Tag: FDI in Retail

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Business India

Let There Be Light – Part 2

In my previous post, I had mentioned that industry leaders had finally started to share their views on the FDI in retail debate. This would help evaluate the issue from a fresh perspective and in the light of cold logic – used sparingly in the various discussions till now.

The latest addition to the list of sane voices is the excellent piece of analytical thinking by Messrs Rama Bijapurkar, S Raghunandan and R Sriram – writing for Forbes Magazine. 

While earlier opinions have been largely based on qualitative assessments and “gut feel”, this article is a sharp, quantitative study of the proclaimed benefits and imagined fall out of allowing FDI in Indian Retail.
The authors have examined the issue from six broad perspectives –
1) The impact of FDI – how and which consumers will benefit ?
2) Who will the likely players be
3) What is the estimated market size, and hence, the number of stores required
4) Where will these stores be made ?
5) What will happen to the small farmers ?
6) What kind of jobs would be created ?
The essence of this analysis is similar to what Mr Rajan B Mittal had said in his interview (see previous post).
(Luckily enough, I have had the good fortune to be on similar wavelength as these illustrious people 🙂 )

India’s retail model will evolve differently from the way it did in the US / UK. It will require different thinking, deep consumer understanding, lots of guts and deep pockets. It will not be the broad spectrum antibiotic, but it will definitely change this ages old occupation for good. 

I quite like the way the authors end their piece – to quote –  “So let’s reality-check the wild hopes and discount the alarmism, and get on with the job of building one more good thing for the future. It will not be the cure for all ills, but it certainly is one more remedy that needs to be given its best shot.”


Meanwhile, Gaurav Chaudhury and Dipankar Bhattacharya, writing in The Hindustan Times mention that Delhi might be one of the first states to allow FDI. CM Shiela Dixit has already started the process of dismantling the APMC Act, and is likely to fast track the process. They also examine the issue from various lenses, and quote a few examples of the impact of modern retail. They contend that direct sourcing will not improve the lot of the farmer by a large extent, since the number of farmers benefiting from this would not be large – this strangely echoes the earlier article as well. They conclude by saying that there are enough supporters on both sides of the argument.


So, what does this leave us with ? More clarity than confusion, I certainly hope. To reiterate what I had said here, this intervention needs strong policy making by the government, so that it can deliver the intended benefits that it claims. It will have good and not so good results, but it is upto us how to maximize the former.
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Business India

Let There Be Light…On the FDI in Retail Debate !

Finally, after a lot of flip – flops and political wishy washy, Dr MMS’ government has announced a “selective” FDI roll out policy in organized retail, one that is subject to agreement by the respective state government. While this does not mean a full scale influx of modern retailers, it does provide an environment for a “pilot” roll out, one that helps both sides to understand what the other brings to the table, instead of merely reacting to sentiments.

Given this context, Mr Rajan Bharti Mittal’s interview in Business Standard comes as a breath of fresh air. 
See it here. He points out that Modern Retail is currently 6% of India’s retail pie, estimated to grow to 20% in the next 20 years. He also refutes the job losses claim by explaining that the Indian model is different – to quote – “This study is for a type of market very different from India. This sort of real estate is not going to be in our cities, people are not going to shop 20 miles away, people don’t have transportation, big houses. We don’t purchase goods for months like Americans do” 

He adds that the cost of real estate &  the fact that stores have declined overall (because store level profitability is still a pipe dream for most chains) mean that India’s retail story would look to a different model. And not to forget the MRP and Competition Commission mechanisms, which are influential factors by themselves.

Global Post has a bunch of links to articles on this debate. The most interesting remark on the page is a quote from the article by Padma Rao Sundarji writing for Outlook – She says – 

“Walmart’s stores were mostly situated away from big cities.The idea of driving out after a hard day’s work and walking long aisles in search of dinner amidst lawnmowers and washing machines turned Germans off. For that matter, there is a German retailer at every street corner. These competitively priced stores cover 90 per cent of the consumers’ daily needs. Even their cheapest sections do not compromise on quality.”

Isn’t that familiar ? Or should I say, what would you rather do ?

