Drivers of Change
The growing population and urbanisation with consumptive capacities has led to the growth of retailing sector. Consequent to the consistent growth of economy for the last one decade at around 8 per cent per annum, per capita income is also growing especially after liberalisation and implementation of new economic policies. This, in turn, has changed the lifestyle of people reinforced by exposure to overseas experience via satellite TV and personal visits. Increasing access to education has given employment opportunities for females, thus providing additional income and spending propensity. Unlike the older generation, such working families prefer to have shopping as an experience and buy everything they need under one roof. The tendency among the youth and middle-aged people to ‘spend now’ against ‘save for future’ is pushing consumption levels across income groups. In addition, emergence of shopping malls or supermarkets has increased access to many goods, brands and services in a place with modern facilities. The advent of information and communications technology (ICT) is yet another factor that has enabled online retail in a big way redefining the way things used to happen, with delivery of value for money of goods and services at individual’s convenience.
Trends in Food Retailing
As per the recent National Sample Survey Organisation data on consumption, there is a perceptible diversification of food intake both in urban and rural India. There is a shift towards high-value foods, comprising milk and milk products; fruits and vegetables; meat and fish. Besides, the demand for processed foods is also on the increase. Consequently, the demand for cereals particularly millets are on the decrease. Further, the share of food expenditure to total expenditure is decreasing with shift towards non-food, comfort and lifestyle goods. These changes in consumption are reflected in retail marketing as well. Food retailing is expected to grow with both organised and unorganised sectors co-existing. Many studies indicate that the retail sector is growing at 20 per cent per annum during recent years. Organised retail is expected to grow with more vigour in the coming years, with the better performance of the economy. Concentrating on the untapped rural retail market with huge demand is highly necessary which additionally provides scope for offering other goods and services necessary for agriculture, which in turn will have a positive impact on the production performance of the sector. The unorganised sector is offering keen competition to the organised sector as the overhead and transaction costs of the former are much lower. The organised sector is incurring higher cost due to higher rent; wages; logistic costs; and loss due to shrinkage, wastage and unsold inventory. The kirana stores are also changing to meet the challenges of organised retailers by offering branded products; parking space; customised services such as home delivery and credit facility, etc., apart from providing for bargains. These stores will continue, but their number will slowly come down in the future and they would have to adopt coping mechanisms to sustain in the business.
Changes needed – Backward and forward integration
Supermarkets are viewed as niche markets for high-income urban consumers. Consumer surveys, though limited, have indicated that supermarkets are not the preferred destination for consumers of food items like fresh fruits and vegetables; milk and milk products; eggs and fish, while organised retailers hold considerable share in grocery; processed foods and fast-moving consumer durables. The organised retailers are still experimenting with various formats of supply chain and are finding it difficult to organise backward linkages involving large number of marginal and small farmers in to their business model, making it too difficult for them to source the raw material competitively. The forward linkages are also weak due to the absence of required infrastructure as creating their own requires time and huge investments. Further, despite discounts, offers and advertisement, supermarket chains have not been able to attract the customers significantly. The format has been too novel and it may take some time for supermarkets to experiment and come up with an acceptable model and for consumers to get acceptance. While organised retailers would come up with best offers with efficient supply chain, consumer would develop store loyalty along with their willingness to have shopping as an experience. The maintenance of quality, hygiene and in-house branding by modern retailers has a clear edge over unorganised stores, but has other disadvantages of location (being few); fixed quantities; cash sale and unavailability of home delivery facilities.
Should FDI be allowed in organised retailing?
