Am reposting an article I wrote in 2005...yes 2005! KIndly also read my later post
http://gpsudhakar.blogspot.in/2011/07/kirana-stores-beginning-of-end.html
which is about how we are going to shortly have some wealthy entrepreneurs
Will the entry of Wal-Mart kill the neighborhood Kirana Store?
Prime Minister Manmohan Singh has assured Wal-Mart to allow FDI in retailing very soon, and has also told Wal-Mart about the concerns in India about the likely fate of local retailers and fears about loss of employment opportunities.
There are nearly 200 + urban malls which are under construction, of the 600 planned. Multinational retailers can get an expeditious entry into a large market where the share of organized retailing is galloping. Wal-Mart, Tesco, Carrefour and many others are waiting in the wings for the government of India’s approval of FDI. The Government has however decided to delay the issue, first to please its left partners and to use this as a bargaining point at the next WTO talks. India wants to offer to open its retailing in exchange for something valuable like greater access to international markets. Deliberations, delays will probably be there, the entry of big-box retailers is a surely going to happen – The question is only one about timing.
We are a nation of shopkeepers with more than 5 million shops, 97% of them in the unorganized sector. Thanks to the ubiquitous kirana store, Indians are used to buying their convenience products very close to their homes. Recent Research by a large international research company indicates that ‘convenience’ is a critical shopping decision parameter for Indian consumers.
Retailing has been growing at a hectic pace thanks to continuing urbanization, growing middle class, and macro economic growth. Organized retailing is also making steady growth and is possibly accounting for a major part of the growth of retailing in the last couple of years.
The possible impact of big box retailers is like many things in life: a mixed bag.
Positive impact of big box retailers
The major advantage of the large retailers is that they have access to efficient supply chains, which can reduce prices for customers. Many jobs within the retail industry and with those providing support to organized retailing will be created. Sales associates, people greeters, store managers, back-end positions across the supply chain in purchase, vendor development, accounting, mall maintenance, food technology, support services like Interior designers/decorators, packaging design and supplies are some of the new employment opportunities that have started to emerge and will deluge as soon as the 200+ malls that are under construction are ready and FDI begins to flow in.
The farmer is likely to gain by reductions in wastage, and better realizations for produce. Good farmers might get access to foreign markets too, through these global retailers.
Small and medium enterprises that supply ‘private label’ products to big retailers will find opportunity without the big bucks needed for brand building.
Supply chain efficiencies will benefit society at large. On one hand Mr.Biyani of Pantaloon has been quoted, as saying that one of the mistakes his group made was the investment decision in the cold chain, on the other hand Wal-Mart who are yet to enter India also emphasize their plans of investing in a cold chain. A good cold chain will be very useful, only thing is that someone has to start at harvest stage itself – stuff like pre-coolers and other items closer to the harvest, not just cold transport and cold stores.
According to Wal-Mart, “Wal-Mart’s impact on local business is based on the philosophy of operating globally and giving back locally. Studies show that new businesses spring up near Wal-marts and existing stores flourish as they take advantage of the increased customer flow to and from our stores. ” Kenneth E. Stone, Professor of Economics, Iowa State University; Georgeanne Artz, Extension Program Specialist, Iowa State University, and Albert Myles, Extension Professor, Mississippi State University, in their 10 year study of the impact of Wal-Mart on smaller cities; which probably is the basis for Wal-Marts statement, developed two primary conclusions that are worthy of note.
“The entry of a new super center in a community can have dramatic implications for existing merchants. Two general rules-of-thumb summarize the economic impacts of a new super center on local merchants:
Rule-of-thumb 1: Local merchants that sell merchandise different from the super center or other big box stores tend to fare well and may gain sales as the additional traffic generated by the big stores spills over into their stores.
Rule-of-thumb 2 is not so pleasant: Local merchants that sell the same merchandise as the big stores will probably face a reduction in sales because of the difficulty in competing with major chains.”
Organized retailing will get a shot in the arm with FDI, even as institutions and retail investors have recognized the value of Indian companies those are into organized retailing. Retailing provides an opportunity as another potential business to invest in apart from software and automobiles which currently interest small investors.
Whether consumers will get better prices is a debatable issue and we need to wait for the future to unfold, however consumers can expect greater transparency about products, better replacement/warranty policies, and best of all a much more pleasant environment to shop in. Car parking space, one stop shopping, every day low pricing, appealing product display, wide range of products, what else can the consumer ask for? Too much of a good thing must have a price!
