The decision to allow foreign direct investment in retail is probably the most radical reform move in the last 10 years. Yet, in the din of the highly politicised battle over it and the competitive catering to sectional interests, what’s being lost is a sense of what it means for India as a whole and a billion-plus Indians, says Sangeetha Chengappa .

The 1998 movie You’ve Got Mail, starring Tom Hanks and Meg Ryan, shows the angst of a small-time shop-owner who is forced to shut down the children’s bookshop she inherited from her mother when a mega bookstore chain enters the neighbourhood.

Closer home, the Manmohan Singh government’s decision to allow foreign supermarket giants into this nation of mom-n-pop shop-owners has given rise to a similar response, only more angry, more trenchant than Meg Ryan’s, as they fear that the onslaught of the Walmarts and Tescos will wipe their businesses out.

Their fears are well-known. The Indian retail sector comprises some 15 million small outlets employing nearly 40 million people. Organised retail, a recent phenomenon, currently accounts only for a small fraction – 8 per cent – of the $450 billion, and fast-growing, pie, and having largely failed to effect changes in the farm-to-fork supply chain, they have barely made a dent in that landscape.

But if foreign retail giants, who have mastered sourcing, supply chain and the front-end of retailing, are allowed in, that could all change very rapidly, driving them out of businesses they have run for years, or even decades, and snatching away their livelihoods.

Those fears are unfounded, say the votaries of FDI in supermarkets. Large format retailers like Walmart, Tesco and Carrefour usually locate themselves in the suburbs and cater to consumers who drive down long distances to stock up once a month.

Their pull factor lies in the fact that with one visit to the supermarket, the consumer gets everything he wants under one roof, at low prices, and without the hassle of looking for parking space.

But the traditional small retailer will still hold his own because he’s closer to the customer, knows her and offers quick and personalised service and credit. This is especially true of food retailing, especially fruits and vegetables, which Indians like to buy daily or several times a week.

“The neighbourhood stores will co-exist with the large box formats serving households. While monthly planned shopping may happen at the organised supermarkets, for daily top-ups and quick requirement items, consumers will still go to the local store,” says Vivek Nair, Retail-Head, India at Vestian Global.

“There are several large format retailers in my neighbourhood like FoodWorld, Fabmall, Spencers, etc., I still prefer to shop at the local kirana store. The owner knows me by name, knows exactly what quality and quantity I want, delivers at my doorstep and even gives me a monthly credit account. I save 40-45 minutes that I would typically waste walking down the aisles of a supermarket looking for what I need and then standing in a long queue to pay,” says Anita Raghuraman, a busy marketing professional and mother of two, who buys fresh vegetables and fruits and stocks up on groceries twice a week.

Still, kirana stores will have to change, innovate, improvise to survive as the supermarkets will inevitably force changes in consumers’ shopping habits and aspirations. But it’s not a secret that the Indian small retailer does not know about.

Take the case of a small retailer, MK Ahmed, which has catered to residents of an upmarket locality in Bengaluru since the early 1980s. When the first wave of big retail happened in the 1990s, and FoodWorld set up shop too close for comfort, MK Ahmed did not shudder in fear and shut down.

Instead, its proprietors rebranded it MK Retail and expanded from one 4,000 sft store to seven stores across Bengaluru, four of which are 20,000 sft supermarkets.

“We increased and diversified our stocks to fulfill most of our customers’ needs under one roof. We started sourcing locally, nationally and internationally from China and Europe, all thanks to the threat from competition. Later, Reliance Fresh, More and Spencers too came in, but we were prepared,” says K.N. Niyas, Partner, MK Retail.

Niyas says he welcomes FDI in retail because it will give retail chains like his access to better retail technologies at cheaper prices.

“Earlier, we used to pay 50 paise per barcode sticker, which was expensive. After the large Indian retail players came in, the volumes they bought brought the price down for us, too. Now, we buy them for 4 paise”.

But small retailers are not the only ones who are worried. Farmers and producers of non-food goods, too, have expressed anxiety over FDI in retail, although they see reason for some cheer, too. The coming of large retailers, who might source goods not only for the Indian market but for their global requirements, will provide them opportunities to expand production.

But while in the current fragmented retail landscape they can dictate prices to small retailers, they will be at the receiving end when they do business with large retailers. Walmart, after all, is known to drive down the price it pays for goods so low that while suppliers’ revenues grow, their profitability shrinks to size zero, indeed driving many out of business. That’s how Walmart is able to offer low prices to the retail customer.

Counters Dr. Gibson Vedamani, a former head of the Retail Association of India, “There is already a nexus between mandi operators and middlemen who squeeze farmers into selling their produce at unreasonable rates. Foreign retailers will actually guarantee minimum prices and eliminate middlemen."

"Moreover, they will set up world-class supply chains. Some 30-40 per cent of food that the farmer grows is wasted today, that will be eliminated. I have met farmers who are happy as they have taken on contract farming and supply mangoes and coconuts to large Indian retail chains at prices that are higher than what the mandi operators ever gave them.”

The other big concern over FDI in retail is the prospect of millions losing jobs as foreign retailers look for high-efficiency supply chains. Critics of big retail point out that the supply chain serving a big retailer like Walmart tends to employ far fewer people than one serving millions of individual small retailers and therefore the introduction of FDI in retail will lead to massive job losses.

