The small-store owner is too important, nimble and innovative to be bumped off by big-box retailers in India.

Kirana RIP? Not Yet.

The arguments for and against FDI in retail are, at a generic level, valid on both sides. However, since the devil is usually in the detail, the facts about India’s small retailers and suppliers, the conditions stipulated for FDI, and recent experience with the effects of domestic modern retail need to be viewed together before the likely outcome pronounced. The big fight is about whether this new policy will kill small shops, massively destroy livelihoods and take away GenNext’s opportunities. Facts suggest otherwise. Consider the kirana, the one most feared to be at risk. About 5-6 million of the 8 million FMCG-stocking kiranas are in rural India, and are totally safe, as the new ones can only come into the top 53 cities.

R Sriram, founder of Crossword and retail expert, tables two insights. One, in many big cities, kiranas are already not participating in the growth offered by the newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Two, increasingly, small shopkeepers’ children are getting better educated and want to exit ‘sitting in the shop’ as soon as possible, just as small farmers’ children are exiting farming. Sadly, the country’s retail density has been increasing in recent years, not driven by passion or profit, but because of lack of options — hopefully that will change. It is true that traditional income streams of small shops in the vicinity of a large supermarket plummet; but we have seen that they soon recast their business model, exploiting the inherent advantages they have that the supermarket cannot emulate: free, prompt and no-conditions home delivery, superior and customised customer relationship management, khaata- credit and willingness to stock small quantities of something used by only a few people in their catchment — a classic ‘long-tail’ strategy. Notice two more things: even in upper-class areas in large cities, despite large retail chains in the vicinity, the small vegetable vendor and kirana continue to find a place in the household’s shopping basket. The kirana also continuously morphs, and is already moving to a more specialised and selective portfolio. We will find them variously choosing to become more of a convenience store (7-Eleven-type), or fresh-food store, a home-delivery store, maybe even express-format franchisees of large retail, and so on.

Another reality check: how much consumption capacity do even the top 50 cities have? Seriously, how many more Ikea, Zara, Walmart, Tesco and Best Buy can a Surat, Kanpur or Indore absorb, in addition to more Big Bazaar, Megamart and Croma? Further, foreign specialty retailers targeting the rich consumer will create never-before custom, and not at the expense of existing shops. Two decades ago, we had the same hue and cry that Indian brands would be wiped out; but they got better and bigger than they would have had they been left unchallenged. Now for the suppliers. Large suppliers will lose the pricing power they had with small retailers and nobody on any side of the FDI debate is grieving for them. Small suppliers, even without FDI, are being mercilessly squeezed by middlemen. The hope is that large retail chains, unlike the broker middleman, have more incentive to pay more because they have customer loyalty and a brand to build; in exchange for steady, loyal, consistent quality supply, they will pay more, guarantee offtake, improve product and production efficiency. The FDI norm of at least 30% sourcing from small scale pushes this further. Walmart potentially could kill the small suppliers of anything by importing 70% from China cheaper; but loads of small traders are already doing the same, flooding our markets with Ganesh murtis, chappals, clothes, watches, etc.

The Achilles’ heel for a lot of skilled artisans, specialised producers, grass roots innovators, etc, is market orientation and marketing. Producer collectives have managed to organise themselves on the supply side using government assistance schemes, but they struggle to manage the demand side. That is the missing link that large retailers in vendor development mode can provide, just as the auto industry has done to ancillary suppliers. Both sides agree that customers will gain because large chain retailers can provide better for cheaper, given the discounts they get through buying large quantities and sourcing smartly. Customers will also get a wider range, more innovative products and more comfortable, truthful and informed shopping environment. Poor customers won’t get discriminated against, because the hypermarket is anonymous, transactional, classless and nonjudgemental. They may not get better service because the small Indian retailer is the champion of good service, from atta to electrical, the likes of which we haven’t yet seen any big retailer match, anywhere in the world. That’s another reason why he will always survive.

Before we fight further, consider this. This network of commercially-savvy supplychain linked small retailers is an invaluable asset: as one report said, they are not ‘unorganised’ by any stretch of imagination; we agree and have refrained from using this phrase in this article! It is unlikely that Indian jugaad will let this network disintegrate. Perhaps in rural India, where they would have been more hard hit had the big-box retailers been allowed, they would have been garnered by banks as new extension counters for financial inclusion.

economictimes.com: RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT

Big bazaars score over kiranas

EARLYthis year, when escalating prices were crunching household budgets, modern retailers were more responsive in cutting or holding prices of day-to-day products than traditional retailers, thanks to their ability to check operational costs bargain hard with suppliers and launch private labels.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

The Nielsen Shop Census study compared prices of 47 commonly used items including toothpastes, washing powder and confectionery. Modern retail dropped prices by more, or increased them by less, than traditional retailers for 29 product categories while traditional retailers did better in 18 categories.

It collected data from 16,000 stores (11,000 urban and 5,000 rural, in both modern and traditional retail) in 462 towns and 1,427 villages.

During this period, the rate of inflation, as measured by the Wholesale Price index, was hovering around 10% and food inflation was more than 12%.
In the past two years, modern retail has been able to significantly cut operational costs related to real estate rentals, energy costs and increase persquare-feet productivity of employees leading to savings in people costs.
They also launched private labels to get a better grip on selling prices and profit margins, and some savings were passed onto customers.

Higher collaboration with small and medium suppliers as well as distributors of large FMCG companies helped them cut costs in transportation and logistics.

Efficiencies of scale helps one source the goods closer to the manufacturer says Mr Biyani. In 2009, Big Bazaar sourced 26,000 tonnes of rice, 4 crore pieces of clothing, 20 lakh suitcases, 36 lakh mixer-grinders, 45,000 manufactured beds, 20 lakh bedsheets and 19,000 LCD TVs. Each of these figures will be higher by a minimum of 30% for the year 2010, he says. “Such large sourcing allows us to get better prices directly from manufacturers and producers.”

Big Bazaar is the largest player in the segment contributing over 33% of modern retail sales. Other top retail formats competing with traditional kirana for essential purchases include Reliance Retail, Aditya Birla Retail’s More and Spencer’s Retail.

Kumar Rajagopalan, CEO, Retail Association of India, says strong sourcing power helps modern formats offer better prices. “They have done away with the extra level of intermediaries,” he says.

Meanwhile, grocers too are working on protecting their turf by leveraging on their strengths such as customer relationships, home delivery, credit facilities and expanding their product portfolio.

Top FMCG companies such as Hindustan Unilever, Procter & Gamble Marico and Godrej have begun adopting kiranas, teaching them category management and effective merchandising to counter big retailers and their private labels.

Bharatiya Udyog Vyapar Mandal (BUVM), the biggest national-level association of mom-and-pop stores, has formed city-centric associations that negotiate directly with manufacturers such as Unilever and P&G and do away with any middlemen.

This helped kiranas offer 5-20% discounts on MRP of branded products like detergents, shampoos soaps, oil and atta.

“When prices rose due to inflation some kirana stores offered customers the option of paying in instalments apart from extending them credit for a month,” says Vijay Prakash Jain, secretary general of BUVM that comprises 17,000 state and district-level associations across 27 states.

Interestingly, kiranas managed the prices of items such as detergent bars toilet soaps, shampoo, packaged tea and iodised salt better than modern retail, according to the Nielsen study.

Currently, traditional retail, both grocers & chemists, constitute over 95% of total sales in the country.

Modern trade at just 3-5% of the total national industry sales, had grown aggressively at over 35-40% contributing to over 15-25% sales for most consumer goods companies last year.

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