Retail Review 2011

The year 2011 almost opened with a turnaround of Vishal Megamart, the retailer who bled big time and went into losses. According to media reports TPG Capital (formerly Texas Pacific Group) and Shriram Group from South India invested around Rs. 200 crores to acquire the wholesale, franchise undertaking and the retail business of the company. The process of acquisition took a good three months’ time and in March 2011 the deal was concluded. Since November 2009, the debt restructuring programmme of Vishal Megamart began under a Corporate Debt Restructuring (CDR) process led by the State Bank of India on behalf of a host of lenders. TPG wholesale by virtue of the acquisition obtained the mandate to operate the back-end sourcing, logistics and franchise operations while Airplaza Retail could operate the retail shops alongside the other franchisee partners currently operating Vishal-branded stores. While many observers in the industry expected a similar CDR to happen with Subhiksha, no progress was seen in 2011 even though the process started much earlier.

Online retailing boomed in 2011, with a whopping increase in sales and transactions. The latest ComScore data estimates that nearly 60 per cent of online users in India visited a retail site in November 2011. The number of online shoppers was seen increasing 18 per cent as compared to the past year. ComScore released a report which says that the visitation of customers to the top retail and coupon sites in India (based on data from its ComScore Media Metrix service) increased the e-commerce craze manifold. An estimated 16.5 per cent of the Indian online population visited deal sites such as Snapdeal.com and Mydala.com in 2011. Many sites like homeshop18.com, fashionandyou.com, flipcart.com, redbus,com, etc. have met with tremendous success in 2011 and the year 2011 has ushered in the next e-commerce revolution in India and e-commerce may be the way to go in future.

The year 2011 also saw the untimely demise of two retail doyens of India Mr. Raghu Pillai and Mr. Ved Prakash Arya. Mr. Pillai made a remarkable achievement of establishing Foodworld and Spencer’s Retail in India. A founding member of the Governing Board of Retailers Association of India (RAI), he spared no efforts to establish modern retailing in India. Mr. Ved Prakash Arya too was a founding member of the Governing Board of Retailers’ Association of India and he established the Globus chain of fashion stores in India. He was also the first non-family member to gain a berth on the Board of Pantaloon Retail India Limited. He made a huge difference to the establishment of modern retailing in India by offering his professional service to the industry. He was also a veritable force to reckon with when it came to getting things done for establishing best practices for modern retailing in India.

TRRAIN (Trust for Retailers and Retail Associates of India), a non-government organization founded by Mr. B.S. Nagesh, Vice Chairman of Shoppers’ Stop declared December 12^th as the Retail Employees Day (RED) and the organization urged every retailing company to thank its front-end employees and reward them as well, on that day recognizing their efforts. The Retail Employees Day in India got established on 12^th December 2011 with universal celebrations happening across the country!

The close of the year 2011 came about with the Government of India proposing to open up Foreign Direct Investment (FDI) in multi-brand retailing in India and the opposition trying to block the passing of the bill in the cabinet. However as we all are aware the policy is on the on the anvil and one can expect the opening of FDI to the extent of 100% in single-brand retailing and a partial opening of FDI in multi-brand retailing soon.

However, the year 2011 has been one filled with a great deal of activities that could enable the growth of modern retailing in India!

- Dr. Gibson G. Vedamani

FDI in Retailing: Inclusive Policy!

The latest news on FDI in retailing is that the Department of Industrial Policy and Promotion (DIPP) is drafting the finer details of the FDI policy and to this end it is holding talks with the various stakeholders of the industry. The DIPP aims to hold talks with traders and small retailers who are said to have fears about foreign multi-brand retailers becoming a threat to their very livelihood if allowed to invest in India. The effort is to allay their fears. The policy is not only being taken forward but also being explained in detail to the stakeholders. The food processing industry secretary recently said in the media that his department has been communicating with farmers and traders the significance of strengthening back-end operations to save agricultural produce wastage. The policy includes the condition of an intending foreign multi-brand retailer to invest a minimum of 50% in back-end infrastructure while entering the Indian shores. When storage and supply chain become efficient in India, the farmers will be better off as they will not have the fear of wastage or the fear of exploitation by middlemen. When there is a hubbub about the whole issue of FDI in multi-brand retailing in India, in the farming and trading circles especially, there may be no room for any clear thinking to emerge. Thoughts are clouded with many political forces shouting slogans and expressing their opinions without letting any stakeholder think about situations of reality in the future. It is a step in the right direction for the government departments to try and communicate with the relevant stakeholders at large to put forth the just arguments.

