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Old 27th November 2011, 23:59   #1
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Default Foreign Direct Investment in the retail sector. Good or bad?

Consumers will win, obviously; but at what cost?
Is it really dooms-day scenario for kirana / neighbourhood shopkeepers and street-vendors?

Should govt. protectionism end?
Or is all the hue-and-cry just petty vote-bank politics?

Last edited by WindRide : 28th November 2011 at 00:04.
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Old 28th November 2011, 00:08   #2
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Default Re: FDI in retail

I feel that such huge retail chains are suitable for countries like the US / Europe or more aptly where there is not much population. But India is a different case and should these giants open their shops here, definitely there is going to be some impact. We can argue that these FDI would lead to job creation, but on the other hand it would also lead to job / business losses. In my opinion, India should allow FDI retails but with some limitations and conditions such that India as a country and its citizens gain from it.
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Old 28th November 2011, 04:58   #3
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Default Re: FDI in retail

Do we know how much is Food wastage in India, because the Government godowns are limited and they dont have space to store more? Last year alone it was 12+ Billion $ worth of food was wastage.

Do we know how much a farmer sells his produce for and the middleman take the rest?

The problems with Indian Food chain are many, these are just the few which can be addressed.

We are constantly short of food (One of the reasons inflation in food prices are highest, shortage of supply). Fiscal measures (like raising interest) are not working because there is a supply side shortage and no monitory policy can work in this situation.

Given the above i thing this is wise thing to do, and get something in return as far as international politics is concerned. Employment generation is another plus. With large retailers they ensure the wastage is minimal and build their own capacity, this would bring down the overall wastage.

Apart from the this benefit for generation employment for large number of folks is also a plus.

Now the problem for local nearby store. Do you think to buy something small (for everyday needs) i would drive to the 5Km away Walmart of get it from the guy next door (small shop owner) in 5 min walk?

For monthly needs i anyway go to places like SPAR/Spencer.
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Old 28th November 2011, 06:27   #4
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Default Re: FDI in retail

Yes, some of the shopowner class will suddenly become either store mgmt (the financially shaky ones may become purchase mgrs as seen in some news items) or franchises (the more probable case) but the bulk will not be eliminated unlike europe. This is because they have low cost of operation (meager rentals, staff is paid 1500-2500 pm, taxes are not in their dictionary) unlike a large format store which will necessarily pay taxes,pay decent wages, have a management layer etc etc.

Its not easy to compete with the guy next door. Not in india.

EDIT: of course, in metros, consumer preference is anyways high for large format stores. The Easyday store 750m from my house always has 20-30min queues at checkout, because it offers a really wide selection of almost all household items in one location.

Last edited by phamilyman : 28th November 2011 at 06:29.
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Old 28th November 2011, 09:40   #5
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Default Re: FDI in retail

How many of us really go to the friendly neighbourhood store anyway? I do that only when the supermarket does not have Milma (milk) in stock.

I think the upwardly mobile middle class prefers the big supermarkets these days. Even if prices are a little bit higher, they offer a better shopping experience - more choices, everything under one roof, no problem with sun/rain etc. The friendly neighbourhood shop does not cater to the middle class anymore, I think. But there's still a large section of the society that patronizes the smaller shops and they will continue to do so.

I read somewhere that the govt is proposing to allow MNC retail stores only in urban areas with a population greater than some X million. So no danger of "evil" MNC retailers "raiding" our villages and putting everyone out of work.
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Old 28th November 2011, 09:49   #6
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Default Re: FDI in retail

If the number of middlemen comes down and the prices reduce, its a welcome change. But I hope the effect percolates to all the neighbourhood stores too.
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Old 28th November 2011, 10:45   #7
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Default Re: FDI in retail

Quote:
Originally Posted by WindRide View Post
Is it really dooms-day scenario for kirana / neighbourhood shopkeepers and street-vendors?
Demographics of US & India are different. In US, most have cars and they drive down to large retails and purchase in bulk. And they have big refrigerators & even bigger freezer to store the stuff. Its opposite in India. People buy in small quantities and hardly store anything in freezer. So its interesting to see how these big retails play in India.
PS: We have Metro in Bangalore & Big Bazaar in most places for past 10 years. The neighborhood shop-keepers are still in business. IMO, people would still goto nearby shops for normal purchases & goto to these big retails for big purchases.
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Old 28th November 2011, 11:31   #8
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Default Re: FDI in retail

