The new breed of hawkers of groceries -The e-commerce retailers

Shopping for the daily needs of a typical household is a chore increasingly being shunned by many present day house wives who do not have either the time or the energy to wade through the busy streets of cities like Mumbai, Delhi, Bangalore etc. Imagine the old times when the nearby grocery stores served as a convenient place to shop for materials wanted by many families with least hassle. There are supposed to be over 8 million so called "mom and pop" stores in India catering to the needs of the 1.25 billion population in the country meeting every need of the families within their "captive" areas. One does not need any transportation facility to access these outlets as they are omnipotent every where in a city, often more than one operating from the same area.Many old timers have nostalgic memories about their childhood when the friendly "grocer" could satisfy every need of the family and to top it, materials can be got on credit of about 30 days because most salaried people get money in their hands on first of every month. Look at the transformation taking place in India at the market place with giant retailer chains trying to out pace the "kirana" stores in providing better products and service. Are they succeeding?

Though super market culture was introduced around the year 2000 with some of the industry houses like Reliance, Tata etc getting into retail business, their growth is some what limited and according to market experts they are not even able to capture 10% of the country's retail market in a decade and a half. Some of them have not been able to break even even to day while a few others have folded up their business. Then came the much hyped FDI foray into Indian retail landscape recently and the new policy of allowing 100% foreign investment in single brand retailing has not been able to attract many significant international companies. Collaboration with Indian investors for multi brand retailing also did not bring in much investment in this sector. Why this has happened in spite of all predictions to the contrary?

One of the lessons to be drawn from this fiasco is that hundreds of years of culture in a conservative country like India cannot be expected to change in a short time and very high expectations were placed on the development of super market culture in the country without realizing that such super markets would never be able to compete with the "kirana' stores in terms of giving credit and personalized services to which Indian consumer has been used to. Of course with credit card use becoming very common in many urban areas, purchases made using them is based on a deferred payment mode. But the mechanical nature of vending in super markets manned by impersonal workers can be the big dampener in the adoption of this format in the country. Also of concern is the "guided" buying or "forced" buying of goods stocked by the super market in stead of the brands preferred by the consumer which is not liked by many consumers. In contrast the kirana shops know what their clients want and offer the same readily.

Having made not much progress with organized super market strategy, an alternate approach is being tried in India using the vast internet route to sell groceries to net-savvy families which may be numbering in millions across the metropolitan regions in the country. Popularly called as e-retailers or e-grocers, a few players have succeeded beyond expectation in cities like Mumbai, Delhi and Bangalore. Though this sector is in its infancy, the growth rate seems to be very impressive.and their potential business by the year 2020 is estimated to be Rs 1000 crore but it may exceed this target if the present going is any indication. May be the conservative image associated with Indian consumer is getting an image make over for which the new younger generational IT professionals are to be thanked. What is of concern is the sustainability of this trend if government does not support these ventures and starts imposing excessive regulatory controls on their working. Already some of these players are being hauled up by state governments on taxation issues, imposing punitive damages. However this nascent sector is confident of surviving these teething troubles through dialog with the governments.

Groceries can include perishables as well as durables which are in demand on a regular basis. While perishables like fruits, vegetables and other commodities are risky items to be handled because of their tendency to lose quality with lapse of time, others like detergents, soap bars, hygiene products, cleaning paraphernalia are easier to store and distribute. How do the e-grocers manage the procurement and delivery of these items without losing the quality and freshness associated with them? These items require scientific handling and temperature controlled storage systems to reduce quality deterioration between procurement and delivery. There are about a dozen serious players in the e-grocery sector including Bigbasket, Localbanya, Ekstop, Aaramshop, naturebasket and Greencart  sharing the market and only a couple of them have the minimum necessary infrastructure to manage perishable commodities. Fortunately for them the consumer complaints have been insignificant as their delivery efficiency is invariably above 98%. Some of them deliver the orders within a few hours, in spite of the traffic chaos that is the hall mark of cities like Bangalore and Hyderabad.

Another imponderable factor is the trust of the on-line buyer on the quality of fruits and vegetables ordered as in India there is no established quality overseeing of farm products and regular washing and grading systems. Indian consumers, at least most of them are fussy in choosing their food items and "seeing" and "feeling" the product is a national trait embedded in their psyche! If so how do they trust the supplier to deliver the products as per their expectations? Answer to this perplexing question lies in the fact that many youngsters of to day are different from their earlier generation in that they have very little inkling about the common quality attributes of fresh produce and have to depend on the supplier to do the job. After all they know that the dynamics of marketing depends on the customer satisfaction and they can always switch over to other suppliers under a competitive regime.     

Looking at the entrepreneurs who jumped into e-retailing we have to admire their courage of conviction as doing any business in India is fraught with risks of freaking out because of the difficult environment they have to work in. Unlike big international e-marketeers such as Amazon who work very successfully in countries with high quality infrastructure, manufacturing discipline and unimaginable honesty, in India all these three virtues are on a premium. Extraordinary courage, incurable optimism and unparalleled determination and perseverance are needed to succeed in India and since most of them have survived at least for the last 2-3 years they can rightly be called the pioneers showing the way to others. 

