Retail chains - good or bad?
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murali772 - 25 March, 2009
| Bangalore
| Retail
| consumer issues
| Analysis
| Economy
Are hawkers losing out to corporate and chain stores? India FDI Watch and Action Aid, which studied the immediate and future impact of corporate and chain retails on hawkers, showed that hawkers' business is declining in areas of Bangalore they surveyed.
These NGOs told reporters on Tuesday that among those surveyed, 96% of hawkers and 90% of shopkeepers said their business was falling and 99% of hawkers and 72% of shopkeepers blamed it on new corporate and chain stores.
Vinod Shetty, director of the community-based organization ACORN (India), said: "Competition from new corporate and chain retail stores was the number one reason cited by respondents for decline in business. It's a direct threat to vulnerable sections of society.''
"In addition to hardships associated with illness, disability and death, hawkers deal with increased harassment and eviction drives of late. In the city, 100% of respondents said they paid regular bribes to the police and 97% said they paid municipal officials,'' Shetty added.
The study calls on policymakers to support crores of independent retailers across the country by maintaining FDI restrictions in the retail sector, preventing foreign retailers from entering the market through wholesale cash and carry, and banning corporations from engaging in retail trade.
Shetty added: "We have pledged not to support any political parties in the Lok Sabha elections unless their candidates take a stand for independent retailers.''
For the full report, click on:
http://timesofindia.indiatimes.com/Cities/Bangalore/Hawkers-losing-out-to-retail-chains/articleshow/4311481.cms
Now, I would like to believe that the ones directly affected by the retail chains are the kirana shops. As far as the hawkers are concerned, their battles have been with the kirana shops, and continues to be so, apart from those with police and municipal authorities. So, the coming on of the retail chains hasn't made any difference to them. Their plight is indeed quite sad, and there is a lot of sympathy for them. But, that's a different issue altogether, and needs to be addressed separately.
By clubbing the hawkers' plight with this issue, with the talk about 'the threat to the vulnerable sections of society', the Vinod Shetty's of this world are essentially using them as a proxy in their attempts to stymie, what I would consider, a healthy development whereby the middlemen get eliminated benefiting the producers and consumers in the process.
My wife now makes a regular monthly visit to SPAR in the Oasis mall in Koramangala, and she's generally thrilled with the overall bargain that it is turning out to be, and in a pleasant ambience. For the everyday needs, however, she depends on the local kirana shop. So, all that's needed of the kirana shops is to change the approach slightly. It can be a win-win for all, except of course the middlemen.
Muralidhar Rao
COMMENTS
...looks like you are still in with a chance. Not good tidings for capitalism everybody is baying for free market economy blood.
I remember one of the Retail Chain Advertisement "From Farmer to Fork". The experience shopping in these stores and common corporate supply chain knowledge tells exactly the opposite. The reality is Farmer to Cold Storage when rates are low. Cold Storage to consumer when rates are high or expiry dates are close. As a result vegetables purchased in Retail chains do not last at home and spoil fast. Vegetables from the street side are fresh and last longer.
Food is Genetically modified to last longer in storage and survive conveyer handling. Classic example is the Tomatoes. Couple of decades back tomatoes were thrown on people knowing well it will break and splash. Today tomatoes are hard enough to play cricket. This is engineered for the ketchup factories. The Tomatoe which was good for health is now a health hazard by way of forming stones in Kidney and Liver.
The volume game was supposed to bring price advantage to customers but sadly they have made only the Retail Chain owners richer at the expense of the poor farmer. The wealth which was shared by a large number of families who make a living, now goes into a few pockets making already obese people more obese.
A huge amount of non value add costs come into the price of daily needed articles by way of airconditioning, real estate, massive amounts of electric energy, staff(MBAs etc). To keep competitive pricing with the hawker the bottom most part of the value chain the farmer gets squeezed.(Of course the inbetween trader used to do this earlier).
Government must create large trade centers( Organised well designed Mandis) where farmers can come and sell the produce completely free of any costs. Police to ensure weeding out any brokers who will just occupy and sell even free space. I have seen these in Bhutan.