The 7 Eleven story from Thailand also finds a mention – highlighting the fact that the threat to old retailers is not from the large hyper markets, but rather from the smaller, franchisee based 7 – Elevens. And guess the number of these stores in Bangkok itself ? Nearly 3300 !!! Compare that with the 4800 number for the total number of modern retail outlets in India, quoted by Mr Mittal in his interview – it is clear that we are missing the wood for the trees.

My humble takes on the same points, published earlier are here.

 Its good that this debate has started to see some common sense and business logic based arguments at last.  
I sincerely hope that more and people become aware of this discussion, and are able to understand this better, even add to it, so that our leaders can see the folly of rhetorical arguments !

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Business India

Is All Really Not Well With India’s Retail Sector ?

Adding this news article to the post below : 
Future Group has again stated that they will continue to expand the convenience format. They are looking at adding 1000 stores in 2 years !
So will the retail revolution finally arrive ? Only time will tell…

This week’s Google alert made for grim reading. I believe that what is currently a trickle of articles questioning the policy reform process and viability of modern retailing in India –  is likely to become a river in spate within the next three months. But on to the agenda for the day…

Today’s pieces cover the modern retail story in India from 3 different points of view.
Those of the analysts , the industry pundits and the activists. 

The analysts believe that India’s retail revolution is on the verge of a fizzle out – see the Chicago Tribune article here. 

Putting things into perspective is Mr Amitabh Mall of the BCG, arguing that it is the food and grocery retailers who are in soup, because they haven’t been able to crack the right store format for growth.

The industry pundits believe that India is a huge market with great potential in the business, but profits are down.

Meanwhile, Mr Biyani’s selling the Pantaloon business continues to make news. The reasons behind the sale are a pointer to the evident stress within the system. 

Another piece which showcases the views of a cross section of industry leaders talks about the clear and present challenges before the industry, and the possible evolution of business in India. 

The activists are convinced that the so called benefits of modern retail are over hyped – they will cause job losses and bring down the shutters on our home grown entrepreneurs.

Quite a lot of action ! 

I believe that the truth lies somewhere in between…

Indian Modern retail has been through three distinct phases of evolution. 

Phase 1 was the Great Boom of 2005-06 – fuelled by enthusiasm looking at the market size, demographics and the unorganized structure of the markets, retailers went overboard with store expansion.

Phase 2 came soon after – Streets with 4- 5 stores of each chain – these stores, which never had started making profit, soon went bust – and consolidation, operational efficiency, store profitability etc became the name of the game (reminds me of the scene in the Asterix book – The Mansions of the Gods – where every villager opens up a fishmonger or a metallurgist’s shop)

Phase 3 followed – Cautious expansion, through large formats, largely into Tier 2 cities – 
Pune got a Spar, a Spencer, and even a Star Bazaar ! 

Phase 4 is on right now – Cash and carry is into relentless expansion mode (backed by investment from their parent companies). None of the players in the retail business is making money, there is no sign of respite on the policy front, and profitability is likely to be further challenged given rising inflation and changing consumer behavior – & only two players have the wherewithal to ride over this wave.

It is this phase which is being talked about through the various points of view in the articles mentioned above.Organized retail does not seem to be a happy place to be in and all is not well. 

But that does not mean India’s retail story is over. Far from it. I believe that the end of this phase will see the pretenders out of business – leaving the contenders behind. 

The contenders will emerge with a much better understanding of reality, and a more realistic assessment of where they would want the industry to go. They will be the ones who will eventually crack the right model for our nation, and not merely copy paste the ones from overseas. 

I harp upon the right “model” piece because I tend to agree with the observations made in Mr Mall’s piece. Indian food retail has till now focused on short term gains and not on sustenance. Getting in FDI will again provide a short term solution to the problem – monies will start flowing in, store expansions will start and the madness will be back. In all fairness, I think that retailers should view the policy paralysis as a blessing in disguise – it will force them to relook at their model and strategy, reduce debt (as in the case of the Future Group), evaluate innovative solutions, and generally firm up their operating principles of business. 
I’d like to believe the next phase of retail evolution would be based on the following trends likely to emerge – 
1) Even with rampant inflation, the stress on convenience will not reduce. Focus on home delivery of services (including grocery and food items) is bound to go up. Home delivery could be enabled through technology, accessible through mobile, tablet or any other form (ref to the Araamshop model). 

