Why India may not be such an attractive destination for supermarkets

 
People shop for clothes at a roadside market in Kolkata on 15 September 2012 Mom-and-pop shops dominate the Indian retail landscape

Is India really an attractive destination for global supermarkets?

On Friday, the government finally cleared a controversial plan to open up its lucrative retail sector to global supermarket chains in an effort to revive a flagging economy.

There has been a massive political kerfuffle over how the supposed invasion of global chains will destroy India's fabled "mom-and-pop" stores, which have a stranglehold on the retail market.

Yet, it may be much ado about nothing, say many analysts. The political outrage against the government's decision - which actually comes with several business inhibiting caveats - is outsized, they insist.

Yes, India's growing economy, favourable demographics and an upwardly mobile middle class do portend a healthy future for organised retail.

Only, one doesn't quite know when the future will arrive.

At a paltry 4% of the overall sector, organised retail has a low base in India. The overwhelming majority of Indians continues to buy from friendly neighbourhood mom-and-pop stores.

Decoding the customer

But a quarter of the world's young people live in India, and more than half of Indians are below 25 years of age.

In a booming economy, that should mean a growing middle class, cheap credit and more disposable incomes. That's something, say consultants, which will make India a very attractive destination for foreigners wanting to invest in retail.

A beggar walks past a shop window with designer clothes in New Delhi's main business district in this October 29, 2009 file photo Big retail is struggling in India

The bad news is that nothing of this sort is happening: "mom-and-pop" stores are thriving and big retail, promoted by some of the top business groups in the country, is struggling.

The economic slowdown at home hasn't helped matters. Big retail footfalls have been hurt by high rents, overcrowding of malls and a credit squeeze.

Also, as a study by management consultant KPMG shows, Indian retailers have also made big mistakes - and the inability to compete with the neighbourhood stores is one of them.

"Mom-and-pop stores already have a model that is preferred by the consumers and is also cost efficient. The big stores are still trying to get their model right in providing an alternative to neighbourhood retailers who offer convenience, credit and personalised service," the 2009 report says.

Is it then any surprise that most Indian supermarket chains are bleeding, and some - including one with over 1,000 shops - have actually shut down?

One of the suggestions made by KPMG is that big retail needs to work harder at decoding consumer behaviour.

India is a diverse nation and a homogenous retail strategy is possibly doomed to fail.

"A case in point is discount shopping in India. Indian discount shopping is still fragmented because of diverse culture while Western retailers are able to treat the entire customer base as one. This helps them gain benefits of large-scale promotions and offers," the report says.

The report suggests that retailers should tailor discount seasons based on festivals of different regions, offer best prices and value added services (happy hours on shopping deals, offers for retirees, contests for students, for example), among other things.

The Indian consumer is a unique beast. In an article aptly titled The Myth Of Big Retail, journalist Sreenivasan Jain tells the story of the head of one of India's biggest retail chains explaining why his store design actually encouraged overcrowding.

"He called it his 'butt and brush' theory, a somewhat cute metaphor to describe how Indians actually prefer to shop in an overcrowded environment [where their butts can theoretically brush against each other]," he wrote.

Even this retailer is deep in the red.

Clearly, it's not going to be a cakewalk for global supermarket chains entering India. As consultants Ernst & Young warn, they need to understand local tastes, customise their product offerings and secure the right real estate to make things work.

And that will be only the beginning of the hard road ahead.

 
Soutik Biswas, Delhi correspondent Article written by Soutik Biswas Soutik Biswas Delhi correspondent

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  • rate this
    0

    Comment number 29.

    Opposition to organised retail is based on either misconceptions or fear generated by greedy middlemen who flourl;ished at the cost of both consumers and producers. Itis high time producers and consumenrs unite to expose the tactics of greedy middlemen. The honest middle have nothing to lose or worry.

  • rate this
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    Comment number 28.

    In any case Indian middle class craves for international brands which would become available at reasonable prices.Inflow of foreign capital,and skills would have mulitplier effect on iivestment, employent and growth. With more reforms in the pipeline India story should be back on track. Without high rate of growththere is,no hope for improvement in social services or lot of poor Good start,PC,.

  • rate this
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    Comment number 27.

    The organised retail would benefit both producers and consumers by streamling the supply chain.India produces enough fruits and vegetables,but part of it gets wasted for lack of infrastructure.The growing middle is clamouring for quality even at a price.With intervention of experienced organised retailers quality produce would be available at competitive prices.Greedy middle would be on the run.

  • rate this
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    Comment number 26.

    @ Inaian
    Mate soutik does'nt talk negatively about india but his articles always depict only one side of the story. I feel his articles always says only the shortcomings on a particular issue and not about the steps taken to overcome them.