I prefer the small shop round the corner for daily needs than the big mall.
Study by ICRIER (INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS)
Authors - Mathew Joseph, Nirupama Soundararajan, Manisha Gupta, Sanghamitra Sahu
Important Study Findings:
Positive Ones
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Retail trade is expected to grow at 13 per cent per annum during 2007-12. Its value will then be about US$ 590 billion in 2011-12. With this expected increase it is inconceivable that the rising demand would be effectively met by the unorganized sector. As in other countries, this provides the basis for the expansion of organized retail.
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The adverse impact on unorganized retailers tapers off over time.
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The major factors that attract unorganized retailers to consumers are proximity, goodwill, credit sales, bargaining, loose items, convenient timings, and home delivery.
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Lower income consumers have saved more from purchases at organized outlets.
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Organized retailers are themselves investing heavily or through third-party logistics companies on temperature-controlled warehouses, cold-chain transport, etc., to modernize the distribution system.
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Small manufacturers, in general, are yet to feel any major impact of organized retail as a large number of unorganized retailers continue to constitute their clientele. They are however, optimistic
Negative ones
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Unorganized retailers in the vicinity of organized retailers have been adversely affected in terms of their volume of business and profit. Unorganized retail has maintained employment levels perhaps as a result of competitive response.
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Intermediaries do not appear to be adversely affected so far although there are signs of their losing business in products such as, fruit, vegetables, and apparel.
Final Remarks
"...results are not indicative of the countrywide scenario, but only of mega-and mini-metro cities around a limited number of organized retail outlets. The results of the control-sample survey conducted for the study indicate that traditional retailers are not affected adversely even in these cities, away from organized outlets. For the country as a whole, unorganized retail is growing at a reasonable rate and will continue to do so for many years to come. Yet it is clear that the growth in demand for retail business is likely to substantially exceed any possible supply response coming exclusively from the unorganized retailers..."
The full picture has to include the other two key entities 1) producers/farmers, and 2) consumers. The supply chain mechanism in between is a detail that will play out to reward the most efficient systems.
Priority #1 - What safeguards the interest of producers?
- Proactive measures to prevent creation of monopolies at lowest levels of sourcing. Private monopoly, or cartel will be worse than the monopoly of sarkaari mandis
- Making sure that producers get access to wider markets (better supply chain, fast/safe/cold transportation etc)
- Access to demand forecasting so that producers/farmers can do some planning and prevent supply flood (will lead to lower prices like what regularly happens with tomatos in Kolar) or a shortage.
- Incentives for long term procurement contracts so that producer/farmer and sourcers share the risks.
Priority #2 - the consumers? Simple are their needs:
Now, the kiraanas, chains, sourcers etc. Haven't the inefficiencies of unorganized retail and supply chain simply added to the costs we pay? Eventually, a hawker would pass on even the costs he incurs on "bribes paid to police and municipal workers" to the consumers, wont he? Is he the only real victim of the bribes etc that he paid? I think not.
But practically speaking, in our country, you can't just wish things away. There is a human aspect here, and changes need to be eased in and watched for social impact. To this effect,
- I liked on item in CPI-M's report on this subject (came out about 3 years ago). We must ensure that big chains don't use their deep pockets to take losses for first few years to wipe out local kiraanas by selling at deep discounts. Under the same token of "level playing" field, kiraanas and hawkers etc must pay the "full costs" of doing business, which would mean paying the rent for their business space, parking etc
- Can there be incentives to make kiraanas cooperate? There never was a need earlier, as they literally "cartelized" the market by selling at or above MRP (the MAXIMUM suggested price). They know the business, and the communities - can't they compete by joining hands?
- Can the chains be "forced" to hire x% of their workforce from local kiraanas and hawkers?
Oh my God. real long comment. And a boring one too.
Murali-sir, they should have done a survey of big chains as well. Business is falling for them too. This is probably due to the slowdown.