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

FDI IN RETAIL SECTOR-THE HOB-SON'S CHOICE FOR GOI!

Government of India seems to be on the back foot while defending its sudden decision to allow foreign direct investment in the retail business with a hope to attract some of the global retail chains so that the rapid slide in Rupee's value could be stemmed. While there is considerable opposition to the move, some genuine and others political, there is no denying the fact that the decision was not timely and such a decision could have been taken after in-depth consideration of the impact of foreign retailing giants establishing their foot prints in the country. No doubt there are significant advantages as well as disadvantages for the country and a final decision can be taken only after the risk-benefit aspects are fully studied.

Look at the position taken by GOI as reflected by the grand statement by the Commerce Minister extolling the virtues of opening the retail sector to foreign direct investment through a series of glittering advertisements in almost all news papers immediately after the announcement. It gives a rosy picture to the citizens about the advantages of major global retail giants coming to India. However a close look at the ground reality will tell a different story.There appears to be a goof up regarding the number of towns, each with more than a million population eligible for setting up shop by the MNC retail chains and now it turns out that in stead of 53 cities mentioned by the minister, only 46 urban entities exist in the country that are eligible to attract FDI! Besides 25 of the above are under the administrative control of non-UPA governments which are hostile to the new policy leaving only 21 urban entities available to foreign companies to invest. The opposition party BJP is so hostile to the policy that one of its senior members from Uttar Pradesh even threatened to firebomb the foreign controlled super markets if established in that state!

Keeping aside the politics those who are stake holders in this development must introspect regarding the outcome of this policy under which global giants like the Wal-Mart, Tesco and others interested can set up modern state of the art super markets in some states in the country. A moot question is whether these MNCs will be interested in entering India under such a hostile environment and whether the potential business volume can justify huge investments in the area. Also to be pondered by these companies is how any one can manage access to agricultural and horticultural produce from the distant hinterlands of the country where average holding of a grower is hardly two acres. There are at least 200 million farmer families who need to be approached and linkage established for a cooperative partnership can only ensure regular supplies to the super markets. Is this not a mega nightmare that can haunt any investor? If GOI is to be believed these MNCs would invest 100 million dollars for back end operations like procurement, sorting, cold storage, refrigerated transportation etc and also would buy 30% of their product portfolio from SMEs though this provision does not apply to food products. But who will invest on the power generation, water accessing, roads and bridges and other accessory infrastructure so vital for protecting the quality and nutrition of the food handled by them? 

The claim that the new "policy" would generate 10 million jobs in 3 years seems to be a pipe dream and on the contrary with automated handling machines with capacity to be used by these giant companies, likelihood of some unemployment cannot be ruled out. Allowing for an attrition of 10% of the small traders, it is to be expected that about a million families will be adversely affected forcing them to seek their fortunes elsewhere. The earlier policy of allowing MNCs into wholesale sector was indeed sound because these outlets serve the small traders admirably well and many traders operating in far away areas, at considerable distances from major towns and cities use these "cash and carry" business organizations to procure their requirements for selling at a higher price locally, eking out a decent living. Even allowing 100% FDI in single brand retail may be acceptable because it can again serve as a feeder to thousands of small retailers operating in distant places.  

It is claimed that under the new FDI policy in retail, farmers would get a better price for their produce as there might not be middle men in such transactions between the Retailer and the Farmer but if the experience in other countries is seen such a dream may be transient till the competition from the local players is killed during the first few years. What prevents the MNCs from accessing materials from out side the country where they are cheaper and shun the local suppliers in the long run? China is a predatory country that can out price suppliers from any part of the world and some of the large retail players have established and cozy presence in this country. Under such a scenario can the farmers in the country expect higher prices to their commodities? If some of the large farmers in Punjab are to be believed entry of PepsiCo two decades ago has improved their productivity and profits very significantly but it must be borne in mind that PepsiCo is not known for its retailing business, being best in manufacturing processed food products of global repute. Will the retail MNCs provide support to the farmers the same way as PepsiCo has done for tomato and orange or ITC has done for wheat in Madhya Pradesh? Doubtful!

As for consumers there might be some initial advantages because of the ability of MNC retailers to practice predatory pricing for pushing out the local traders and domestic organized retail chains for establishing their supremacy in the market. The variable pricing practices in vogue in many developed countries cannot be repeated in India as the Maximum Retail Prices (MRP) have to be printed on the label as per Indian law. The usual strategy of a product being priced differently from shop to shop and for varying prices in the same shop over a period of time, for cross subsidization, cannot be deployed in this country because of the MRP provision. History is replete with examples as to the long term endurance of MNCs, sustaining losses for more than a decade, eventually able to recover their losses by extinguishing the competition. A look at the experience of Indian companies like Fortune group or Reliance group in retailing during the last 5 years will tell a different story and some of them have not been able to reach even 10% of their targeted volume of business with accumulated losses estimated at billions of rupees during this period. Domestic retailing giants have not been able to capture even 5% of the retail market which is predominated by more than 8 million small traders even to day.

