In the second part of the series, the author writes about supermarkets and our very own kirana stores, and their relevance in wake of opening up of the retail sector

At the bottom of the pyramid is the consumer who buys his provisions on a day-to-day basis, often limited to Rs5 to Rs10 worth at a time. For this, the kirana shop is the only provider. The consumer virtually no choice and has to be content with what the kirana shop gives him. Of course, there are personal comforts as the shop owner keeps talking to you, knows you and often gives you credit and will have stuff delivered to your home. However, you will not get to see the produce except as is laid out in the sacks and there would be very minimal choices. The kirana shop days are clearly numbered. Few of them will upgrade themselves in to supermarkets and thrive but many of them will surely shut down.
 

I have been in Chennai for slightly more than a decade. Even at that time, Chennai had its supermarkets—Niligiris and Spencers—for many decades. By the early nineties, many kirana shops had converted or scaled up to supermarkets. Today, these shops, with less space, command high level of footfalls and customer loyalty and offer better choices than the big-name counterparts. Most of these shops are family businesses which keep interacting with the customers and change the stocking profile as per their needs. Chennai is full of shops like these. We do the monthly provisions and groceries purchases from shops like these.
 

Another segment is the discerning customer who will buy a specific product from a specific location only. For instance, in Matunga, a wealthy suburb of Mumbai, Gujarati households will buy most of their stuff from a store called “Chheda Stores”, which offers premium quality at premium price—a niche that is unlikely to be disturbed.
 

Once the consumer reaches a level where purchases can be done in one or two rounds a month, he/she would shop in an air-conditioned comfort of a supermarket and look at different labels, and get things done under one roof. This is the aspiration for the consumer who is at the bottom of the pyramid. Everyone has a right to a better experience and this is where the future of retail lies.
 

Coming to the supermarket chains, there are major issues. Getting space at reasonable rents in most metro cities is ruled out, except maybe the outskirts. Even small format stores in prime locations are unable to make money. To give an example, Wal-Mart is focused on having its presence in smaller towns. It is yet to venture into New York given the rentals there. The present chains have started off in the metros and going in to tier-II cities. A few of them already have foreign tie ups and signal intent to get in to formal partnership once government policies are in place. So, let us not expect any radical changes when foreign brand names appear on the store shingle.
 

One thing that will become the bone of contention is that retail FDI will also hinge on what is sold through the store. The range of products sold through chains like Wal-Mart, Carrefour, etc is mind boggling and includes virtually everything that a home would need, not just be horticulture produce, textiles or home needs—everything. Whilst the domestic customer will be happy, what will happen is that most of the produce would be imported. For example, if you have been to Andheri, another suburb of Mumbai, there is a shop called ‘Alfa’ that stocks one of the biggest ranges of imported consumer products, from the latest in electronics, soaps, perfumes, toys or furniture!  The new retail chains that come in will have all of this and more. Naturally, this will drive the domestic suppliers out of business.
 

However, it is not that retail FDI will take off in a hurry. The biggest challenge is talent. You have to just go to any retail chain and see the problem. Talking to one of the supermarket chain managers, the feedback I got was about the staff issues relating to competence and integrity. India does not have a set of people who are willing to put in long hours in a store and wear the smile. There is apparently very little effort from the staff to learn the ropes and labour turnover is high.
 

And, to get the retail chain running, we need infrastructure and power. We need large properties at low rents, with huge parking lots and easy access. We need governments that do not tax movement of goods from one state to another. Without all this, FDI in retail is a non-starter. FDI in retail is like finding a brick; by itself it has no meaning and just a part of an edifice. To put the brick in place, you need everything else.
 

Retail chains are a financially unviable project so far in India, given that everyone seems to be losing money. Rentals are too high and nothing has been done to improve the supply chain. Going by what is happening so far, we have not even touched the surface. Who will gain?
 

At the end of the day, the consumer is going to gain. Lower prices? Maybe not. But surely better choice, transparency and fairness. Will the farmer benefit? He will find it very difficult to escape the middleman. Like middlemen in every profession, they will find ways to survive, especially given the reluctance of the white-collar retail chain guys to roll down their sleeves and get cracking. What about the kirana wala? Don’t worry, he will thrive one way or the other. In any case, he does you no good in terms of either quality or price. He is one whose days are numbered and has to upgrade to get better. He has ducked all taxes and cheated most consumers; no need to shed tears for him. Some professions become extinct over time.
 

To sum up, FDI in retail is merely a talking point for politicians. It makes no difference if it is closed or open. In any case, organised retail is spreading out big. Maybe FDI glamour will spread it out much quicker. It is best to recognise that change is upon us. Those state governments and the so called leftists, who oppose this for the sake of it, do not know what they are shouting at. They are like the dogs that bark, simply because it knows nothing else.
 

(The author can be reached at [email protected].)