Ten years and counting!

March 2009, when I decided to start my blog “An Indian and A Retailer”, has definitely become a defining moment in my life journey. Ten years and 1,00,000 plus views later, the blog still continues to attract regular readers who often use its contents as a reference with regard to Indian Retail.

The blog started off as a simple repository of my experiences and learning in the Indian Retail space. It went on to become the foundation stone of my journey as an author. This blog led to my first book “The INDIAN reTALEs”. That was followed by “Out Of Syllabus”, “BREAK FREE” and the latest one, “The Ultimate Guide to SMART SHOPPING”. This has been in addition to the various articles I have written for leading business publications. 

All these must total up to approximately four lakh plus words over the years.

A BIG THANK YOU to all my readers who found my writing to be of interest and use. Many of them have given private feedback as also written public reviews. 

Two anecdotes are worth sharing as part of this milestone.

The first is about the actual start of my journey in writing. In 2000 after I had returned from the UK after completing the Chevening Scholarship, Business Line invited me to write an article. This was to be about my stint at ASDA and was titled “Making an elephant dance”. The article detailed the interesting practices that were followed at ASDA to keep their large number of employees engaged and nimble footed to remain customer centric. The blog, in a manner of speaking continued from where this article had led me in the journey of being an author.

The second one is about the name for my blog. It was a challenge as I was conflicted by various ideas and options. The final decision was influenced by using the two identities that I am most proud of and has defined me as a person. 

An Indian; growing up in the pre-liberalization period and witnessing the contribution that an individual can make as an ordinary citizen of India has always been motivating to me. Post liberalization, this has only been reinforced. In spite of several options to pursue a career abroad, the appeal of being an Indian contributing to the country’s growth in whatever small way possible has held greater appeal for me.

A Retailer; is how I think and operate. The experiences from this sector have defined my outlook and continue to do so. I am immensely grateful that God led me into this sector and am thankful to all my mentors who have taught me about the various facets about retail.

One of the topics I have written extensively about is that the retail sector in India should be granted industry status. This would not only spur this sector to faster and better growth but also contribute significantly to the Indian economy. My fond wish and hope as “An Indian and A Retailer”, is that this happens soon. I hope that the industry status is granted and a comprehensive policy for this sector, including both offline and online retailers gets rolled out at the earliest. 

That would be fantastic and something to look forward to.

Is E-tail retailing or not?

E-Tail is a subset of retail and is largely about purchase of products (goods) online. However, the term e-commerce continues to be used for this segment. Apart from being misleading, this clearly is giving rise to policy approaches which disregards the aspects of a retail business which defines such e-tail operators.

If there is a defined FDI policy with regard to retail in India, there is no need for a separate policy and guidelines for e-tailing.

Yet, policy guidelines pertaining to e-tailing, wrongly described as e-commerce, keeps getting notified. The recent guidelines which came into effect from 1st February 2019, is a case in point.

Some points with regard to the dissonance created by guidelines pertaining to online shopping but defined as e-commerce have been explained in this article published in “The Hindu Business Line”. Click on this link to read the article titled, “The sting in the e-tail”.

The larger issue which is being conveniently ignored is industry status for the Retail Sector in India. Notifying this would not only help to streamline policy with regard to the various constituents of this sector but also enable the sector to growth.

Will this happen?

Policy Clarity required to enable Indian Retail

Trade in India is centuries old and historically the stories of our spices, etc., reaching many foreign shores, abound. From a historical perspective, it was these riches that attracted traders from overseas and the subsequent developments led to East India Company establishing a trading base first and then making India into its colony. This historical turn of events might have left a deep and long lasting imprint on the collective psyche which might be manifesting itself in the form of the vigorous and violent opposition to FDI in multi brand retail, today. 

Over the years we have largely seen shop keepers with a few exceptions where businesses managed a chain of stores. It is only from the mid 90s that Retail as a concept emerged in India. Understanding the differentiation between "Shop Keeping" and Retailing is very important. Their approach to business and priorities are completely different. Similarly clubbing eTail (Online Shopping) with eCommerce with regard to policy is incorrect.