Walmart is watched with great trepidity each time it opens a new store. The rest of the neighbourhood shuts down. They have extraordinary leverage with suppliers, pay their staff unfair wages, don't allow collective bargaining, etc. I can imagine how a town feels when a sidewalk full of grocery stores, cafes, etc is replaced by one big box.
Another AMUL is probably needed in India - this time for grains and fruits and vegetables. Our rural supply chains are not very good. Not enough cold storages, no proper warehouse receipt systems. A good futures market will also help in smoothening prices.
http://en.wikipedia.org/wiki/Amul
Srivathsa
blrsri -
26 March, 2009 - 05:44
BigBazaar like other maills like total etc announces discounts in papers etc and I am sure many people go to get the product and many a times realize that its really not worth the discounted price either..and then end up browsing the aisles and picking up things which was never on our minds when we started out!
In the other case of the local angadi's, we exactly know what we need to pick up and in quanitites we need..that will actually cover the irrelavent discounts we get in the malls!
And coming to actual prices..a half litre gingely oil in mall costs btwn 80-100 and the same costs 50 at my angadi..
On a lighter note..an advice to all men folks here..please do not take your wives to malls..unless you can really control their spending on unwanted stuff..wich in most cases you cant!
A good futures market will also help in smoothening prices
..on futures trading in commodities. Trading in some commodities have already been banned.
I think it is bad in the long run
- Initially the big retail chains will drop prices and force all the small "angdis" out of business. The disadvantage in the long run
- loss of many small businesses
- higher prices as customers are held ransom by these big retail chains as the good old stores (small businesses) have simply vanished
Retail chains have their advantages too though ..things like standardized quality etc.
The proposal from the small traders are to ban large corporations from getting into retail. That is detrimental to growth of the economy. There is lot of fear mongering about the demise of the small trader. They will not dissappear! They have their space and free market will retain these traders to an optimal level. There will be dissapperance of a lot of small traders who practice unsustainable non differentiated businesses offering no advantages to consumers. There will always exist different segments of business catering to different customer segments. Remember big stores cannot exist everywhere. We could put restrictions on location and size of the big corporations to provide some relief, but ban is a big NO
I still buy fresh vegetables from the street vendor who is able to refresh his produce more frequently than a large store can. I have never found fresh soppu in any large store at any time. It is still with the push cart vendor. I still get my rice from the rice trader as he offers more options and delivers local. He not only delivers home but also collect a change of rice if we are not satisfied. I have a relation ship with my local angadi who gives me a discount on MRP. I need milk or kothambri in the morning I am not rushing to big baazar but to the angadi in the corner who opens bleary eyed at 6AM. Those are not going away.
Even though we are on the edge of perfecting the art of sending rockets into space, running worlds back offices, designing dream liners, but somehow are blind to the fact, there is absolutely no existence of any reliable supply chain system for farmlands. It's a open to all situation. In the end both end users suffers . Farmers with low returns on their investments and customers with higher prices on the daily consumables. Both these extremes is having the profound impact on economy. Sometimes even it shakes up the governments in all directions.
The retail chains establishment does impacts socially & economically. This is nothing new. When the spinning mill made the entry, it closed down the hand made spinning ventures. Power Looms forced down the hand looms and it goes on. The opening of apparel industry has almost driven the tailoring shops to close and many wealthy tailors are living on penury. The opening of one stop automobile workshops like PRERNA has pull the shutter down on many small time garages in lanes& bylines of Siddiah Road.
If the logic is not to allow the retail chains, then same should apply to apparel industry, PRERNA's etc. Should we?
One thing I found in my study of retail chains advent in India is, it started to make some progress on establishing the much needed supply chain infrastructure. The reactions of farmers in UP after the closing down of the reliance retail chains is point in that direction.
Hope we find the right mix to sustain both the farmer's right to profit for his hard work and customers interest to buy the products at reasonable price.
Naveen -
26 March, 2009 - 04:08
SB - Long comment, yes, but not boring !
In earlier days, the Janata Bazaars were the only "malls" & had done a wonderful job in catering to all sections, & continue to do so, despite the recent onslaught by the big private superstores.
