Monday, 18 July 2011

Hearty mart and principles of Economics :Siddhartha Saxena-Academic Associate IIM(A) & Munish Alagh, Post Doctoral Fellow IIM(A)

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 .
Principle 5
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
 Principle 6
 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

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