The Hindu Business Line : Small retail needs State spur

Organised retail has the potential to contribute to the transformation of the country’s moribund agricultural sector. And appropriate policies will help all kinds of customers and big and small retailers, says G. CHANDRASHEKHAR.

Affirmative action from the government can help small businesses to keep the show going.

It is clearly a danger signal that opposition to organised retail is beginning to gather momentum, rather than wane. After several attacks on large food retail stores in different parts of the country some months ago, a feeling, albeit feeble, was gaining ground in recent weeks that frayed tempers were cooling. There was belief that small traders and intermediaries were slowly coming to terms with the reality of large-format organised retail.

However, the series of attacks on stores in Navi Mumbai recently may have put paid to any such hope. Obviously, there is simmering discontent among those who feel hurt. Their concerns have to be considered and remedial measures taken. If left unchecked, the anti-organised-retail movement has the potential to snowball into a major law and order situation. This is not to suggest that protests by genuine stakeholders whose livelihood is threatened should be put down with a heavy hand.

Warning signals

It is one thing to control a law and order situation; and quite another to ignore early warning signals and engage in fire fighting later. There is urgent need to quickly go into the root of the problem and examine ways and means to create a win-win situation for all. The State government has a tremendous responsibility in this. Hopefully, Maharashtra will not take a cue from Uttar Pradesh.

In August, the UP government ordered forced closure of newly set-up large food retail stores in Lucknow following mounting protests from small unorganised retailers and trade intermediaries who perceived the advent of large format grocery stores as a threat to their entrenched interests and livelihood. Always known as a progressive state, Maharashtra should attempt to identify the real issues and address them. The stakeholders in this food chain include farmers, aggregators, processors, distributors, large and small traders as also trade intermediaries such as commission agents, apart from retailers themselves, and consumers.

Biz opportunity

The corporate world has demonstrably seized the burgeoning business opportunity by pouring huge investments to accelerate the pace of the retail revolution currently sweeping the country. Those with higher disposable incomes are demanding an ‘international shopping experience’ and the retailers are merely meeting the demand by investing in malls and supermarkets.

In the process, such investors help create employment, improve the supply chain, improve the marketability of farmers’ produce and contribute in general to heightened economic activity.

It is becoming increasingly clear that those fiercely opposed to organised food retail are small traders and middlemen. Growers should generally be happy with the advent of big retail because they have more number of buyers to sell to. However, organised retail is prone to be ruthless when it comes to quality and delivery schedule. There is generally no compromise on this because retail has too much at stake — in the form of investment, customer satisfaction and so on. Farmers defaulting on their commitment will not be treated with kid gloves.

Capital-intensive

Cost is an important consideration in the business plan of any organised retail. Setting up a large format store is capital-intensive, including high real-estate costs. Operational costs too are high because of relatively high wages, power costs, cost of money and so on. On the other hand, customers are cost-and-quality conscious. They have a choice of alternatives.

Then, where will the retailer capture value? It is, more often than not, at the back-end. As uncompetitive prices would drive customers away but friendly prices retain them, the retailer’s degrees of freedom are limited at the front-end.

Therefore, usually retailers try to capture value at the back-end; and at the farthest end is the grower. While organised retail provides a large and ready marketing outlet for growers, there is simply no guarantee that farmers will obtain remunerative prices. They would obtain market-determined prices; and they have little control over the way in which the market price is determined.

Unequal fight

This cat-and-mouse game between organised retail and small farmers is often an unequal fight, given the vulnerability of the latter. Free-markets have many votaries, but often those propagating free markets may never have been subjected to the market’s cruelty. Given the unequal nature of the transaction and potential for exploitation, the government needs to step in.

Indeed, it would be prudent for any government to draw economic and political mileage out of organised food retail. Advancing affirmative action can do this.

The experience of many countries shows that food and grocery retail is a driver of higher farm production, better quality, efficient supply chain and, of course, employment.

Organised retail has the potential to contribute to the transformation of the country’s moribund agricultural sector. What can the State do? Many things. The State can actively encourage contract farming, which will bring together hitherto disparate farmers.

A three-way partnership between organised retail, farmer groups and government will accelerate production of market-driven standardised quality. Farmers should be able to obtain quality-related prices, something they never enjoyed.

The three-way partnership will ensure small farmers are not short-changed. Small traders and shopkeepers seem to be the worst hit by organised retail and their interest needs to be protected too. Ironically, in terms of sheer numbers, the traditional ‘mom-and-pop’ shops will cumulatively have more customers than organised large-format retail.

Location, of course, is an important criterion. Small street-corner shops may be less favoured in areas with concentration of high-income groups or upmarket customers. There may be cases of relocation under such circumstances.

Training needed

The State can support small retail stay in business and earn livelihood. Imparting training to stay in competition with organised retail is necessary. For instance, small shopkeepers must explore innovative customer care methods (like, say, home delivery of goods ordered). Importantly, the State can help small shopkeepers access finance at concessional terms for scaling up operations, improved display, and so on. The State’s affirmative action will go a long way in enabling and empowering growers and small retail.

As the economy expands, so do business opportunities. Importantly, given the skewed income distribution in the country, there is likely to be demand for a wide variety of goods and services at every price point.

There will be consumers all along — from the high-end to the low-end of the market. There will be well-heeled customers favouring organised retail and many others looking for quick, personalised service at competitive rates. Appropriate policies and affirmative action can lead to peaceful co-existence.

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