Presently, FDI per se is not allowed in multi-brand retailing; however, 100 per cent stake in wholesale cash-and-carry, and 51 per cent stake in single brand retail are permitted. Franchising is the main route through which single-brand retail is promoted. Similarly, the foreign companies are allowed to have collaborations like import/consolidation partners through which they can become involved in retailing. There has been a wide and fierce debate as to whether FDI should be allowed in organised retailing for the past few months. In fact, the Government of India had to retract the order passed allowing FDI in retailing due to pressure from its coalition partners. The argument for FDI that it will benefit the modern retailing by providing the latest technology, experience, novelty and more importantly capital is understandable. With their vast experience across the globe, the organised retailers will be in a better position to provide the much-needed dimension for the growth of the sector and help in reducing losses in supply chain. In case of fresh products, it helps in providing modern infrastructure such as cold chain; processing; storage; logistics, etc., that help in the long-run growth of industry. In fact, if the modern retail chains or supermarkets link farmers to markets, it will serve as an additional/alternate market channel which can benefit the farmers in realising higher returns through increased competitiveness. The core strength of the organised retail players lies in their capacity to expand the market which appears to be advantageous to unorganised producer–farmers.
Contrarily, the argument against FDI is mainly related to the future survival of the unorganised sector. The employment in this sector is quite considerable. It is estimated that there are 13 million kirana stores in the country of which 8.6 million are involved in the food retail business. These stores provide employment to the family and a vast majority of them employ one or two persons. With global majors participating in both wholesale and retail trade, it is feared that they will supersede the whole supply chain and may leave many stakeholders jobless. This argument is not totally untrue as Reardon, a noted researcher on supermarkets, has observed monopoly tendency of supermarkets by cornering the market share in the long run. But the current trend of growth of retail industry in India provides ample space for all kinds of players. There is adequate opportunity for small, medium and large players as the organised retail players are not in a position to enter in to B- and C- (small) cities and towns. International experience has clearly shown that both formats: organised and unorganised retailing would coexist with the market competitiveness increasing, thus promoting efficiency. Many countries, viz. China; Brazil; South Korea; Indonesia; Poland; Thailand and Vietnam have considerable share of the organised sector, with the small players still playing their role in the supply chain. The crucial issue at such a juncture is to upgrade the unorganised sector by adopting coping measures to offer better quality products at competitive prices to meet the demands of consumers.
Promotion of Organised Employment
Both modern and traditional retail formats offer employment opportunities to the workforce. But organised retailing has a clear edge in terms of creation of forward and backward integration in the supply chain, thereby providing vast scope for direct and indirect employment, for example in logistics; information technology (IT); storage; processing; packing; warehousing; exports; value addition, etc. The organised sector provides organised employment with better pay packages and quality jobs contributing more in terms of welfare. Many studies have shown higher women employment of women in retailing ensuring gender equity. Nearly half the employment generated will be for skilled and semi-skilled manpower that are locally available. In this direction, there is a need for capacity-building. The existing educational programmes and vocational training should be tuned to produce such skilled manpower suiting the demand of the industry. Some universities and institutes have designed graduate, post-graduate, diploma and certificate courses that will cater the need of the industry in terms of manpower requirement.
Conclusions
Retailing industry is set for a revolution with the entry of organised retailers or supermarkets. In such a transition, it affects the various market participants, viz. farmers, traders, commission agents, logistics providers and consumers differentially. Many studies have shown that consumers are the real winners as they have a wide choice of products and are able to buy them at competitive prices. Moreover, the branding of product has enhanced the product quality and safety; but there is no clear evidence to show that it has helped the farmer- producers, as hardly a few supermarkets are at present practicing backward integration. Their share in the total market especially for perishables like fruits and vegetables is too small to create any impact. They are in the process of evaluating various business models, which if implemented, will help in linking farmers to markets. Until and unless the supermarkets resort to strong backward and forward integration, their ability to source food materials competitively and expand the market share cannot be met. They shall have to come out with agri-business models that are inclusive of small and marginal farmers. There is a vast scope for specialist players involved in value addition as the market is moving towards high value and processed food items. The market intermediaries such as commission agents, wholesalers and traditional retailers have to adopt coping mechanisms to sustain and expand their business. On the whole, the changing paradigms in retailing should be evaluated in terms of welfare gains of the system as a whole rather than individual market participants.