The DIPP has also put up a Discussion Paper inviting views on FDI in multi-brand retailing. The objective of the paper is to generate informed discussion on the subject among the public and the stakeholders so that such views and opinions can help our Government take the appropriate decisions. The paper highlights current problems and issues and discusses them in the light of the various studies/reports made by credible entities like ICRIER, FICCI, etc. and their recommendations thereof, on the issue. The paper also very aptly cites the Economic Survey 2008-09, which recommended FDI in multi-format retail, starting with food retailing. The discussion paper outlines the experience of FDI in retailing in economies similar to India – China, Thailand, Russia, Chile and Indonesia and how the value chain strengthened all the stakeholders including farmers, traders and small retailers. DIPP’s discussion paper poses in conclusion a list of questions for resolution in an attempt to find the right solutions soon! A good effort indeed and one can access this discussion paper on DIPP’s website.

The effort is to make an inclusive decision soon without giving way to political pressures! Someone recently commented about the opposition to FDI in retailing being very political, drawing a reference to the political opposition staged against IBM, Coca Cola, Kentucky Fried Chicken, etc. in yesteryears!

-Dr. Gibson G. Vedamani

Retail FDI: Farfetched Dream of Indians?

A slew of economic measures taken in our country since liberalization has catapulted India to its next level of growth. Our cabinet has taken these decisions in a well-planned and thought-out manner for the last two decades and there have been negligible instances of decisions being put on hold for fear of the allies or the opposition turning antagonistic. Similar decisions have been taken boldly amidst many a furore though. Even as sectors like telecom opened up for FDI in India many raised eyebrows initiating a debate of who is going to the beneficiary - the foreign investors or the Indian telecom companies? But the fact remains that customers in the remotest areas of our country continue to enjoy the benefits! I was sitting in a teashop by the service road along the highway in the outskirts of Satara in Maharashtra a few weeks ago and I could hear the common man discussing service levels in a customer care centre of a telecom service provider! If the reach of mobile phone service has not been to the extent that we have achieved in India, where could any man in a village near Satara have learnt the service obligations of service providers?

A case in point is Foreign Direct Investment in retailing in India. We have put the decision of opening up FDI in multi-brand retailing on hold, fearing the imminent fall of the government. Our decisions are now based on the ability of satisfying opposing political forces so that there would be no ruffling of feathers at the throne chamber. We all know that a bunch of research studies has been carried out and the most significant one was done by ICRIER a couple of years ago which clearly stated the benefits of bringing more investments to the organized retail sector – one of the major benefits being the opportunities to employ people who would otherwise be unemployable and the other being augmented margins to the farmers besides value addition to them by virtue of training and handholding.

Twelve million retailers are just shown as a cause for attaining political mileage whereas we put the interests of the rest one hundred and eight million people of our country at stake! And a good percentage of these small retailers will rediscover themselves. A small convenience store retailer in Mulund, underwent a three-month professional programme in retailing at a reputed management institute in Mumbai in Mumbai in 2002 and since then he has organized his store very well. He has a Point of Sale (POS) system and does very effective inventory management without letting any FMCG supplier force-stock his shelves by schemes that usually upset stock-turns a great deal! He has even changed his freezers to enjoy the benefits of saving electricity consumption cost. He has an effective customer relationship practice which operates ‘through the back of his palm’ offering door deliveries too. Many more such retailers have learnt the ropes of efficient small store retailing. I came across an enviable collection of Christmas stars in a small store at Nazareth, a small town in the southern most part of India and when I praised the retailer’s merchandising skills he whispered that he got them directly from an all India level manufacturer in Kerala directly. He also told me to come a week later to buy firecrackers from him at a good price! Sourcing is his great strength!

