Companies & Sectors
Politicians thwart multi-brand retail in India

Over the next 25 years, despite the liberalisation, hypermarkets will not account for more than 25% to 30% of India’s retail business. The dreaded phantom of swamping by large retailers is a figment of political imagination

“I could dance all night,” exclaimed my soulmate Patricia to me when she learnt that the Government of India may permit the entry of multi-brand foreign retailers into India. “Now, I will have a choice of products and a chance to buy clean fruits and vegetables!” she announced. The entry of foreign hypermarkets will provide Indian consumers with a large range, in every sphere of consumer products.

Multi-brand retailers like Carrefour, Tesco and others may be allowed to own 51% of their businesses in India—the balance 49% to be owned by a local partner. Single-brand retailers like IKEA, can own 100% of their operations. These new initiatives will revolutionize shopping and consumption patterns in India.

Those who feel threatened by the entry of foreign retailers can take comfort from the many caveats yet attached to these entries. Foreign retailers will have to invest $100 million over five years, principally in rural infrastructure and cold-chain systems. They have to source 30% of their goods from small and medium-sized enterprises. And, they can operate only in cities with a population of over a million.

Modern hypermarkets will create a wide array of new jobs in the Indian economy e.g. retail managers and staff, salesmen, supply chain workers including drivers and helpers. An average grocery supermarket generates about five to ten direct jobs per store of 1,000 sq ft. For every such job created, there are about seven jobs created indirectly i.e. transporters, drivers, loaders and security guards.

Thus for every 1,000 sq ft of retail space created, about 35 to 50 new jobs would be generated. Therefore, a store of 100,000 sq ft could generate about 5,000 new jobs. India could easily do with about 10,000 such stores, thus creating millions of new jobs! And this could happen in about 10 years. When did India create such large-scale employment, in the past, ever? This will benefit the nation.

Moreover, foreign hypermarket retailers, also undertake rigorous training, development and grooming of their staff. Soon, India could be sending world-class retail managers to manage retail outlets across the world. Foreign hypermarkets offer better salaries and benefits than traditional shop owners, so the staff will benefit.

Hypermarket retailers, being established corporations, also pay their taxes regularly to state authorities. Thus, tax collections will improve. Retailers abroad follow socially responsible policies. Marks & Spencer follows very sagacious policies, e.g. when they select a new supplier, they first check the toilets and dining facilities for the staff. Only if the supplier clears this acid test, they proceed further. Which small trader here, even thinks of toilets or refreshments for his staff? The more enlightened retailers and supermarkets become partners with their suppliers. They collaborate to improve the basic product itself. For instance, the McDonalds research center, works with farmers to improve the quality of potatoes they use for their French fries.

Foreign hypermarkets will make a significant contribution by offering fresh foods, vegetables and fruits at reasonable prices to consumers. They will also set up nationwide supply chains, with backward integration extending to the farmers. This will benefit farmers and reduce middlemen’s costs and margins. About 30% to 40% of fresh vegetables and fruits rot in India due to poor storage and transport conditions—this wastage can be stemmed. India has been confronted with nearly 10% inflation in food items. Prices will stabilise with improved logistics and supply chains to be built by foreign retail chains.  

The most bountiful advantages of the entry of multi-product global retailers will be in the agricultural sector. There will be significant enhancements in supply-chain and logistics, expansion of roads and warehouses. This will help to cut wastages, reduce rotting of vegetables and fruits. It will also eliminate intermediaries who pocket profits without adding any value to the process, farmer and consumer.

Consider the fiasco of the bizarre increase in the prices of onions and garlic in December 2010, which sent shockwaves to every household. The prices of onions skyrocketed from Rs30 per kilo to Rs 90 per kilo in a few weeks. Moreover, garlic became an absolute luxury at Rs400 per kilo. Many poor and lower-middle-class families simply deleted garlic and onions from their cuisines.

