's mom-and-pop stores perish with the arrival of modern supermarkets? Fortune's John Elliott reports. India
By John Elliott, Fortune
June 27 2007: 12:57 PM EDT
(Fortune Magazine) -- Suresh Prasad sells groceries from a 12-by eight-foot store opposite a new Reliance Fresh supermarket in the southern Indian city of
Venu Gopal owns a slightly larger store opposite another supermarket a few kilometers away. Sitting on a stool behind a glass counter topped with plastic bottles of sweets and surrounded by closely packed shelves of rice, lentils, fruit juices and other groceries, he sells two or three sweets to children, a single cigarette to another customer, and tiny tobacco sachets every few minutes. "Our customers," he says, "come for small quantities."
Those are hardly the dire scenarios of doom forecast by opponents of
"Definitely there is room for both," says Doma Trivedi, a franchisee of one of Reliance's most successful supermarkets in Hyderabad, whose wife and brothers continue to run the family's kirana a few kilometers away. "Everyone will have his own business. Smaller shops give credit and cater to people shopping on their way home from work, while Reliance Fresh gives correct measured weights and guaranteed prices."
Reliance Industries, the parent of Reliance Fresh, along with other retailers, including Wal-Mart (Charts, Fortune 500), which has teamed up with Bharti Enterprises, wants to change the way Indians have shopped for generations. So far 220 Reliance supermarkets have opened in 20 Indian cities since the rollout began last November. Plans call for 2,500 outlets in the next four years, including 500 hypermarkets.
The retailers' plans are generating opposition from wholesalers, other middlemen, and leftist political parties, which estimate that small-scale retailing provides livelihoods to about 20 million urban workers and 12 million rural vendors. To stem such opposition, Reliance has been opening bulk-buy stores called Ranger Farms in the early-morning hours that allow street vendors to buy at wholesale prices from the Reliance supply chain, thereby increasing their margins.
That hasn't stopped the Communist Party of India (Marxist), which initially focused on blocking foreign investment in the retail sector, from calling for restrictions on the number and size of large stores that can be opened in a single locality. They also want protection for farmers who sell to large retail chains and will, they fear, be bullied into accepting low prices. Reliance and Bharti argue that their supply chains will replace corrupt officials and middlemen who run the current purchasing and distribution system, and reduce waste of up to 40 percent of produce sent to urban areas.
A look at the potential impact shows many of the opposition's fears to be exaggerated. "India is at the beginning of a process of change, and customers are looking for something more modern, but there is no risk of serious unrest or job losses because only a limited number of small vendors will be affected," says Arvind Singhal, chairman of Technopak, a retail consultancy in New Delhi. He says that small players will be hit but that the impact will be limited to areas near supermarkets. By his estimate, 6,000 to 8,000 supermarkets will open across
This, he points out, is a small fraction of the total, and many will switch to selling increasingly popular products such as mobile phones or toiletries, or rent out or sell their premises. Set that alongside Technopak growth forecasts - that $330 billion in sales will reach $900 billion by 2015, of which modern retailing will account for 27 percent, with numbers employed rising from 40 million to 62 million - and it is clear that market expansion should more than compensate for the impact of new stores.
But for vulnerable small traders operating on the margin, these forecasts are of little help today. In
Similarly, Selva Kumar, who runs a kirana 100 meters from a Reliance outlet in Chennai, says, "We have lost 40 percent of our business, and that's the future. We're not closing, but there'll be no growth."
There is less opposition in
At Reliance Fresh stores, wide choices of produce are neatly arranged on shelves and in big display baskets. There are ten varieties of mangoes and 14 kinds of apples, some on sale. Signs hang from the ceiling, and smartly uniformed staff in red T-shirts add to the mood of efficiency.
More residents of
But it's not all smooth sailing. Reliance has found its "fresh" tag hard to justify as summer temperatures have risen above 40 degrees Celsius. On a recent tour of several
Not surprisingly, Komanduri calls this a "learning curve." India has few refrigerated warehouses, and no retailer has tried to develop countrywide supply chains for fresh produce, linking collection points in rural areas to processing depots near urban centers. Reliance Fresh has been trying - and failing - to cope with 175 varieties of fruit and vegetables at the height of summer (down from 243 in winter).
Customers have noticed. "It's good value here, better than other supermarkets, but there are difficulties with the quality, especially apples and papayas," says Rama Tibrewal, a middle-aged Reliance shopper in
It would seem that Reliance will be able to eat into small retailers' business in big ways only when quality improves and its stock widens to include household items, which is now happening across all its stores.
The future rapid growth of the retail sector, together with shoppers' preferences in developed markets around the world for both big and small outlets, should mean that the impact on the mom-and-pops will be far less than feared.
From the July 9, 2007 issue
Clearly Bangladesh is on a much smaller scale when it comes to comparing national economies and geographic size (not just in terms of sheer physical distances, but also connectivity and mindset) , but does the burgeoning Indian experience have any relevance to our retail industry?
The areas where there seems to be some rhyme (not sure about reason): (a) is there room for both the Agoras and the "mom and pop" retail outlets (i.e., so called tong shops and modir dokaan), or will the former eat the latter’s lunch?; (b) the need to strengthen the urban-rural supply chain through better logistics and infrastructure (especially for food and produce); (c) eliminating waste, inefficiency, corruption and unjust competition in the purchasing and distribution system by profiteer officials/syndicates/middlemen; and (d) is it possible to find “win-win” situations where large corporates, including multinationals, can create mutually profitable market presence (like Reliance opening in the early morning so that even street vendors can get access to the efficient and modern supply chain).