But alas, I also saw the fishermen in Kanyakumari who risk their lives and fish, but handover the whole catch to middlemen! None of the fishermen who fish there have their own outlets to retail or wholesale, for that matter! Today everything is becoming organized and transformed. Take our Indian railways. The stations are clean, the food is good and passenger convenience has been looked into, thanks to just one minister who aggressively initiated a large-scale transformation. He had great guts!

Even as internet retailers charge a ‘listing fee’ which is paid as a commission for the suppliers to gain presence on their websites (which is the only margin for the service provider), a few brick and mortar retailers tried to implement the same practice which could affect our small and medium entrepreneurs largely. This is being highlighted as a practice against law and now organized retailers do not charge any such ‘listing fee’ from suppliers.

Will the sun rise in this sunrise industry? Or will it remain a Farfetched Dream of Indians?

- Dr. Gibson G. Vedamani

FDI in Retailing: Building Farmers' Markets

FDI in Retailing: Building Farmers’ Markets

Opening up retail for foreign investments is a boon to Indian farmers. A well- organized supply chain in the farm sector will help our farmers realize the right value for their produce. Middlemen arm-twist farmers adopting various strategies to squeeze their prices low. I was in a farm near Dindigul in Madurai district during summer last year. It was the peak of mango harvesting season in the farm. The farm was situated near a village called Natham and as I was speaking to the farmer who owned a large farm, he opened up to me and I came to know some startling facts. One of the revelations to me was that the farm produce in the whole catchment area spreading over a few villages are usually bought over through a contract procurement lease at cheap lump sums in the season by a handful of middlemen. The farmer saves the pain of selling his produce to the mandis during each phase of the harvest but loses a good deal of income on the lump sum lease. The other startling fact was that the middlemen quote low prices throughout the season and defer procurement till the time majority of the produce is pushed to the verge of rotting as these farms are not easily linked to the market as well. He said that in yesteryears there was a mango drink manufacturing organization, which supported farmers throughout the year by taking mangoes for their production at published procurement prices directly from them. It was closed eventually and there is now no way they could pulp these mangoes nor store them. They are forced to sell at low prices to middlemen who garner almost about 55% of the margin in the entire supply chain – from farm to fork.

Small retailers do procure farm produce at high prices from the wholesale markets as any produce comes to them after passing through a minimum of four or five or even more number of middlemen. Tamil Nadu was the frontrunner in helping farmers realize the value their produce would deserve. In Tamil Nadu the government facilitated farmers by creating marketplaces called the Farmer’s Market in the last decade, in 1999, where they could themselves set up shops, stock their produce and sell them to consumers directly. Many of them are yet functioning as successful centres. These markets provide fresh vegetables and fruits at the right prices in correct measurements everyday without the interference of the middlemen. The Tamil Nadu government helps these markets serve as technical information centres to the farmers so that they could be trained in better farming practices. Due administrative steps are taken to see that prices are put up daily on an announcement board in the market and these fixed prices are monitored for compliance. Shops are allotted free of cost everyday to the farmers on first-come-first-served basis and never on a permanent basis to anyone. The market committees of the Department of Agricultural Marketing and Agribusiness maintain these farmer’s markets in Tamil Nadu. This phenomenon will be multiplied as farm collection centres and large retailers will establish such markets in due course across the country, helping farmers a great deal.

In 1997 FDI was permitted up to 100% in the cash and carry wholesale business in India through the automatic route. It has taken almost 14 years for a mere two or three organizations who have invested in India to set up their cash and carry outlets and none has reached even a double-digit number of outlets. So slow is their progress and many of our small retailers yet make their purchases directly from the distributors of products and other traditional wholesale markets. The new cash and carry organizations have enrolled small retailers as their members and they even organize credit for them so that they could avail forty five days’ credit to pay up, which may be in fact enough time ‘to sell and pay’. As these cash and carry stores spread over the country with the establishment of many more organized retail stores and an efficient supply chain, small retailers will benefit more. Retailers will come to experience shopping under one roof for most of their requirements availing credit that FMCG suppliers and traditional wholesalers will never offer!

So, its, not just the farmers and retailers but consumers at large who will be all smiles as FDI opens up in retailing in India!

- Dr. Gibson G. Vedamani