As a start, Indian Retail needs Industry status and a cohesive approach with regard to policy-making and governance. My thoughts towards enabling the sector has been published as a Retail Report titled as "Six steps to redefining retail rules" in The Hindu Business Line. (Click on the link to read the article)

Price and Value Perception; of products as also businesses!

I recently read an interesting article in Times of India (Click here to read the article) about physical retail offering competitive and lower prices. This is from a report published recently by Goldman Sachs and compares the prices of few categories and some examples are in the visual below. 

My long held view is that online is not going to destroy physical shopping. At the very least, this is not going to happen in the short or even medium term. I have seen concerns similar to this from the mid 90s and more recently in the context of FDI in Retail. When supermarkets and then hypermarkets came into India, everyone was predicting the demise of the local grocer (Kirana store), This has definitely not happened. In fact after almost two decades the modern trade segment is just about 10% of the total Retail sector in India. This is in spite of the fact that the retail sector has grown from approximately USD 200 Billion in 2000 to close to 600 Billion in 2015. This clearly indicates that the conventional outlets are growing and growing significantly. The share of modern trade (Organised Sector) is expected to increase to 13% by 2019 – 2020.

These percentages might vary depending on the report you read. However, the macro picture remains the same. Modern trade is still a small contributor to the overall retail sector in India. This share might drop much lower if food & grocery alone is considered.

Online retail is roughly 10% of modern trade or 1% of the total retail sector in India as of now. This article states that Goldman Sachs estimates that online retail would grow to be 22% of the modern trade in the next five years.

Seems to be extremely optimistic!

The widely varying, but always optimistic projections regarding online retail is best captured a detailed article in Livemint (Click here to read the article).

The variance between the lowest and highest estimate of online retail in 2020 USD 70 Billion. To put that in context, The modern trade contribution to the overall retail sector in India would be in the range of $ 60 Billion TODAY! 

In summary I can only hope that the investors pouring money into the online space do two things –

• Physical retail is an important segment and investing there might be worthwhile.
• Put someone to work to cross tally and tabulate all the various percentages and figures being quoted in the various reports about retail in India. The variances across all these forecasts and projections might be a wake-up call.

Image courtesy - Times of India

Industry status for Retail in India might now be considered

In June  2014 I had penned “A Retailer’s wish list to Shri Modi” which was published in ET Retail. Within a span of 100 days I got an update about one of the points highlighted in the wish list.

The Deputy Secretary of the Ministry of Consumer affairs, Food and Public Distribution has written to The Secretary, Department of Industrial Policy and Promotion requesting that the proposal of according industry status to retail be discussed and further necessary action to be taken if found to be suitable.

This letter was copied to The Hon'ble Prime Minister of India and myself.

The key highlights of why industry status would be of great help is as follows –

• Would help classify Retail and define different guidelines for the various segments.
• Streamline the licensing and other regulatory systems into a single window.
• Help to enable national platforms like a national registry of products which will make the introduction of computerized billing easier.
• Enable skill and vocational training and employment generation
• Ease of financing as guidelines which are specific to Retail can be notified.

Plus, there are many more game changing implications. I do hope that this Retailer's wish comes true.

I am very impressed and needless to say thrilled to have received this letter copy. Kudos to the Prime Minister and his team for reading and responding to this Retailer.

Click here to read the wish list

Point & Counterpoint: What about the issues that exist today?

It is actually very heart rending to hear of all the supposedly extremes that are waiting to fall upon and ravage our lives, thanks to the FDI announcement in Retail. One of the comments in the debate was whether the MNC Retailer will bother about the farmer’s daughter’s wedding or something like that. I wondered if the local moneylender and their bouncers are nowadays taking so much of interest in the welfare of farmer's family that they are killing themselves.

 

I Read an article about how we are losing Rice varieties in today’s paper (link to the article and discussion is on my page) and something we all know came to my mind. The poor farmer has never been a priority or in focus. Increasing use of pesticides is already rampant and what is being done about it? Cultivation patterns are more by default than design. What is being done about that? The children of farmers go away after studying to work in call-centres. We are OK with these young adults becoming telephone operators but are concerned that similar young people will become sales girls and sales boys.

