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. RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT


India Paves Way for Wal-Mart, Tesco to Enter Market

India approved allowing overseas companies to own as much as 51 percent of retailers selling more than one brand, paving the way for global companies such as Wal- Mart Stores Inc. (WMT) and Tesco Plc to own stores.

Overseas companies must invest at least $100 million, half of which has to be spent on developing back-end infrastructure, Commerce Minister Anand Sharma said in a statement presented to parliament today. India’s cabinet yesterday eased retail ownership rules, including permitting 100 percent foreign holding in single brand stores.

India’s decision to allow overseas ownership in retail will create up to 10 million jobs and give farmers better prices, Sharma said. Wal-Mart,Carrefour SA (CA) and Tesco (TSCO) seek to step up their presence in the world’s second-most populous nation to tap a market estimated by Business Monitor International to double to $785 billion by 2015 from $396 billion this year.

“This is possibly the most exciting thing that has happened in retail in India,” said Hemant Kalbag, who heads the consumer and retail practice for Asia at A.T. Kearney in Mumbai. “This is probably the next big wave of change in organized retail in India.”

Overseas retailers will be required to purchase at least 30 percent of goods sold in the ventures from small industries, Sharma said. Stores will be permitted only in 53 cities with a population of 1 million or more, and the government will retain the first right to buy farm products, he said.

‘Important First Step’

The government’s move is “an important first step,” Wal- Mart Asia President Scott Price said in a statement. The retailer looks forward to “playing a key role” in India.

Asia’s third-biggest economy permitted foreign retailers to own wholesale stores in 1997. Policy makers have been debating ownership rules in retail for at least seven years.

Wal-Mart has set up 14 such stores through a joint venture with billionaire Sunil Bharti Mittal’s Bharti Enterprises to gain a foothold in India, while Metro AG operates six wholesale stores. Carrefour opened its first outlet in December.

“This legal evolution should contribute to modernize Indian food supply chain and to fight against food inflation for the benefit of Indian customers,” Carrefour said in an e-mailed statement. The Boulogne-Billancourt, France-based retailer will wait for final regulations, it said.

India’s decision may prompt expansion of existing joint ventures and trigger acquisitions, said Bryan Roberts, director of retail research at Kantar Retail in London. Still, the size of the opportunity may be “overstated,” he said.

“A lot of retailers have already expanded and found that there’s not enough middle-class shoppers around at the moment,” said Roberts.

‘Win for Consumers’

India’s retail industry will get $8 billion to $10 billion in fresh investments over the next five to 10 years, Kishore Biyani, managing director ofPantaloon Retail India Ltd. (PF), said in an e-mailed statement yesterday. Pantaloon, which operates more than 150 Big Bazaar supermarketsacross 90 cities and towns, also has apparel and consumer-electronics outlets.

“It is a big win for consumers as they will have more choices,” said Biyani. “It’s a win for small industries as they will have more retailers creating markets for their products” and farmers will benefit from better prices, he said.

Pantaloon climbed 16 percent, the biggest gain since May 2009, to 233.95 rupees at the close in Mumbai trading. Shoppers Stop Ltd. (SHOP)rose 6.2 percent, and Trent Ltd. (TRENT), Tesco’s India partner, advanced 8.6 percent, the most since August 2010.

The decision to permit foreign retailers came as Prime Minister Manmohan Singh’s parliamentary ally the Trinamool Congress opposed the proposal. The main federal opposition Bharatiya Janata Party was also against the move.

Political Opposition

“Small and medium retailers, which employ a large number of people, will be affected,” Arun Jaitley, a BJP leader, said in New Delhi yesterday. “We oppose it completely.”

Overseas investment in the retail industry may help slow the pace of price gains, Reserve Bank of India Governor Duvvuri Subbarao said in the northern city of Chandigarh today. “Its important not only for raising overall growth but also important for containing inflation,” said Subbarao.

India’s food inflation accelerated 9.01 percent in the week ended Nov. 12 from a year earlier, the commerce ministry said yesterday. The rate has stayed above 9 percent for 16 weeks.

‘Licking Their Lips’

Raj Jain, president of Wal-Mart India, said in April 2010 the company can help reduce prices by improving supply chain and infrastructure to cut waste. About 40 percent of fruit and vegetables in the country rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to government estimates.

Bharti-Walmart, the local venture, buys fresh produce directly from about 1,200 farmers in Punjab, in northern India, Jain said in May.

“Foreign retailers must be licking their lips at this opportunity,” said Narayanan Ramaswamy, executive director at KPMG India, which advises retail companies. “It has to be one of the biggest opportunities in the world right now.”

