The Changing Indian Retail Space
The global economic down turn has made life very difficult for supermarkets to enjoy continuous growth and higher margins. With shrinking space for growth and limited avenues to scale; competition is riding high.
It has been a cause for worry for developed countries for some time and is also looming large on developing economies like India. Consumers are still vary of the economic situation and not coming out to spend their money on things other than essentials.
One of the strong reasons of India growth story has been it’s conservative nature of economy and culture of people. Indian people traditionally did not spend on things which they did not need. Earn more ( or borrow more ) to spend more as a prescription; has been proven a fallacy. At one point earning potential limits; but urge to spend remains.
The recent decision of Indian govt to open multi-brand retail to FDI is a welcome move with a rider as it is expected to offer wider choice with better quality to consumers and bring in more business opportunities for SMEs. As investment into retail increases, the quality of products is expected to improve with greater transparency and easier monitoring of adulteration, counterfeit products and traceability. Further, with its ability to drive efficiencies and leverage scale, organised retail is also expected to increase affordability for consumers.
With foreign direct investment (FDI) being allowed in multi-brand retail, the Indian retail scene is set for a dramatic makeover. In the past two decades, Indian consumers have experienced the best that sectors like telecom and IT had to offer. However, that cannot be said of the Indian retail sector blindly. The gap between the Indian and the international retail experience is huge. In fact, that gap is the widest in the developing world. The opening of retail for foreign investment will reduce it. One immediate area that can foresee this happening is supply chain management know-how and technology. That will empower the Indian farmer who at the moment loses anywhere between 30% and 40% of his produce. However, what's also exciting to watch is the changing shopping experience of the Indian consumer.
Given the fact that food inflation stems especially from perishable items such as milk, eggs, meat, fish, vegetables and fruits, the case for a better supply chain management becomes stronger.
The losers would be small retailers and small farmers. India's huge market provides ample business opportunity for MNCS with a huge difference in farm gate and end consumer price. Definitely, the farmers will get higher price when the companies enter the business but after they wipe out the existing food commission agents. It has happened in areas where big companies have started procuring horticulture items like Himachal Pradesh and Maharashtra. The big farmers, who can produce quality by investing in horticulture gain, while the small farmers fail to compete and have to sell their produce at marginal prices.
Fast moving consumer goods (FMCG) companies expect their margins to get squeezed due to the increased bargaining power of big retailers and the threat from their private labels. For many impulse buys such as corn flakes, chocolates or cheese, the ability of large retailers to display products innovatively has lead to substantial jump in category growth. But for traditional products in the FMCG basket, margins will remain under pressure. (1,2)
References:
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newsletter@indiafoodbrief.com ; date 28.11.11
2. newsletter@indiafoodbrief.com ; date 29.11.11
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