Is Retailing in India Boon or Bane?


By

Devender P.S.
Research Associate
Icfai School of Marketing Studies
Hyderabad
 


Evolution of Indian Retailing.

In India, it can evidently noticed that there are Mandis/Bazaars (place where vegetables and groceries are sold) in county side, some daily and some weekly, but most people recognize them as weekly mandis only where in all house hold and vegetables are sold and later small stores came up at corners of the streets or residential locality which were called as Kirana stores now referred as Mom and Pop Stores,

In the early 1980s manufacturer's retail chains like Binny, S Kumars, Vimal, Bombay Dying, HMT, Allwyn, etc started making their appearance in bigger cities. Later in 1990s  Branded retail outlets like Food world, Nilgris and local retail outlets like Trinetra super market, Apna Bazaar, came into existence. Now big players like Reliance, Bharti, Tatas, ITC and other reputed companies are entering into organized retail businesses. And the big multinational retailers are waiting to enter India in the form of direct entrance eg: - Nike, Reebok, Metro etc or Joint Ventures eg: - Bharti with Wal Mart and Tatas with Tesco.

India is making a landmark revolution in the retail space in the world and Asia in particular. India's strong economic growth and rising disposable incomes of middle class and lower middle class made big business houses venture in to this business, many businesses are coming from US and Europe. The Government's decision to allow foreign Direct Investment and businesses in to this sector has attracted foreign companies to establish their businesses in India. Now foreign retailers will be able to own their own stores in India for the first time as part of a major government liberalization of business. Till 2006 foreign companies were allowed to operate franchises by the government to protect the indigenous companies. Now new regulations may allow foreign companies to hold up to 100%. But the Indian government is going ahead with new reforms which may create millions of job in the near future while safeguarding the interest of domestic firms.

The increase in the land value and number of real estate companies investing in this field  has also helped power the boom as financing is made easier, one can see that  software companies like satyam has marked their presence in reality and infrastructure and the reality company, k Raheja group has stretched their wings to retail. The noted swift growth in reality industry is of significance and this is changing the evolution and the spectrum of whole marketing of FMCG, farm and diary products.


Source: Ernst &Young, The Great Indian Retail Story, 2006.

Growth in Retail Why?

Raising disposable incomes in middle class and lower middle class with increase in employment opportunities for young adults in IT and IT enabled sectors, boost in real estate investments in India from with in and abroad.

Industries and agriculture's contribution towards the growth of Indian economies which is at presently at 9% and changes in aspirations & expectations of customers  in consumer, retailing and others sectors is reaching international standards. And the influence of electronic media, increase in number of working women and their ability to influence family, their purchasing power are the contributing factor of Indian Retail.

Who is the Beneficiary?

According to a company statement, Mukesh Ambani said the company would strive to continuously delight the customers. 'This is the first small step in our attempt to build and forge strong and enduring bonds with millions of farmers and transform our relationship with customers to a new level.'

"We will be very, very competitive in prices, but that's not the only proposition we're putting on the table", Raghu Pillai, President and CE - Operations and Strategy, Reliance.

"The company expects convenient store locations and the quality of products on offer in its stores to boost its competitive edge", Raghu Pillai, President and CE - Operations and Strategy, Reliance.

The above statements by Mukesh Ambani and Raghu Pillai cannot be said as completely factual. If it was really beneficial to everybody, why would small retailers protest against it form various states like West Bengal, Kerala, Utter Pradesh, Jharkhand and Tamil Nadu.  Utter Pradesh government has already forbidden such outlets till further notice and Reliance Retail may quit operations in Utter Pradesh.  It was observed that many farmers are in favor of reopening of retail stores which were closed by the state government.

Though these retail chains are benefiting some sections (suppliers) of the society, but when it comes to prices of goods sold in these outlets,  any other neighborhood kirana outlets are same (sold at maximum retail price). And the quality they offer is on par with any other local retailer but not beyond, except air conditioning and sparkling lights.

But almost all the organized retails are advocating that their prices are less when compared to others retailers, which one can hardly found in Indian market, except with a few.

There is an exceptional case where some companies like Metro Cash & Carry whose business model is unique came forward and taken an initiative to take training classes for unorganized retailers to develop their skills on par with organized one.

Local retailers have organized them selves and started offering competitive prices as compared to organized retailers; they do offer attractive schemes and price discounts to customer to maximize their turnover. And one must have observed that, companies such as Hindustan Uni lever, Proctor & Gamble are encouraging small retailers to become preferred trader by offering special trade discounts and schemes which are favorable signs towards unorganized retailers.

The following factor can be considered as Boon and Banes of Retailing.

Employment opportunities

Urban Employment :-  Employment opportunities for youth, According to PricewaterhouseCoopers (PwC) it is said that retailing will create additional eight million jobs though retailing In India and  will benefit population by employing local (Urban) youth and others directly or indirectly. But it is feared that our friendly neighborhood kirana shops where, one can make purchases in small quantities and return the goods if not found good and many more friendly services, will be on the verge of disappearance there by creating a vacuum which cannot be filled by the big organized one.