 

While I am not condoning anything which is incorrect, I do ask for some objectivity from all those who are making this out to be the single, sole reason why India will perish soon. Also, neither am I saying that FDI in Retail is the panacea of all evil, it will transform India and soon we will all be driving around on gold plated roads. Everything has a good and bad side to it. Sense and sensibility is to use the good and manage the bad to minimise the negative impact. Let us do the same with Retail first and the FDI will sort itself out.

 

Please click on this link to join the discussion on my Facebook page and also do LIKE the page.

Let the games begin!!

The phrase “Let the games begin” is associated with Roman history and how this was used to distract the people from the various issues that the state of Rome was facing at that time. I find this whole announcement rigmarole about Retail FDI without any significant development on the ground somewhat similar.

 

“Government clears FDI in multi brand retail”, was the HOT news of the day. Essentially this will now allow 51% FDI by international Retail chains who have been looking forward to this for quite some time now.

 

The larger question is whether this is a step forward? Is there justifiable cause to cheer and plan accordingly or not?

 

In November 2011 when the cabinet cleared the Retail FDI proposal, I had posted about the anomalies and the constraints which might make this decision a non starter. Many if not all of those pre-conditions still exist with regard to the government’s decision and I wonder if this decision is intended to be implemented at all or just a good distraction from the several woes which are dogging the Indian economy.

 

Let us start with the fact that Retail is not an industry, a pet peeve of mine. The FDI decision is subject to the respective state’s willingness to allow this. I find this clause to the most ridiculous and cannot think of any other sector where this has been applied. For argument’s sake imagine if the Telecom revolution and mobile telephony was subject to such a rule. What would have happened to telecom? Ridiculous is an understatement for such a stand.

 

What is the logic in restricting the Retail FDI to towns with 10 Lakhs plus population? And also stating that if any state or union territory does not have any such town, then FDI is allowed in the largest/ larger town? If the old argument of protecting the small trader is being trotted out, it makes no sense at all. The fact remains that several studies have proven that the larger issue for the small trader is the lack of continuity as the next generation is usually not interested in managing these shops.

 

Possibly, one of the few sensible clauses in this FDI decision is that of investing 50% in the back end. However, even that is a non starter if fundamental changes are not made to key statutes and legislation like re looking at the APMC act. Now, let us consider the populist but impractical statement that states are allowed to decide whether they would allow FDI or not. State A allows FDI and stores are set up. Sourcing for many products might be from State B or C which has decided not to allow Retail FDI. As a business man would you be inclined to invest in State B or C with regard to the back end?

 

After this announcement the swords are drawn and the air is thick with talks of continuing support to the government. For all you know, this FDI decision might be eclipsed by an election in which case it will be back to square one.

 

So, Let the games begin!

Time to change the current Lose:Lose scenario

"The Hindu" today had this outstanding cartoon which captures the essence of India's problem with supply chain, agri sourcing, etc., which is directly impacting both the farmers and the end consumers. Drastic and immediate change is required starting from relooking at the agri sourcing systems and laws like APMC, Focus on supply chain and cold chain and last but not the least enabling modern Retail chains to invest in this space.

Image coutesy- The Hindu, dated 21st August 2012

The FDI Decision

Late in the evening on the 24^th, I suddenly got a flurry of SMSes congratulating me about the FDI opening up for multi brand Retail. I was puzzled and also a bit amused. Puzzled because we are used to seeing many such decisions being watered down or even rolled back in the face of a larger issue where FDI regarding Retail might be sacrificed.

Amused, because of the premature celebratory mood. Of course the fact that the government has at least taken a stand now after going back and forth for years now is a cause to celebrate but is there enough in this cabinet decision for such an upbeat mood?

Well, I have my scepticism about this decision.

Firstly, the trend in the past few years has been the domination of coalition pressures on decisions. I will wait to see whether the adjournment of parliament extends to the next week and causes enough furore for any dilution or even roll back of this decision.

Second, this decision has already been announced with a major catch. The trade and commerce minister has gone on record stating that the final ground level implementation will be the state government’s prerogative because trade licenses, especially Shops & Establishment Act comes under their purview. What exactly does this mean? You are welcome to bring in big bucks, set up a corporate office and get a senior team in place. Then, go around to each chief minister to beg & plead to open stores?

Does this sound practical? In the current context only the Punjab CM has extended support to this decision. Most are silent and obviously some are vocal in their opposition. This has some very troubling implications.

