- India Matters
- Apr 12 2017
The central government had announced in its 2016 Union Budget 100 per cent foreign capital in processed food retailing. Amazon got permission to do so via e-commerce and has applied to the government to invest $500 million in a wholly owned venture to sell food items online. Now US based retail giant, Walmart, is planning to open 50 brick and mortar stores, half of them in UP and Uttarakhand. Walmart already has 21 stores under the umbrella of Best Price Stores — a wholesale chain. It had bought 50 percent share in the Bharati enterprise in the Cash and Carry venture after the joint venture ended in 2013 (100 percent FDI in Cash and Carry ventures which sell in bulk to members only, which was allowed from 2003).
The government’s condition to open up the food retail sector in brick and mortar stores has been that sourcing of all products should be from India. However, this has not bothered Walmart because, according to its CEO, it does not carry many imported items due to high custom duties.
In the past, the BJP government had opposed the opening up of the multi-brand retail while the UPA government was trying to push ahead with it and had allowed up to 51 percent FDI in 2011. There were political reasons for this opposition. Small traders in corner shops and mom and pop stores constitute important voters for the BJP. There are around 50 million such traders while the food retail business is worth $70 billion. Naturally, getting a slice of this lucrative market is the dream of multinational giant retailers like Walmart and Tesco.
But the government, though it has opened up multi-brand retail in food items, has not yet allowed other items to be sold in such stores. One option is to allow food retailers to generate 20 to 25 percent of their sales from non-food items like kitchen use products or basic household requirements like toothpaste. Walmart is pushing for this because the margins in food retail are very thin.
Whether the government will allow 100 percent FDI in multi-brand retail in the future is a much awaited policy move and if it does, it will be welcomed by Food Processing Minister Harsimrat Kaur Badal. Those for it would say that it would create jobs, bring efficiency in storage and inventory management, encourage food processing and bring food from farmer to fork without the chain of middlemen. Lastly, the biggest advantage would be the inflow of a huge amount of FDI that India needs.
If Walmart stores do open only food retail shops, they will offer competition to the domestic retail giants like Reliance Fresh, Big Bazaar, Spencer’s etc. The consumer may benefit if this may bring about competitive pricing and cleaner and properly labelled food items with nutritional information. Walmart may also bring professionalism in management and control of inventories.
It may sign contracts with farmers to sell directly to the stores and this would give a better deal to farmers. It would eliminate a long chain of middlemen, but let us not forget that Walmart is also a middleman because it too is an intermediary between the farmers and consumers.
While it is true that global supermarkets may purchase directly from farmers and would send produce to their stores in air-conditioned trucks thereby reducing wastage of fruits and vegetables, excessive amount of refrigeration and the extensive use of Styrofoam/plastics for packaging are bad for the environment and will add to our solid waste problem.
The consumers may however benefit from food products that have been sorted out, washed and sliced or chopped which will help the average working woman, short of time to cook a meal. But these things are already being done in many up-market Indian supermarkets in big cities. Hence, Walmart has nothing new to offer except perhaps a cleaner ambience.
Many have argued that there will be additional jobs in these global supermarkets, especially for women at the cash counters. Others are likely to find jobs in moving, labelling and sorting out goods. But Walmart’s track record is of creating less jobs and using more automation/technology. They will also employ educated smart young people and not the average unskilled job seeker. They may go for capital intensive processing and not employ more labour for their backend operations.
On the whole, they will retain an air of exclusivity which may be welcomed by the upper middle classes. Their exclusiveness would mean that the Kirana stores and corner shops may still be around for those wanting to buy one or two items with petty cash and not a cart full of goods with a credit card.
Kishore Biyani, the biggest retailer in India, has been thinking ahead and is planning 10,000 stores over four years that will be a hybrid between Kirana stores, e-commerce and large supermarkets. According to him, he will offer unbeatable prices and bank on the loyalty of customers. This will make the global giants’ task more difficult as they are counting on uniform tastes and culture across India. Yet, it must be remembered that global supermarkets have deep pockets and are able to offer big discounts and have staying power that would eliminate others, big and small. They can suffer losses for a number of years in order to capture the market later.
For global retail giants, it would be ideal if they are allowed to sell other items also, like in China. Walmart is very popular in China because one can buy clothing, footwear, groceries, household items, wines and spirits — almost everything under one roof. But China has nothing much to fear because most goods are Made in China. In India, with people still having great fascination for imported items sourced from other countries, things could be very different.
For complete opening up of the multi-brand retail sector, the same condition of selling “Made in India” products may apply and if the global companies agree, there would be a big opportunity for Indian products to be sold in such giant retail outfits and this could give a boost to the languishing manufacturing industry.
It is heartening to note that Indian multi-brand retail business is flourishing and will give the global retailers a tough competition and the consumers will be the ultimate beneficiaries.
The views expressed above belong to the author(s).