The entry of private supermarkets has brought in a new alternative. When I had read the article published in TOI, I had pondered at the plight of the hordes of hawkers in majestic & chikpet. It is true that they are squeezed for "mammols" & this, in turn was being pased on to consumers, but the bigger superstores also do the same by way of passing on their costs for building, maintaining large inventories, etc. on to consumers at sometime or the other & in indirect ways.
CPI or no CPI, I dont think it will ever be possible to phase out or replace the local kiraana shops nor the janata bazaars since there is sufficient space for all to survive, though the battle will continue & probably intensify for more space for each, much like competition in almost all other segments.
BTW, what is the latest on the wholesale markets at Yelahanka that was started by the Krishna govt ? Is it still functioning ?
rohith -
26 March, 2009 - 04:15
I feel the mindset of the customer has been undergoing a slow yet steady change. That may be because of what he/she has at his/her disposal. But change is true, nevertheless. What's this change?
For instance I go to a shop with an intention to buy something. I expect to find some choice today. So I would like to see that object from all brands/makes/qualities in one place before I buy. Are our angdis or kiraanas today equipped to showcase like that? Not to ridicule their shortage of real-estate but with an evolving customer mindset, one has got to match-up to the customers' expectations. In fact a 1000 petty shops take more effective real estate than one big mall. Effective real estate may include common entertainment space, parking space, breathing space, and the cost of cleanliness etc. In fact even the food-worlds and big-bazaars of today are not upto the mark on these terms. Who has not faced difficulty with parking when visiting a big bazaar in BLR? That is a wrong example of retail consolidation in my view.
That said, I think the retail segment in our market needs alignment, and, although with some fallacies, the current direction of consolidation is good for us.
Rohith Rao
Lok Satta Party President Dr. Jayaprakash Narayan has said the Union Government move to permit foreign direct investment in the multi-brand retail sector is “great news and long overdue”. It will benefit the farmer and the consumer, and stimulate the economy, Dr. JP said in a media statement issued here today. - - - “Now a farmer gets Rs.18 a kg for the rice he produces while a consumer pays Rs.30 – 35 a kg. - - - - A farmer gets only 35% of the consumer price of vegetables & fruits. “Retail chains will remove middlemen, add value, eliminate wastage and shortages, ensure stable prices and help farmers and consumers. Let us shed fears and welcome FDI in the retail sector.”
For the full report click here.
Rare to see political leaders take an uequivocal stand. In that respect, and not just that, Dr J P stands out as a different politician, the like that we need in today's world.
I prefer the small shop round the corner for daily needs than the big mall.
Without going into the ideological aspect, we need to be given that choice & not forced to the small shop. I have moved over the last 6 months from the street vendor to a large chain on sunday mornings because I get them cheaper & fresher perishables there at that time. Rest of the week the street vendor has fresher perishables & I wouldnt step into a chain store. I have moved to organic food from a neighbours farm for most cereals & spices.
eating local foods also reduces the related carbon foot print..so suggest dump those wax coated washington apples and kiwi fruit..and eat the guava..its more nutritious than both!!
its oranges season now..fast on them..after all they are not coming with a sticker!
Retail Chains would be part of Indian Market whether one likes it or not. This phenomenon is not exclusive to the grocery markets. The change is taking place in all aspects of retail market - Clothes, Automobiles, Diary/Poultry etc.
Why only crib about Kirana Angadi? No sympathy for tailors, Mechanics who lost out to Ready Made Clothes, Company Service Stations?
The questions of comparing organic Vs Non-Organic, Straight from Farm Vs from Cold Storage deserves a different debate than the question in this post.
A comment from SB is really a thought provoking and to me, answers all the pertinent questions posed in this post.
There are realities that we seem to overlook when trying to respond to the questions posed. The reality is journey of farm produce (grains, veggies and fruits) from farm to the consumer hasn't been institutionalized. The supply chain mechanisms that defines this journey is still to gain maturity. In some areas none exists. The only entity that rules in this space is 'Middleman'. One biggest truth in our current times is farmers are not getting the return on their investment. One would wonder how come with such high spiraling food prices, why is that the producer is not getting his share of the pie? Due to this one reason I know personally, farmer's have stopped farming and agriculture.