But the government estimates that the opening up will lead to the creation of a larger retail pie and to the creation of 10 million new jobs within the next three years.

“Half of those jobs will be generated at the front-end, in positions such as sales associates, cashiers, customer services staff, security guards, in-store security personnel, IT and systems for retail staff, customer relationship associates, loaders/unloaders, merchandise refilling staff, department managers, store managers and regional and national managers”, says Harminder Sahni, MD of retail consulting firm Wazir Advisors.

“Around 20 per cent of the new jobs will be in warehousing and logistics-related areas. The rest will come in manufacturing services such as pre-processing and processing.”

Questions remain, especially due to the way the government approached the whole issue. First, it did not hold any consultation process with any stakeholder, nor did it evolve a political consensus, choosing instead to make an executive decision while the Parliament was in session.

Then, it went about touting benefits that are not too apparent at this point in time. For one, it said, big retail will help curb inflation. If that were true, why is it that India is reeling under double digit inflation despite several domestic retail chains being in operation already?

In the same breath, the government said big retailers would pay farmers higher prices than they can currently get. How will big retail then manage to both pay farmers higher prices and still curb inflation?

Also, the idea that big retail would help improve the supply chain was touted even when domestic players were allowed in. Sadly, they have failed to build the infrastructure, the backward linkages and the systematization of retail logistics. Neither do they offer farmers and other producers guarantees on uptake and prices.

A regulatory body that was supposed to be set up three years ago to regulate supermarkets and how they deal with suppliers is yet to see the light of day, leaving the Indian retail sector totally unregulated.

As a result, consumers do get the convenience and a kick out of shopping in a supermarket, but the goods – especially perishables like fruits and vegetables – are sub-standard, pushing the consumer, for whom the novelty wears off rather quickly, back to the pavement vendor, the local bazaar, and the independent retailer.

Yet, those are not lessons too hard to learn.

As Shopper’s Stop MD Govind Shrikande points out, China has successfully drawn in FDI in retail in phases, and “the number of small retailers in China has doubled post-FDI. Chinese exports and GDP growth have continued unabated and a majority of the top 20 retail chains in China are Chinese-owned. Kirana stores continue to dot the streets of China and have successfully upgraded themselves to compete with big retailers”.

Malaysia and Thailand, on the other hand, allowed FDI without restrictions initially, but quickly moved to place restrictions on how foreign retailers operated, especially in how they dealt with their suppliers, reaping the benefits of FDI while protecting local farmers and businesses.

So, are foreign supermarkets unvarnished evil or is FDI in retail the best thing to happen to India? The jury is still out on that. Chances are, it’s a bit of both.

What the political opposition may be missing in the din of its own noise, though, is that while it is true that the coming of foreign retailers may force many small retailers to change the way they do business or shut down, and many suppliers may become trapped in one-to-one contract relationships in which the big retailer has the upper hand, there’s a larger section of India, its billion-plus consumers, who stand to benefit from their arrival and greater competition.

And in a nation where the headline story is one of growing consumer demand in both urban and rural areas for branded goods and for a better shopping experience, the billion-plus Indian consumers constitute a larger vote-bank than any particular group within it.

To act in the interest of a few, ignoring the many, is to be penny wise, pound foolish. Both economically, and politically.

What the Aye-sayers say

* FDI in retail will create millions of jobs at the front-end in retail stores and in the back-end supply chain and logistics, as well in manufacturing services.

* Farmers will get remunerative prices for their produce. Currently, mandi operators and middlemen are squeezing the farmer.

* Consumers will get low prices as large retailers pass on cost savings from efficiences. They will also get better quality of goods and services, as well as no questions asked replace/return/exchange policies.

* Small and medium enterprises can expand business as large retailers will procure from them for Indian and global markets.

* The highly-fragmented retail sector will finally see some order and discipline, and therefore efficiency.

What the Nay-sayers say

* Walmart and other retailers kill local mom-n-pop stores with predatory pricing.

* Big retailers squeeze suppliers, including farmers, over price and delay payments. Walmart is often accused of using strong-arm tactics. In India, three years ago, one tormented supplier in fact put up a sign outside his firm, “Tresspassers and Reliance management will be prosecuted”.

* Foreign retailers cause job losses in the back-end as they seek efficiency and seek control over suppliers’ costs.

* Big retailers do not care too much for labour laws and are not employee-friendly.

* Once they eliminate middlemen and obtain a captive base of suppliers and customers, big retailers begin to dictate terms to both suppliers and customers.

Retail analytics

* $450 bn: Size of Indian retail market

* $422 bn: Walmart’s global revenue in 2011

* 15 mn: Number of Indian small retailers

* 40 mn: Number of people employed in retail sector

* 8%: Fraction of Indian market that organized retail accounts for

* 14% of Indian GDP comes from retail
Who wants in?

Brands

Abercrombie and Fitch
H&M
Desigual
Tully’s Coffee
Burberry perfumes and accessories
Sprungli Swiss Confectionery
GAP
Old Navy
Banana Republic
FitFlop footwear
IKEA

Supermarkets

Metro, Germany
Aeon, Japan
Lawson, Japan
Carrefour, France
Auchan, France
Target, US
Walmart, US
Morrisons, UK
Sainsbury’s, UK
Tesco, UK