  • rate this
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    Comment number 25.

    @bertiebond
    Mate those are kirana and local shops, i do agree with you and believe me its painfull to agree cause i am indian but that's the fact!!

  • rate this
    +1

    Comment number 24.

    Travelled in India for 2 months. Was flabbergasted and stressed at the lack of supermarkets, even in major cities.
    If I lived there, knew the 'right' prices of everything, the 'right' place to buy them, and bloody minded enough to haggle to the end, of course i would been ok. As it was, I hated the country. Full of loud, pushy rip off merchants and con artists, with no one you can trust...

  • rate this
    -2

    Comment number 23.

    I always feel Soutik Biswas talks negatively about India and calls for a debate...Is it just me or someone else agrees?

  • rate this
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    Comment number 22.

    Most people don't even know the proposed FDI scheme and how much local investment and sourcing of product needs to be done from big players like walmart etc plus every states have a right to take it or leave it.And believe me if someone has visited india recently There still is a kirana shop beside a Big Bazaar or Reliance fresh or D-mart.

  • rate this
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    Comment number 21.

    kirana stores and shops like that thrive of black money in the market. none of these ever pay taxes and try visiting a kirana or small shop in mumbai suburbs when they charge you extra then the printed price. Also lot of employment opportunity created when places like big bazzar when came for locals.But i do agree that strict regulation should be there.

  • rate this
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    Comment number 20.

    Look at India. Look at supermarkets.
    In the disparity, you will find your answer:
    total mismatch.

  • rate this
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    Comment number 19.

    This issue has been bubbling away for some years, including in late 2007 when I was in Jaipur and tried buying a bottle of mineral water from a newly-opened branch of Reliance supermarket, only to be told they didn't stock it.

    I knew then that the 'mom and pop' stores had little to fear from chain retailers!!

  • Comment number 18.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
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    Comment number 17.

    Finally i good move, as far as the people talking about kirana stores, they are the worst thing that india could have.None of them ever paid a single penny of tax and usually employ young kids and exploit them...as far as Stores like bigbazaar,reliance fresh,d-mart are already there and doing business with the same business model as walmart or tesco with no real obligation from whom they source.

  • rate this
    +1

    Comment number 16.

    Finally, the central govt has the courage to do something good. To those who fear that foreign investment will "take away" jobs, people also complained like this in the 1990s when India was opening up. If anything, now the shops will have to compete with one another to lower the prices and at the end of the day, will be good for the consumer.

  • rate this
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    Comment number 15.

    The western-type distribution is an incomplete chain,stopping at whole-sale level.Consumers have to provide the rest:advance cash,a means of transportation,cold-storage (fridge and deep-freeze). All of this is rare in India. Many of those who have that, have also servants to shop for them with a list: forget promotions and shopping binges.

  • rate this
    +3

    Comment number 14.

    The issue to me is not about Walmart or Indian vs foreign company debate. It's about corporate & civil governance- whether Indian Govt & its policies are sold to big corporate interest or work for the country & its people. Indian or foreign debate is irrelevant here. India poorly managed its economic liberalization & is a victim of it. That was more of a desperation than well planned policy shift.

  • rate this
    -1

    Comment number 13.

    The PM,Cabinet and Sonia Gandhi by allowing Walmart,Carrefour have betrayed and sold the interests of millions of Kirana stores livelihood to Walmart etc...as world knws bout indias richness bout wheet nd othr food items ..though v hav all nw v hav to buy frm othrs?? does tat really suits fr us??

  • rate this
    +2

    Comment number 12.

    Besides, we have such an extensive distribution system through small 'kirana' stores, which provide livelihood to millions. It would be extremely imprudent and myopic to let FDI in retail. I used to have respect for our PM, but he has been making increasingly irrational, (if not downright stupid) decisions lately. How can you 'sell' your people away and say we will going down fighting??

  • rate this
    0

    Comment number 11.

    It may not be "attractive" according to the numbers now, but once Walmart, Carrefour etc.. step-in, they will use their clout to make it attractive I am sure. All they need to do is get their foot in and before you know it, they are taking over completely. FDI is not needed in retail, it is not a high-tech area, not something that India can't tackle itself unlike Telecom (that's why, vikishah)

  • rate this
    +1

    Comment number 10.

    We Indians make a run for everything that comes from America, even if it is inferior quality and more expensive. Look at the success MacDonalds has had.
    The bigger problem is the coming of WalMart, which hands its staff food stamps in the US, as the wages put you below the poverty line. It's going to price out small-time businesses, if its popularity with Indians in the US is any indicator.

 

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