Monday, January 29, 2007

big retail comes to the grocery segment

jan 29th, 2007

is this good news or bad? we shall have to wait and see. there was a recent story about how the costcos and other hypermarkets depend on unnecessary impulse buys by people too.

on average, i think it's good for the producer, since the number of middlemen will go down. it's not good, obviously, for the small retailer. it's probably good for the consumer. most retail in india is dingy; although some have improved, eg. in bangalore, i find that the average retail store, eg. in trivandrum, is most off-putting in terms of a) lighting or lack thereof b) random stacking of stuff with no order c) dust d) poor merchandising and display

http://www.ft.com/cms/s/447fd92a-afce-11db-94ab-0000779e2340.html

11 comments:

virat0 said...

This post following an impressive article on nutrition, reminds of issues of man and food being part of a system, locally grown trees consumed fresh.
So I wouldn't worry much, if Big retail fails in retailing food items or nutrients or nutrism .. as may be the case.

DarkStorm said...

Well, Rajeev, the retail boom is nothing new. Before Reliance, there were Food World in almost every major city for more than 2 years. And TruMart. And Big Bazaar. If these three big players could not make a big dent, a few more cannot. But then, I wonder what will be Walmart's strategy.

The catch is - There are more players coming into retail segment, but then there are more Indians now who are buying.

Non Carborundum said...

Darkstorm,

Walmart's (and other big players like Bharti and Reliance) strategy seems to be to drive small traders out of business in big metros, disrupt the distribution system and, fill the void. Needles to mention, this is possible only with the connivance of politicians and judges. About 5 lac shops face closure in Delhi because of the sealing drive and indications are that sealing of shops on some pretext or the other will be done in other metro cities as well. Closure of 5 lac shops basically implies about 10 lac people losing their livelihoods and about 50 lac families being affected. Surprisingly, no jholawalas were found crying hoarse on this.

In fact the complicity of the government was all too obvious when at the very height of the campaign against sealing by traders, Sheila Dixit (CM, Delhi) was peevishly asked to not raise the issue of shop sealing by Sonia Gandhi at a party meeting. As for the judiciary…what can one say except that the supreme court has acted dubiously in the past as well, by basically forcing buses and autos in Delhi to convert to CNG, resulting in crores rupees of revenue for manufacturers of CNG equipment (while a correct action would have been to stipulate tighter pollution norms leaving the choice of means to vehicle owners).

On the other hand, one should not underestimate the business acumen of Indian traders. Walmart is able to offer the lowest prices because of mainly two conditions:
1. Bulk purchase and therefore bulk discount
2. Lower real estate prices because of location being far off from the main city
Condition#2 is not possible in Indian metros. Firstly, there is a real shortage of land in and around metros and secondly Indians do not purchase goods in such bulk quantities that makes to and fro trips of 200 odd kms. worthwhile.

Existant wholesalers do already fulfill condition#1. Traders charge consumers for basically the service of distribution. Moreover, recently there was a move by Chemists Associations to form a consortium for bulk purchase of drugs from pharmaceutical companies. I think if the government really wants to it can help traders to offer lower prices by facilitating such arrangements.

Too many retail chains, SEZs etc. will serve little purpose and will create unemployment, reduce tax revenue in the long term and ruin the environment.

san said...

Rajeev, in a subsidy-driven political culture, where prices of pulse grains send our populist politicians scrambling, the Wal-Mart business ethic of race-to-the-bottom pricing will help to showcase big business's ability to deliver savings to the masses.

We need the powerful supply chain efficiencies that the Wal-marts can provide. They will boost the purchasing power of the consumers, and will transform the retail landscape. Once the masses see what the Wal-mart phenomenon can do for them, there will be mass-conversions towards the free market.

Ghost Writer said...

Rajeev,

A slightly different take on this - Indian housewives today buy most of their grocery (specially greeen grocery) not from a mom-pop store but probably from a mobile - sabziwalla (or tarkariwalla - call him what you may)

The coming of big retailing is welcome as it creates efficiency in the production -to-wholesale cycle. I agree that Indian consumers will not
1- burn good petrol (EXPENSIVE in India) to buy a week's supply at a giant super store
2- fight traffic on non-existent road infrastructure doing it-
when the reality is that a guy on a vegetable cart will actually bring it home to them everyday - he may even be wearing a Reliance uniform a la UPS - imagine giving an order for your next day's vegetables and the guy bringing it home to you! - This will be specially true in high-density housing areas such as huge apartments complexes in Bangalore where the "last mile" retailer can use economies of scale.

