That retail FDI bogey again

I had a fruitful conversation the other day with the owner of a local store near my house, where I do most of my shopping. The annachi kadai , or neighbourhood store in Tamil, stocks a bewildering array of goods — from combs, nail-clippers and the little scissors to trim one’s moustache with, to pizza sauces, ice-cream and high-end chocolates. Squeezed into that 600 sq.ft store, he said, were over 4,000 products.

Open as early as 7 am, the store is a lifeline: Home delivery, monthly credit, bread, eggs, milk, notebooks, erasers… he has all the stuff you discover only the night before that you need next morning. Why, once when I didn’t have enough cash to pay the vegetable vendor, I even borrowed money on the tab! He’s already into biometrics — your face is your password to credit.

Selling an experience

I asked

annachi if the coming of a Spencer’s round the corner from his store a few years ago and a Nilgiris across the road and other sundry supermarkets had impacted his business in any way. A More outlet just across his store shut shop to make way for an optician. He’s unfazed; they don’t impact his business at all, he avers. None of them can serve his customers the way he can — credit, home delivery and assortment of goods being the key.

“You can walk into my store and pick up anything, and I know you’ll pay me next month,” he says. He points out too, astutely, that he stocks all kinds of stuff, those little knick-knacks that one wouldn’t find in a typical modern retail outlet. FDI in retail, foreign retailers, big retail

et al , he has read and heard about it, but he’s not perturbed. They’ll have their custom and he’ll have his, he says, simply.

The foreign factor

The BJP’s election manifesto 2014 again rakes up the issue of FDI in multi-brand retail, which it is opposed to. For the party, it’s a bit of a volte-face, having endorsed 26 per cent FDI in retail in its ‘vision document’ of 2004, though it dropped this position in its 2009 manifesto.

Says its present manifesto: “Barring the multi-brand retail sector, FDI will be allowed in sectors wherever needed, for job and asset creation, infrastructure, acquisition of niche technology and specialised expertise. BJP is committed to protecting the interest of small and medium retailers, SMEs and those employed by them.” What changed along the way? Has the trader lobby influenced the BJP to change its tune?

To look at the limited question of the impact on small and medium retailers, if my annachi friend was to be impacted, he would have been by now, given the proximity of several Indian-owned big retail outlets; why wait for foreign big retail? But, as he himself says, he’s doing quite well, thank you.

A study published a few years ago in this newspaper conducted by KiranaFirst, a not-for-profit organisation which works towards improving the competitiveness of kiranas , looked at how small to medium-sized retailers had done in Chennai, arguably the birthplace of modern retail in India. It was in 1996 that Foodworld, a joint venture between the RPG group and Hong Kong’s Dairy Farm, first opened doors in south Chennai’s Raja Annamalaipuram.

A total of 304 kirana shops from 30 areas in Chennai were chosen to study the impact of modern supermarkets on traditional stores. The study found that modern supermarkets were still struggling while traditional ‘mom ‘n’ pop’ shops were becoming more prosperous. What did the corner stores market do?

The three-part study terms the competitive strategy used by kiranas “transformational”. They used three strategies: change in format, change in merchandise and change in customer service.

Many local stores that one patronises in Chennai have transformed themselves — they keep their antenna up on what customers want and stock it. For instance, the annachi found that customers were asking for shelled and packaged sweet corn.

He didn’t know what this was, but found out, sourced it and stocks it now. Many stores, in their limited store space, have reformatted to the self-service model, where customers can choose brands off the racks.

Also, significantly, the distribution eco-system that has developed in the country over the years will ensure that the Unilevers and P&Gs of the world will support local kiranas for quite some time to come. After all, modern retail is still barely 5 per cent of Indian retail, perhaps only higher in urban pockets.

Changing with the times

I spoke to a senior retailer, who’s been part of India’s journey in modern retail over the past 20 years.

He says many of the kiranas in the vicinity of the stores they were setting up in the early years, mapped their product profile and store styling to what the modern retailer was doing.

He points out that today there is data of 20 years to look back on and says no kiranas have shut shop due to any impact by an Indian-owned modern chain.

Stores may have wound up for other reasons — that the next gen doesn’t want to be behind a cash counter in a store.

So far, the debate on FDI in retail has been disproportionately on the grocery sector. Seasoned retailers believe that the big guns in retail from abroad are not interested in investing in grocery retail. There’s no appetite for small format retail, nor is there much money to be made.

The kiranas , with their low overheads, own space, family help are better placed to make money in grocery retail. Even if the BJP stops opposing FDI in multi-brand retail, there may not be any flood of investment in grocery retail, which is the bugbear-in-chief.

However, FDI could well pour into other sectors: furniture retail, apparel, cosmetics, speciality foods and so on, provided the FDI rules are made more flexible. As of now, FDI in multi-brand retail comes with many riders on sourcing and locations.

Meanwhile, what’s drawing FDI in retail is the wholesale cash-and-carry format. Walmart has declared its intent to open 50 such stores in the next four-to-five years, while German-owned Metro has quietly expanded its footprint to over 15 stores in several cities around the country.

That’s a model which is seen to be working for the overseas retail biggies. So, FDI in multi-brand retail may well be an imaginary bogey.