Showing posts with label Carrfour. Show all posts
Showing posts with label Carrfour. Show all posts

18 September, 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.

shopping trolley 1

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)

11 July, 2010

FDI in Retail – A never ending discussion!

5th and 6th July 2010 would remain etched in the history of Indian Retail for some time to come. While the country witnessed an unprecedented (sic) response to a nation-wide Bandh (shutdown) called by the opposition parties against the recent Fuel price hike (after the Government deregulated Fuel prices) and to show their solidarity against rising levels of inflation on Monday, leading to estimated losses over USD 3 Billion, Tuesday was a green letter day for Organized Retailers. The Government of India (GoI) announced a discussion paper to debate on allowing FDI in multi-brand retail leading to mixed reactions across the country and outside. Everyone who was anyone in the Retail realm in the country had comments to make. Rightly so, as this public debate was much needed; while the fundamentalists have always argued against the entry of foreign multinationals in Retail, those in the business have usually welcomed the idea, although with caution. One of the biggest criticisms against such a move by the country is that the small retailers (Read: Kirana Stores aka Mom-Pop stores) would lose business to the modern, organized retailers.


Currently, Indian Government allows upto 100% FDI in Cash and Carry (B2B), 51% FDI in multi-brand retail and 100% FDI in single-brand retail – that means, the brand can sell various categories of products with the same brand identity – apparel, accessories, watches, footwear, etc. Insofar multi brand retail, the restriction is to ensure that Joint Ventures are formed only with Indian partners, thereby benefitting Indian business houses. Although this was allowed by GoI way back in 1996, apart from the then dominant RPG Group which formed a JV with Hong-Kong based Dairy Farm International to form Foodworld Supermarkets Ltd., not many business houses took advantage of the model. Organized Retail was after all not so lucrative those days and my own kith and kin didn’t take me so seriously when we would discuss the upcoming opportunities. Today, the top business houses in the country including Tatas (Westside Department Stores, Star Bazaar hypermarkets), Birlas (Aditya Birla – Fashion Retail, More Hypermarkets), Ambanis (Reliance Hyper and other formats) and Mittals (Bharti-Wal-Mart) are focussing on this business. Some of the concerns on allowing FDI in multi-brand retail are captured here;

Loss of livelihood for Kirana stores
The biggest and single largest qualm against allowing FDI in Retail have been that Organized Retail would lead to losses of small kirana stores. There are over 12 million retail touch points in India of which more than 90% of them are Unorganized. The estimated size of the Indian Retail Market (as per various sources online) is more than INR 200,000 Crores. So, 90% of those engaged in Retail business, to begin with do not pay necessary taxes to the Government. These small retailers operate on a net margin of 4-7% after all their expenses and hence the Governments (Read Political parties) have remained soft on them. These small traditional Retailers have been serving Indian consumers and their families for over four decades and remain favourites – from buying milk to bread or vegetables. Many of them provide credit facilities and some even deliver at doorstep at odd times of the day (and night), without any additional cost. These Kirana stores have been all time favourites for FMCG Companies to introduce and promote new products, new variants and various consumer promotions. All this changed since 2000 AD when organized retailers started to spring up all across the country. Those days, Organized Retail was less than 5% and was considered pricier and novel, even by urban consumers. However, Organized Retail has come a long way since then. In large cities and metros today, Organized Retailers aren’t competing with Kirana stores anymore, but with those of their own ilk – other organized retailers. It is quite common to see large advertisements in leading newspapers all through the week and weekends advertising various offers and promos to entice consumers to visit their outlets. Having said that, not many small retailers and Kiranas have lost business; In fact, they have got better and more organized than before. Those who are out of business are not because of large retailers, but because of competition in the same league – similar ones are offering better pricing and service, two main attributes why consumers were shopping at Kiranas. When consumers in SEC B and above moved towards Organized Retail, those below moved up from shopping at Govt. Run PDS Stores to small Kiranas. Maslow’s theory of Evolution?
Hence, the logic that small Kiranas would run out of business is not just a myth, but also immature. Remember, we have a billion people to feed, dress and house – there is enough and more opportunity at the bottom of the pyramid.  


Employment opportunities and benefits
Most of the Kiranas are entrepreneurs of their own right – they would have started their business using a small capital, borrowed from friends and family and the shop would actually be a part of a house, either their own or somebody else’s. The husband-wife couple take turns to run the show and some of their relatives’ children or their own add hands for support when required, especially on weekends or for home-delivery. It is amazing to see sometimes, children in their teens explaining fabulously about product attributes and pushing sales (top-ups), even better than Management Trainees of FMCG Companies. One of the biggest qualms of allowing FDI is that it would lead to loss of employment – a strange fact, since it is actually the couple who run the business and usually do not employ outsiders. Those employed are their own kith and kin and hence, the staff cost is less than 2% of their turnover, if not lower. Organized Retailers need to comply with Govt. norms with regard to payment of wages and the staff salary includes health benefits (ESI) as well as long term benefits (gratuity / pension). Therefore, Organized Retail would not only provide higher wages to those working in the front-end but would also ensure continuity of service and job-security. The Future Group along with its subsidiaries and joint-ventures, which manages various formats such as Big Bazaar, Central Malls, Pantaloon Fashion and various other formats employs over 12,000 employees!


Capital infusion and erosion of profits
Capital infusion is considered among the biggest benefits of allowing FDI in Retail. Although large business houses like Tatas, Birlas and Ambanis have enough (monetary) capital to provide, what they need is Intellectual Capital. While it is always good to say that India is a country of entrepreneurs and we know to run the business best, what we also need to know from International partners is ways and methods to run the business more efficiently – simply because they have been running their own businesses successfully across countries and continents all over the world. Having said that, the next concern is that the multi-nationals would send their profits back home to their headquarters situated outside the country. This too, is a far-fetched dream. The net margin EBITDA that Organized Retailers manage is between 4-12%, depending on the nature of their business. Typically after paying taxes of all sorts, what they end up with a single digit or a decimal profit. Note, Retail is a business that gets profitable over a period of time and with scale. So, to increase their presence and run the business across the country, a lot of capital (including profits) gets circulated. So, if there is any one multi-national that would make money and send back home, it would be a long, long time!


Decision-Makers – Final word
While all the razzmatazz of the FDI paper was being discussed in India, Carrefour SA, the French Retailer announced that it is planning to sell of its business and exit South East Asian countries such as Singapore, Malaysia, Thailand, etc. Many would know that US Retailer Wal-Mart had to exit certain European countries after its failed attempt many years ago. Japanese and Chinese Retailers have never stepped out of their terrain since they believe they know their market best. As many would agree in the business, Retail is a very local business. The players need to understand the sentiments of the local and accordingly manage the business. I was at a popular Hypermarket at Bangalore yesterday and while I was talking to their Head of Operations, I learnt that the layout was designed by two foreigners who were experts from Europe. Needless to say, the layout was not only unfriendly but also needs localization, NOW. Consumers have shrugged off the “phoren” theory of Retailing and have embraced local players because of their offering. So, ultimately it is not just Government policies but the consuming public who decide the success or otherwise of any business, and particularly Retail. Time will tell who remains in the business.

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