Let There Be Light - Part 2

In my previous post, I had mentioned that industry leaders had finally started to share their views on the FDI in retail debate. This would help evaluate the issue from a fresh perspective and in the light of cold logic - used sparingly in the various discussions till now.

The latest addition to the list of sane voices is the excellent piece of analytical thinking by Messrs Rama Bijapurkar, S Raghunandan and R Sriram - writing for Forbes Magazine. 

While earlier opinions have been largely based on qualitative assessments and "gut feel", this article is a sharp, quantitative study of the proclaimed benefits and imagined fall out of allowing FDI in Indian Retail.
The authors have examined the issue from six broad perspectives -
1) The impact of FDI - how and which consumers will benefit ?
2) Who will the likely players be
3) What is the estimated market size, and hence, the number of stores required
4) Where will these stores be made ?
5) What will happen to the small farmers ?
6) What kind of jobs would be created ?
The essence of this analysis is similar to what Mr Rajan B Mittal had said in his interview (see previous post).
(Luckily enough, I have had the good fortune to be on similar wavelength as these illustrious people :) )

India's retail model will evolve differently from the way it did in the US / UK. It will require different thinking, deep consumer understanding, lots of guts and deep pockets. It will not be the broad spectrum antibiotic, but it will definitely change this ages old occupation for good. 

I quite like the way the authors end their piece - to quote -  "So let’s reality-check the wild hopes and discount the alarmism, and get on with the job of building one more good thing for the future. It will not be the cure for all ills, but it certainly is one more remedy that needs to be given its best shot."

Meanwhile, Gaurav Chaudhury and Dipankar Bhattacharya, writing in The Hindustan Times mention that Delhi might be one of the first states to allow FDI. CM Shiela Dixit has already started the process of dismantling the APMC Act, and is likely to fast track the process. They also examine the issue from various lenses, and quote a few examples of the impact of modern retail. They contend that direct sourcing will not improve the lot of the farmer by a large extent, since the number of farmers benefiting from this would not be large - this strangely echoes the earlier article as well. They conclude by saying that there are enough supporters on both sides of the argument.

So, what does this leave us with ? More clarity than confusion, I certainly hope. To reiterate what I had said here, this intervention needs strong policy making by the government, so that it can deliver the intended benefits that it claims. It will have good and not so good results, but it is upto us how to maximize the former.

Let There Be Light...On the FDI in Retail Debate !

Finally, after a lot of flip - flops and political wishy washy, Dr MMS' government has announced a "selective" FDI roll out policy in organized retail, one that is subject to agreement by the respective state government. While this does not mean a full scale influx of modern retailers, it does provide an environment for a "pilot" roll out, one that helps both sides to understand what the other brings to the table, instead of merely reacting to sentiments.

Given this context, Mr Rajan Bharti Mittal's interview in Business Standard comes as a breath of fresh air. 
See it here. He points out that Modern Retail is currently 6% of India's retail pie, estimated to grow to 20% in the next 20 years. He also refutes the job losses claim by explaining that the Indian model is different - to quote - "This study is for a type of market very different from India. This sort of real estate is not going to be in our cities, people are not going to shop 20 miles away, people don’t have transportation, big houses. We don’t purchase goods for months like Americans do" 

He adds that the cost of real estate &  the fact that stores have declined overall (because store level profitability is still a pipe dream for most chains) mean that India's retail story would look to a different model. And not to forget the MRP and Competition Commission mechanisms, which are influential factors by themselves.

Global Post has a bunch of links to articles on this debate. The most interesting remark on the page is a quote from the article by Padma Rao Sundarji writing for Outlook - She says - 

"Walmart’s stores were mostly situated away from big cities.The idea of driving out after a hard day’s work and walking long aisles in search of dinner amidst lawnmowers and washing machines turned Germans off. For that matter, there is a German retailer at every street corner. These competitively priced stores cover 90 per cent of the consumers’ daily needs. Even their cheapest sections do not compromise on quality."

Isn't that familiar ? Or should I say, what would you rather do ?

The 7 Eleven story from Thailand also finds a mention - highlighting the fact that the threat to old retailers is not from the large hyper markets, but rather from the smaller, franchisee based 7 - Elevens. And guess the number of these stores in Bangkok itself ? Nearly 3300 !!! Compare that with the 4800 number for the total number of modern retail outlets in India, quoted by Mr Mittal in his interview - it is clear that we are missing the wood for the trees.

My humble takes on the same points, published earlier are here.

 Its good that this debate has started to see some common sense and business logic based arguments at last.  
I sincerely hope that more and people become aware of this discussion, and are able to understand this better, even add to it, so that our leaders can see the folly of rhetorical arguments !