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at; Malavika Sharma in New Delhi

To contact the editor responsible for this story: Frank Longid at

Argos to Install Yard Management System to Boost DC Productivity

Argos to Install Yard Management System to BoostDC Productivity

U.K. retailer Argos plans to deploy yard management software at its distribution centers across the country to optimize resources and improve efficiencies in day-to-day operations.

The Milton Keynes, -based retailer will use Dallas-based Retalix’s Yard Management System to provide greater visibility into warehouse operations, allowing real-time control and monitoring of its 500-vehicle fleet across all of Argos’ nine U.K. distribution centers through a Web-enabled user interface.

“With a large network of regional and national distribution centers across the United Kingdom, it is essential that our tractor and trailer fleet is closely tracked,” said Adrian Burleton, commercial director – supply at Argos. “By integrating the Retalix Yard Management system with our existing Retalix Warehouse Management system, we will be able to optimize our yard and dock resources, and eliminate inefficiencies that negatively impact our operations.”

The first phase of the rollout is the vehicle-tracking module, which is being implemented in parallel with the enabling radio frequency identification (RFID) technology. RFID readers are being installed at the entry and exit points of the company’s distribution centers, and each of the approximately 1,100 trailers and 500 tractors in the Argos fleet are affixed with a rugged RFID tag, automatically registering arrival and departure information as the vehicles enter and leave the distribution centers.

The Retalix Yard Management system is designed to automate the yard and dock management process through advanced predictive logic and leading-edge optimization algorithms. Using software engines and rich visibility tools, Retalix Yard Management is expected to eliminate operational silos and synchronize yard and dock activity with distribution center demand in real time.

The system, which was designed using the Microsoft .NET platform, is part of the Retalix Transportation solutions suite, which is designed to fulfill the critical transportation requirements of inbound traffic, yard management and dock scheduling for retailers and distributors. Additional offerings include Retalix Traffic Management, which provides comprehensive inbound freight management for planning, procurement, execution, settlement, visibility and supplier control, and Retalix Dock Scheduling, which facilitates dock appointment scheduling via the Web, predicts labor demands, optimizes dock resources and streamlines the flow of goods through the distribution center.

Argos operates 700 general merchandise stores throughout the UK and Republic of Ireland.

Why Wal-Mart’s First India Store Isn’t A Wal-Mart.

After years of controversy and opposition from local retailers, Wal-Mart this month is poised to open its first store in India, launching an expansion that will include 10 more big-box outlets in the potentially vast Indian market over the next two years.

But Indian consumers won’t be able to partake of Wal-Mart’s everyday low prices. India’s restrictive commercial laws prohibit most foreign companies from setting up shop to compete with domestic retailers. So Wal-Mart’s debut outlet, which will open in the city of Amritsar in northern India later this month, is a wholesale-only operation that will sell mainly to vegetable vendors, hospitals, hotels, restaurants and other companies. The Amritsar outlet won’t even carry the familiar Wal-Mart brand. To deflect the attention of politicians and activists who oppose the entry of foreign multi-brand retailers, the Little Rock, Ark., company has named its Indian outlets BestPrice Modern Wholesale.

Despite the stealth approach, industry experts expect Wal-Mart, known for squeezing efficiencies out of suppliers and supply chains, to have an impact on India’s $375 billion retail market, which is dominated by mom-and-pop businesses and outmoded distribution networks. “We can learn the science of retailing, how to build scale and efficiencies,” says Kishore Biyani, chairman of Pantaloon Retail, India’s largest homegrown retailer with 114 hypermarkets.

The world’s largest retailer isn’t new to India. For the past decade, the country has been an important Wal-Mart supplier of textiles, apparel, home products and jewelry. But in anticipation of its India launch, Wal-Mart for the last three years has been developing a network of suppliers to stock its stores with fresh produce and staples like lentils, wheat and rice — all with an appreciation for variations in local cultures and tastes. “India is not a homogenous market, so ours is not a cookie-cutter approach from the U.S.,” says Raj Jain, president of Wal-Mart India.

Although it is restricted to wholesale operations in its wholly owned stores, Wal-Mart has a small retail presence in India through a fledgling joint venture with New Delhi-based Bharti Enterprises. The U.S. company provides back-end support for Bharti’s chain of 25 Easy Day grocery stores that opened last year.

Although other foreign hypermarket chains are entering the country — British retail group Tesco has a joint venture with India’s giant Tata conglomerate, while France’s Carrefour is said to be in talks with Reliance — Jain says Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. “The easiest thing is to roll out stores, but the most difficult is to sustain and feed them,” he says.

