MIGHT IS RIGHT-RETAILERS INFLUENCE ON CONSUMER PRICE

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.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

RETAIL BUSINESS-POLICY UNCERTAINTIES

The debate about allowing foreign investments in the retail business does not seem to be subsiding though two governments have come and gone since beginning of this decade. While Vajpayee government could not take a decision to allow 100% foreign investments, partial opening of this sector was achieved when cash and carry model investment was allowed for whole sale merchandising. The first UPA government was hamstrung by its vulnerability to pressure by the Left which was totally opposed to organized retailing under the excuse that small business enterprises and family stores would suffer, unable to face the marketing muscle of global retail giants. With new UPA government with a clear mandate, now at the helm of affairs at Delhi, sans the Left, expectations were high that India would open up its retail sector to foreign players soon. How ever the first sign of the low priority for this area came when there was no mention about it in the address to the Parliament by the President and the Government has no intention, at least for the time being, to open up this sector was confirmed by the concerned minister a few days ago.

The ostensible reason for delaying a decision seems to be the stand taken by some experts that their is real danger of large scale unemployment when big muscled retailing giants take over the market, pushing out the 8 million and odd small retailers in the unorganized sector into oblivion. Same argument in the past delayed modernization of food industry in sixties and seventies of the last millennium and setting up of large scale processing units by organized players in food sub-sectors like rice milling, flour milling, oil refining, snack foods, fruit and vegetable processing, meat processing, poultry processing, spice processing, soft drinks etc during the last two decades did not contribute to any significant unemployment. Besides there are big Indian investors equal to foreign companies in terms of resources who are not barred from entering the retail sector by the present policy. The institution of family stores that dots this country cannot be easily brushed away by a few international companies and even if they are affected to any significant extent, it is going to be a slow process spanning many years ahead. The fact that even after the entry of big Indian investors into retailing more than a decade ago, the share of organized retail business has not gone beyond 5% at present is a telling commentary on the strength of indigenous unorganized retailers of this country.

Recent announcement by IKEA, the $ 31 billion, Swedish home products giant putting on hold their plans to open up 25 retail show rooms with an investment of $ 1 billion is a set back to the aspirations of the Indian consumers to enjoy the high quality, innovative, easy to assemble and long lasting home products which happen to be the strength of this company. IKEA, world wide, sells 12000 products through its 296 retail show rooms and is a pioneer in the flat pack furnitures and accessories, bathroom and kitchen items of high quality with novel features. It is beyond any body's comprehension as to how IKEA out lets are going to harm local products because there are no similar products in the Indian market made locally! The high end expertise of IKEA would have helped to horn the skill of Indian workers who are not exposed to quality products in their life. IKEA is already out sourcing from India products worth Rs 1900 crore an year for selling in more than three dozen countries under their brand and this would have expanded several fold if they were allowed to do business in the country. Presently it employs about one lakh people in India for its sourcing operations.

It is really unfortunate that retail business continues to be kept out of the purview of foreign companies who could have brought considerable expertise into the dynamics of organizing and successfully running large scale procurement and distribution of consumer goods. The recent ranking of India as the top desired investment destination for retail business, outscoring Vietnam, Hongkong and others is a wonderful opportunity for India to entice investors with policies that would be equitable to all the stake holders. GOI must provide a level playing field in the retail business and in the interests of the consumers as well as the skilled workers of the country, this area must be open to all investors irrespective of their nationality. One of the tragedies of Indian retailers is that they do not know how to respect the consumers and understand their aspirations. Sooner we have exposure to international retailing culture, better it will be for the country in the long run.

V.H.POTTY
http://vhpotty.blogspot.com/