Negative Impact of Big box retailers
The greatest fear is that small Kirana stores will be out of business soon, putting millions of ‘dukandar’ families in crisis. Remember that many of these families have run shops for generations and might not be trained or prepared for anything different from ‘dukandari’. The fear is well founded. Researches in many communities in USA, and recently in Poland have established that big box retailers do kill many small retailers. Organized retailing also means much lesser people required per unit of sales (efficiency!), which will cost society at large, in terms of unemployment. The study carried out by Kenneth E. Stone also confirms the negative impact on those shops carrying the same merchandise. What does a typical Kirana store carry? Rice, Wheat, Dhal, cooking oil, some local condiments-all well suited for large discount department stores. Some well paying jobs will be created; many small shopkeepers will be affected.
That price will be less is also likely to be a misnomer, especially if one goes by the experience in Food-world and other such chain stores. Usually the big box retailers will have a ‘loss leader’-a popular product at a low price, well advertised to attract shoppers. Everything else will either be on par with small stores or more. People see the prices for the few popular items and assume that all prices are low. In course of time these large retailers will invest in more people, interiors and supply chain so much that they begin to become inefficient, passing on the burden of higher prices to consumers.
Also, whenever ‘private label’ is discussed, it is only as greater margin for the retailer, never as lower prices for the customer.
The Customer gains
Competition will only benefit the customer. While many, including large Indian retailers have confused low prices with greater value, International retailers will hopefully provide better value. We can definitely see better customer service, greater depth of merchandise, more convenient store timings, better packaging, and reduced rejects at these multinational retailers, and at every other retailer big or small who wants to survive.
What to do if you are an independent retailer
It is likely that much of what has happened in other countries in the evolution of retailing will repeat itself in India. Different formats will co-exist. It will be a long time before the handcart vendors of fruits and vegetables will disappear, specialty stores, halwais, and services like dry cleaning will continue to grow. Kirana shops that accept the new reality and reinvent themselves will survive and the inefficient ones have to go.
There are many books on how independent retailers can survive the onslaught of big retail chains. The way is through better customer service, personalized service, unique product assortment by identifying niches in the market (and there must be many considering just the sub-cultures that form a city/town), and most importantly improve efficiency in purchasing and managing inventory professionally.
On Balance
In an interesting study titled ‘The Impact of Wal-Mart on Host Towns and Surrounding Communities in Maine’ by Georgeanne M. Artz, Iowa State University and James C. McConnon, Jr., University of Maine discuss a concept of ‘The net redistribution effect’
“It measures the net effect of Wal-Mart on the sales of the existing retail businesses in the host town. It is calculated by subtracting an estimate of Wal-Mart sales from the change in host town retail sales after Wal-Mart opens. Some businesses may gain sales as a result of Wal-Mart coming town; other businesses may lose sales and some may not be affected at all. If the net redistribution effect is positive, it means that there has been a net gain in retail sales for existing business in the community.” While this is not a concept so relevant to India just now, it is worth looking at it as it might point to the possibility of greater accumulation of retailing towards urban/suburban areas. We can expect that while FDI may impact the Kirana stores, many new retail businesses will surely emerge.
Wal-Mart is known to operate in many formats and considering that Indians seek convenience in shopping more than any other thing, they will probably look at formats that can bring their stores closer to consumers.
According to Harvard Professor Pankaj Ghemawat and Ken A. Mark, in their article titled ‘The Price is Right’ which appeared in The New York Times, Aug 3 rd 2005
“First, Wal-Mart hasn't just sliced up the economic pie in a way that favors one group over another. Rather, it has made the total pie bigger. Consider, for example, the conclusions of the McKinsey Global Institute's study of United States labor productivity growth from 1995 to 2000. Robert Solow, a Nobel laureate in economics and an adviser on the study, noted that the most important factor in the growth of productivity was Wal-Mart. And because the study measured productivity per man-hour rather than per payroll dollar, low hourly wages cannot explain the increase.
Second, most of the value created by the company is actually pocketed by its customers in the form of lower prices. According to one recent academic study, when Wal-Mart enters a market, prices decrease by 8 percent in rural areas and 5 percent in urban areas. With two-thirds of Wal-Mart stores in rural areas, this means that Wal-Mart saves its consumers something like $16 billion a year. And because Wal-Mart's presence forces the store's competitors to charge lower prices as well, this $16 billion figure understates the company's real impact by at least half.
These kinds of savings to customers far exceed the costs that Wal-Mart supposedly imposes on society by securing subsidies, destroying jobs in competing stores, driving employees toward public welfare systems and creating urban sprawl.”
Most large business groups are in organized retail or planning to get into it. Most have got hold of prime retail properties. My guess is that at least some of them have not got everything right. It will be difficult to run a retail chain like a large corporate managed by paternalistic top management. Professional retailing is all about ‘god is in the details’ philosophy and I hope a few of the Indian retail giants survive. Worst case, the Rahejas, Munjals, Piramals, Biyanis or Tatas may sell their retail businesses for a tidy profit to any of the giants planning to enter India.
Welcome Wal-Mart, India is virgin territory with the largest market you can dream of.