2) This would also mean that the convenience format would never go away – one chain which is doing a spectacular job of this is the Needs Supermarket group – which has a small outlet in every high rise residential society in Gurgaon – more on this later.

3) The investments made by the chains into large formats would start paying off – consumers would be attuned to buying a wide range of assortment (an indicator being the large number of international/ gourmet food formats opening up) from the hypers. Thus, monthly purchase baskets would become bigger.

4) The ever adapting and innovative kirana guy will continue to thrive – because urban India would suddenly not start living in high rises. This kirana guy would by now be a fully self service, air conditioned modern store – of course, his really high margins would be a thing of the past, but the increased volumes would make up for it. This is something which has started to take off, especially in western and southern India.

5) The small vendors / hawkers would possibly die a slow death – unless they could be recruited and trained by the large retailers into doing F&V procurement for their supply chain. This is something that they are already adept at doing, because they buy from larger wholesalers and hawk items door to door / in small residential markets. 
Besides winning hearts and minds (and reducing opposition to organized retail), it will ensure steady employment, an upgrade of skills and the chance of a better lifestyle and hence better social respect to this set of people, who, as was learned from the  job losses   article, have already started feeling the effects of Big Retail.

I imagine a franchisee led expansion happening post the current gloomy phase – this will help the smaller retailers to upgrade, do away with opposition to modern retail, and give a large footprint to existing retailers. How I wish Nilgiris to be at the forefront of doing this – but I think Mr Biyani would drive it through the KB’s Fairprice format – he’s pretty much stated that in his interview. 

So, while the short term seems fraught with uncertainty and risk, the future will be bright after all !
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Business India

A Little Prescience & A Risky Prediction : The Aaramshop Model

Hello all,

I deviate from my regular weekly updates today to highlight and build on two important ideas that just got printed in the newspapers.

One was the emergence of the upgraded kirana stores (read it here) – and perhaps I can stake my claim to a little bit of prescience on this – though not in so much detail (see here).

Kirana stores are indeed an important component in the social ecosystem. Their sheer accessibility puts them leagues ahead of the competition at any point in time. And imagine, if they become like the modern retail outlets that allegedly threaten their existence, I can comfortably state that the threat would soon be directed in the opposite direction! I am quite sure that the anti FDI in retail advocates have got the wrong end of the stick by opposing investment – if at all, the advent of competition would hasten the modernization process across the country.

The article quoted Mr Sameer Suneja, the MD of Perfetti on how it had identified the high offtake retailers and treated them differently.
HUL had pioneered this differential treatment concept in 2007 with the launch of the Supervalu stores programme – which was later adapted basis respective category relevance by other FMCGs (see this & this). 

The Supervalu programme was possibly ahead of its time – it was a serious attempt to upgrade the retailer from his traditional practices and fast track him towards modern retail. It was also designed with a strategic vision of occupying key display opportunities and creating a 360 degree connect with the consumer. I cannot comment on whether it was a success or failure, but I am pretty sure that the current trend of retailer upgradation owes something to this initiative, which had the potential of being a game changer.

Speaking of game changers – the other point of today’s gyaan – one name that is frequently doing the rounds these days in my mind is that of Araamshop. This is a model which is bringing the established web economy  “aggregator” concept to FMCG stores in the country. Araamshop lets you shop from a neighbourhood grocery store, via a convenient portal / smartphone app – a boon for people who typically put in long hours and are too tired to go to the market once they reach home – if they reach home on time. 

It is a very powerful concept, one that marries the best of two worlds – bringing the convenience of the kirana to the consumers’ mobile phones – thus providing instant connectivity and freeing up of precious time and bandwidth for the user.

I am not too sure whether the model would be sustainable in the long run – and the reasons for my doubt are as follows – 

I don’t know how the business makes money – I guess the retailers may be paying them some money to become a part of their network – but this is idle speculation on my part. 
However, it seems to be a low capex, low opex model, so it could break even quickly and even turn profitable soon. Will it be sustainable – not quite sure.

