Walmart or Agarwalmart - Let the consumer decide where to buy from?

G.S. Vijay Kumar By G.S. Vijay Kumar, 8th Jan 2012 | Follow this author | RSS Feed | Short URL http://nut.bz/1zt.a7iy/
Posted in Wikinut>Business>Investment

The opposition’s attack of the government over its decision to allow Foreign Direct Investment (FDI) in the retail sector, 51% in multi-brand retail and 100% in single brand retail, seems to be skewed and meaningless. The opposition’s main argument against the government’s move is that this would affect the neighbourhood kirana stores which currently account for nearly 90% of the country’s retail business.

FDI in Retail

The opposition’s attack of the government over its decision to allow Foreign Direct Investment (FDI) in the retail sector, 51% in multi-brand retail and 100% in single brand retail, seems to be skewed and meaningless. The opposition’s main argument against the government’s move is that this would affect the neighbourhood kirana stores which currently account for nearly 90% of the country’s retail business.

To begin with, out of an estimated 8 million kirana stores in the country, nearly 75% or 6 million kirana stores are spread over rural India where the global retail giants cannot establish their stores as they are outside the 53 cities which have been allowed. Besides, in the last few years when large format domestic chains were allowed to invest in retail, we have seen that both large retail stores as well as neighbourhood kirana stores have co-existed. The scenario is not likely to be any different when foreign retail stores step in.

It is argued that global retail giants like Walmart, who have deep pockets, would set up operations in India at prime locations and sell their merchandise at very low prices and thereby undercut the local kirana stores selling similar products. It is further argued that they will initially buy in large quantities and sell at low prices and undercut small retailers. They will thus drive away the Agarwalmarts or the small retailers and create a monopolistic situation and then start buying low and sell at higher prices. This argument appears to be bizarre, particularly in a large market like India. In the unlikely event of such a happening, new entrepreneurs would readily enter the market to compete. In a homogeneous market, new entrants will automatically enter or exit the market depending on the opportunities it presents at any given time.

Besides, those who are opposing the entry of global retail giants seem to be oblivious of the fact that consumers benefit substantially from these stores in terms of quality of goods as well as price. Even now, some of these large format domestic retailers offer a standard discount of 7 % on the MRP of all goods, in addition to offering many other attractive consumer promotions and schemes. As against this, the neighbourhood kirana stores sell goods at MRP and do not offer any discount. Further, many times, the goods are not properly stored in their outlets. If you buy a packet of biscuits or any food products, it is likely to smell of detergent or cosmetic products as many of them do not have proper storage facilities. The 7 % discount as well as other promotions and schemes offer good incentives to the consumer especially in an otherwise inflationary environment.

The opposition’s criticism of job losses is also unfounded. In a large market like ours, there will be opportunities for all kinds of retailers to co-exist. The local kirana stores could offer better personalized services, free home delivery, offer credit facilities and such other services in order to remain competitive and retain customers. Besides, the entry of foreign large format stores will make the local kirana stores more efficient over a period of time. We need to create employment opportunities for our people but this need not be at the cost of efficiency. The entry of large foreign retailers will bring in efficiency to the system, better retailing and merchandising practices, better storing systems, better pricing mechanism, and proper back end systems and so on and so forth. Besides, it may be worth mentioning that many of these so-called corner stores exploit the workforce by paying ridiculously low salaries, long working hours as well as very poor working conditions.

It is quite natural that efficient retailers would survive and inefficient ones would perish. This holds true in all walks of life. In the immediate future, large retail chains are likely to hire a lot of people and we are going to witness a sudden spurt in jobs. However, over the longer term, redistribution of jobs may take place and we may find some jobs drying up and some new ones emerge.

In India, many of us have not been exposed to the benefits of modern trade and have been patronizing the local kirana stores for many years. Large format domestic retail stores have entered the scene in the last 7-8 years and they have contributed in no small measure to the overall development of the retail trade. Needless to mention, shopping experience has been made more pleasant coupled with better pricing vis-à-vis the corner stores. The entry of global retail stores is likely to give a further fillip to this development and the whole economy will gain in the long run.

Some of the large format retail stores sell vegetables at a much lower rate than the vegetable vendor in the corner vegetable market. Tomatoes are sold at Rs. 13 per KG on some days in these large stores as against Rs. 25-30 charged by the roadside vegetable vendors. Similarly, potatoes, onions as well as many other vegetables are available at a much lesser rate in these large stores compared to the local vegetable vendors. In the arguments over preserving the local corner stores, one tends to forget the interests of the common man. One fails to understand as to why should the consumer be forced to buy from the local vegetable vendors by paying a higher price? We cannot afford to gloss over the interests of the consumer, which includes the kirana shop-owner as well as his workmen. The consumer is supreme in a market economy and no fallacious arguments about protecting the corner stores can stand the test of reason. In any case, let the consumer decide what to buy and where to buy from? Let us leave that choice to the consumer.

It appears that we are replicating the same old story of 1991 when the country had written the obituary of Indian brands and businessmen which only have got better and bigger now than they would have otherwise achieved without competition.


G.S. Vijay Kumar is a senior corporate executive and a columnist.

Tags

Agarwalmart, Fdi, Foreign Direct Investment, G S Vijay Kumar, Gs Vijay Kumar, Gsvijay Kumar, India, Organised Retail, Retail, Vijay Kumar, Walmart

Meet the author

author avatar G.S. Vijay Kumar
I am a management graduate and have worked as a senior executive for 25 years in the corporate sector.I am a columnist and write on management, Economics and socio-economic topics.

Share this page

moderator Mark Gordon Brown moderated this page.
If you have any complaints about this content, please let us know

Comments

author avatar ittech
15th Jan 2012 (#)

Very well done.

Reply to this comment

author avatar G.S. Vijay Kumar
15th Jan 2012 (#)

Many thanks for your comment.

Reply to this comment

author avatar ittech
18th Jan 2012 (#)

Nice job

Reply to this comment

Add a comment
Username
Can't login?
Password