Indeed, Indian mass-merchandisers over the last several years expanded frenetically, trying to get a jump on foreign chains should Indian politicians eventually decide to open up the market to direct competition from overseas. Reliance Industries built 940 stores across the country in 18 months. Aditya Birla group has opened 548 stores since 2007. Today, with India’s economy slowing and with losses piling up, the domestic retailers have shut some outlets and laid off employees, partly because of difficulties in keeping large chains supplied with goods. “When you start opening stores and then work backwards, even we get scared,” says Mahadeo Pawar, a vegetable grower from Karjat, 31 miles (50 kms) north of Mumbai.

Caution in India may be a watchword considering the global recession and Wal-Mart’s blemished track record overseas. In 2006, the company pulled out of Germany and South Korea in the face of stiff competition and poor sales. Still, Wal-Mart has been weathering the economic crisis better than most. The company on May 14 announced it earned $3.02 billion in the three months ended April 30, about equal to the profit it made in the same period in 2008. Revenue fell 0.6% to $93.47 billion from $94.04 billion a year earlier. Highlighting the growing importance of markets such as India, nearly one-fourth of Wal-Mart’s sales for the quarter — 22.7% — came from its international division.

ITC bites off 11% of biscuit market

THOUGH ITC is nearly synonymous with tobacco, it has in no way stopped people from munching ITC’s biscuits. The company has managed to corner nearly 11% of the national biscuit market.

Since the Rs 9,000-crore biscuit market witnessed a growth of 20% last year and is slated to sustain its growth this fiscal, ITC is looking at enhancing its biscuit manufacturing capacities by at least 15-20%, primarily to manage supply chain costs and improve profitability. “We plan to set up additional capacities in such areas where we have developed a significant front-end scale, but are limited by proximate capacities. Attempts are being made to create new biscuit variants in segments that are relevant to the consumer. The positioning of the marketing mix is also being worked upon to drive consumption by creating convenient price points or by differentiating product propositions,” Mr Chitranjan Dar, chief operating officer, ITC Foods Division, told ET.

For starters, ITC plans to drive growth by vitalising its brand ‘Sunfeast’ through product innovation, contemporary packaging and targeted brand communication. A huge investment is also being planned for brand building and product development. At the same time, the company is looking at investments in building trade loyalty across channels and markets.

Elaborating further, Mr Dar said, “while ITC per se has no plans to rationalise its biscuits portfolio, we review the basket from time to time. Additions or deletions takes place on the basis of the market feedback and actual sales. The idea is to strengthen the winners and replace the average performers with potential winners from the biscuits stable. As of now, there is no product which does not contribute positively to the overall pool of contributions.”

Incidentally, a large proportion of the growth in the biscuits segment is coming from the mid-price offers growing at 35%. The mid-price offers is the non glucose segment and includes cookies and sandwich cream products.

“There are clear indications that consumers are upgrading to mid-price offers in line with the growth of packaged foods in the country. Since consumers are ready to pay for good quality and tasty products, we find a growing value for product quality and hygiene. Hence, our capacity additions will partly be in line with these requirements Mr Dar pointed out. The basic product glucose, however, continues to be largest category in terms of volumes.

Sainsbury’s to improve product availability with new supply chain systems.

Sainsbury’s is to transform the management of its supply chain to improve stock availability through a five-year deal with IBM.

IBM will introduce new systems to help Sainsbury’s and its 4,000 suppliers find smarter ways of managing the supply chain and support continued growth in the grocer’s business.

Sainsbury’s will use an electronic trading network provided by Wesupply, and IBM will manage the migration of the grocer’s suppliers onto the system.

The retailer has previously suffered from problems with product availability in stores, and last year merged its supply chain and retail director roles in a move that analysts said could ease these issues.

The solution will allow Sainsbury’s to monitor the status of orders across its entire network and manage the availability of products. The Wesupply service will allow information flows to be streamlined. The grocer will also benefit from improved visibility of supply chain performance which will allow it to heighten stock control.

As part of this migration, Sainsbury’s will be transitioning its electronic data interchange (EDI) service to EDI network provider Inovis. Hundreds of Sainsbury’s suppliers are already using Inovis’ network to exchange documents with their customers.

Watch out Big Retail, paan shops serve FMCGs better.

ROADSIDE paan shops, which are slowly transforming themselves into mini general stores, are emerging as an increasingly prominent retail sales channel for FMCG companies. Industry officials say small paan shops are posting smart growth rates and currently contribute 18-20% of the total sales across various categories, including beverages, chips, biscuits, chocolate and confectionery, noodles, shampoos and soaps, batteries and even diapers. Modern retail formats, the subject of much media hype, contribute only about 6% of India’s retail sales.

 In a challenging economic scenario, companies are taking notice of the contribution of this often ignored sales channel. According to FMCG industry estimates, these outlets have mushroomed significantly in recent years to contribute about 20% of retail sales from 10-12% a couple of years ago.

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