I believe it would be an operational challenge of Himalayan proportions to be able to ensure consistent service delivery from such a large group of diverse retailers. 
I could be wrong, and will be very happy if I am proved to be, but basis field experience – I can say that exerting sufficient levels of control on this motley crew would be a challenge.

Critical to the success of this model would be a few simple, basic facts – ensure timely service, correct billing, quality of goods supplied, & deliver customer satisfaction, and do all this consistently. We must remember that in the store environment, it is the shopper who makes the choices, and has various alternatives at her disposal. In this case, the severest drawback is the ability to change ones’ mind, and pick up something else.

If the model gets the service level bit right, then nothing can stop it from taking off, as the buzz that good experience would generate would be nothing short of significant- I for one would definitely become its advocate !

Of course, we can always rewind to the Supervalu experiment – and imagine a scenario where a large FMCG company (say ITC, because it already has the critical experience of running a similar initiative with its e-choupal experiment) – would throw its weight behind this programme, and support it through resourcing – in terms of ATL, website presence and the  most effective lever – stocks. It could then ensure that the retailers partner with them in this new way of doing business. This support would give the company the first right of choice, create superb brand recall and would translate to higher  offtake as well – but maybe I am getting too far ahead of myself in this mist of crystal ball gazing !

That’s it for tonight folks ! Have a great weekend ahead !





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Business India

Cash and Carry – A Misunderstood Format – and other news.

Good Evening – Read an article today on the proposed launch of Walmart’s new store at Anand – here.


The article was effective enough to attract a large number of comments, most of them focused on the adverse impact of Cash and Carry, how FDI in retail would harm Indian interests, and the usual concerns.


While I am not a Walmart spokesman, I do believe that sharing some more information on this may possibly  throw some light, and reduce heat from the matter.


Walmart already has nearly 20 cash and carry stores, and another 150+ retail stores in the form of Easy Day –  in India. They are here, and are pretty much here for good – that is reality that we have to live with. 

They are not the only ones who sell Chinese stuff in India – if at all, the quality of Chinese stuff that they sell might be marginally better than what we get otherwise. Given our constant value seeking behaviour, Chinese products have anyway become part of lives, whether we want them to or not.


Walmart are not the only ones investing in the Cash and carry format – Metro has started expanding, Reliance’s Cash and Carry Store has restarted in Gujarat, Carrefour is operating one in Delhi – so the big guys are pretty much here. The real challenge for the government would be to get them to invest in the back end, and develop infrastructure. Unfortunately they cannot build roads for us. The Government also must devise mechanisms that could encourage these companies (whether Indian or MNC) to invest a part of profits back into community initiatives – like contract farming, farm productivity, and definitely removal of the middle man. (something ITC tried to do with its e-choupal initiative) 


Steps like these would help these large retailers integrate into the community, while ensuring greater productivity for themselves ( a glimpse of the Tata Sons model of how companies integrate into communities can be had here)


FDI in retail is a reality – our political leadership has to ensure that policy making be robust enough that it delivers the benefits it is supposed to.


Cash and Carry though, may have to contend with an Indian game changer after all – Kishore Biyani, long recognized by the industry as the Father of Indian Retailing, has launched another innovation – a mall for whole sale businesses! Read more about it here.


This idea seems to be an interesting proposition, as it would do away with the “kachcha bills” that usually flourish in the business – because the wholesalers would be licensed business persons. It would also make this channel more accessible to the public – since whole sale markets are typically frequented only by the die hard bargain hunters, apart from the small retailers. To quote from the article – “Our aim is to create a modern and a non-intimidating environment for the wholesale segment with a quintessential Indian lilt to it,” Sumit Dabriwala, managing director of the Group’s real estate arm Future Market Networks, says. “ 


The group plans to expand this to other cities – post its Bangalore launch – later this year. An innovation worth watching closely. 


Another interesting article, appearing in a Singapore based publication was seen here. While not detailed enough, I believe it still raised a fundamental issue – how does modern retail expand when it is faced with a well entrenched mom and pop store network (of at least 5 million outlets !?!). There are very few locations, very high rentals, and consequently, higher break evens, higher daily sales targets and so the story goes – detailed here. 

