Retail therapy

“Pile it high, sell it cheap”
Jakob Cohen, Founder of TESCO

Retail therapy

You can’t argue with “economies of scale” because size does matter. See the principle working in the world of business and industry consolidating with mergers and acquisitions. Watch it work in the viability of large land holdings and cooperatives in farming. See the netas get into state assemblies and parliament thanks to the mobilisation of the masses. So why are some important politicians, on both sides of the aisle, cautioning the government on boosting organised retail? They are not just afraid of foreign capital and expertise but home grown big business as well. Could it be a bout of paranoia, based on an overestimation of the adverse effects on the small trader/manufacturer/producer? It’s been typical of our “liberalisation” process to be alarmed by our own initial boldness and force a go slow till we are able to assess the political consequences. Particularly, it would seem, on the eve of several important assembly elections.

But maybe it’s just our own crab-like way of going forward. Telecom, which catapulted Bharti into the prominence it enjoys today, also experienced this double-think at first. But later, after a period of low growth and very expensive mobile telephony, economies of scale were indeed introduced. Appropriately for the joint venture partners, both Airtel and Walmart have reached their present stature by providing a decent and competitive mass market service to millions of ordinary people. But, of course, they couldn’t have done so without the policy framework of a “free society”. The opposite has also been demonstrated far too many times for comfort. In the world’s remaining socialist economies with their controls, restrictions and state-owned monopolies, people still have to endure over-priced and shoddy goods, lack of choice, long queues and gross inefficiency without remedy or recourse.

With the Indian economy clipping along as it is today, this shakiness with regard to big retail is unwarranted. It is already evident that the Indian small trader is a capable and versatile entrepreneur who can thrive in a changing and competitive environment. He has taken to free market opportunities like unrestricted imports and lower duties with great élan. In the coming era of proper supermarkets and pile-it-high mega stores, the small trader can provide the personalised service that big business cannot. It is the advantage of the minnow over the shark and should not be underestimated.

It is important also not to romanticise the small over the big. Key conclusions of an IMRB International study published in a Subiksha advertisement last week show that kirana stores charge between 6.7% and 8.5% more than the Subhiksha prices in Bangalore, Delhi, Hyderabad, Ahmedabad and Chennai, the cities covered by the survey. Subiksha itself, according to IMRB, charges between 8.7% less (Bangalore) and 13.8% less (Chennai), than the maximum retail prices as further evidence of its competitiveness. In the advertisement, Subhiksha, which claims to be “India’s Largest Supermarket Chain” lists 19 items ranging from Sunsilk Shampoo to Vim Utensil Bar 400 gm wherein it claims to be between 6% and 15 % cheaper than other supermarket “chains” including arch rivals Big Bazaar.

If this advertisement is indeed representative of the state of play within our high-street retailing, we have much to look forward to as consumers. We have long been subjected to any-which-way “company showrooms,” improbable looking “supermarkets” and rickety “chains”. With the onset of deep-pockets organised retailing and unfettered foreign direct investment (FDI) in the sector, we can expect a rise in professional standards, competitiveness and all the elements that go into “customer delight”. We can also, despite the razzle dazzle and comfort of state-of-the-art premises, expect prices to go down. The oft talked about supply chains will be streamlined and the badly done by farmers and small manufacturers in sporting goods, stationery and so forth will realise much better prices by being able to cut out several layers of middle men.

The middle men, by training and definition, will deftly change track and collaborate wholesale with the new wave of big business in retail. The dalal cannot be made redundant. The nervousness with regard to the Walmart, Carrefour, Tesco and so forth is incompatible with India’s new found but irreversible strengths. Foreign retailers will serve to raise competencies all around and benefit us as consumers, employees, suppliers. They will also spur domestic players to stellar performances. We are a huge market for the world and we should allow ourselves to be properly served.

(750 words)

By Gautam Mukherjee
Write to:gautammuk@gmail.com
Also to be published in the Sunday Pioneer, 11th February, 2007, under “Dialogue”www.dailypioneer.com


This and all original essays on GHATOTKACHSERIES are copyright 2005-2007 by Gautam Mukherjee. All Rights Reserved.