Coming to question the of retail Vs Kirana store, each one must have the space to do business. Kirana stores including Mom & Pop stores can not expect to flourish without competition from bigger entities. Big one must also adhere fair market pracrtices. That is part fo the life and market. Like SB has pointed out in his comment, smaller entities have to find that niche in their business to compete with the big ones. if they can provide the value to their customers can't see why they would lose out. Small one must innovate and make themselves relevent. Can't expect to continue in an unorganized and uncompetitive terms.
To Srinidhi's question of local produce, nothing stops the retail chains or Kirana stores to market these items. Let the best service provider win the game fairly and square.
abidpqa -
25 November, 2011 - 07:47
Organized big retail restricts the choice of the farmer. They may be asked to plant a particular variety of plant. If it is not done, the farm products maynot be bought. As in the example of tomatoes in Brahmayya's post. This destroys the biodiversity. I liked buying rice from the ration shops because each week, we used to get a different kind of rice. The diversity may not be lost because they will be stored by the corporates to relese at a high price when the tastes of the people change. Wholesalers buy lower qualities and different varietes.
The big retail restricts the freedom of the producers. The suppliers may need to supply minimum, say 10000 pieces per month, of say shoes. If someone produces 3000 shoes they are denied access. The manufactureres are also forced to produce mostly lower quality so that there will be more sales. HIgher quality may not be available because of the power of the retailers. Again wholesalers buy smaller quantities.
There are advanatages to big retailers because of their bigness. They are able to predict the markets better because of the quantity of data available to them which the customers give them actually and play in the forward markets. The last place the onion prices came down is the big retailers.
The consumers may benefit if they respond to the strategies of big ones. If they have a software to track the consumer, we plan our behavior so that it will be difficult for them to track (develop a software for that :) ). Pay cash, dont use cards as far as possible. Distribute purchase into different categories with quotas for Indian, foreign, local products, etc. There is also dificulty in identifying big retailers because they are present in many formats. like big hypermarkets, malls, brands owned by big retailers, and big companies with smaller stores like Mahindra, Godrej. But overall my view of big retails is negative.
There are still farmer suicides, food price inflation, etc. after the big retail came in.
The malls were supposed to destroy the main street retails, has not happened, not in India. 8th cross in malleshwaram is just as crowded even after Mantri mall has come in. I get stuff on the streets I wont get in the malls. I bet walmart can not replace the grandhige store or the flower stall or the sweet store or the gulkand shop. Niche is in.
But food produce I am not sure, the street vendor is not half as competitive as the big stores any more. Like I said the fresh produce & prices in one big chain retail is excellent on sunday morning 8AM. At 10AM its back to the push cart. Consumer has choice, I cant comment on if the farmer is getting the good deal as I dont know the details.
My own exeperiences with where retail giants like Wal-Mart, Target, K-Mart and nieghborhood stores in US.
In US, it is said its 70%of economy is generated through small businesses. I personally know some of the store owners who have flourished and still continuing. I do see some stores do go bust. A careful insight tells that it is a function of staying float in current situations - Selling what customers like, price that customers feel right and earning enough profits to keep the business afloat. Continuous adaptability to market trends is the key. Can't expect to remain in business without being relevant.
Another interesting aspect I have noticed is people selling things in small kiosks in the Malls competing with the big names in the same location.
Even otherwise, small shops are still business in the shadow of Wall-Marts and K-Marts, selling the same inventory as the retail ones. Seems everybody has the space to exist and flourish. Have seen the big ones going bust - Montgomery Knolls, Borders.
Another example is my neighborhood store Yummies selling 'Doughnuts'. I still go there to buy the Doughnuts in spite of presence of big ones like Krispe Kreme, Dunkin Doughnuts etc. I go there as it is near my home, reasonable price, good taste and personal touch.
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