This topic has been in news a lot. I am very weak in understanding these kind if things so please teach me a few things. FDI in Retail? There are two terms here. FDI - which means allowing foreign players to do business in India (Please correct me if I am worng here). Retail - I am not exactly sure what this term means? Does this mean Retail are the means where consumers actually come in contact with the products of manufacturers? Do the local Kirana shops come in retail? What about the showrooms you see in malls? Do they also come in Retail? If this is the logic then shouldnt the automobile dealers also come in retail? Please let me know if I am understanding the term Retail correctly. In all newspapers Walmart is the common example quoted. Is'nt that like Big Bazaar? When we already have such shops do we really need another Walmart - I understand they will provide jobs and stuff but do we really need it? People might say Walmart might have better standards, better products because they are a global player but then I do not think Big Bazaar is at all behind in quality. Imagine you owning a small shop and such a big player comes - Ofcourse your business will be affected. I think probably people who own retail shops can describe better.
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Old 28th November 2011, 12:32   #9
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Default Re: FDI in retail

Quote:
Originally Posted by Saanil View Post
Retail - I am not exactly sure what this term means? Does this mean Retail are the means where consumers actually come in contact with the products of manufacturers?

When we already have such shops do we really need another Walmart - I understand they will provide jobs and stuff but do we really need it? People might say
Good soul searching questions, anyways. Here is a sort of 101.

Retail consists of the sale of physical goods or merchandise from a fixed location (Source Wikipedia - Retail - Wikipedia, the free encyclopedia). So all shops are retail, even the local kirana store is retail.

So now GOI has allowed Foreign Direct Investment to have 51% stake in multi brand retail in India (The Indian partner can own the rest, hence the Foreign company then owns the majority stake, and ownership).

On the question of Do we really need it?

If you look at it from a buyers angle, well we already have the Big Bazars and others functioning in the market why do we need more?

We need more because with them they would bring best practices (learnt elsewhere) on storage or perishable food, vegetables and grains, smooth and efficient transportation of these goods, and can price competitively as these are procured directly from the producers (read farmers).

So does this all mean
  • Less wastage
  • Less overhead cost in terms of transportation
  • More money for the producers (farmers) for their produce.
  • Employment for many.

Every year India looses about 12+ Billion $ worth of food as wastage and existing players (like Big Bazar) are not building capabilities that would help us reduce this wastage. If only we can control this wastage the inflation in food should go down significantly.

The local kirana store will never be impacted, as still for smaller purchase folks don't want to spend lot of time commuting to the big store 5-10 Kms away and will find it cheaper/easier/efficient to buy this from the store next door.
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Old 28th November 2011, 12:49   #10
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Big stores like wallmart did not start big. They were once mom and pop stores. Harrods was once a barrow. They just have a head start of about 50-80 years.
Now if allowed in India, our local stores which are struggling to make ends meet and may even have to restore to adultration, false weights and other means to enhance profitability are going to start 50 years behind the grid. That is not fair.
That would be similar to allowing autamatization in agriculture. Or in industry.
That cannot be permitted, jumps in evolution should be stopped. Perhaps we can allow FDI but with a restriction of space, personnel and quality. They should not be allowed to start super stores with MBA managers and QC checks. That is a monopoly.
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Old 28th November 2011, 14:55   #11
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Quote:
Originally Posted by wildsdi5530 View Post
our local stores which are struggling to make ends meet
Wow. You serious?
These so called "poor" local stores are actually trading in crores without paying proper tax, negligible rentals, rock-bottom salaries to "chotus" working in dingy conditions, etc.


Quote:
Originally Posted by wildsdi5530 View Post
..and may even have to restore to adultration, false weights and other means to enhance profitability
You mean to say they aren't doing all this already?

I believe the govt. has put the following restrictions in place as part of the FDI policy to protect domestic producers:

1. Foreign retail will be allowed in places having a population of 1 million or more as per 2011 census. This effectively caps it to 53 cities/towns. State govt. opposition (TN, UP, etc) will bring it down even more.