Second are the various riders. Obviously the powers that be have very little clue about Retail and many of these conditions seem very food & grocery Retail specific. For example, take the clause of sourcing a third of products from 'micro and small industries’.  Take Toys as a category which hardly has any noticeable modern trade presence. If an international operator enters the country, 30% of their range has to be from local small scale industries or artisans. Sure, you can include the wooden toys of Srirangapatnam and a few such regional specialities. Will this add up to 30%? I don’t think so.

Does this enable at least the food and grocery formats properly? No. Take the other factor of 50% of  the investment needs to be in the back end. Contrast this with the reality of limitations like the APMC legislation, varied taxation and octroi, etc. What use will this back end be if there are other constraints that stop such chains from sourcing effectively?

What is the logic of limiting these operators to the top 50 odd towns based on population out of close to 8,000 towns in India? In fact this is an oxymoron to the arguments for allowing FDI in terms of employment generation. Should at least a part of these chains be mandated to open in regions which need local impetus? Then there will be overall growth of that region.

So, all I can say is so far so good. At least there is now a decision around which debate can be built and hopefully meaningful improvements to the policy made.

Lastly, there is an urgent need for experienced Indian Retailers to be involved in this and not only as providers as opinions. That would ensure some method to the madness and bring to fore a far more important and pressing matter.

When is Retail going to be accorded an Industry status?

Reality Check!

I stay in one of those relatively quiet streets which does not have too much of traffic by virtue of it being a cul-de-sac. The other side of the coin is that the street is targeted as a free parking spot by everyone who knows of its location.

We often used to find that autorikshaws would be left parked through the night and they would then disappear in the morning. Given the current scenario where one never knows what danger lurks in such unknown vehicles the residents complained to the traffic police and they finally got the autos removed.

It was quite a surprise to learn that these autos were owned by a flower vendor. I shall come back to this.

Today morning while out for a walk I saw a person come in a scooter, park it, open a Maruti Van and get ready to drive away. I stopped this person and asked him who he was and why he had parked the van in the street? He said that the van also belongs to the flower vendor whose autos had been removed. He further explained that they park all the vehicles here as it was safe!

Now, this flower vendor typically stands outside a supermarket on the main road and sells flowers which are piled up on a wicker tray, mounted to his cycle. His typical bargaining point is how a few rupees will not make a difference to the customer but is a big difference to him. The poor guy!

This poor guy owns a couple of autos, a Maruti van, a scooter and that’s only what we have come to know. Obviously he pays no sales tax or any other government levies although he uses all the civic amenities. As often mentioned by me, I do admire the business acumen of these Indian traders. At the same time, it is such smart and savvy people that the government wants to protect because of which the FDI debate is raging.

If FDI is allowed and corporate Retail grows there will be more accountability, increased tax inflows and more credible employment opportunities. Why are we avoiding this step forward?

In this context I had participated in a panel discussion about this topic organised by SSN School of Management & Computer Applications and The Business Line Club. (The coverage about this event can be found on this URL - It wont be a cakewalk for foreign retailers). One of the participants asked the mandatory question of whether FDI will kill the small Retailer. I do wish I can bring him and introduce him to the poor flower vendor who owns a few autos, Maruti van, etc. etc.

Discussion Paper about FDI in Multi Brand Retail

In April 26th DIPP had announced (as reported in the press) that the discussion paper would be released and discussions would start next month. Promptly the next day the Commerce Minister categorically states that the government is currently not working on the possibility of FDI in Retail. This changing stance seems to find an echo in the paper even after it has been finally released. To quote a point stated right at the start of the note “The views expressed in this discussion paper should not be construed as the views of the government. The department hopes to generate informed discussion on the subject, so as to enable the Government to take an appropriate policy decision at the appropriate time”.

DIPP is a department of the Commerce Ministry. This is a detailed discussion note prepared by this department and quotes several facts, figures and refers to several research and studies done including one by a Parliamentary standing committee. Yet, it starts by absolving any Government perspective to the note. In light of this, how seriously can anyone take this note? Is it yet another document put together for the want of anything else to do?

A detailed perspective about this was published in "The Hindu Business Line"  today.  Look forward to your feedback and views.

What a Birthday present!!

