In a rather poignant scene in Zoya Akhtar’s Zindagi Na Milegi Dobara, the character played by Farhan Akhtar, is sitting face to face with his biological father, played by Naseeruddin Shah (in a brilliant cameo). As the story goes, Shah had abandoned Akhtar’s mother (played by Deepti Naval) after getting her pregnant and moved onto becoming a famous painter in Europe.
Akhtar finally calls up Shah, when on a holiday in Spain he and his two friends get involved in a drunken brawl and land up in jail. Shah comes and bails them out. After this, Akhtar asks Shah for the true reason behind abandoning his mother. To which Shah replies “Sach hota kya hai. . . sach ka har ek ka apna apna version hota hai!” (What is truth? Everybody has their own version of it)
This line written by Farhan Akhtar is at the heart of the current debate happening, after the decision made by the Congress led UPA government to allow foreign direct investment in multi-brand foreign retailing.
Those in favour of the decision have their own version of truth. And those against it have another version. Those in favour of the decision believe that allowing foreign investment will create jobs, build supply chains and overall help economic growth. Those against it firmly believe that it will destroy the neighbourhood kirana shop, as you, I and everybody else, hop onto Wal-Mart to buy stuff. I have my own version of truth which is somewhere between the two extremes.
The kirana store will survive: A lot of hue and cry has been made on this. Nitish Kumar the Chief Minister of Bihar believes that the aam aadmi will suffer because of FDI in retail and hence he won’t allow it in Bihar. The fact of the matter is that it is not easy to compete with the neigbourhood kirana store. My kirana guy even goes to the extent of delivering things that he does not sell, like eggs and medicines, to ensure that I keep giving him business. As Rajiv Lal a professor at the Harvard Business School told me in an interview I did for Daily News and Analysis (DNA) “Kirana stores have a lot of benefits that established retailers don’t have. First of all location. What rents do they pay versus what established companies have to pay? Employees, same story. On the consumer side they can deliver services, in terms of somebody calls them and asks can you deliver six eggs? The guy runs and delivers six eggs. That’s not something that the big established firms can provide.” (You can read the complete interview here)
No homogeneity across India: An important factor for big retail to be successful is the homogeneity of the population in consumption behaviour. This gives them economies of scale. As marketing guru V Kumar told me in a recent interview I did for DNA “Does the country as a whole consume common things or there are regional biases? In a country like Brazil people eat similar foods that every retailer can sell.” In India clearly things are different. “In India between South, East, West and the North, there is so much heterogeneity that you need localized catering and marketing .So consumption behaviour varies therefore unless you are willing to carry heterogeneous products in each of the locations it is tough,” said Kumar (You can read the complete interview here). This is a challenge that foreign retailers will have to deal with.
The real estate conundrum: A typical Wal-Mart in the United States is situated outside the city, where rents are low. But such a strategy may not work in India. “It’s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can’t open these stores 50 miles away from where the population lives. People in India don’t have the conveyance to go and buy bulk goods, bring it and store it. They don’t have the conveyance and they don’t have the big houses. So it doesn’t work,” explained Lal. This is something that Kumar agreed with. “Even if Wal-Mart is there in every place, the way they are located is typically outside the city limits. So only people with time, motivation and a vehicle, will be able to go and buy things. And the combination of these three things is very rare.” The kirana stores also provide goods on interest free credit to their customers something that no big retailer can afford to do.
The fear of Wal-Mart and others of its ilk is overdone: It is widely believed that wherever Wal-Mart goes it destroys the local business. As Anthony Bianco writes in The Bully of Bentonville – How the High Cost of Wal-Mart’s Everyday Low Prices is Hurting America “It (Wal-Mart) grows by wrestling businesses away from other retailers large and small. In hundreds of towns and cities, Wal-Mart’s entry put ailing …shopping districts into intensive care and then ripped out the life-support-system.”
