Why big Retail hasn’t worked in India

Big Retail in India and FDI is in the news again. Here are some insights on why big retail has not worked in India, written by Sreenivasan Jain for DNA India. 
Myth of Big Retail

The real reasons why big retail hasn’t worked in India are simple.

One, a lack of commercial space. Most Indian cities, presumably the first port of call for the Wal-Marts and Tescos, don’t have the kind of aircraft-hangar size spaces that these chains need. Whatever space does exist is limited and very expensive, taking away the advantage of economies of scale needed to make big retail viable.

Two, Indians just shop differently. We are used to buying in small batches, not making weekly or monthly runs as is the practice in the West. We prefer walking out of our homes to shop, not driving all the way out to a hypermarket in a distant suburb. Let’s face it, as Indian shoppers, we are utterly spoiled for choice by a range of price-sensitive (and colourful) retail options that include everything from street vendors to kirana stores, thela-wallahs and Mother Dairy outlets. Almost all of whom have no qualms in delivering even a matchbox to our doorstep. When Reliance and the Birlas couldn’t take on this vast, fragmented and inventive mosaic that is Indian retail, do Wal-Mart and Tesco have a better chance ?

Which is why the government’s claims that opening up FDI in retail will bring in 600 billion dollars of investment (the figures keep changing) is utter bunkum. As one of India’s leading retail sector gurus told me, the silence is deafening — not unlike when India opened up FDI in power and infrastructure, hoping for a stampede of foreign investment which never quite came.

As for those political parties claiming to get falsely outraged on behalf of the small dukaandar, here is a reality check: there is NO empirical data to suggest that the rather feeble entry of Indian big retail over the past decade and a half has led to shutting down of corner stores. In fact government data suggests the reverse. From 2005 to 2009, organised retail has shrunk from 27% to 15%, while unorganised retail has held the course at a steady at 15%.

Having said that, it’s the other end of the chain which needs the greatest attention: the Indian farmer. It’s true that the prospect of organised front-end retail will liberate him or her from an oppressive dependence on middlemen-dominated mandis. And it will create a cold chain network that will reduce wastage and add value to farm produce. But for that too we don’t need Wal-Mart or Carrefour. We already have in this country a state-of-the-art network that sources from three million farmers daily, stores their product in cooling vats, converts it into a range of terrific products and transports it in refrigerated trucks to stores across the country. It doesn’t involve any foreign investment or technology. It’s owned collectively by the farmers who make the product. Everyone gains: the farmers, the members of the network, and the consumer. Our political parties will be well advised to spend less energy on empty blather about of the benefit of international retail chains. Or staging dharnas against their arrival. Instead, let them encourage the spread of this network in the states where they rule. The network is called Amul. And it was invented by Verghese Kurien.

You can find the whole article at http://www.dnaindia.com/analysis/column_the-myth-of-big-retail_1741787

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