Almost to the day, it has been a year since “An Indian and A Retailer” made its debut. The thoughts of this blog grew into an in-depth, experiential book about Indian Retail, titled “The INDIAN reTALEs”.

All this happened in the space of the past 365 or maybe 366 days!

And on the first birthday of the blog, I hold a physical copy of “The INDIAN reTALEs” and wish a very happy birthday to the blog.

This book has been published by Unicorn Books and is now available for purchase with an online discount of 25% at pustakmahal (dot) com. It would be available at leading book stores over the next couple of weeks.

Please start enquiring at your nearest book store about the book and get your hands on it as soon as possible.

Thanks to everyone who supported, encouraged and motivated me along this journey. Hope you enjoy reading the tales as much as you have this blog.

To be launched soon...

March 20th, 2009 is a memorable day as that is when I started the blog “An Indian and A Retailer”. It was actually started suddenly on a whim and before I knew, it had gained a life and momentum of its own. A whole lot of people saw the blog, wrote to me and commented on the posts. Very soon, it was being quoted by Retail and Strategy consultants during their presentations.

I came to know about the widespread popularity of the blog when one such consultant referred to a post during their presentation regarding supply chain. Several members of the audience were my good friends and ex colleagues. Obviously they wasted no time in calling me up and congratulating me.

The blog has been receiving a steady viewership and the walk-in counter is set to cross the 12,000 mark soon. Indicating that on an average 1,000 odd people view my blog every month. 30, persons a day. Not bad for something I started just like that!

My sincere thanks to all those who have steadily viewed and supported the blog.

This support and motivation was voiced to me by several visitors to the blog in the form of a suggestion. Why not write a book. Their contention was that given the depth and detail of Retail information and knowledge available, why not expand on the same and publish a book. It would reach more people and benefit them.

In June 2009, I started acting on this suggestion and worked on putting a book together while contacting publishers. March 2010, this dream effort is ready to see the light of the day. Just ahead of the first anniversary of this blog.

Presenting - “The Indian reTALEs”

The book should be published shortly and for now the cover and an overview can be viewed on @ unicornbooks (dot) com.

Look forward to a similar support to the book. Please do spread the word; Post on your Facebook profiles, Tweet about it, mail your contacts, etc. Please help propagate the news of “The Indian reTALEs”.

Intricacies of Indian Retail

This article of mine appeared in 'Retail &Leisure International', which is a UK based magazine in their Sept '09 issue.

The Indian market is a strong attraction for any marketer simply because of the vast consumer base. A population of billion plus, of which approximately a third live in urban areas and this is expected to go up to 40% by 2030. This is enough to make any enterprise worthwhile, especially retail and more so food retailing. Most international chains are looking at India keenly and waiting for the opening up of FDI eagerly to partake of this market opportunity.

However, there are several factors that an international operator needs to be aware of and more importantly build into their entry strategy, failing which, even after FDI opens up the going would not be smooth.