But that is truer for markets like Canada, Mexico and United Kingdom, which are culturally and geographically closer to the United States. The Wal-Mart formula doesn’t always work everywhere. Pankaj Ghemawat, who has the distinction of being appointed the youngest full professor at the Harvard Business School, writes about this in his book Redefining Global Strategy, “When CEO Lee Scott (who was the CEO of Wal-Mart from 2000 to 2009) was asked a few years ago about why he thought Wal-Mart could expand successfully overseas, his response was that naysayers had also questioned the company’s ability to move successfully from its home state of Arkansas to Alabama…such trivialisation of international differences greases the rails for competing exactly the same way overseas at home. This has turned out to be a recipe for losing money in markets very different from the United States: as the former head of the company’s German operations, now shut down, plaintively observed, “We didn’t realise that pillowcases are a different size in Germany.””
What is the experience from other emerging markets? Big retail has got some traction in countries like China and Brazil. As Kumar put it “If you look at evidence from China organized retailing has got more traction. That’s because they did not have many mom and pop stores to begin with. They were cultivating their own things which was locally community based. But with more cities coming up and migration of people from rural areas to cities, gives more scope for organised retailing in China. Also space is not an issue in China. In India space is a constraint. Look at China and India. China is much bigger than India but the population is pretty much similar. Look at Brazil, it is as much bigger than India but the population is maybe one sixth that of India. So they also have space.” Whereas space remains a key constraint for big retail stores like Wal-Mart, Tesco and Carrefour in India.
Also in almost all emerging markets a local company is number one. As Lal told me “There is not a single emerging market that I know where a foreign entrant is the number one retailer. In Brazil it is Pão de Açúcar, in China you have the local Beijing Bailian. In most markets even when there are foreign entrants the dominant retailer in the organised sector is still the local retailer.”
And there are several reasons for the same. The local retailers are very price competitive. “If Wal-Mart is operating in Brazil there is nothing that Wal-Mart can do in Brazil that the local Brazilian guy cannot do. If you want to procure supplies from China, you can procure supplies from China as much as Wal-Mart can procure supplies. On top of that they have local merchants that they know they can source from and Wal-Mart may not,” said Lal.
Will foreign players be able to crack the market, when most of the Indian retailers are bleeding? The biggest Indian business groups have tried to crack organized retailing over the last decade. The Tatas, the Birlas, the Ambanis, all have a significant presence in the sector. But despite that organized retailing remains a small part of the overall retail business. As Sreenivasan Jain writes in the DNA: “For starters, India has had big or organised retail for about 15 years now, not a small stretch of time. Some of the biggest Indian corporates are in this space, like Reliance, the Birlas, Godrej, RPG (Sanjeev Goenka Group) and Kishore Biyani’s Future Group. Despite this, organised retail is only 5% of the Indian retail market. The remaining 95% is still unorganised.” (You can read the complete article here).
And all these big players are losing money hand over fist. “Last year, Reliance Fresh posted a loss of Rs 247 crore, Bharti posted a loss of Rs 266 crore, and Aditya Birla group, which runs the chain of More supermarkets, posted a loss of Rs 423 crore. Some retail chains have actually shut down, like Subhiksha which at one time had almost 1,500 outlets,” writes Jain.
It is in the interest of these firms that foreign investment is allowed in the sector, so that they can sell a part of the equity to foreign firms. Those in favour are of the opinion that these firms do not have the necessary expertise which the foreigners will bring in. This argument does not really work. Bharti Enterprises which runs the Easy Day stores has a back-end and cash-and-carry partnership with Wal-Mart. Star Bazaar, run by the Tata group is offered back end support by Tesco. So the big retail giants are in a way already operating in India.
Another point put forward by those in favour of foreign investment in retail is that it will help build reliable supply chains across the country. Theoretically yes, but the trouble is supply chains cannot be built if it’s left to the states to decide whether they allow foreign retail or not. Supply chains need to be seamless, they cannot be built if one state allows foreign retail and the neighbouring state does not. Also, we must remember that despite the presence of these heavy weights in the retail sector the kirana shops still continue to function as they had before.
