Hearty mart as a case was associated with my life as soon as i entered MBA. I remember in the orientation of our MBA our Professor of Economics, Dr Munish Alagh had emphasised on the importance on case based learning and its implications. Hearty mart remained a part of my education for two important courses - one on economics other was on Business environment. And it was a case which made me write on concepts like social entrepreneurship and its social factors. Prof Alagh later joined IIM A as post doctoral fellow, and gave me the opportunity to interview Nadeem Jafri face to face . The blog is an output of one such interview and it was taken on the lines of economics of Hearty mart. What I am trying to convey through this blog is the basis of principles of economics (Mankiw,2007)\. It tells about the work done by hearty mart and its promoter, its further development and what all it can offer .
Nadeem is the cousin of the sect head of Chilea Muslims, a business community of Shia muslims. A community which follows his spiritual syed family. Nadeem Jafri is the promoter of brand Hearty Mart, a supermarket which he has franchised into a number of stores in the rural and semi urban areas of North and Central Gujarat. He further developed it into logistics, food supply and related businesses.
Hearty Mart is basically a food-grocery-cosmetics retail business. All the prominent brands big or small are sold at Hearty Mart. Fast moving consumer goods categories like dental care, cosmetics, confectionaries, break-fast cereals, Chinese sauces and others are readily available here. Defining the brand Hearty Mart, it is a store to serve the daily needs of people in the vicinity.
Principles of Economics and Hearty Mart.
Principle 1 – People Face trade off.
“There is no such thing as free lunch “ we learned this concept very early in our economics classes. Decision Making requires trade off between different things and even Hearty mart also made tradeoffs between different opprtunities of rapid growth or a sustainable growth. And Nadeem decided on sustainable growth since the nature of his business model is community as well as region centric. Hearty mart should not be judged on the parameters of other business models as it has a unique approach. Certain factors make franchises click or all may not do well . Looking at the point that it has well defined drivers for its business these factors had to be kept in mind for hearty mart
Let us take the example of Mujahid Kelavani mandal which conforms my point, that people chose and they do face trade offs. It has 132 members so they all pooled in the funds together and established a Hearty Mart franchise. The point to be noted is that they already have 132 members. These 132 members are the consumers of the store which does not include the family members, thus when a family store has a ready consumer base Hearty mart does not have to move like other players. In Peepodar village they followed a similar model and it has been successful in getting a ready customer base.
These two examples show that may be the number of successful franchises are limited and the business model has got its limited self sustained stores numbering 10 only but it caters to a community and is able to get ready consumer base. Thus may be the business growth is not rapid but the growth is sustainable and additional benefits like promoting its own internal brands helps them provide a ready consumer base . Thus it shows the trade off that may be growth is not important but inclusive growth both for the business and the people are important .
Principle 2 The cost of Something is What you Give up to get it .
Making decisions requires comparing the cost and benefits of a particular objective and hearty mart model also had to look at the cost and benefits of the same. Nadeem did consider going alone of investing his complete money for the project but it had its own repercussions
1) If he alone had to invest in all the property and development of infrastructure of the store , it would have taken business lot of time to break even. Thus promoting a franchisee model was one of the better option.
2) Money would have been blocked for longer period if he had to go individually.
Thus franchise model made more business viability. May be the autonomy was lost and also the control to certain extent but in the bargain the trust in the community helped expand the business reduced the risk and breakeven could be achieved earlier at the franchise level. It also negated the implications of changing real estate scenario on Nadeem’s business.
Principle 3 Rational people think at the Margin .
Rational people think systematically and purposefully the best to achieve their objectives, given the opportunities they have. Rational people know the decisions in life are rarely black and white but they are grey in nature. Rational people make decisions based on marginal costs and marginal benefits and to get best out of it. If we look at the current developments of Hearty mart and decisions by Nadeem we can appreciate this point in better manner.
