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

A Red-Letter Day For Retailing in India!

A Red-Letter Day For Retailing in India!

24^th November 2011 - It’s yet another red-letter day in the history of modern retailing in India! The Union Cabinet passed 51% Foreign Direct Investment in multi-brand retailing and opened up the single brand sector to allow 100% investment.

The first major breakthrough in the matter of allowing FDI in retailing in India was achieved when the Government of India passed 51% investment in single brand retailing. Though it has taken almost five long years after that to go to the next level, it is an achievement on the part of the ruling coalition government to take this bold initiative to pass FDI partially in multi-brand retailing with a few conditions though. A lot has been done to satisfy various quarters which had those significant kind of people crying foul to a good cause of opening the retail sector to attract more investments; many studies and researches have been carried out to establish the fact that FDI in retailing will do more good to Indians than any harm. It is worthwhile at this juncture to remind ourselves of this: when automation started in the country a score years ago, many cried foul with a vociferous reluctance to adopt technology. Such cries were heard from the nationalized banking sector to cite as an instance, and they feared loss of jobs. Today banking is one of the most significant sectors in India offering direct and indirect employment even in rural areas. Customers are happily smiling their way not just to the banks but to the ATMs! The same happiness is going to be seen when all our Indians are able to get the best of goods anytime, anywhere!

Is our Indian retailing not organized at all? That’s a question that used to come to my mind, especially whenever research agencies kept anchoring the figure of organized retailing in India at four or five percent. And they have been publishing such a consistently stunted figure for almost a decade now! It needs only a few steps to be taken to become organized in retailing. It means a retailer has to be registered under all the relevant regulations and statutes; he must give a bill for each transaction and above all the retailer should stand by the goods he sells! Even many jewelers have started making their bills for each of their transactions properly since a few years now. The GOI took special efforts to keep VAT at just 1% in almost all the states to facilitate this transformation. Going by these parameters we are a lot organized in retailing in India. Many confuse modern retailing with organized retailing!

Some Indians in the USA like quite a few of the natives there do not want to be seen shopping in a Walmart! The reasons are obvious. So for them the presence of a Walmart in India does not make any difference at all. Like them, there may be many more in future as they may have their own experiences of buying from such stores. I am not demeaning a value store, but I am just explaining the fact that a wide variety of customer segments in India will discern and buy from the stores of their choice for different reasons. At the same time the same customer may be happy buying vegetables from a street vendor who calls at the door! This definitely goes beyond the fundamental marketing principles learnt in our B-Schools. A customer living in Malabar Hills is comfortable making his purchases from a modern store while he is also at a full throttled ease eating from a ‘chowpatty’ vendor when he goes for a walk in Marine Lines in Mumbai. A former colleague of mine who is the CEO of a large organization invariably goes hunting for bargains and discounts and he never purchases any of his garments at full price! An industrialist friend of mine who lives in Madurai travels to Mumbai for the last thirty years to a particular store to buy his preferred brand of shirts available in a solitary location and that’s the height of customer loyalty! Customer segments are studied in India with their behavior analysed on occasions, companionship-mix during different occasions and on the degree of dynamism of their attitudes! Every retail format in India will co-exist. What may be perceived as modern now may become mundane with the attributes of modernism becoming hygiene factors pretty soon and Indian retailing will not be an exception to this as it evolves further!

A relative of mine grows a lot of coconuts in the Cumbum valley in Tamil Nadu. He says that he sells coconuts to the ‘mandis’ at Rs.4 or Rs.5 each depending on the size. You can guess at how much price do we all get coconuts in retail stores – at least at thrice the cost! And this anomaly should come to an end with the supply chain becoming organized soon, as a consequence of the transformation of retailing in India. I am sure as retailing in India becomes organized fast, it will integrate backwards in a swifter pace to make the entire pipeline effective. Is a two hundred percent hike in price as an item travels from the farm to the store, justified?

The phantoms of threats against having multinational retailers in India resulting from vested interests will vanish into thin air. We Indians have every right to enjoy the availability of everything that a common man across the world does! Everything in retailing in India is going to be about satisfying customers at the right time and place with the right products sold at the right price. And whether modern or ultra-modern, organized or unorganized, customers will look for all the value that they can get to attain maximum benefits. As competent retailers may step into India with their own investments, the value of the customer in India will be only be truly realized – literally! The rest will be history!