There are some apprehensions that the unorganized sector of retailing might suffer if FDI is allowed but if the history of Indian retail industry is examined one can see the role played by them in making the life of Indian families comfortable through their friendly service in contrast to the "mechanical" or 'Robot" like service offered by super markets. Indian traders, most of them, thrive because of the confidence they enjoy from their customers and friendly service provided. It is inexcusable on the part of GOI not to have done a scientific study regarding the impact of large retail chains on small traders during the last few years from which valuable lessons could have been learned before formulating the new FDI policy. There is a feeling, not supported by any data, that Indian families are returning to their familiar "mom and pop" stores in increasing numbers after the initial euphoria of shopping experience in large super markets has declined. The reason for this, if true, must be found by field studies which only can bring out the ground realities.   

Whether the FDI policy on retail has been rolled back or suspended or on hold, the ability of the Central Government to clear the same is doubtful because of the "coalition dharma" to which most policy failures are attributed. Political survival seems to be more paramount than the interest of the country and if and when the policy is resurrected the country must  ask hard questions regarding various uncertainties cited above. Assuming that the doors are opened for retail FDI eventually, another million dollar question is how many major players will actually enter the country against the pre-conditions imposed and restricted areas of operation available to them. Any how the road ahead for the foreign companies may not be as smooth as they hope for and it may take years, if not decades, before they can establish any sizable presence on Indian soil!

V.H.POTTY

http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

"FDI" IN FOOD RETAIL-POSSIBLE ANSWER TO FOOD INFLATION?

Foreign investments in retail sector are not possible under the current FDI policy of the Indian government, the main reason being the fear that millions of small traders spread all over the country employing an enormous work force would be adversely affected by the financial muscle power of the large multinational retail giants like Walmart, TESCO etc. GOI may have some justification to take this line because unemployment is one of the most pressing problems country is facing to day if the employment exchange figures are to be believed. But how far the projected unemployment figures reflect the ground reality is another imponderable issue having no definitive answer but there is a strong suspicion that the numbers include a vast population of under employed persons also looking for better prospects in life.

A close look at the food retailing net work that delivers staples as well as perishables to the consumers in the country is based on the so called "middle men" so necessary to provide linkage between the producer and the retailer. More the number of such intermediaries sharper is the escalation in consumer price. In spite of the existence of Minimum Support Price (MSP) regime in many food produce, farmers are not better off than they were in the past, many of them driven to suicide unable to sustain their families. Money lending and muscle force make many farmers literally second class citizens in their own land. Economic subsidies and financial incentives provided year after year in central and state budgets do not seem to have made any dent in the rural poverty.

Food inflation is out of control and the unseemly blame game amongst the political class to pass on the "buck" is adding insult to injury to the citizens who are bruised by the erosion of the purchasing power of the rupee. The media statement that "Pawar snores while the food prices soar" reflects the ridiculous situation that exists in the country. Sugar prices have doubled in no time while millions of tons of imported sugar are piled up in different ports because of the cunning strategy of the hoarders to use GOI facility to starve the market. Same is true in practically every food commodity traded in the country with the hoarders having a vice-like grip on the supply chain. Poor local traders face the wrath of the consumer though he has practically no control over price fixing by the wholesale traders with deep pockets to hold the market to ransom through hoarding, some times under the benign eyes of the politicians at the helm of affairs in the country. Can this situation be allowed to continue for long? Sacrifice is necessary by all the stakeholders and if the present retail community slowly fades away yielding to a competitive organized retailing system, there is good possibility that food prices will come down.

Answerability and accountability are the hall marks of any good management system and that includes governmental activities also. Probably time has come to fix responsibility for the current situation and the Indian government is answerable to the consumer instead of dithering, vacillating and some times reigning over them like a colonial government. It is a shame for any government to admit openly that it does not have the wherewithal to control innumerable retailers who are peddling food. If the state governments are impotent to rein in the retailing business as it operates now, it is time they force GOI to welcome FDI at least in food retailing. This will enable billions of dollars of foreign funds, at present lying idle for want of attractive investment options, to be deployed efficiently to organize retailing on a scientific and modern management principles. A few organized retailers are much more amenable to discipline and monitoring than millions of scattered small traders.

National Dairy Development Board's success in fruit and vegetable marketing, though not dramatic, is mainly due to its organization capability linking producer to the consumer with profit motive made secondary. Similarly if ITC has been able to establish workable and mutually beneficial relationship with farm producers with good will, same can be achieved by foreign retailing industry, investing in India with their enormous organizational and managerial skills. There are a few shining examples of Indian grown retailers establishing backward linkages with producers and delivering prime produce of high quality at costs much less than that by the small traders, at least in some urban areas. Without standing on out-dated philosophy and irrelevant economic basis, GOI must evolve an equitable FDI policy in food retail that can attract "best of the best" from around the world to ensure fair competition in food retailing that will go a long way in providing affordable daily food items to the vast majority of Indian population currently handicapped by uncontrolled inflation. Whether the necessary political will is there remains to be seen under the present coalition government.

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