The Hindu Business Line : Upping the anti

Big-bucks retail under fire: Members of the Confederation of All India Traders staging a protest outside the Reliance Fresh store in New Delhi (file photo)

Divya Trivedi
Debdatta Das

Is it the Wal-Mart effect?

Chowdhury, a wholesale merchant who doesn’t reveal his first name, is unable to understand why he has been facing losses over the last few months, with his customers, small retail shop-keepers, having reduced their business with him. Settled in Mumbai for the past 20 years, he has made the rare trip from Navi Mumbai on the outskirts of the city to Azad Maidan located at the heart of the city to try and understand his predicament. “Let’s see. What they are saying must be true, because my business has been suffering. Malls are responsible for this, who else?” he says.

A wholesaler in the Agricultural Produce Marketing Committee (APMC) market, Chowdhury was participating in the recent protest by more than 15,000 retailers, wholesalers, vendors, mathadi workers (those who haul the gunny bags in the market) and hawkers against large retail companies such as Wal-Mart and Reliance Retail. Their fear is that they will be muscled out of a livelihood by the retail giants.

Brickbats on expansion

Despite consultant company AT Kearney putting India at the top in its Global Retail Development Index ahead of Russia and China, the nascent big-bucks retail segment in India is facing brickbats from within. Still struggling for a firm footing, the $350-billion market is pegged to nearly double by 2015, led by a handful of conglomerates, including Reliance Industries Ltd, Future Group (promoters of the Pantaloon and Big Bazaar chains), Subhiksha, Shoppers’ Stop and RPG’s Spencer’s, and latest entrant Mahindra. This is making the unorganised small players like Chowdhury who make up the chunk of the industry anxious.

“The livelihood of five crore traders across the country is at stake if the government does not rethink the retail strategy,” says Mohan Gurnani, President of the Federation of Associations, Mumbai. He has emerged as the leader of the protestors in the same way as R. Subramaniam of Subhiksha, B. S. Nagesh of Shoppers’ Stop and Kishore Biyani of the Future Group have emerged as the poster boys of organised retail.

The retail majors have all undertaken huge expansion at the front end, but nobody is putting back-end support in place, observes an insider with a well-known logistics company. “Two years from now, they will realise they have gone horribly wrong.” While Subhiksha runs 800 stores across the country and targets 1,000 stores by the year-end, Reliance operates 300 Fresh outlets and plans to set up 5,000 by end-2009, according to media reports. Reliance has been the target of most protests in West Bengal, Uttar Pradesh, Orissa and Jharkhand. Even as the first store in Mumbai is set to come up in Bhandup, the protestors have made it clear they will not let it function. “Our main targets are Wal-Mart, Bharti and Reliance. If they are not checked, there will be social unrest,” says Dharmendra Kumar of India FDI Watch, a two-year-old organisation actively involved in anti-retail lobbying. Unperturbed, Reliance has decided to continue with its expansion plans. “There are no plans whatsoever of slowing down with Reliance Fresh, and we will stick to our plans,” says Navneet Saluja, Chief Executive Operations, Reliance Retail, Delhi-NCR and Haryana, at the inauguration of the 78th Fresh outlet in the region.

Contributing around 10 per cent to the country’s GDP and eight per cent of the employment, the retail sector is seeing investments of up to Rs 6,000 crore by the 20 prominent retail players, according to Shyam Bihari Mishra, a BJP Minister of Parliament from UP. “In contrast, the small player invests Rs 2-5 lakh in his business, so why should the government care about him?” he says.

“Our fight is with the government, which is slowly making policy changes to facilitate the entry of FDI and MNCs in retail,” says S. Balu of India FDI Watch, Bangalore.

Sourcing Concerns

The Agricultural Produce Marketing Committee Act has been revised in 15 States to allow retailers to procure fruits and vegetables directly from the farmers. “We have created the infrastructure (including people and processes), required to buy directly from the farmers, and wherever possible, we procure directly from them,” said Bijou Kurien, President and Chief Executive Officer, Lifestyle, Reliance Retail Ltd.

