F for FDI in Food Retail

Much has been spoken and written about the opportunities and perils of allowing Foreign Direct Investment in Retail, especially in the Food & Grocery business. At the moment, only locally procured farm goods and other products manufactured in India can be sold in organized retail stores with FDI. Unfortunately, the top Food Retailers in India including the Future Group, Reliance Retail, RPG-SG led Spencers Retail, etc. do not have foreign investors. Most of the retail chains are reeling under heavy losses and have not been able to scale their businesses beyond existing geographies.

Carrefour and Auchan have shut shop while Walmart has severed it’s tie-up with Bharti Retail and is on it’s own for a while now. Tesco has always had a back-end arrangement with Tata Retail and it continues to be just that. And there is no news of any other international Food Retail chain getting into India in the near future. Interestingly, Amazon and homegrown start-ups Grofers and Big Basket have applied FDI proposals to FIPB for operating in the food & grocery space, perhaps in e-commerce, which is gaining ground every passing day.

Big Basket started operations in 2011, is well funded at the moment and works on an Inventory model in gross violation to existing FDI rules. BB has a warehouse where its products are purchased, sorted and stored. Customers order online/mobile apps and BB delivers the said products from their Warehouse to customers at their doorsteps. BB also procures products from local retailers for quicker delivery and for items that they do not carry. Needless to say, BB hasn’t made a single penny in profits and continues to mount losses.

Grofers started similarly as Big Basket and built ghost stores (outlets with products but no name board and consumer shopping) but then modified its business model to a Hyperlocal model where it currently picks products from neighborhood stores and delivers to customers.

Others like Peppertap, Zopnow, etc. have tried their best raising Investments but have failed to make a dent and have shut shop or have morphed in to delivery companies. Amazon Now currently operates only in Bangalore and is app-based. Customers order on the Amazon Now Mobile app and Amazon picks the products from The Future Group run Food Bazaar & Shopper’s Stop’s Hyperlocal format “Hypercity” Stores and delivers products to customers in a scheduled manner. This is the entity perhaps to whom the FDI license is being sought for.

Incidentally, I have been operating “Oyethere” which has a website and mobile apps on Android and iOS which are not only Hyperlocal but also Convenience formats. Customers can order products from our website or apps and we pick products from the nearest Retail outlet with which we have tie-ups and deliver to customers in 30-300 mins which is our Unique Selling Proposition (USP). We have been around for a year and half now with minimal investments and are on the verge of getting well funded shortly.

Food Retail is a hot space both offline & online Retail and we are playing a wait & watch game with what the Modi-Government is up to. Let’s hope for the best.

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. Café 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.