One Step Ahead towards Retail

The recent bill passed in the Parliament that allows 51% FDI in multi-brand retail has created controversy in the political space. The opposition parties are threatening to stall the Winter Session, at a time when Parliament cannot afford to miss the session. Although it is the nature of Opposition to vehemently oppose every move taken by the ruling party, this particular discussion has aroused my interest.

The Congress believes that entry of global players into multi-brand retail space will enhance the entire chain and ultimately benefit the “aam aadmi” in multiple ways, by creating many jobs, by easing prices via supply strengthening, and creating an excellent farmer-to-market infrastructure. The government has ensured this by restricting companies to invest at least $100 million and 50% of it in building back-end infrastructure. Given these rules, there is no doubt that there are going to be positive effects of the decision.

These global players were eagerly waiting to tap the potential India has. They have at least 20 years of experience in building end-to-end infrastructure, and flattening the entire retail process. The kind of technology Wal-Mart offers in retailing is second to none. It has such command over its supply chain management that it is bound to create a technology that will amaze customers. In such an age when India is considered to be one of the fastest growing economies in the world, why should India be bereft of witnessing such a transformation in technology?

The most prominent argument that the Opposition is riding on is that entry of such global players in the retail arena will kick out small retailers and famous “kirana stores”. This argument is baseless as I can think of one comparison that will make this clear. Entry of four wheelers into the market does not kick out the two wheeler market. This may sound a very crude comparison, but this is how I justify it. Big retailers and small retailers are entirely different concepts, and they both cater to different markets. People buying from malls also buy from kirana stores, the main reason being they are fundamentally different concepts of retailing.

Shopping in big malls is considered to be a one-time thing, with urban families going once every weekend or fortnight to buy essential and “non-essential” items. Yes, non-essential items, because a trip to a retail mall always brings in many extraneous items along with the essential ones (accept many families). These trips sometimes are also considered an outing or an experience rather than an absolute necessity. While the kirana stores offer customer satisfaction by giving a personal touch, they also offer home delivery, and offer credit facilities also. They are considered a necessity while malls are not, no one would like to drive 2-3 miles just to buy a loaf of bread. Kirana stores deliver items when urgency is a criterion. Also, in such busy professional life, every one would like to buy things on the way home. In such a scenario, kirana stores have still a long way to go.

One thing that amazes me is why don’t players like Big Baazar, D-Mart or Reliance oppose this move. Because they cater to the same market the big foreign players cater to. If Wal-Mart or Tesco or Carrefour enter Indian market, these are the ones who would be sharing the markets. Any customer after deciding he wants to buy a car would choose between Toyota Etios or Maruti Swift but he definitely won’t be making a choice between Bajaj Pulsar and Maruti Swift. In the same way, whenever a customer wants to go shopping in a mall, he will choose between Wal-Mart or Reliance Mart, creating competition to the big Indian players already present in the market. It is surprising to see why no politician is addressing this issue, perhaps because by addressing small retailers they want to win the votes of those people who think their logic is correct.

Either I am missing some issue on this point, or either the whole economy is shrouded by political debates alone. In my opinion, no market should be restricted, Darwin’s theory of struggle also applies to this space. Let the toughest player survive. Opening the market in 1991 has transformed the entire economy, and this is one thing we should thank Congress for - opening up the market. It is trying to do the same thing now. In such economy when inflation is not easing despite million efforts by RBI, why not give a little chance to these players as well. It won’t in any way harm the current prices, that is for sure. Lets all take one step ahead, together.