- Dr. Gibson G. Vedamani

THE WAITING LINES OF RETAILING

The Waiting Lines of Retailing

When any smooth and pleasurable drive in an expressway is interrupted by a toll plaza forcing someone to wait in a long queue of vehicles, wasting precious time, it can irritate the person out of his wits. Similarly after a day’s work as one returns home from Nariman Point in Mumbai to board a suburban train at Churchgate if one has to stand in a long queue to have a seat in a share-cab to reach the railway station, it can be awfully painful. Just imagine a customer if he has to stand in a queue at the cash-till for long especially after pleasurable browsing and shopping, he would feel as terrible. In India we have a good deal of patience to wait in such queues. We have been conditioned at a subconscious level to exercise a kind of ‘taming’ endurance. We have waited long enough in queues starting from the first experience of many in the yesteryears to wait in the ration shop queues often or periodically when staples like rice and sugar and home needs like kerosene were rationed under the Indian subsidy system. Trains and buses those days were but a few and inadequate in number as compared to the demand and one had to stand in a serpentine queue to book tickets for any upcountry travel (unlike today’s immense convenience booking such tickets online). Wherever we went we had queues to fall in line with, whether at banks, post-offices or even hospitals. Though we studied the queuing theory in detail, we could not apply it to our everyday walk of life in yesteryears perhaps because of lack of resources.

The scenario in India’s modern retailing currently in some instances is no different. We as customers are forced to wait in queues with patience at many places in our retail stores and malls, as they are crowded invariably and more so in week-ends. Consider the typical scenario of a mall in Mumbai: The multi-point queuing up process begins from the entry point in any mall – once at the point where the vehicle security screening is done, then at the point where the vehicle parking coupon is obtained and once again at the very parking area if one is not lucky enough. As one alights from the car and gets into the mall, there is a queue at the security scanning point at the entrance of the mall. If one has to enter a store in a mall and some bags are carried, they have to be kept in the baggage storage counter in keeping with the store security policy. There one goes once again in the queue even before entering a store. Needless to say, a customer has to wait in the queue again after selecting the merchandise to bill them and pay at the cash counter. At the exit again the baggage stored has to be collected back and if one is not lucky again in a busy day, one may have to wait in a queue again. So, in all, the tally of queuing points in a retail environment, especially in a mall may go up to seven! The long wait nevertheless happens at the cash counters. One may have observed that in any retail store even in a busy day, no queue-busting exercise by the retailer is done and hence customers are subjected to a great deal of hardship. In airports very often we see the security checks at departure having long queues and at the same time we may find a few security and scanning stations remaining closed for some reason or the other pointing to a clear lack of sensitivity to the convenience of passengers. Similarly in retail stores even during busy shopping hours when customer footfalls are at the highest, some cash counters as we may have seen many a time, may not be functional and as a result the number of customers in the queues may keep increasing. This is a common occurrence in hypermarkets in India where the cash-tills may even be more than twenty five in number but the functional ones may be much less at any point in time. Isn’t it time our modern retail stores adopted a few queue-busting techniques? Many retail stores in developed economies as a policy do not allow more than three customers to wait in any queue at the cash-till and the store management personnel spring into action to see that they either guide them to tills where there are less number of people or they use handheld devices to bill the items bought and receive payment to dispense with the customer at the earliest ensuring customer convenience.

Modern retailing is about providing experiential shopping. It is worthwhile to look into all the operational aspects of the retail business to scan for the reasons to understand why queues become longer and find appropriate solutions to remove hurdles for promising greater customer comfort. How can retailers ensure convenient customer entry or checkouts without making them wait in a queue for long?

De-clog Car Entry: A team of valet parking drivers can be engaged by these malls in line with the facility that the star hotels in India offer to its guests, can be provided on busy days. Efficient entry and security check processes with target timelines to dispense every vehicle with clocking the time taken for each car to park can alleviate the problem a great deal. Malls have to provide for a minimum of 6 cars’ parking space for every 1000 square foot of retail space as a standard parking norm to follow. Malls look at the parking facility as a revenue stream and they charge a flat rate of anywhere between Rs 30 on weekdays and Rs 50 on weekends. It takes a lot of time to pass the toll as the parking fee is collected at the entry itself and not at the exit based on time consumed, in many instances and this too clogs the entry line in busy malls in India.

Checkout Cash-tills: Busy retailers who have large customer footprints like supermarkets, hypermarkets and department stores can have special fast checkout cash-tills for five items and below. Retailers also have to readily operate additional tills on busy occasions, having a provision to add temporary tills whenever required. The effective use of self checkout Point of Sale (POS) solutions with electronic payment facility would do the trick to dispel crowds at the cash-tills in future.

