Tuesday, September 18, 2012

The Retail FDI brouhaha!

 

Best Price Ludhiana

Popular Media is in full force discussing the pros and cons of opening up FDI in multi-brand Retail, announced by the Manmohan Singh led Union Government of India on 14 Sep. 2012. Finally, it happened. Rather, it had to. On 9 Jan 2012, the same Government allowed 100% FDI in Single Brand Retail, acting as a precursor and paving the way for the current policy decision. The UPA Alliance which leads a multi-party coalition Government has finally had the spine to push this through, alienating some of its own partners putting its Government in jeopardy. With the current policy in place, it means that multi-national Retailers such as Wal-Mart, Carrefour, Tesco and their likes can invest in India on their own as well as in Joint Ventures with Indian partners or Business Houses. But, there is a catch. FDI in Retail has been made a State Subject which means that each State has to provide an approval for each partnership that is proposed and to be allowed to be operated within its precincts. This is a bit absurd, to say the least. The policy states that over 30% of input must be locally sourced, which in my opinion is a very good thing for Indian traders and businessmen.

(Suggested Reading: Starbucks in India)

So, lets see what’s in store for consumers with multi-brand FDI in Retail;

Pricing

By allowing FDI in Multi-brand Retail, the end consumer is expected to get better pricing for most products. In case of Agri-products, even the Farmers are expected to command a better pricing since they would be dealing directly with the Retailers. Since these Retailers purchase large quantities of products from FMCG companies directly, they would be able to get better margins and would thereby pass them on to Consumers. This is largely in case of Grocery Retailing. It would be similar in Electronics Retail too. Fashion Retailers who run a chain of stores would be able to procure their merchandise at better rates from manufacturers and would again pass on the benefits to their customers. This is one important area where everyone gains!

Assortment

At the moment, products manufactured / produced in one part of the country are not available in many other places. This is mainly because of Supply Chain Constraints. Multinational Retailers don’t just bring big bucks, but also the knowledge and know-how of how to do things better. This, would be an important part of the proposed Retail expansion of Organized Retail, with traders getting more scope for their products. Customers will get a wider variety and range than before which will throw open new options and opportunities for consumption.

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Generate Employment

Retail trade as a whole employs about 8% of the population in the country, directly and indirectly. These people are paid a fixed amount as compensation and do not benefit with other Government schemes such as Pension Fund, Provident fund, Employee State Insurance, Gratuity, etc. Modern Retail already provides most of these benefits to its staff. With more and more Organized Retail Stores opening up, it is expected to generate higher employment across the country.

(Suggested Reading: Retail Staffing)

Credit availability

One of the popular qualms is that the neighborhood Kirana provides free credit which the Organized players may not be able to and would hence lose out on. This is incorrect. Spending through credit/debit cards has grown over 6 times in the past decade within Modern Retail. Customers are happy to swipe their cards even for smaller transactions, more for ease than anything. Retailers like Shoppers Stop and Big Bazaar have co-branded cards, thus exciting customers with higher reward points for purchases.

Recreational Spaces

Modern Retail is not just about shopping in a comfortable environment but also includes a lot of fun and entertainment for families. These large stores have F&B facilities, gaming zones, etc. where children can unwind while parents are shopping. It is also an excuse for families to go window-shopping and end up buying something or the other!

And here is why a few segments of the people are against it;

Kiranas would shut-shop

The oft-heard uproar is that Kiranas would shut-shop due to the emergence of big-box multi-national Retailers. This is untrue. Kiranas have their basics right, starting with Location, Pricing, Assortment, Credit to Customers, to name a few. Large Retailers take time to crack even some of these points. Having present in India for over a decade, Domestic Retailers such as Foodworld, Spencers, Reliance Fresh, More, etc.  haven’t got their act correct, I would say. If they have a good location, then their pricing is (obviously) not so competitive and even if they attempt to, then they are in the Red. Merchandising is one of the most difficult paradigms of the Retail business coupled with severe Supply Chain constraints in the Indian scenario. Given these, it would be almost impossible for large Retailers to succeed, whether they are of Indian origin or International.