Lastly, a more serious and academic take on the whole FDI in retail issue – a far cry from my own humble take here. 

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Business India

Modern Retail in the News – IV – Update : May 2012 : Week 2

Three very interesting articles appeared this week across the papers – 

The first one, appearing in DNA talks about a paper written by two IIM-A profs on how retail in India is likely to stay local. It raises interesting points on how the larger retailers are already in India in various forms, and the larger imperative on the Govt is to reform infrastructure – something alluded to in my earlier post here. I would like to reiterate to all the advocates of the anti FDI policy that it would be really really difficult to wipe out the entrenched Kirana stores – unless they all become franchisees – which would be good as they would then have to come under the tax net.

The second article refers to how companies would have to change their understanding of the shopper – again, something that would become really critical to driving innovation and business growth – as the large growths that modern retail is currently seeing on the back of store expansions would slow down dramatically. There is a hint of self interest though, as the article interviews the marketing bosses of Tracy Locke, an international shopper marketing agency.

In last week’s post , I had shared an article on how the tier II cities have shown higher growths for modern retailers – with specific reference to Hypercity. This piece encourages retailers to explore the Tier II segment in depth. Simple and obvious reasons – low rentals => faster and higher profitability, people with spending power who aspire to the larger city lifestyles => higher and sustained growths, and no comparable options in the towns. 

The last article tells us that Spar and Max Hypermarkets are not going to be partners any more. I think this was on the cards since some time now, as Spar had released a statement saying that they wanted to expand their footprint across the country rapidly, and were open to alliances with other partners who could take the business across zones. 

That’s all for this week folks !

More to follow next week.
Cheers !




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Business India

A Random Reading List

What started with a bit of blog post statistics analysis soon turned to a Googling frenzy – First, to determine if this piece of authorship would feature even remotely on the Google radar – (alas, it didn’t !) – and so, what does Google throw up when I type “FDI in Retail”…

This led me to an interesting web page hosted by The Hindustan Times at – http://www.hindustantimes.com/India-news/NewDelhi/What-s-FDI-in-retail/Article1-775543.aspx. 
This page had links to other articles on the FDI in Retail issue, one of which was written by Mr Harsh Mariwala – the top boss at Marico Industries –  for the Economic Times :  http://articles.economictimes.indiatimes.com/2011-11-30/news/30458687_1_retail-chains-foreign-retailers-retail-fdi  –  It details out the impact of the retail revolution on job creation with relevant data, and also touches upon other relevant points of view in favour of this idea. 

As I was mulling over this, I realized that I had rather ambitiously somewhere in my earlier posts mentioned that I would talk about data and its impact on modern retail. 

And that in my enthusiasm to capture the history of modern retailing in India, I had completely missed this bit out. 

I then suddenly recalled a brilliant article on data mining, and how retailers in the west use it to gauge when female consumers could possibly be pregnant – yes, you read that right ! – and after some more mind search and googling, I found the link to – http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all – truly an amazing piece of “detective work” if I may call it that..and the interesting thing here is that Indian retailers are not unaware of this and similar data related practices to track and predict consumption – two circumstantial pieces of evidence to support this notion – 

1) All modern retailers today try and push sell a loyalty / membership card – one that rewards the user with points for every purchase. This is precisely what is used to study and analyze consumer behaviour trends.Its not a bad thing, as it helps them to plan assortments, time new introductions, and even store lay outs in some cases.

2) That it is now being put into action was corroborated today, when a senior colleague received an SMS from Domidoesntknow’s PizzaChain, saying that its been three months since he’s visited them and how they would like to hear from him again – and all this while communicating a discount offer! 

So, if companies in India are now doing what is an already established practice in the evolved modern retail markets out west, what are they doing to survive and thrive, given the difficult times they seem to be facing. 

Cue – to the second interesting article which was discovered amidst the frenzy..http://hbswk.hbs.edu/item/6944.html – highlighting how JC Penney is attempting to re-invent itself, in order to be more competitive in the future…

That’s all for today guys – no weekend off this week again, so I have to end it now. 
Cheers !

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Business India

FDI in Modern Retail – To be or not to be?