Use Dedicated Card Swipes: Many retailers may not have a dedicated Electronic Data Capturing (EDC) machine dedicated for each cash-till in the store. As a result, cashiers may have to depend upon a few swipe machines used in common among a few Point of Sale tills for credit/debit card swipe, which can cause a good deal of delay. A dedicated EDC device ought to be a non-negotiable facility for every cashier’s use.

Ensure Efficient Barcode Scanning: Difficulty in scanning barcodes can cause a tremendous amount of delay especially in supermarkets and hypermarkets. Retailers have to ensure the best quality of barcodes printed on the price ticket where scanning failures should be brought to a naught. When a barcode fails to scan, the cashier is forced to punch in the product code manually and one can imagine how much extra time it will take if two or three barcodes fail to scan while scanning a basket of a hundred items in a supermarket! Ensuring the use of barcodes adopting the universal electronic article numbering system like the GS1 barcode standards on all items sold in the store will go a long way to facilitate easy scanning.

Use Handheld POS: Retailers may use handhelds with connectivity to the Point of Sale. Handheld devices have the capability to raise bills. Some handheld devices have the facility to accept card payments directly as well. The use of such handheld devices especially during busy hours is a respite for many retailers who are keen on ensuring customer delight without letting them wait in a queue for long. Retailers like Woolworth PLC extensively use mobile POS as a technology application and deal with check-out lines on the spot to reduce waiting lines drastically.

Check Electronic Article Surveillance (EAS) Tags & Bagging: As the billing process in the cash counter comes to a close in every transaction, the EAS tags in merchandise like apparel and accessories have to be removed, often by the cashier himself. Efficient devices to de-tag merchandise have to be used. Having additional help deputed at every cash-till to remove the EAS tags and to do bagging during peak hours will save a good amount of time for the customer.

Ensure Operational Ease of Schemes and Promotional Offers: Retailers may run many schemes and promotional offers due to which cashiering may become difficult and delays may occur resulting in hold-ups. They ought to ensure ease of operation for the cashier to handle such schemes, offers and coupons/gift vouchers through proper technology support. It may be appropriate to do a dry run beforehand to see how much time it takes in different scenarios for checking out a customer and train cashiers accordingly.

Deploy Service Mission Control: A mission control team may be in place to streamline such processes and organize the act of queue busting in stores and malls that have a large number of footfalls. Such mission control should be a part of the service team taking instantaneous audits to ensure a good customer experience.

Apply the Queuing Theory: The Queuing Theory states that in a situation of a service offered and its customers, the service center can only serve a certain limited number of customers and when a new customer enters to access the service, it is exhausted and the new customer has to wait in a queue until the service facility is available to attend to him/her. Any such service facility has got three elements to it – the population of customers, the service facility and the waiting line. The cash counters in a retail store are limited and the customers are many more who come to the counters and a waiting line is formed. The elements within control – to increase the number of tills, to augment the efficiencies at the tills and to contain the waiting line not to have more than three customers at any point in time, must be understood and examined for corrections to be executed for attaining better efficiencies to save time for all. The application of the queuing theory will help the retailer or the mall management understand the problem areas better to find the best solutions.

Above Everything, Engage Queuing Customers: Psychologists say that customers engaged in any activity of interest while waiting in a queue, will always find the waiting time shorter! Walt Disney asks its guests waiting in a queue to see its comedy shows to text message jokes that could be used in the main event.

A greater sensitivity to customer convenience is required on the part of every modern retailer and proper queue-busting techniques have to be deployed as a temporary or permanent measure to delight customers. Walt Disney is said to have employed about 75 industrial engineers who help the organization with effective queue management at its parks around the word. Customers today are different; the very thought of waiting in a long queue based on a similar experience earlier would not only sicken them, but the very sight of long queues at the tills will discourage them even from entering the store. Gone are the days when we had a resource crunch and today every customer values his/her time and every stakeholder in the service process is aware that the service provider has the resources but only lacks the attitude and the efficiencies to attend to providing customer convenience. If a busy store does not do queue-busting, it may unconsciously be engaged in customer-busting! Queue-busting is after all an art to respond with sensitivity as much as it is a science to experiment and implement the right solutions for ensuring a truly pleasurable experience for customers in our modern retail stores!

DR. Gibson G. Vedamani