Nadeem introduced hybrid franchise model , which could have a flip side that he would lose out on the automomy of the model and make it more vulnerable for replication but in reality things turned out to be different, this was due to the developing scenario of the market, since the market was squeezing down and there were number of established players already in the market who had deeper pockets, so in fact this model helped him get a toe-hold. Secondly in case of having all his own establishment means having building on lease which was costly and it also meant he had to rely on other people i.e managers who may not have personal attachment to the business (Agent theory), which could not be the case if it was a franchisee model, thus the benefits can be pointed out as
· Owner of the shop sits on the business thus they have to be highly committed to work. Commitment and concern automatically comes up
· By getting 200 square feet area in rural area was easy as compared to getting the same in urban area
· Secondly rural area and rural mindset and a closely knit community helped us to establish trust in a easier manner.
Thus the marginal benefits were way over the marginal costs and it helped controlling his business and grow.
Principle 4 People Respond to incentives
An incentive is something (such as the prospect of punishment and reward) that it induces a person to act. Because rational people make decisions by comparing cost and benefits, they respond to incentives. Incentives are important to analyze how the market works. People in taking their decisions should never forget about incentives because many policies change the costs and the benefits of the incentives that people face and which alter their behaviour later on.
Let me quote an example of Idar, Ilol and Jethipura which are all in radius of 30 kms from each other, which showed development for people when Hearty mart was established there. It provided them with a community base, as community was very important for Hearty mart to develop business. By a pre launch survey they were able to identify that they had a cluster to cater to where they can grow business.
So incentive for Hearty mart was that they got a consumer base, unsaturated non competitive market and in return people got credibility and also provider who catered to the demands of the consumers . Thus the people of that area don’t have to go to places like Ahmedabad or Himmatnagar to get there things. Hearty mart brought transformation at the place, they became the caterers when the people want anything; for e.g when there are community marriages in the village like Ilol, the franchise there provide the groceries and beverages for the gatherings and thus become a catering centre rather. Thus Hearty mart became a provider where villages were getting everything from Hearty mart and they did not need to move from village to urban area for the same .
Trade can make everyone better off
Trade allows people to exchange resources what they know best and this leads to overall development. Let us look at what Hearty mart did in this case .
Hearty mart Farms
Rural People are ambitious and if provided opportunity and resources they will grow. When Hearty mart organized free organic farming seminars in villages the rural community did turn up, and they took help of a expert agronomist like Abbas bhai Aglodia who is the project guide and provides various information in such meetings. The idea behind farms services is to educate the farmers and equip them with techniques that would increase the yield of the farm fields and cut down the input cost. This in turn would increase the income avenue for the farmers who are also the owners of Hearty Mart franchises. Thus education and growth both are provided just by getting involved in hearty mart businesses.
How hearty mart farms benefitted a vast cross section of people and Hearty Mart Business itself, thus showing trade benefits all
· Free exchange of information
· Brand recognition
· Agricultural oriented diversification
· A cost and community driven company
· Inclusive growth with brand growth
· Creation of employment and enterpreneurial spirit
· A win – win platform
Markets are usually a good way to organise economic activity .
Today most countries have market driven economies where not a central person but the consumer decides what is to be made what is to be accepted and what is to be promoted and accepted. As of there are buyers and sellers only but the benefits and its impact are on all sides and what is the scenario, thanks to media , hearty mart like models are providers as well as benefitters also in such an economy .
DTH Platforms like SKY and Airtel have made its impact in such areas where model like hearty mart exists and the impact can also be seen in the consumer demand as well. When a villager sees an advertisement of Garnier on Doordarshan the person wants to have it. Consumers from rural area have same demands as those of the urban areas, which also stresses on the point that rural and urban divide is reducing. And thus to rural consumer Hearty mart is the provider thus a market driven economy aids the buyer as well as the provider.
Hearty mart provides an opportunity to look beyond the realms of economics, any body who may be interested can study it on basis for:
· Rural urban continuum
· Social Entrepreneurship
· Social factors for social Entrepreneurship
· Organisation structures for Hybrid franchising