The official reasons touted for this bizarre price-spiral were unseasonal rains, increase in demand, etc. Yet, the facts are that there was massive mismanagement of stocks, unwarranted exports and manipulation of supplies. Small vendors and hawkers cannot fight such machinations and cartels. Large hypermarkets will call a spade a spade, hold adequate inventories, move stocks rapidly and ensure balanced and even prices.

Supermarkets offer better prices to the consumers. They buy in bulk, and are able to negotiate better prices from the farmers and suppliers. Since the market is very competitive, such savings are normally passed on to the consumers.

The current shopping scenario in India is absolutely pathetic wherein consumers are compelled to buy mediocre products due to limited range and availability. The experience of buying daily vegetables and fruits from street-side hawkers is absolutely filthy and demeaning. The produce is invariably covered with soot, dust and is definitely unhealthy. Many small shopkeepers charge exorbitant prices and are rude to customers. They have not heard of a word called, ‘customer-service’.

It is also a bogey that modern retail formats will throw traditional shopkeepers out of business. In Latin American economies like Brazil, hypermarkets like Bompreco, and in Middle East countries like Saudi Arabia, hypermarkets like Panda, prosper alongside small grocery shops.

In many countries, which are at India’s stage of development, traditional shopkeepers continue to play a pivotal role in the trade. For instance, in Latin American countries like Brazil, Venezuela and Colombia, the ratio of modern trade to traditional shopkeepers is 50:50. In Egypt, modern trade contributes only 20% of the groceries business, while traditional shopkeepers account for 80%. In Africa where many top South African retailers operate, modern retail accounts for only 20% of the trade. So what are Indian politicians and shopkeepers afraid of?

The fears about the impact of hypermarkets on small stores are unfounded. These concerns are based on ignorance of trade dynamics and are fuelled by politicians.  Indian shopkeepers and grocers are safe for the next 50 years. In the next 25 years, despite the liberalisation, hypermarkets trade will not account for more than 25% to 30% of India’s retail business.

Another phobia is that the entry of big players like ‘IKEA’ could drive many small carpenters out of business. The manufacture of readymade mass furniture in India is already driving traditional carpentry to extinction.  Observe the full-page advertisements in newspapers of readymade wardrobes and sofa sets in many Indian tabloids. A global household products retailer like ‘IKEA could revolutionize the quality of daily living in lower and middle-income categories.

The entry of retailers like IKEA, Pottery Barn, Crate & Barrel will upgrade quality and design standards.

If these retailers source even 25% of their requirements locally, it will enrich Indian carpenters by updating their skills. ‘IKEA’ could even source many products for their global markets from India, which will enrich local carpenters.

Some political parties are unfortunately opposing the entry of hypermarkets. They forget that “organised or modern retail” contributes a pathetic 7% of the country’s $470 billion retail business. Thus, the dreaded phantom of swamping by large retailers is a figment of political imagination.  Why are we petrified about some supermarkets selling fresh vegetables?

These political parties are only pandering to selected constituents at the cost of national progress. They are only concerned about winning the next election. Hence they are making political capital by talking about the spectre of unemployment. The truth is that modern retail formats create massive job opportunities.

Modern retailing, as exemplified through supermarkets and hypermarkets, is an imminent phase in India. We should facilitate it rather than hinder it. Parties like the DMK and BJP and leaders like Mayawati, Mamta Banerjee and Uma Bharti should not stall retail progress in India. They should grasp the long-term benefits of Foreign Direct Investment (FDI) in retail like employment generation, professional trade practices, conservation of foods, lower and stable prices and a hygienic shopping atmosphere for the Indian consumer.

Hopefully my Patricia will buy cleaned and packed tomatoes in a hypermarket sometime soon.  She will not have to buy soot-covered cauliflowers sold on the streets.

It is time for India to stop languishing in the past.

(For over 30 years, Rajendra K Aneja worked with Unilever in Latin America, Africa, Asia and was responsible for managing customer -service in modern trade and traditional stores. He was the CEO of a large retail group in the Middle East managing outlets in fashion, electronics and cosmetics and foods. At present, he works as managing director for a consulting group.)

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COMMENTS

rprtr

5 years ago

Patricia may have to develop a little more esteem for India.

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