(Suggested Reading: Store Opening )

Secondly, most of the Kirana stores (Mom-and-Pop-Stores) are first generation entrepreneurs in their 40s and 50s who started off their own little corner stores during the 80s and  90s after Liberalization. Some of them include women, who run petty shops in neighborhoods to support their family, sometimes as a main source of income and at times as alternate, additional income. Their children, most of whom are undergoing good education are moving out of the family businesses. Many youngsters aspire to become Diploma holders, Engineers, MBAs, etc. across a wide range of subjects and are hence not looking forward to continue the family’s traditional Kirana business. As it is, many shop owners are not looking at continuing their petty businesses for the coming generations. So I wonder why this hue and cry.

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Many Kiranas have already embraced modern Retail. For example, Metro AG which set shop ten years ago in Bangalore now has half a dozen stores spread across the country. Most of its customers are traders and merchants who buy from Metro and sell to end-users (customers). Wal-Mart set up a JV with the Bharti Group a few years back and runs Cash & Carry Stores in Punjab, Haryana and Rajasthan. Its main focus is on Kiranas and Retailers to whom they sell stuff in tonnes! Even in big cities like Mumbai and Chennai, it is quite common to see Retailers shop at the likes of Reliance Mart and Big Bazaar, given the substantial savings.

Kiranas are a tough lot and represent the well-entrenched Indian Entrepreneurship and cannot be unseated so easily. Long Live Kiranas!

(Suggested Reading: David Vs. Goliath)

Monday, September 10, 2012

Exciting times ahead…

Its been over six weeks since I wrote in this column and happy to be back now! Well, lots have happened over the past few days. For the uninitiated – I moved off from E-Commerce, and am back to doing what I enjoy the most – Retail Development. Not that I disliked EComm or otherwise; It was an exciting stint at Indiaplaza.com where I had an opportunity to set-up the Lifestyle business, which I did to an extent. Online Retail is the next big wave in India and those who survive will reap rich benefits in the coming years as has been witnessed globally. With over 100 million Internet users in India, just about a tenth or lesser are transacting online at the moment and that too mostly buying train, bus and plane tickets. Consumption of services such as movie bookings and ordering food online is terribly low as of now. Constraints of various proportions such as online payment methods, quick and safe delivery of products, ensuring of promises made by Etailers, etc. to name a few  are noteworthy. However, many are doing their best and almost everyone seem to think that they will be the last man standing – what with dwindling interest of investors for a Series B or C funding!! Now that I am an outsider, I would have the liberty to talk about absurd valuations, selling duplicate stuff online to customers and various other atrocities – more to come on these columns soon!

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On a bright sunny afternoon in the Sumer of 2012, I got a Direct Message on Twitter from an acquaintance – whom I have never met. We become social friends, that’s more due to the mutual appreciation of each other’s work. The message that came indicated that Royal Enfield, the oldest motorcycle company in the world is looking for a person for Retail Development and if I could introduce someone for the role. Pronto – I replied, that I myself would be interested to pursue this position. And the rest is History. Or rather, I would say, History is in the making. I joined this iconic company a month ago and currently responsible for creating Lifestyle Destinations – Retail stores that don’t just sell motor cycles, but beyond. Find it difficult not to disclose any further but my professional commitments, as you would appreciate doesn’t allow me to say any more. Royal Enfield is a part of the Eicher Group and has been making motor cycles over the past 50 years at its main plant in Tiruvotriyur, an erstwhile industrial suburb of Chennai. Incidentally, this is the same place where my father served ITC Limited for over 32 years!

In the meanwhile, I have been dabbling on various topics for writing in these columns which you would see in the coming days and weeks. My travelling days have begun. Although age is catching up and I get more tired these days than before, I simply love moving from one place to another while appreciating the insights and learning that it provides during the course. Look forward to exciting times in the coming days.