• Competition – Apart from the thousands of corporate chain stores that now dot the Indian Retailscape, there are approximately 12 million conventional outlets. Of these, roughly 60% to 70% are grocery stores and a third is in urban centers. Taking into account the geographical spread of India, this simply means that there are far more number of stores in cities and they continue to offer a compelling value proposition, fronted by convenience.
• Also, the conventional stores operate with a significant cost structure advantage as also generate far higher sales per sq. ft. because of their smaller size. Such stores would definitely not be able to generate higher margins as compared to chain stores, especially those who leverage global sourcing. However, the relatively higher sales and far lower cost structure would enable these stores to comfortably take on any competition in their stride. Therefore, any chain store would require a dual strategy to manage competition from other chain stores as also the large number of neighborhood conventional outlets.
• The Indian consumer – The consumer behavior is changing towards increased consumption and preference for a better lifestyle. However, the core sense of thrift and caution has not been eroded completely and the recent downturn has made these consumers more value driven. So pricing and promotions are not just important, they are crucial.
• Indian cities – Barring a few newer cities, most have grown and morphed over the years. A substantial part of this development happened without zoning laws and therefore the cities have residential areas interspersed with commercial development. It is only in the past few years that well defined residential suburbs have come about and even that has not completely removed residences from city centers. If a store wants to leverage all the relevant catchment areas, real estate costs are higher in most parts of a city. If the store network plans on averaging this by having stores in the emerging residential suburbs, the sales would usually be inverse to the rental and by that logic the average sales would be lower.
• Supply chain – The sheer physical spread of the country makes for a challenge with regards to supply chain. Compounding this is the current taxation and levies which does not allow for a distribution center network that can be planned basis distance alone. However, the recent budget proposal to implement GST by 2010 is a step in the right direction and would go a long way in enabling chains to plan more efficient supply chain system.
• Other statutory and legal framework constraints – Today a store needs to obtain as many as 20 – 30 different licenses to start operations and usually from different authorities. Similarly, there is a legislation called APMC act in most states which effectively prohibits direct procurement from farmers. Some cities levy an entry tax called Octroi, which indirectly forces a retailer to either set up a distribution center in a higher rent area within the city or incur higher transportation costs for store fills.
• MRP – Although there are many instances of price regulation in the retail sector across the world, I don’t think any other country enforces the Maximum Retail Price (MRP) rule. This price is printed on product and is applicable on all packaged products. This price is used to calculate certain taxes and manufacturers peg the margin structure with regards to this. As a corporate entity any chain store does not have the luxury of selling above this price and hence it acts like a glass ceiling. Even in high cost locations where the catchment might not be particularly bothered about the price, a retailer can sell only at MRP, whereas in price sensitive areas one is forced to discount, especially for KVIs.

I guess by now the reader would have concluded that my secret mission is to deter any international retailer from entering the Indian market. However, that is not the case. My intent is to portray a realistic picture that balances the huge market potential of Indian Retail with the ground realities that one would have to manage.

My suggestion to any international operator watching the Indian Retailscape with the intent of future entry would be to do so immediately leveraging the Cash & Carry route, simply because it is now immediately possible and would enable any retailer to build a ‘game changing’ back end infrastructure.

Take the food segment for example. It is no use focusing only on distribution centers, transportation, etc as an entry strategy. This would address only 60% to 70% of the household consumption in terms of CPG/ packaged products. Also, given the MRP scenario, there is a limit to how much value can be generated by focusing on the supply chain of these categories.

30% to 40% of Indian consumption is basic staples and grocery items as also fresh produce. Significant work needs to be done in this sphere to extract value from the supply chain. Being dependent on the same wholesale/ semi-wholesale chain with marginal infrastructure at the tail end will not help. Paradigm changing initiatives like end to end cold chain, cooperative/ corporate farm, etc. should be explored and indulged in to extract the value that is present, but is now lost due to damages and intermediaries. The APMC act not withstanding, such initiatives are possible and would provide a competitive edge to any retailer.

The game changer for a new entrant would not be setting up yet another store with maybe better facilities but in offering a significantly better value proposition. And for that, the key would be the back end.

Moving away from the food segment, several other product categories have not even been explored; Home Improvement being one. Housing being a key aspiration for Indians, the economic recovery will definitely see a boom in this sector. A retailer who understands the intricacies of Indian Retail would only stand to garner a major share of this boom.

In summary I would state that bring on the global best practices, but Indianize it for it to work, and it will.

Is there a fear psychosis?

The above picture was published in today’s “The Hindu” newspaper and shows the Fort St. George which was where the East India Company built a fort and formed a settlement. In a year’s time they had built a warehouse and a stockade.

Retail or trading as it used to be in those days has truly been the building blocks of an empire. Even today Retail in most developed countries is the largest employment provider and a significant contributor to the economy. In India too this might be the case, excepting that no one knows the true picture because of the fragmented nature of this sector.

The above picture prompted another thought. Is there a strong fear psychosis behind not allowing international retailers into India? Is there concern about a repeat of East India Company? The fact of the matter is that retail as a sector would definitely be a strong component of any economy. The government needs to think along the lines of allowing retail FDI while retaining strong control and curbs and not be blind to its benefits because of what happened centuries ago.

Lastly, I am not too familiar with the retail FDI rules in the UK but from what I know there has been no space for Retail players from other countries apart from a few exceptions where international operators have taken over UK Retailers such as ASDA.

Is that an alternative route to go about developing Indian Retail? Focus on enabling local corporates to build a strong and vibrant industry?