Kishore Biyani swears by the APMC mandi and prefers buying from them rather than from the farmers. Anshuman Singh, CEO, Future Logistics & Value Fashion, explains, “You need to set up proper infrastructure before buying directly from the farmers, which needs a lot of investment and time. Till we can do that, we are happy buying from the mandis.”

Opposition to organised retail is largely from middlemen in the supply chain, most affected by the disintermediation, says Subhiksha’s R. Subramaniam.

And though they are agitating against big corporate in retail, their anger has been largely visible against the Reliance stores.

Subramaniam says that Subhiksha has not suffered much, except in the pharmaceuticals business, where it continues to be targeted. –“Reliance is getting hit so much here because it is seen as a soft target now – there’s a lot at stake for it,” he said. He adds that announcements by some entrants who made statements about getting into contract farming and several crores of retail turnover have rubbed people the wrong way and that is why so much is directed against one entity.

A top retail player, on conditions of anonymity, says, “Reliance’s miscalculation is more on business than on opposition – it miscalculated the speed of roll-out and the efficiency it will generate – hence, the business is not going anywhere.” There are allegations of hoarding against big retailers such as Reliance but the Reliance spokesperson said the company did not wish to comment on rumours.

The government has allowed 51 per cent foreign direct investments in single brand retail and cash-and-carry wholesale from January 2006. But many see this as an opportunity for retailers to circumvent the rules and get into multi-brand retail. “Metro AG of Germany has opened a retail outlet in Bangalore after getting entry into India through the back-door cash-and-carry route,” said Vivek Monteiro, Secretary, CITU, Mumbai. He advocates a blanket ban on FDI in retail with strict regulation of organised retail.

“Retail outlets over and above a certain size should be treated as wholesalers and licensing should be made mandatory in each local municipal area,” he says. He adds that the SEZ Act is also a part of the government’s agenda of changing the legislation to facilitate corporate participation in retail.

The anti-retail group is also demanding the implementation of the national policy for street vendors approved in 2004 by the government.

The policy estimates that street vendors constitute about 10 million of the work force and appeals for ‘regulation’ and not ‘prohibition.’ The street vendors constitute a large number of the small retailers.

A report published in 2004 by the Centre for Policy Alternatives entitled FDI in India’s Retail Sector: More Bad than Good stated that retailing is “probably the primary form of disguised unemployment/underemployment in the country”. It explained that due to overcrowding in the agricultural sector and stagnation in the manufacturing sector, millions of Indians are forced into the service sector. Given the lack of opportunities, it is almost a natural decision for an individual to set up a small shop or store, depending on his or her means or capital. And thus a retailer is born, seemingly out of circumstance rather than choice.

The report continues, “India has 35 towns each with a population of over one million. If Wal-Mart were to open an average Wal-Mart store in each of these cities and they reached the average Wal-Mart performance per store—we are looking at a turnover of over Rs 80,330 million rupees ($1.82 billion) with only 10,195 employees. Extrapolating this with the average trend in India, it would mean displacing about 432,000 persons.”

The report added that if large retailers were to obtain 20 per cent of the retail trade “this would mean a turnover of Rs 800 billion ($18 billion) on today’s basis. This would mean an employment of just 43,540 persons displacing nearly eight million persons employed in the unorganised retail sector.”

The Indian Council for Research on International Economic Relations (ICRIER) report is to be released next month. Gibson G. Vedamani, CEO, Retail Association of India, believes it will clear a lot of misconceptions.

“The issue is not about big vs small, but about getting organised. It is difficult to say whether all this is politically motivated or not, however, the government just can’t ban organised retail like that,” he said. “In fact, anything that is done for the welfare of the consumers will stay,” he said.

In defence of large retailers, it is important to focus on what organised retail can do in terms of creating opportunities of employment, contributing to the country’s GDP and providing an experience to the customer, he says.

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