So I don't buy your point about merchandising and display being important to the Indian consumer (I think you have spent too much time being the ugly American who devours everything - they call it the White Ghost in Tibetan Buddhism!)

Will the mom-pop (or bania-lala stores close)? They probably will - but this will create surplus income for the "last mile" retailer (your sabziwalla) and also savings for the consumer. The sad reality for Reliance- Bharti is that the "last mile" retailer will still own the relationship with the consumer - no impulse buys etc. in India !!

san said...

But here it will be hard for that last-miler to keep a monopoly on his customer service, when anyone can approach the wholesaler in the same way that he has. Again there would be competition and "race to the bottom" on that last mile. There would be innovation in further value-added service -- maybe the sabzi-wallah will give way to guys who will cook it all up for you. Maybe the cook-wallahs will be willing to thrash it out at the wholesale market, in order to then take their purchases and cook up nice meals for their customers. Maybe then housewives won't have to do much cooking. Maybe this will enable more families to have both spouses working.

virat0 said...

Non Carborundum :
A heart touching post, it is possible that the big retail will set the tone in delhi, which will come to smaller cities.

This is what we pay for sin of fools called 'city planners', the freaks made laws in name of people, 5 lakh people found livelyhood by circumventing those laws. Now for convenience of people, those 5 lakh shop keepers would be driven to penury. It is not that they are angels, but a sener person would have punished them at first place, than gifting their livelyhood to organized retail in this way.

We tolerated a sin and the small retailers are created and now driven out, the driving out is another sin for which somebody has to pay.

Atleast we hope it is done in best of spirits, so as not create other effects.

nizhal yoddha said...

ghostwriter, i am shocked, shocked! moi, ugly american!???!??! :-) no, i just like to buy my groceries in a relatively 'clean and well-lighted place' as in the name of the sf bay area bookstore.

i have observed over time how chennai stores have gone from dingy 19th century outlets to bright and cheerful 21st century ones, and i am sure consumers appreciate this by spending more as well. let's face it, the middle class consumer in india now has money and is willing to spend it. all the malls coming up indicate this. so *encourage* them to spend it by making shopping less of a chore.

i must agree with you about the door-to-door vegetable vendors: they don't even charge you much of a premium over you heading to the bazaar, so they are adding value and convenience. same with the fish vendors. so these people will probably survive.

it is the smaller retailers who will die. i saw this first hand in the US when i observed CVS drug stores coming into the university town i was at and simply driving the small pharmacies to ruin.

this issue of a deep, multilevel distribution mechanism and its inefficiencies has been discussed a lot, especially in reference to japan. i am not sure having an opaque distribution system leads to national competitive advantage. having a solid supply chain with cold storage and value addition through processing probably does lead to national competitive advantage in that the spoilage will be less and the profits generated will be higher.

some food processing is clearly a good thing: look at the miracle wrought by amul. but it's not clear where to draw the line, before you start getting into 'nufud' (or was it 'nufood'?)

nizhal yoddha said...

darkstorm, carborundum, san, interesting comments. i agree that some decent retail has started hitting indian streets: i do like the food-world and nilgiri-type stores in bangalore.

as far as the existing small traders and their livelihoods, i am not so sure how sympathetic to be: they are taking a small margin because they were providing last-mile access. if someone else provides better last-mile access, they had better find a way to add more value. else they will become extinct. i am not sure that maintaining employment in the small retail sector is sensible if that effectively adds a 'tax' to what the consumer pays. the small retailer *has* to add value either by lowering cost or increasing convenience, or else they will be driven out of business.

surya said...

Rajeev,

I think all of you are talking about the purchase patterns of the "middle class". What about those people who buy their food stuff everyday. I mean the daily labourers and low wage workers. If you look in the streets of Bangalore there are many such people who come as migrant labourers from other states. These people buy stuff from the small retailers.

I dont think their population is any less. They wont be going to any of those big retail stores. These people will definitely keep the "kirana" stores much alive.

Ghost Writer said...

Rajeev,

I was of course being facetious with that analogy!

There is yet another upside to this in the long run - this being the migration of the "last mile" worker from the small mom-pop store (unorganized sector) to a more organized form of labor (hope they don't get unionized - perhaps the co-operative model from Amul is better). This should bring them decent margin on the service and benefits (health insurance, collective bargaining for credit etc.)

Overall - the value from the disintermediation of the small(dingy and unlit - I agree) store will be split between the consumer and the last mile service provider.