Over the past few weeks, we have been subjected to a huge hue and cry over the FDI in retail announcement and its sudden roll back – both the GoI and the opposition have presented their PoV – let’s try and  make sense of the key arguments from both sides and examine the issue from a balanced perspective.


1) Large retail will improve supply efficiencies and give better prices to the farmers – mostly correct – provided i) they get the rights from the APMCs to procure ii) Given the 1 mn population rider, conveniently located sources for a range of products may not be easy to find. 
A possible solution – get them to set up their own farms – start contract farming – this would ensure focus on productivity, better farm techniques and conservation efforts being made for the environment.

2) Prices for consumers will go down – Not too sure about this one – Given our creaking road network, where it takes five and a half hours to cover 250 km – (Delhi – Agra) – and the ever increasing costs of fuel – one cannot be too sure whether this would be an enduring phenomenon –but prices at Cash and Carry centres would definitely be lower than traditional kirana – of course – the consumer will have to spend time and money (and fuel) to go and shop from the Cash and Carry – which would be located at city outskirts ! 

3) Small retailers would get wiped out – Easier said than done – 
a. Finding real estate cheap at prime locations would not be easy – rent is one of the largest overhead of a modern retail outlet. All the prime locations – near residential colonies, high rises – are occupied by either our neighbourhood Lala ji, or by Indian modern retailers ( who had burnt their fingers in a mad store expansion race in 2007 – and are still struggling to recover from that adrenaline rush)

b. Store operating costs – Manpower, Electricity – are huge in a modern retail shop as compared to Lalaji. An anecdote – During a market visit in Hyderabad, a consumer complained to the store staff about the lack of air conditioning. This was in peak summer, and the chain was on a cost cutting drive – hence only fans were operational. Bottomline – glitzy exteriors will raise consumer expectations and consequently, operating costs. Given the erratic power supply situation in most of our cities, generators are only going to add to the confusion.


c. Convenience and friendliness of the kirana – most kiranas maintain credit accounts of the families they service. Can you even imagine that happen in a modern retail outlet ? Add to it the benefit of free home delivery, service on phone , and the occasion for gossip at the Lala’s counter !

d. Don’t underestimate the Lala’s ability to innovate – in the past five years since Modern retail has started expanding, a quiet revolution has been happening in the kirana outlets as well – they are becoming modern, adding self service and accepting credit cards too! Large retailers will not have it so easy!

e. The Journey to profitability at store level could evolve along two possible lines – franchising (like the Nilgiri’s model – which upgrades existing kiranas to self service) or rapid expansion of the Hyper format – which would allow for lower operating costs per square foot, higher range display, and a heavy mix of apparel, consumer durables and other high margin categories.

The Modern retail outlet would also need critical support from a few, “non policy” factors to be able to really succeed – namely –  

Readiness of FMCG companies to service modern trade – 
a. Modern retail today contributes nearly 5-7% to a typical FMCG cos’ sales. Given the strong reliance on traditional trade and wholesale, the SKUs available for a large number of products are suited for this environment 

b. To really drive business in the modern retail format, companies will have to introduce innovative packs (bulk packs – as the latest Nielsen shopper survey suggests), invest in shopper research and consumer understanding, deliver exciting promotions and the whole shebang – to really make modern retail work. 

c. We have to remember that unlike the Lala who has no qualms in selling whatever he is dispatched, Modern Retail is very finicky about Fill Rates. ( % of stocks supplied to order received) – levying penalty on firms who drop below agreed service levels. Managing this complexity would not be easy for FMCG firms as well. 

d. Plus, Modern Retail works on high margins, and credits!

Availability of cost effective work force and labour – A possible drawback of a large number of malls / hypers opening up would be on labour – people would be more keen to work in an AC environment, cleaning floors and toilets, but not be willing to be employed as labourers / loaders / unloaders – which would mean additional costs for the suppliers, coupled with delays in servicing.

It is also possible that it would do good to the government to organise this sector, as this would do away with “kachcha” bills and impact tax revenues too. 

To sum up, while the government, the consumers and commodity suppliers would stand to gain from the advent of modern trade, a magical, overnight transformation would be difficult to achieve – given the challenges faced by the suppliers, the infrastructure and the external environment – this, of course, is the “dhande” ka perspective !