Showing posts with label Metro AG. Show all posts
Showing posts with label Metro AG. 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.

DSC00026

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)

05 May, 2011

Best Price - Best in Class!


 

I have seen a few abroad, I have read a quite a lot but today was the first time I was part of the inauguration of a Hypermarket Store. The sixth Cash & Carry store of Bharti-Walmart, rightfully named “Best Price” opened its doors for customers today at Ludhiana. Spread over 50,000 sft on a single level, the store has almost all categories including Grocery, Fruits and Vegetables, Fresh Meat, Personal Care, Home Needs and Home Care, Electronics and General Merchandise. CafĂ© Coffee Day is the only F&B point, right after the cash counters – smart planning by the store designers. This is the third CCD after opening within Best Price stores at Amritsar and Jalandhar. Addressing a small gathering of the Press & Media, Employees, Vendors and Guests, Mr. Rajan Mittal, Vice Chairman of the Bharti Group emphasized the relevance of Organized Retail and such formats in the current Indian scenario. He expressed his pride that the group was able to open at their hometown of Ludhiana where he had lived for over 20 years and thanked well-wishers for their stupendous success. Drawing an example of the telecom industry which was in its nascent stage fifteen years back, and which was fully controlled by the Government through its own bodies, he said that the sector was opened up to private players and today, India has a remarkable tele-density. Similarly, the group is pioneering Organized Retail through two formats, the B2B model (Best Price) and B2C model (Easy Day markets) in association with Wal-Mart, the world’s largest Retailer. He also drew comparisons of how China had opened up Organized Retail, how employment is generated and millions are benefitted. Mr. Raj Jain, President of Bharti-Walmart said that the company intends to expand outside of Punjab in states such as Chhattisgarh, Madhya Pradesh, Rajasthan etc. South India would also be a focus with one out of the three Distribution Centers expected to come up at Bangalore. He explained how small retailers can benefit immensely by becoming members of the Best Price format – registration is simple, just a few documents to be provided and patrons can benefit from the prices offered by the store. To ensure only genuine buyers are using the facility, he said that the membership is renewed annually. Credit Cards are not accepted but Kotak Bank, which is the strategic partner to the Retailer, provides 14 day’s credit to members who are part of its own credit program.

While the discussions on FDI is raging all along, Mr. Mittal expressed that the intellectual debate was over and it is now time to act – to open up the Retail sector and allow 100% investment across various formats. The white paper on allowing FDI was published by the Government and the industry has replied their thoughts and concerns. Currently 100% FDI is allowed only in the B2B model while 50% FDI is allowed in the B2C formats, although foreign companies can invest upto 100% in single-brand Retail. Such investments would allow multinationals to invest in back-end supply chain, only which would fuel front-end business. Bang on.
Well. It is easier said than done but eternal optimists like me who intend to spend our lifetimes in this ever exciting industry believe that this should happen sooner than later, for the larger benefit of the society. If one such store can offer direct and indirect employment to over 200 people, it is not so difficult to gauge the overall employability that the sector can generate. Currently, over a million people are part of Organized Retail in India but this number should increase significantly – by 5 times or more in the next 10 years, if only the Industry is allowed to grow. Specific to the Cash & Carry format, small traders and retailers can benefit immensely, thanks to the EDLP or “Every Day Low Pricing” philosophy (although founded by ASDA) but  implemented aggressively by the Grand Old Man of Modern Retail, Sam Walton – the founder of Wal-Mart. He believed that consumers must benefit everyday with lower prices – the reason was two-fold – one, that customers would not hoard commodities for the future; two, that they would visit the store more often, a smart way of driving repeat footfalls. For a nation that has over 10 million small and medium retail stores, India doesn’t have even 50 Cash & Carry Stores! Metro AG, the German Retailer opened for business in 2001 and operates half-a-dozen stores, while the French Retailer Carrefour commenced in 2010 and is still studying its first store located in the suburbs of Delhi.  The Future Group and Reliance Retail are also carefully monitoring and are expected to launch their own Cash and Carry formats soon. Expect a lot of action in this space. And if you are a professional running your own business, be sure to reap rich benefits from such stores. Long Live, Organized Retail. 

22 September, 2010

It was a Sunday afternoon and a lazy one at it. And that’s just when someone at home asks for a pack of NAN 3 – a health substitute from Nestle SA that’s given to children. Given that it is a product not available so easily and usually procured from Pharmacies or Drug Stores, no one at home is willing to hit the road and that’s when the friendly Kirana comes to remembrance. One phone call and it would be delivered in a few minutes, suggested one of the members at the household. The next minute, someone was making the call and the friendly voice at the other end was actually prodding for further purchases if the family needed something else. A few other items were included and it was promised the stuff would be delivered shortly. And indeed, it was. In the next 15 minutes, there was a young boy at the door with a bag full of items for well over Rs. 500/-. This can happen, most probably only in India. We as a nation are not yet fully used to shopping in a cycle – although we see major crowds at the large hyper and super markets, consumers miss out buying many things – either they are out of stock or they are out of their shopping list. This is very unlike in the West where there has been an evolution of shopping habits, usually during the beginning of the month, or even on weekends, well in advance for the week ahead. But here, most times we prefer the “just-in-time” way.
 
While the debate and discussion regarding opening up FDI in Retail has prevailed for long, there is little doubt that Organized Retailers could offer such services. “Free Home Delivery” is usually advertised at many Supermarkets like Foodworld, Spencers, Nilgiris and even a few Hypermarkets like Total, Food Bazaar but they all come with riders – that the distance should be within a 3-5 km radius, the total bill value should be above a certain level and that the delivery could take between 2- 6 hours depending on the day of the week and place of delivery. Naturally, since the cost of operating is far higher for Organized Retailers than the neighbourhood kiranas. The big boys need to maintain books of accounts, a mini truck or a van to deliver and a driver to drive (not to forget the maintenance of these vehicles) and many other internal processes. All these are negated with the local kirana. Depending on the level or urgency, the kirana is willing to deliver at the earliest and usually within the locality and most of them operate in one.
Cash & Carry Retailers (are they actually retailers?!?) such as Metro AG have been operating in India since 2001 and most recently Wal-Mart in a JV with the Bharti Group has been operating such stores in Punjab under the trade name “Best Price”. These stores usually sell their wares to the smaller kiranas, hotels, restaurants, etc. who in turn retail to end users and consumers. Since the large Organized Retailers order their goods directly from the brands and suppliers, they are able to pass on higher margins to the kiranas who in fact benefit from this exercise. This has been a strong point supporting FDI in Retail all along since many in the industry believe that it would do well in the long run for the Retailers, the Kiranas and the Consumers.
 
It is quite natural to see more deliveries over the weekends, festivals days and specials events such as Cricket Series and Public holidays as there are more people to consume at home. Not just the kirana stuff, even door-delivery of food and other beverages seems to be on the rise. Last Sunday along with the morning newspapers, there were pamphlets from atleast three restaurants in the area – all small time local operators. An A4 page size pamphlet cluttered with a whopping menu of more than 100 items printed in two colours on the back and front size. But who cares! As long as the food is tasty and delivered on time, nobody bothers. What’s important is not just quick service but the quality of products. Kiranas and small-time eateries take greater care while packing, transporting and delivering as these simple steps are their real “Brand Ambassadors”. If all three were good the first time, chances are they would be called again.
So, no matter how many large Retail formats open up in this country, one reason why Kiranas will remain in business is “convenience” – a fact that most of us live by.

Long Live Kiranas! Long Live Home Deliveries!

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