So what is the future going to be like? It is difficult to predict what the future of the likes of Wal-Mart, Tesco and Carrefour in India is going to be. But one thing is for sure. They won’t find it easy. As far as Wal-Mart goes Kumar had this to say “There will be a market if they are content at not being the largest retailer. If they say in India I am one among many, they will have a presence. Maybe at some point in the future, things might change, like Wal-Mart buying other retailers and that’s the way they can expand. Their specialty is supply chain and turning the inventory over multiple times than other retailers. They cannot turn it over multiples times here. Each time if they make a 1% margin they get a higher margin due to turning the inventory over multiple times. Here I don’t see them turning it over as many times as in other markets. It’s very difficult to do that.”
Kumar also predicts that over a period of time the likes of Wal-Mart will be forced to buy the smaller kiranas in order to expand. “My prediction is this that mom and pop stores or kiranas as we call them will become more and more sophisticated. Today the store owners know people by their names, as the number will grow they will have to start building a database, but they don’t have the capabilities. So organised retailing will start buying mom and pop stores individually. And then they will put all of them under one banner. It will be like how Tesco is operating in the U.K with different store formats. You have Tesco supermarket, convenience store, street corner store, express etc. So that is the way in India you will see this evolving because otherwise there is no growth for them,” said Kumar.
So my version of truth is somewhere in between those who support foreign investment in mutli brand retailing as it’s called, and those who don’t. Big retail will not be the panacea it’s being made out to be. Neither will it destroy the smaller shops as is being claimed. It will have to create its own space. And that will only happen over a period of time.
This article originally appeared on www.firstpost.com on September 18, 2012. http://www.firstpost.com/business/kirana-vs-wal-mart-busting-the-big-myths-of-big-retail-459490.html#disqus_thread
(Vivek Kaul is a writer and he can be reached at [email protected])
First it was Naseeruddin Shah. Then came Rahul Bose. He was followed by Irrfan. And now the baton for the thinking woman’s sex symbol seems to have been passed onto Nawazuddin Siddiqui. Siddiqui in his tour de force performance as Faizal Khan (pronounced Faijal) in Gangs of Wasseypur II has firmly made himself an actor to watch out for.
His character is shown to be constantly smoking cigarettes or ganja throughout the movie. In a doped state he promises his mother “baap ka, dada ka, sabka badla lega tera Faijal”. He even tries to impress his girl friend ala Rajinikanth by trying to flip a cigarette first unsuccessfully and then successfully, into his mouth. Given this, the movie does begin with the usual disclaimer “Cigarette smoking is injurious to health. It causes cancer.” The disclaimer appears even after the movie starts again after the interval.
The information and broadcasting ministry now has planned to tighten the screws further on movies which show characters smoking. In a circular dated August 2, 2012, the ministry has made it mandatory for films that have smoking scenes to shoot a 20 second disclaimer. This disclaimer is to be shot with the actor who is shown to be smoking in the movie. It has to be repeated when the movie re-starts after the interval, like the current disclaimer is. Over and above that a message saying “cigarette smoking is injurious to health” has to be flashed during the entire duration of a smoking scene. (You can read the complete report here).
The move is in line with the government policy to discourage smoking. In line with this policy, every packet of cigarette now carries gruesome pictures showing the negative effects of smoking. These graphic images show various ways in which people are affected by smoking. These could be lung tumours, gangrenous feet and toes, throat cancers and so on.
On the face of it these moves seem to make sense given that one third of adult males around the world smoke. Nicotine addiction is one of the biggest killers of human beings around the world.
But the question that crops up here is that do these warnings really work?
First and foremost the disclaimers in place or those that are being put in place work with the assumption that people who smoke “cigarettes” do not understand the risk of smoking. Is that true?
In his bestselling book The Tipping Point Malcolm Gladwell talks about a study carried out by Harvard University which asked smokers to guess how many years of their life smoking would take, if they started smoking at the age of 21. The average response of the smokers was nine years, higher than the actual six or seven years that it would cost them. So the notion that smokers smoke because they do not understand the risks of smoking is at best juvenile.
