Indian Retail & The Fear Factor !

The Indian retail market is highly disorganized and fragmented. But with rising disposable incomes (especially amongthe middle class), increasing urban consumer base and a potentially strong rural market, the need for organized retail is increasingly being felt. The impetus for the Indian retail sector is high income and the upper middle income groups which together comprise 81 million households. Also the country’s population is urbanizing at a rapid pace with the urban Indian population projected to increase from 28 percent to 40 percent of the total population by 2020.No wonder then, that AT Kearney GRDI Index has rated India as the most attractive emerging retail market in the world for the third time in succession.

According to some, farmers will be the ultimate beneficiaries and the fear about contract farming is misplaced as it would ensure better and assured prices to the farmers. They would not be at the mercy of middle men who often dictate prices and laugh away with maximum profits. While others feel that the small retailer will be wiped off and the only buyers left in the market will be big corporations thus limiting the sale options for farmers. The big companies will motivate the farmers to go for contract farming. For instance a farmer in Punjab may be forced to grow tomatoes all the year round. And the quality norms of corporate retailers are so stringent that any deviance from the pre-conceived quality is out-rightly rejected and the farmer forced to either short sell his produce or dump it at substantially lower prices.

In the Mint, TCS Daily Editor Nick Schulz argues that the battle between large retail chains will ultimately be to the benefit of India's economy -- including independent retailers. Whereas some businesses will have to exit, the ones that adapt to the new business environment will thrive because of the increase in efficiency and productivity :

. . . the current debate over the future of retail in India is too constricted. Opponents of big retailers fret that small mom-and-pop shops will be put out of business. The study reported in Mint last week shows this worry is realistic.Proponents of large-scale retail typically counter that consumers will benefit from the lower prices large retail can provide as well as the greater range of goods. This is no doubt true. But as the McKinsey data demonstrates, there is so much more to the story.

The role multi-brand retailers play in large, modern economies is to inject knowledge and know-how into the sector and into the larger economy, touching almost every industry. Today's most advanced retailers serve as change agents, pushing through needed business reforms that make manufacturing and other sectors far more efficient and productive.The right answer to Singh's question now becomes clear. Large retailers in the West have been engineering efficiency gains for the better part of the last four decades. They have been among the main drivers of economic growth. And they do, indeed, know a lot that other retailers simply haven't had the opportunity to learn yet, mostly due to government policies protecting small retailers from competition.

There is hardly any shame in the fact that some Western retailers may know more than their Indian counterparts. Gains from trade work both ways. In the US last week, National Public Radio reported about American filmmakers and animation artists working with and learning from their counterparts in India. American industries, including Hollywood, are benefiting from the specialized knowledge in some of India's most dynamic industries.Given the importance of a sophisticated retail sector to economic performance, the latest row over retail's future couldn't happen too soon. India's continued rise on the global stage depends on reform and advance in this sector.

In the World Politics Review, Anuj Chopra reports on the retail wars in India, and highlighted some of the inefficiencies of the current system:

The Western-style stores feature long, boulevard aisles, refrigerated cases, uniformed and meticulous workers, and offer a large variety of products, from fresh produce to other consumer durables. All goods are neatly packaged, accurately weighed, and attractively priced.

India's small mom-and-pop stores, on the other hand, are chronically inefficient, with prices 20 percent higher than they are in big stores. They buy in small quantities, lack storage facilities to keep produce overnight, and have almost no expertise in inventory control.. . ."Organized retail is not the evil business it is being made out to be," said Mukesh Mehta, the Managing Director of Reliance Industries, in a statement. "India's retail market is so huge that there is place for everybody, including smaller players." He also asserted that his company's retail initiative was configured to improve supply chain and distribution efficiency, promote high-tech farming methods that bring better yields, and reduce waste. "Currently, 30 to 35 per cent of 60 million tones of fruits and vegetables -- more than the fresh fruit produce of the UK -- are wasted due to a lack of storage and other facilities," he said. "Organized retail chains will minimize such wastage."