MUMBAI - For centuries, India's daily
vegetables and fruits humbly arrived home atop
cane baskets, in rickety wooden carts trundled by
vegetable vendors known as sabjiwallahs, or
from little shops dotting villages and towns
across the country.
That's changing in the
new borderless glass-fronted economies, with
multinationals realizing in a rush that food
accounts for more than 60% of India's US$350
billion retail market.
The change is
churning deep socioeconomic currents, sometimes
violent, throwing up promises
of big profits to a few while threatening the
livelihood of 40 million vendors. With an
estimated 98.7% of India's food and groceries
being sold through unorganized retail, Indian
industry majors with their foreign partners are
expected to invest some $10 billion in the next
few years.
So groceries now reach
middle-class homes in branded plastic bags, out of
air-conditioned supermarket chains with parking
lots and uniformed staff. The penetrating sales
yell of the traditional sabjiwallah is
heard less on Indian streets.
Considering
the nature of India's mostly unorganized
food-retail business, entrants to the food-vending
business are either employing foreign
retail-industry executives, creating alliances
with foreign retailers, or doing both.
This month, the respected Tata Group
became the latest to join the food-retail
bandwagon, following other Indian business giants
such as Reliance Industries, the Aditya Birla
Group and Godrej. The Tatas are negotiating with
Woolworths, the Australian retail giant with about
700 supermarkets and Australia's second-largest
employer, to set up supermarkets and hypermarkets
in India.
The initial impact of Big Retail
is already being severely felt. Wholesale markets
catering to traditional sabjiwallahs in
metropolitan areas such as Koyambedu in Chennai
have reported a 30% loss in business since retail
food chains opened, and frustrated vegetable
vendors in northern and central India have even
vandalized food-retail stores in their
neighborhoods.
Someone's loss is another's
gain, and growth in modern retail formats was
about 30% in India, compared with about 13% in
China and Russia, last year. The recently released
A T Kearney's 2007 Global Retail Development Index
says the Indian organized retail industry enjoys
40% annual growth and the retail turnover is
projected to reach $427 billion in three years. In
a cover story, the leading news fortnightly
Frontline called organized food retailing "perhaps
the fastest-growing component in the entire
agri-system of India today".
As added
encouragement for foreign investors, India has
clung to its place as the most attractive emerging
market in the retail sector for the third
consecutive year. This is according to A T
Kearney's sixth annual Global Retail Development
Index that studies attractiveness of retail
investment in 30 emerging markets. China has
jumped to the third spot. India, Russia and China
grabbed the top three slots in the index,
considered a benchmark by global investors in
retail business worldwide.
A T Kearney
says there is room for many more players in the
Indian market. "For instance, Shanghai has around
120 hypermarkets, while Mumbai has only five or
six," said Hemant Kalbag, who heads the retail
practice at the firm, as reported by the Wall
Street Journal. "So there is a room for at least
five or six major food retailers."
A
report released by A T Kearney said: "As larger
cities in India, China and Russia reach retail
saturation, some retailers are entering countries
through second- and third-tier cities where
consumers are ready to embrace Western styles and
products due to the influence of television,
movies and the Internet."
The growth will
be speedier when India allows larger foreign
investment in retail. The Indian government
currently does not allow foreign retailers in
multi-brand retail, a big gripe for supermarket
chains such as Kishore Biyani's Future Group that
runs the Big Bazaar stores (riot police are called
in when Big Bazaar declares its annual bargain
sales). But they are permitted to carry on
wholesale cash and carry businesses.
"Food
and grocery retailing normally takes around three
to five years to break even, and scaling up
becomes difficult if the retailers lack the
wherewithal," said Gibson Vedmani, chief executive
of the Mumbai-based Retailers Association of India
(RAI). "Since both Woolworths and the Tatas have
good investment capabilities, they can sustain and
grow faster." Vedmani did not respond when Asia
Times Online asked where he thought the new Big
Business retailing would ultimately leave roadside
vegetable vendors.
The worry for those
looking at the bigger picture is how the new
supermarket chains are cutting existing
food-supply chains that serve the masses. For
instance, media speculation arose concerning the
aim of Sam's Club, Wal-Mart's warehousing arm, to
set up shop in India by using the governmental
provision permitting 100% foreign investment in
warehousing.
With the major players
directly in contact with farmers and customers,
the intermediary wholesalers and middlemen would
be shut out. This might work well for the
higher-income groups, but the majority of
lower-income families might soon have to pay more
for fewer vegetables that their supply sources can
access.
India's food-retail market extends
like a vast bountiful unconquered territory for
investors. A McKinsey report says India has the
world's highest density of retail outlets, with
about 15 of them for 1,000 people, as compared
with the world's richest economies that have four
or five per 1,000. How that highest density will
fare in the next three years will make interesting
reckoning for housewives shopping for daily
necessities and overseas investors keenly eyeing
the Indian market.
(Copyright 2007 Asia
Times Online Ltd. All rights reserved. Please
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