Rural Employment : - Contract Farming is the new mantra of organized retailing in India. There is no doubt that the farmers are in some way benefited by contract faming where in, the latest technology and equipment and scientific farming is done by farmers with the help of retailers there by increasing the productivity in agriculture, and uniform payment for their produce through out the crop irrespective of  fluctuations in market price. But one should also focus on the freedom of farmers to sell their produce at will.  It is evident in India that rich farmers who possess vast lands are the beneficiary but farmers who have little land and dependent on other trades are marginally benefited by this kind of business.

Ashok Rajgopal director (retail industry) for Ernst & Young said, "By targeting the youth population in India, retailers will be investing for the future as they will be able to influence and create loyalty from the start."



What small retailers and customers say?

"I've lost half my business," says Rajiv Das, who has been selling fruit and vegetables for 18 years and now has to contend with a new Reliance store a three-minute walk away. "I'm not able to fight, but I would if I could."

Similarly, Selva Kumar, who runs a kirana 100 meters from a Reliance outlet in Chennai, says, "We have lost 40 percent of our business, and that's the future. We're not closing, but there'll be no growth."

"It's good value here, better than other supermarkets, but there are difficulties with the quality, especially apples and papayas," says Rama Tibrewal, a middle-aged Reliance shopper in Hyderabad.

Competition

The organized retailers are financially sound in investing in Big Business promotion, aesthetic looks, technology and Supply chain management etc. Its business principle "The bigger the better". The Bigger retailers the better it can counter competition from small retailers and sustain business. But the unorganized retailer cannot compete and are trying fight hard against organized retailers however they cannot afford to invest heavy on technology and other inputs.

Due to tough competition, Customer have lot many opportunities and choices  to go for, unless local retailers offer them best prices they wont be interested to come back,  unorganized retailers stores are finally waking up to become competitive and try to attract  more consumers.

Competitive trend

"Small pharmacy stores have teamed up to implement steps to fight back the competition from large chains. The All-India Chemist and Druggist Association (AIODC) are conducting talks with several companies such as Dr Lal Path Labs, Dr Reddy's Labs and Thyrocare Pathology to offer diagnostic facilities".

"Metro Cash & Carry will be starting a training school for kirana stores, in an effort to strengthen them and their business practices to take on the competition from organized retailers". Geraro Monzillo, the deputy managing director.

Government's Contribution

Government of India permitted up to 51% foreign direct investment in single-brand retailing in the country. This rule, to some extent saved the existence of unorganized retailers but in the long run there is a possibility that Indian Government may allow 100% FDI there by permitting to setup multinational retail operators which may wipe out the existence of unorganized sector.

Government's ignorance towards the needs of the unrecognized retailers and in one way discouraging them by not giving enough support in the form of financial, infrastructural, distribution, storage, transport, trade centers and other facilities makes it an awful situations for unorganized retailers and this may lead to catastrophe.

Growing Economic Disparity

In India more than 60% population is engaged in farming, which is major chunk of income generated and it is the equivalent to half of other sectors but  disparities in income levels  in India specifically rural India remain as wide as ever. Nevertheless employment will grow in all sectors and which will be of labor incentive. However, Work force of women in agricultural and services sector will enhance pressure on rural jobs in near future.

"Much of India is still mired in poverty, but just over a decade after the Indian economy began shaking off its statistic shackles and opening to the outside world, it is booming.... The growth of the past decade has put more money in the pockets of an expanding middle class, 250 million to 300 million strong, and more choices in front of them" (Despite Widespread Poverty, a Consumer Class Emerges in India, NYT 10/20/03).

Organized retailers impact on customers.

On the contrary Customers are enjoying wide variety of green produce under one roof, at the same time take pleasure in experiencing the way of shopping at affordable prices. Making it a habit, the day is no far that organized retail outlets will erupt in small tows and villages, influencing their purchasing behavior and their life styles. 

About Retail Sector in India

Organized retail sector in India is exclusively concentrating in urban and semi urban areas currently occupying small percentage around 2%, the average space occupied by retailers is just beyond 500sq.ft. The volume of retail turnover is expected to grow at very high and is estimated to cross 4 lakh crore rupees a year, constituting 10% of India's GDP and employment generation.

Conclusion

The extraordinary role played by retail sector throughout the world in increasing productivity of consumer goods and services are commendable. And it is also becoming a major industry by creating millions of employment opportunities to people directly and indirectly is greatly admired. Retailing industry becoming one of the most dynamic sectors in India with numerous players jumping into this market makes it competitive and lucrative. Though organized retail sector is serving the needs and aspirations of high end and middle class customers but ignoring the common man's needs and aspirations are lamentable. So, the organized sector should look at the common mans needs, and his ability, affordability and go ahead, then only the aim of giving world class quality products at affordable prices to common man dream will come true, thereby contribution to the economic growth and up lifting the standard of living there by serving humanity.

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Devender P.S.
Research Associate
Icfai School of Marketing Studies
Hyderabad
 

Source: E-mail December 7, 2007

          

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