Organised retail vs Local kiranas
Many believe as the giant corps come into India after the govt has allowed FDI in retail, the local stores will be affected, some believe this would bring money and growth and employment, and some believe it would kill millions of shop owners. even politicians like Mamata Banerjee and Nitish kumar have opposed the idea and claimed they wouldn't allow this in their states. However, when I was in USA, I visited WAL-MART and Target stores, moreover I did some research in order to get a clear picture of how much would this affect INDIAN market, surprisingly, I don't think it's really gonna affect anyone apart from the organised retailers currently working in Indian cities.
Let's take a look at some of the pointers on why FDI in retal wouldn't affect India as hyped.
- Demographic of India: Unlike US and UK, in India, language, food, clothes, traditions change after every 50 kms, if Walmart opens store every where, managing the inventory will be a big big issue as they won't be able to turnover the stock as they do in US, this may decrease profitability. In US they have stores away from the city and consumers buy in bulk and store for rest of the week or month, but in India, not many have the combination of time, motivation and vehicle.
- Indian consumers: Local shop owners have given us some outstanding service over the years. If I need bread and eggs and milk at 7am, the shop owner will send a Chotu who will come running and deliver the goods something Walmart wouldn't be able to do ever and something we can't do without.
- Other countries: in countries like Brazil and China, walmarts have done successful business over the years because they haven't really had the concept of local kiranas, they either run community centres or grow themselves. Moreover they have enough space to allow 1 lack sq feet of walmart something that India doesn't have. China is larger than India in terms of space but has equal population thus density is low allowing land space. Brazil too is as big as India in terms of land but population in one sixth to that of India. Here they will get such land only in outskirts. Now if I am living in salt lake and need some stuffs for home, I wouldn't travel all the way to Walmart to buy it, the cost may be cheaper there but my fuel expense will cover it all.
- Bleeding organised retails in India: India have had organised retail for over a decade now but when we look at the figures, it's not really tempting to invest here. Birlas run "More" stores all over India and has posted net loss of 423 crores last year. Reliance fresh made net loss of 247 crores. Bharti enterprise posted net loss of 260 crores. Subhiksha who at one time had over 12000 stores in India has shut down operations. Once these giant corporations come in, these Indian retailers shall sell equity and make some money using their expertise.
- Supply chain: as mentioned earlier, India has diversified population, a product may sell in some part but may not sell in the neighbouring state. Moreover some states may not even allow them to setup stores so again this would affect the supply chain of the stores and managing inventory will be a really difficult task.
So what's the end picture? Well, according to me, the small kiranas who know their customers by name now will eventually modernise and create databases, and there maybe a time when these giant corps may end up buying the small stores to increase their presence all over the country. It's happening for real in UK where Tesco has bought small stores and is running in different formats of retail like : supermarket , convenience stores and street corner stores. Similarly we may see the same scenario here in near future. These giant corps will have to make their own space in terms of consumers and land. This will certainly take time. So I don't really think allowing them will really have a bad effect in Indian retail market. As they wouldn't go about setting up stores in every locality.
Cheers,
Akash Poddar