But what about a country like India where half the population is functionally illiterate? Do those who smoke cigarettes understand the risk of smoking them?
If we look at the definition of poverty in this country, those spending less than or equal to Rs 28.65 per day in cities or Rs 22.42 in rural areas, are deemed to be poor. Now these are not the people who would be smoking cigarettes which can cost anywhere from Rs 2-5 per stick. They simply cannot afford it. They smoke bidis.
So chances are the average Indian who smokes cigarettes earns reasonably well and is educated enough to understand the risks of smoking. But he still smokes.
If the government really wants to discourage smoking and reduce the ill effects of tobacco consumption in this country, they should be concentrating on bidis, gutkas and pan masalas rather than cigarettes.
That’s one part of the argument. People who smoke understand its risk and continue to smoke. The other part that needs to be discussed is that do pictorial warnings and disclaimers of various kinds work? Do they discourage people from smoking?
A recent research seems to suggest the opposite i.e. the warnings seem to encourage people to smoke more. Brand Guru Martin Lindstrom carried out a functional magnetic resonance imaging tests on the brains of smokers a few years back. He showed them what he felt was one of the most effective anti-smoking ads he had ever seen.
“A group of people are sitting around and chatting and smoking. They’re having a jolly good time, except for one problem: instead of smoke, thick, greenish-yellow globules of fat are pouring out of the tips of their cigarettes, congealing, coalescing and splattering onto their ashtrays. The more the smokers talk and gesture, the more those caterpillar-sized wads of fats end up on the table, the floor, their shirtsleeves, all over the place. The point being, of course, that smoking spreads these same globules of fat throughout your bloodstream, clogging up your arteries and wreaking havoc with your health,” writes Lindstrom in his book Buyology – How Everything We Believe About Why We Buy is Wrong.
When this advertisement was shown to smokers who took part in this experiment they weren’t put off by the gruesome images of fat. As Lindstrom writes “They weren’t put off by the gruesome images of artery-clogging fart; they barely even noticed them.”
But what the message did instead was that it activated the “craving spot” in the brain. “Cigarette warnings…stimulated an area of the smokers’ brains called the nucleus accumbens, otherwise known as “the craving spot.”. The region is a chain-link of specialized neurons that lights up when the body desires something – whether it’s alcohol, drugs, tobacco, sex, or gambling. When stimulated, the nucleus accumbens requires higher and higher doses to get its fix,” points out Lindstrom. So the gruesome advertisement made people want to smoke more instead of less. This was an unintended consequence.
“Camel smokers experienced more cravings when they saw illustrations of Camels and Camel logos, and Marlboro smokers experienced more cravings when they saw illustrations of the iconic Marlboro Man,” writes Lindstrom in his new book Brandwashed – Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy.
Another move that has been resorted to is the blurring out of smoking images when the trailers and songs of new movies are played on television. The song Chikni Chameli from Agneepath has some side dancers smoking bidis. This visual has been blurred out on television. In the trailers of Gangs of Wasseypur II the chillum being smoked by Faizal Khan has been blurred out. What is the point of doing this? I guess the only people who do not understand that the character is smoking a bidi or a chillum are the babus at the ministry of information and broadcasting. In fact the blurring may even attract adolescents and children and they might try to figure out what exactly is being blurred. Ironically scenes in older movies where characters are shown drinking and smoking continue to be broadcast as it is.
Also this does bring us back to the fundamental point whether cinema is a reflection of the world that we live in? The world that we live in allows smoking. It is not an illegal activity. But rape is illegal. And movies are allowed to show rape scenes. Actor Shakti Kapoor made a career out of raping film heroines on screen. So if rape scenes are allowed on screen what is the problem with smoking?
(The article originally appeared on www.firstpost.com on August 11,2012. http://www.firstpost.com/living/why-warnings-against-smoking-could-be-injurious-to-health-414602.html/2)
(Vivek Kaul is a writer who can be reached at [email protected] He does not smoke)