Likewise, the interests of
channel members are also protected, as this arrangement offers them
the flexibility to fine tune their resources to the rapidly changing
market conditions, instead of operating in a rigid framework
characterized by non-reversible investments tied to the fortunes of a
single car manufacturer. One-sided stipulations like long notice
periods and long-term commitments will certainly give way to more
equitable sharing of responsibilities and profits in the new
arrangement.
Similarly, if we consider after-sales service network, the new
arrangement will facilitate better access for spare part producers to
the aftermarket. As of now, authorized repair networks of automobile
manufacturers dominate the market share for maintenance of new
vehicles and there is a general tendency to control the supply of
spare parts to independent service providers. So, the car supermarket
also will keep the door ajar to spare part manufacturers.
Conclusion
Looking at the overall picture, the concept of supermarket for cars
has the potential to be a successful venture, with car makers getting
easier access to the market, particularly the new entrants. To the
existing channel members, it is indeed a better choice as a majority
of them are saddled with high operating costs and thin margins. For
them, overall operating cost will come down substantially and fixed
costs will be spread across the brands. Automobile manufacturers see
this as a route to the market, particularly those with limited market
share and having capacity constraints in the existing networks. The
issue of product knowledge can be tackled by having a system of
product specialization in the sales force. As for customers,
multi-brand car dealerships will surely provide a wide product choice
and excellent customer service. But to make this concept a success,
wholehearted support and commitment from the car manufacturers is a
must, especially in a market where some of the established players
wield so much control that they do not even sell spare parts in the
open market. Unless they shed this `I win - you lose' mindset and
start looking at the overall interest of the industry and all the
stakeholders, this concept cannot deliver the intended benefits as it
has in the developed markets.