FDI in Retail - Kirana Stores

The debate on allowing FDI in retail is something which is up for discussion, so thought I should also pitch in with my thoughts. There are many dimensions and stakeholders here, the farmer/producers, the consumers, the kirana stores and of course the international retailers who are waiting to enter the Indian market.

I will start with focusing on the kirana stores or the small mom-n-pop retailers, which I have certain familiarity because my own research work. We are known as a country of shopkeepers, because of the high retail density and the sheer number of shops. In fact in the last five years I have been observing the large number of new small kirana stores which have come up in just the 3 km stretch before my residence. ( if one were to hazard a guess based on these 3 kms the growth of kirana stores in India, it might be in the high 30s). In India setting up a retail store is considered to be the easiest way to help settle down a young guy. So the concern is that if the bigger international retailers were to come in then probably these smaller retailers would be wiped-out, estimated between 10-15 million. If that were to happen then obviously it would become a major issue. But then the percentage of organized retail even in countries where they have been for long is not 100%, infact the percentage varies in countries like Japan , Malayisia and Thailiand they are from the high sixties to 40%.

And to tell the retail in India has not evolved in the last twenty would be very wrong, our own home grown retailers Like Big Bazaar, Reliance retail, Spencers have been there for quite some time, and have we seen small retailers close shop because of them? Infact I have personally seen these Kirana store respond by upgrade their shops and increasing their service levels.

By saying that the Kirana stores would disappear would be saying that exist because of an inefficiency in the market and the moment it is removed by bringing in more efficient larger retailers, the smaller inefficient ones would disappear. The reality is that the smaller retailers exist because they provide value by providing location convenience, smaller assortments and personalized services. And yes some of them would get impacted, those who are not able to respond to the changes. Have we not seen the STD booths disappear after mobiles came in, but then the STD booths have morphed into some other kind of retail store. I firmly believe that the retail scene would evolve very rapidly and change in the form of entry of larger organized retailers is inevitable and would happen.

In my next post I will look into the other stakeholders in the retail business and how would they be impacted...

Bottom of the Pyramid a Mirage?

Debates and arguments are beneficial , many a times the process brings out dimensions which have not been thought-off by the parties involved. Infact it is when some one questions you that you are able to articulate your thoughts better than when your idea is accepted passively by peers and others.

The debate between Prof C K Prahalad and Prof Aneel Karnani on the viability of the concept of Bottom of the pyramid marketing is one such debate. C K Prahalad is the one who propounded the theory that the Bottom of the pyramid consumers with incomes less than $2 per day can be a viable and a profitable segment to market and he places the onus of these activities on MNCs who have ignored this market till now. He says serving the bottom of the pyramid can become a win-win situation for both the consumers as well as the companies and also serve as a source of innovation. In his book 'Fortune at the Bottom of the Pyramid' he has written many cases on how the concept has been applied in many emerging economies. The book was published in 2004, but in the preface of the book CKP admits the fact that he has been working on the issue for many years and the struggle he had to go through before the idea was accepted. And as of today one finds that the idea has been taken forward by many companies and there are joint initiatives in terms of BOP labs being set-up in many developing countries.

Prof Aneel Karnani in his article Mirage at the bottom of the pyramid argues that the BOP argument is riddled with fallacies. According to him the BOP approach looks at the low income consumers as alternate markets and with the current low levels of income this seems to be a difficult proposition to accept. He goes on to look at each of the cases which have been given in the book and identifies the problems, including the estimated market size and number of BOP consumers. He emphasizes towards the end of the article that rather than looking at BOP consumers are buyers of products produced by multinationals they should been seen as producer . This is the only way in which the real income of these consumers would increase and real poverty alleviation would happen. CKP has responded to the article , link.

Car for "Bottom of the Pyramid" Customers!!!!!

A car for one lakh rupees. This is what many automobile companies are trying to build. Our home grown Tata Motors and the infamous Singur small car plant is supposed to be working full-time to launch the car by mid of next year. The Forbes magazine calls it the next people's car after Ford's Model T, Volkswagen’s Beetle and the British Motor Corp's Mini. Apart from Tatas the companies which have expressed their interest in building the ultra lost car includes Nissan along with Mahindra and Mahindra, Honda motors, Hero group of Munjals and Bajaj Motors. The question is what is so special in rupees1 lakh car? Accepted that pricing itself is one big selling point. I think it at this time it is worth while to remember the pioneer of low-cost cars , Henry Ford. People consider him to be a production genius who introduced the assembly line manufacturing system to the world, but marketers believe his true genius was in the fact that he calculated the price which would make a car affordable to most people in the US and working backwards he came up with a manufacturing design which we know as assembly line manufacturing. The initiative to come up with a rupees one lakh rupee car is an initiative in the same direction, at the price of one lakh the a car would become affordable to many Indians who travel in two wheelers and public transport. The appeal of the low-priced car would not be limited only to India but would be in demand in most emerging countries, China, Brazil and so on. With the car markets in the US and developed world getting saturated it is these markets which would be able provide the growth for the automobile manufactures. The Forbes article claims that the one lakh rupee car from Tata Motors would represent a victory for those who advocate making cheap goods for potential customers at the 'Bottom of the pyramid".

A retail market for "ICE"

The other day I was getting my vehicle repaired in a road-side shop. It was mid-afternoon and the heat was unbearable, at 45-46 C. The mechanic was taking a long time for the minor repair and I had nothing to do but to wait. The area in which the repair shop was located would have one of the least prosperous areas of the city; one could call it a slum. In the area I observed one thing that was selling briskly was "ICE". There were some four-five make-shift shops which were selling ice to customers who would buy the ice and carry it home in small polyethylene packets. The customers in the mid-afternoon were women who after their normal grocery purchase were on their way back home. Each of the shop had at least 8-9 blocks of ice in stock which they would probably have to sell off by the end of the day and for five rupees they were selling a 6"X6" piece of ice which was pretty costly. This market of ice I though was a very good example of the market for low-income consumers. As has been said by people like CK Prahalad in BOP marketing and others, the low income consumers also need products and services which we would normally associate with an urban up-market consumer, here we are talking about the product "cold water" or "cold lemon drink”. Though the purchasing capacity is low, but if one provides these consumers with smaller quantities they are willing to buy and even at higher prices.

There are many examples of the purchasing capacity and preferences of low-income consumers........