Wednesday, July 14, 2010


The never ending debate about the desirability or otherwise regarding the entry of global retailing investors into India has several dimensions. The reluctance on the part of GOI in allowing foreign investment in retail sector has to be understood in terms of the unpredictable consequences such a policy change may have on the fate of small retailers and grocery stores that serve millions of families across the country. According to varying estimates the number of such retailers many be between 4 million and 8 million though precise statistical data are not available. A typical grocery store under to day's prevailing condition in the country may be carrying home about Rs 500 to Rs 1500 per day though there are big stores also with annual turn over of a few millions rupees. The fact that they work on small margins is well known and the income from a shop may have to support a family of 4 or 5 which reflects the bitter reality that is obtaining in the country. If these "shop owners" are to shut down in the wake of massive investments by large international retailing giants, what will happen to them is an imponderable question with no ready answer.

As far as the consumer is concerned such large retailing facilities can be expected to lower the prices of many house hold goods including food if international retailing practices are introduced. Present manufacturer driven price setting may have to yield to retailer driven price regimes and eventually there may be an equilibrium amongst the stakeholders each protecting its interests. One of the concerns of policy makers is whether these displaced "entrepreneurs" will end up as workers in the large retailing net work as they lack basic skills for any other alternative line of business. With less than 5% of retailing business in the hands of large organized companies at present, no significant turmoil is noticeable in the unorganized sector. Besides the smartness of the local shopper may not allow the organized players to take any vice-like grip on the retailing business. During the last 5 years when super markets and Malls became standard fixtures in metros like Mumbai, Bangalore and others, the small shops still survived and there is a feeling, not substantiated by any study, that consumers are returning to their traditional shops because of the personalized attention they receive and product return "favor"extended to many regular clients. This advantage may be short lived because large retailers are expected to introduce "product accountability and return" practices sooner or later as in vogue in other countries.

Added to the above, entry of whole sale business giants like Cash and Carry has made the task of small retailers easy as they have reliable source to procure their needs and sell the same after covering their margin in their localities. Whether these wholesale business firms will switch over to retail mode once the present policy is reversed remains to be seen but it may be unlikely. Many organized retailers operating presently with majority Indian investments are also offering may items at low cost and they can also be tapped by the small bit players for furthering their business prospects. This is especially true when it comes to shops in the rural areas where more than 70% of India's population live. Rural shops, mostly operated by families stand to benefit by such developments. Under the equilibrated conditions it may work out to a co-existence of small and organized sectors sharing the business in 50:50 proportion ushering in a "live and let live" era.

The apprehension that large retailers may arm twist the food processors to bring down the prices is frequently being raised and some of the retail giants are being blamed for dramatic decrease in prices of items like soft drinks in their outlets because of their clout with the manufacturers. A can of Coke costs in the US, where giant retailing has a stranglehold, less than that prevailing in many developing countries. This may pose some dangers to the small retailers who may not be able to wangle out such outrageous concessions from the food industry. Similarly price manipulations also may become a standard feature of large retailing operations to "kill" the local shops as with deep pockets former has enormous sustaining power. As for the processing industry, the days of brand power are bound to be numbered with retailers dictating the buying prices and the terms of transactions.

1 comment:

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