Supermarket vs. Mom-and-Pop shops.
This has to do with the article of Friday ,June 29,2007 "Keep grains off retails, Buddha tells Reliance"published in The Economic Times ,one of the leading financial daily of India. The article reads as follows:
"Do not touch food grains". This is the rule No: 1 for Mukesh Ambani owned Reliance group which has ambitious plans to spread its retail foot prints across West Bengal. The state government has also spelt out categorically that Reliance''2019 retails initiative should in no way unsettle the lives of small shop keepers and vendors.
This reminds me my blog PARIJAT-7 of 24th November 2006 where in I had described the plight of a vegetable vendor on the face of onslaught of Supermarket. This was followed by PARIJAT-8 on 4th December 2006 which was basically seeking solution to the problem raised through PARIJAT-7.
The article of The Economic Times prompted me to have a re-look on the issue. An internet search resulted in locating some interesting articles. Let me share gist of those articles before we analyze the issue and look forward to the solutions keeping in intact the basic assumption that the process of market driven Economy and Globalization is irreversible.
INDIA'2019S RETAIL REVOLUTION BY JOHN ELLIOT, FORTUNE DATED 27TH JUNE 2007.
This article highlights the fact that "Reliance Fresh" owned by Reliance Group of company has opened up 50 brightly lit, western style stores in past seven months in the South Indian city of Hyderabad. They have also opened up 220 Reliance Supermarkets in 20 Indian cities and plan calls for 2500 outlets in next four years including 500 hyper markets. Wal-Mart group with Bharati Enterprises is also quite active in India in the field of retail market. These activities are supposed to affect 12 million Mom-and-Pop shops (called KIRANAS in India) of India. Small scale retailing provides livelihood to about 20 million urban workers and 12 million rural workers. This has resulted in opposition from whole seller, middleman and other political parties.
To counter this Reliance has been opening BULK-BUY stores called "Ranger Farms" in early morning hour that allows street vendors to buy ay whole sale price from Reliance supply chain.
Communist party of India (Marxist) is now 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 the low price.
Reliance and Bharati group argue that their supply chains will replace corrupt officials and middle man who run the current purchasing and distribution system and reduce the waste up to 40%.
The article also highlights that smaller shops are still preferred by lower-middle income group as these shops offer credit and cater to people shopping in their way home from work. Those shops also sell to customers who buy in small quantities. Another interesting fact mentioned is about small eatable shop which has doubled its sales due to its proximity to super market.
ARTICLE ON INDIA TOGETHER DATED 16TH FEB 2007.
This article highlights the study done by Stephen J Goetz and Hema Swaminathan of the Department of Agricultural Economics and Rural Sociology at Pennsylvania State University in United States. The authors measured the impact of Wal-Mart's2019s massive retail boom on poverty of various American States. The gist is as follows:
American states that had more Wal-Mart stores in 1987 had higher poverty rate by 1999 than the states where fewer stores are set up. Equally important, the counties (districts) which built new Wal-Mart stores between 1987-1998 also had high poverty rates. Increased poverty growth from Wal-Mart operations came at a time when poverty rates nationally were otherwise in decline.
No doubt the above study is interesting.
IN HYPERCITY, INDIA GETS BIG BOX RETAIL, DATED 15TH AUGUST 2006 BY BLOGGER PROFESSOR-Z
This article talks of opening of 120000 square feet Hyper City retail store in Malad, Mumbai (commercial capital of India) by K.Raheja Corp Group. It accepts consumer's debt by tying up with Hong Kong Bank and Citi Financial for money- less customers. The most important fact nearly 50% Mumbai population, a hoofing 6 millions live in small congested areas. These populations do not look to Super market for purchase.
FACTS ABOUT INDIAN DEMOGRAPHIC PATTERN AND CONSUMERISM
These statistics shall help us to analyze the problem in a larger prospective.
70% Indian population reside in villages, total number of villages being 550000.
Rest 30% resides in more than 2000 towns and cities.
Rural market is growing at the double the speed of urban market.
Number wise, both rural and urban hold equal numbers of middle income and above households.
Lower middle income group population in rural is twice that of urban.
In highest income level, urban has 2.3 million household and rural has 1.6 million household.
Money available to spend on fast moving consumer goods
a} Urban India-49500 crores
b} Rural India-63500 crores
Absolute size of rural India is expected to be double that of urban India in couple of years.
ANALYSIS
A cursory glance into above statistics conveys a message of comfort.
The impact of opening of Super markets on local economy is not that menacing as it made out to be. Certainly it requires displacement and relocations of Mom-and-Pop shops (kiranas shops) but the presence of lower middle income group will always provide consumers to these Mom-and-Pop shops. Considering the population of India and the demands always at par or above the supplies, every body (both super market and kiranas shop) will get its pie here.
Mom-and-shops should be flexible enough to move to the new localities instead of going head-on with super market. Change in business shall help. Recollect the experience of eatable shops near super market described above. Role of government particularly various state housing boards come into prominence as they should construct and provide accommodation in new places to the displaced Mom-and-Pop shop owners. Mobile shops or in other words shops on wheels are the best options to counter super market considering the busy urban life.
Apart from generating employments these Super Markets shall indirectly help in (call it a by-product) generating distributed economy rather than concentrated economy. Influx of urban population to the rural is going to be inevitable considering the displacements of Mom-and-Pop shop owners and growth of rural market (see the statistics above} which is a good sign for economy.
Look for a win-win model (Reliance Bulk-Buy stores selling to street vendors in whole sale price). This has got many advantages. The sale volumes of supermarkets shall increase. The dependent Mom-and-Pop shop can enjoy the economic scales of its supplier that is Supermarkets. In the long run Super markets may not penetrate to new areas as they are already serving and increasing business through Mom-and-Pop shops. In other words Mum-and-Pop shops shall be consumer to Supermarkets and their presence will not be threatened. This shall reduce the industry burden on distributions. In food products this shall reduce the presence of middle man and wastage.
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