Regardless of the route chosen, the government can ill afford to sit on a fence dithering about how to manage this industry while consumers are voting through their wallets for the modern formats and chain stores.

Welcome to India — We are like that only!

The Hindu Business Line has published my article about the Bharti-Walmart's Cash & Carry store opening.

"When Sam Walton opened his first store all those years ago, he had the luxury of being a pioneer and could afford to experiment, make mistakes and perfect the model — without being under the public glare. However, the first store of Bharti Wal- Mart cannot afford this luxury. Apart from being in retail, it is a joint venture with a leading Indian and US corporate. Its every move will be watched and commented upon, second-guessed and debated. A couple of thoughts came to my mind while reading about the opening of the first store."

The article's URL is -

- Welcome to India - We are like that only!

Will FDI in Retail happen now?

With a clear majority and a free “hand”, the new government might want to implement some of the things which had to be compromised in the previous innings. One such was the allowing of FDI in Retail without strings such as single brand or cash & carry, etc. Most people in the Retail sector today expect that FDI in Retail would soon be allowed and this would help big developments and also bring in global expertise.

A couple of points in my mind about this development and the expectations from such an outcome –

1. Industry status for Retail is required immediately, thereby enabling Retail to avail various benefits from this. This would do much in addressing several issues related to licensing, statutory matters and more importantly access to credit.
2. Regardless of the industry status, licensing requirements for Retail should be streamlined and unified. Today, depending on the range of products one has in a store as many as 13 – 15 different kinds of licenses are required across a wide range of governmental agencies/ departments. Apart from the time and effort required to get these licenses, which could also vary depending on the state, the effort needed to renew and manage these is time consuming and is a pain.
3. MRP, do we need it? Had written about this earlier (http://v-rajesh.blogspot.com/2009/04/mrp-do-we-need-it.html ) and I think the time has come to do away with this or relook at its role. When significant investments are expected in Retail, be it the front end or the back end, the operators should be allowed to leverage pricing based on the other components of the value proposition. To force fit one price for all, disregarding costs of location, service, etc., is not viable in the long run.
4. Zoning and classification in cities is long overdue and in some cases only on paper. How will this help? The rental costs would be rationalized, especially as we seem to be heading towards a recovery and possible escalation of real estate prices again.

FDI or no FDI, the above four points need immediate attention and some forward thinking solutions if Retail as a sector needs to grow and thrive over a period of time.
Of course, some would include a 5th point of defining/ restricting sizes, formats and locations to protect the small kiranas. However, I don’t think that is feasible and anyways with proper zoning classifications this would be taken care of in a way. Also, if Kirana stores were accorded a status similar to small scale industries, they would fare better. Anyways, as I mentioned in another post of mine (http://v-rajesh.blogspot.com/2009/04/hidden-advantage.html), their cost structure gives them several inherent advantages and the only disadvantage they have is not being able to aggregate volumes.

Which brings me to an important point with regards to entrants waiting to leverage the opening up of FDI. It would be prudent to understand the Indian customers and focus on the backend more than the front end and this can be done immediately without waiting for FDI rules to change. Worse case scenario, such operators can leverage the supply chain that they invest in for the other Retailers.

Here is where understanding Indian consuming habits is crucial. It is no use focusing only of distribution centres, transportation, etc. This would address only 60% to 70% of the household consumption in terms of FMCG/ packaged products. Also, given the MRP scenario, there is a limit to how much value can be generated by focusing on the supply chain of these categories.

30% to 40% of Indian consumption is basic staples and grocery items as also fresh products. Significant work needs to be done in this sphere to extract value from the supply chain. Being dependent on the same wholesale/ semi-wholesale chain with marginal infrastructure at the tail end will not help. Paradigm changing initiatives like end to end cold chain, cooperative/ corporate farm, etc. needs to be explored and indulged in to extract the value that is present, but is now lost due to damages and intermediaries.

Indian consumers have already experienced and in most cases embraced the self service, modern formats. Therefore, the game changer for a new entrant would not be setting up another air conditioned store with maybe better facilities but in offering a significantly better value proposition. And for that, the key would be the back end.

In summary, FDI might be around the corner. But, to truly leverage that the government should look at making crucial changes and the operators should start working now in putting the infrastructure in place.