The myth of big retail
Ravi Jadhav
Sreenivasan Jain
Of all the big reforms announced by a suddenly galvanised UPA, the one
that has predictably caused the greatest political tremors is allowing
the entry of multi-brand retailers into India: Wal-Mart, Tesco,
Carrefour and the like. The strong opposition to the entry of the big
boys of global retail is as exaggerated as the claims made by the
government of the benefits they will bring. Both the pro- and
anti-retail lobbies are wrong.
For starters, India has had big or organised retail for about 15 years
now, not a small stretch of time. Some of the biggest Indian
corporates are in this space, like Reliance, the Birlas, Godrej, RPG
(Sanjeev Goenka Group) and Kishore Biyani's Future Group. Despite
this, organised retail is only 5% of the Indian retail market. The
remaining 95% is still unorganised. Every one of the big players is
posting losses. Last year, Reliance Fresh posted a loss of R s 247
crore, Bharti posted a loss of Rs 266 crore, and Aditya Birla group,
which runs the chain of More supermarkets, posted a loss of Rs 423
crore. Some retail chains have actually shut down, like Subhiksha
which at one time had almost 1,500 outlets. Which is why India is one
of the few countries where domestic retail chains are actually
lobbying for the global giants to come in! Why on earth would you
actually fight to increase competition? Officially, Indian retailers
will lapse into corporate jargon like the global players 'will add to
the value chain', 'will increase capacity', and so on. In reality,
it's an open secret that many of the Indian players are hoping that
the global chains will bale them out either through joint ventures or
just outright takeovers.
Some argue that the Indian chains have not worked because they don't
understand retail. That their parent companies have other core
specialisations like oil refining or making cement or tyres. This
argumen t could be applied to companies such as Reliance or the
Birlas, but what about India's original big dukaandaar, Kishore
Biyani? Few will disagree that someone like Biyani has a greater sense
of the middle class Indian consumer's shopping habits than, say,
Carrefour. In an interview we once filmed in his flagship Big Bazaar
in Mumbai's Phoenix Mills, he explained why the store design actually
encourages overcrowding. He called it his 'butt and brush' theory, a
somewhat cute metaphor to describe how Indians actually prefer to shop
in an overcrowded environment (where their butts can theoretically
brush against each other). And yet his Future Group, the parent
company of the Big Bazaar chain, is in deep trouble with debt on its
books of over Rs 3,000 crore.
The real reasons why big retail hasn't worked in India are simple.
One, a lack of commercial space. Most Indian cities, presumably the
first port of call for the Wal-Marts and Tescos, don't have the kind
of aircraft-hangar size spaces that these chains need. Whatever space
does exist is limited and very expensive, taking away the advantage of
economies of scale needed to make big retail viable.
Two, Indians just shop differently. We are used to buying in small
batches, not making weekly or monthly runs as is the practice in the
West. We prefer walking out of our homes to shop, not driving all the
way out to a hypermarket in a distant suburb. Let's face it, as Indian
shoppers, we are utterly spoiled for choice by a range of
price-sensitive (and colourful) retail options that include everything
from street vendors to kirana stores, thela-wallahs and Mother Dairy
outlets. Almost all of whom have no qualms in delivering even a
matchbox to our doorstep. When Reliance and the Birlas couldn't take
on this vast, fragmented and inventive mosaic that is Indian retail,
do Wal-Mart and Tesco have a better chance ?
Which is why the government's claims that opening up FDI in retail
will bring in 600 billion dollars of investment (the figures keep
changing) is utter bunkum. As one of India's leading retail sector
gurus told me, the silence is deafening - not unlike when India opened
up FDI in power and infrastructure, hoping for a stampede of foreign
investment which never quite came.
As for those political parties claiming to get falsely outraged on
behalf of the small dukaandar, here is a reality check: there is NO
empirical data to suggest that the rather feeble entry of Indian big
retail over the past decade and a half has led to shutting down of
corner stores. In fact government data suggests the reverse. From 2005
to 2009, organised retail has shrunk from 27% to 15%, while
unorganised retail has held the course at a steady at 15%.
Having said that, it's the other end of the chain which needs the
greatest attention: the Indian farmer. It's true that the prospect of
organised front-end retail will liberate him or her from an o
ppressive dependence on middlemen-dominated mandis. And it will create
a cold chain network that will reduce wastage and add value to farm
produce. But for that too we don't need Wal-Mart or Carrefour. We
already have in this country a state-of-the-art network that sources
from three million farmers daily, stores their product in cooling
vats, converts it into a range of terrific products and transports it
in refrigerated trucks to stores across the country. It doesn't
involve any foreign investment or technology. It's owned collectively
by the farmers who make the product. Everyone gains: the farmers, the
members of the network, and the consumer. Our political parties will
be well advised to spend less energy on empty blather about of the
benefit of international retail chains. Or staging dharnas against
their arrival. Instead, let them encourage the spread of this network
in the states where they rule. The network is called Amul. And it was
invented by Verghese Kurien.
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Sreenivasan Jain is Managing Editor, NDTV.
He anchors the ground reportage show, Truth vs Hype, on NDTV 24x7
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