{"id":926,"date":"2012-09-18T05:39:24","date_gmt":"2012-09-18T05:39:24","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=926"},"modified":"2012-09-18T05:39:24","modified_gmt":"2012-09-18T05:39:24","slug":"kirana-vs-wal-mart-busting-the-big-myths-of-big-retail","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/09\/18\/kirana-vs-wal-mart-busting-the-big-myths-of-big-retail\/","title":{"rendered":"Kirana vs Wal-Mart: Busting the big myths of big retail"},"content":{"rendered":"

 
\n\"\"<\/a>Vivek Kaul
\nIn a rather poignant scene in Zoya Akhtar\u2019s Zindagi Na Milegi Dobara, <\/em>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\u2019s mother (played by Deepti Naval) after getting her pregnant and moved onto becoming a famous painter in Europe.
\nAkhtar 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 \u201cSach hota kya hai. . . sach ka har ek ka apna apna version hota hai!<\/em>\u201d (What is truth? Everybody has their own version of it)
\nThis 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.
\nThose 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<\/em> 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.
\nThe kirana store will survive: <\/strong>A lot of hue and cry has been made on this. Nitish Kumar the Chief Minister of Bihar believes that the aam aadmi <\/em>will suffer because of FDI in retail and hence he won\u2019t allow it in Bihar. The fact of the matter is that it is not easy to compete with the neigbourhood kirana <\/em>store. My kirana <\/em>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) \u201cKirana <\/em>stores have a lot of benefits that established retailers don\u2019t 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\u2019s not something that the big established firms can provide.\u201d (You can read the complete interview here<\/a>)
\nNo homogeneity across India: <\/strong>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 \u201cDoes the country as a whole consume common things or there are regional biases?\u00a0 In a country like Brazil people eat similar foods that every retailer can sell.\u201d In India clearly things are different. \u201cIn 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,\u201d said Kumar (You can read the complete interview here<\/a>). This is a challenge that foreign retailers will have to deal with.
\nThe real estate conundrum: <\/strong>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. \u201cIt\u2019s not easy to open a 150,000 square feet store in India. That kind of space is not available. They can\u2019t open these stores 50 miles away from where the population lives. People in India don\u2019t have the conveyance to go and buy bulk goods, bring it and store it. They don\u2019t have the conveyance and they don\u2019t have the big houses. So it doesn\u2019t work,\u201d explained Lal. This is something that Kumar agreed with. \u201cEven 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.\u201d The kirana <\/em>stores also provide goods on interest free credit to their customers something that no big retailer can afford to do.
\nThe fear of Wal-Mart and others of its ilk is overdone: \u00a0<\/strong>It is widely believed that wherever Wal-Mart goes it destroys the local business. As Anthony Bianco writes in The Bully of Bentonville \u2013 How the High Cost of Wal-Mart\u2019s Everyday Low Prices is Hurting America<\/em> \u201cIt (Wal-Mart) grows by wrestling businesses away from other retailers large and small. In hundreds of towns and cities, Wal-Mart\u2019s entry put ailing \u2026shopping districts into intensive care and then ripped out the life-support-system.\u201d
\nBut 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\u2019t 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,<\/em>\u00a0 \u201cWhen 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\u2026such 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, \u201cWe didn’t realise that pillowcases are a different size in Germany.\u201d\u201d
\nWhat is the experience from other emerging markets? <\/strong>Big retail has got some traction in countries like China and Brazil. As Kumar put it \u201cIf you look at evidence from China organized retailing has got more traction. That\u2019s 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.\u00a0 So they also have space.\u201d Whereas space remains a key constraint for big retail stores like Wal-Mart, Tesco and Carrefour in India.
\nAlso in almost all emerging markets a local company is number one. As Lal told me \u201cThere is not \u00a0a single emerging market that I know where a foreign entrant is the number one retailer. In Brazil it is P\u00e3o de A\u00e7\u00facar, 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.\u201d
\nAnd there are several reasons for the same. The local retailers are very price competitive. \u201cIf 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,\u201d said Lal.
\nWill foreign players be able to crack the market, when most of the Indian retailers are bleeding? <\/strong>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<\/em>: \u201cFor 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\u2019s Future Group. Despite this, organised retail is only 5% of the Indian retail market. The remaining 95% is still unorganised.\u201d (You can read the complete article here<\/a>).
\nAnd all these big players are losing money hand over fist. \u201cLast 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,\u201d writes Jain.
\nIt 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.
\nAnother 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\u2019s 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<\/em> shops still continue to function as they had before.
\nSo what is the future going to be like? \u00a0<\/strong>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\u2019t find it easy. As far as Wal-Mart goes Kumar had this to say \u201cThere 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\u2019s 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\u2019t see them turning it over as many times as in other markets. It\u2019s very difficult to do that.\u201d
\nKumar also predicts that over a period of time the likes of Wal-Mart will be forced to buy the smaller kiranas <\/em>in order to expand. \u201cMy prediction is this that mom and pop stores or kiranas<\/em> 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\u2019t 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,\u201d said Kumar.
\nSo my version of truth is somewhere in between those who support foreign investment in mutli brand retailing as it\u2019s called, and those who don\u2019t. Big retail will not be the panacea it\u2019s 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.
\nThis article originally appeared on www.firstpost.com on September 18, 2012.\u00a0http:\/\/www.firstpost.com\/business\/kirana-vs-wal-mart-busting-the-big-myths-of-big-retail-459490.html#disqus_thread<\/a>
\n(Vivek Kaul is a writer and he can be reached at vivek.kaul@gmail.com<\/a>)
\n 
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

  Vivek Kaul In a rather poignant scene in Zoya Akhtar\u2019s 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\u2019s mother (played by Deepti Naval) after getting her pregnant … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2,14],"tags":[487,1224,2000,2004,2369,2435,2668,2938,3037,3041,3438,3450,3584,3625,3890,3952,4055,4058],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":1,"qubely_category":"Analysis<\/a> Business<\/a>","qubely_excerpt":"  Vivek Kaul In a rather poignant scene in Zoya Akhtar\u2019s 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\u2019s mother (played by Deepti Naval) after getting her pregnant…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/926"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=926"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/926\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=926"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=926"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=926"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}