2. To prevent import of produce from low-production-cost locations like Sri Lanka,China,etc, retail chains have to source 30% produce locally.

3. 50% of the FDI is mandated to be used for improvements in back-end infrastructure (supply-chain, cold storage/handling, transportation,etc) - all intented to boost employment and better facilities/quality.

4. Minimum entry of $100 million investment ensures only serious players enter the country. Fly-by-night operators/fleecers will stay away.

Last edited by WindRide : 28th November 2011 at 15:00.
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Old 28th November 2011, 15:07   #12
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

The entry of FDI in retail will not be felt for a long time, most of the big retailers operate on the large-store-out-of-town format. This will work in developing countries with a high percentage of car ownership, most suburban locales in Indian cities are not well connected and most people wouldn't bother driving 20 km out of town to buy at a 10% discount.
The whole supply chain efficiency will not work in India, our infrastructure has to catch up to implement the latest cost efficient systems. The current supermarkets rarely have any discounted pricing,(I am ignoring the 10 paisa less deal of the day ) they mostly sell at MRP and outdated/expiring today foodstuff is usually kept in front so you can help them with stock clearance.
The cookie cutter one size fits all wont work here either, local chains and shops are clued in to the customer demands much better than giant chains. The chains may be able to offer a wider variety, but I doubt they will dominate the market, the queues in the supermarket are a put off for a lot of people, besides even car crazy folks would hardly take the car out to buy a handful of household items, the time at the checkout will be longer than the journey plus shopping.
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Old 28th November 2011, 15:25   #13
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

Agree with Windride there. The quality of service/goods provided by small retailers (read mom-n-pop stores) was really bad, with adultration quite widespeard. Those especially in smaller places are really bad. And people have little choices are most of them are like that only. On service front also it used to be quite bad. I distinctly remember shopping experience in 90s when the shopkeeper used to decide what we bought (we couldnt pick things ourselves) and there was hardly any standardization of weights etc. it was only when the big players arrived (the likes of Big Bazaar, Hypermarket etc) that they have pulled up their socks and improved.

Now I am not saying that the big players wont do that but usually you would have more choices at big stores so you can buy what you like (and you pick everything with your own hands). There are also after sales services like exchange and all which are transparent for all (again these were quite random earlier - depended on the shopkeeper's whims)

Theres another argument in today ET that I liked. Just like educated sons of farmers dont want to go into farming (true for most if not all), similarly educated children of the small retailers also dont want to sit in a small shop (various reasons - not so hygenic atmosphere, reputation/ego, their own ambitions etc.)! So today's small businesses might not be carried forward in future by the next generation. We have examples in our home itself! My grandpa had a store in his village that served the family well. 2 of his sons (inc my father) took studies well and got govt jobs. 1 son opened his own shop in the city. Now none of the children would be continuing in business as we all are now well educated and in jobs!
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Old 28th November 2011, 19:12   #14
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

I have atleast 2 Food Bazars, 2 Reliance Fresh and 2 More supermarkets within a 15km stretch from my home. None of the smaller shops in the immediate vicinity of my home have been forced to close in the last 2 years. Ironically, what has closed in the last 2 years are 2 Varkey's (supermarkets) and 1 Nilgiris!!

And I'm not sure what preventing FDI or restricting the size of MNC retail chanis will do when there are no restrictions on home-grown big retailers. Sometime soon, the Lulu mall will open in Cochin and it contains a hypermarket which is 2,00,000 sqft in size.
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Old 28th November 2011, 19:49   #15
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Default Re: Foreign Direct Investment in the retail sector. Good or bad?

The fact remains that it is completely politicised with parties like the BJP being completely dominated in the support base by the shopkeepers in delhi (so the rags would have you believe).

As of today, I have not seen any good quality articles from any respected guys like the Mint, ET or WSJ which truly breaks it down into an economic analysis and goes beyond quoting Thailand/US examples (which is just rhetoric as far as I care).

The other fact everyone has pointed out is that homegrown retailers are already present everywhere - i cant trace it much but I recall how some article had mentioned how in UP the large format retailers were scared of opening branches 2 years back courtesy politicised struggles from Mayawati's supporters.
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