FDI in retail

I’m trying to figure why that is turning out to be a big deal. Given that we have over 5 years of history of “organized retail” in India, and that it hasn’t performed particularly well on a lot of factors, I don’t know how permitting FDI in multi-brand retail is going to make a difference.

In my personal experience, the performance of “modern retail” over the last 5 years has been underwhelming at best. I can’t recall a single time when I’ve gone to one of these chain stores (Big Bazaar/ Reliance Fresh / More) and come back without getting annoyed with the checkout staff. While the variety available at these stores is massive, which is why I go there at times, the stores are all staffed with a bunch of imbeciles. Yes, all of them. They have made an attempt to overcome the unskilled staff by means of “software systems” and that has only added to the problem, rather than helping solve it.

On countless occasions, staff at modern retail outlets have refused to sell me something that I wanted to buy because “the item code wasn’t found in the system”. The other day the customer in front of me wanted to cancel an item midway through checkout, and the checkout staff had to call the store manager to reverse the transaction. I don’t know why the systems have been designed so badly. The fundamental problem with most of these “modern retail” outlets is that the staff there have no real incentive to actually sell you stuff, and the impression one gets is that the only thing staff strive to do is to avoid mistakes. Perhaps their incentives are structured thus. I know of a case from some 4-5 years back, when a family-owned opened across the road from a More outlet and in the course of a year, the latter had shut down.

Given this lacklustre performance of modern retail, I don’t know how much of a difference permitting FDI in the sector will achieve. Yes, it is argued that if Walmart invests directly the “know-how” it has accumulated over the years will be introduced to India. However, there is no reason to believe that this “know-how” has not already been implemented. Major players in organized retail such as Reliance and the Aditya Birla Group (More) have demonstrated in other sectors of their willingness to acquire know-how from across the globe, and implement it better than their global counterparts. Then, most major management consultants in India have established retail practices, which is another route for “knowledge import”. It is also not an issue of capital – Indian investors in various sectors have time and again shown that they are willing to invest in companies with strong business practices.

The problem with modern retail lies not with either know-how or investment. The problem is one of implementation, and I don’t see how bringing in Walmart (who have little idea of Indian markets) can make a difference there. FDI in retail is not going to solve this problem.

The real problem lies in bottlenecks higher up the food supply chain. Various states are yet to repeal the archaic APMC Act which gives certain people monopoly over food trade in certain areas. There are various restrictions on movement of goods across states (though this should be lesser of a problem once the GST (Goods and Service Tax) Regime comes into play). Time and again, the government acts arbitrarily in changing the rules concerning movement, import, export and “support price” of commodities, and this creates uncertainty in the market and scares away investors.

It is reforms higher up the supply chain that are crucial in order to make the food supply chain more efficient and reduce wastage. The government would do well to put the topic of retail FDI on the backburner (especially since it’s controversial) and instead focus on enabling the rest of the supply chain to become more efficient.

3 thoughts on “FDI in retail”

  1. Not sure about this. Service mentality is a part of company culture and that is something that a Wal-mart *might* bring (though wellofcourse Wal-mart’s presence is necessary but not sufficient).

    It is a little mystifying that Indian service standards in luxury hospitality are among the best in the world, and terrible in all other sectors. Restaurant waiters are clueless for reasons we’ve discussed elsewhere. Retail you’ve bitched about over here. In financial services, I’d rank SBI>MNC banks>Indian pvt banks>other PSUs for retail services. I can’t really hazard an opinion about wholesale services.

    One benefit of FDI in retail is that with MNC retail majors present, there could be a muscular lobby for opening up the supply chain upstream.

  2. Dude, Wal-mart has been in India for last 4 years as ‘Easy day’ in tie up with Bharti. They have also been working the India model for 3 years prior to that. And having worked directly to help strategize, design and implement departments in WM stores in India, I can tell you, they have got a few things right. The issues are also with local partners who just do not have the capability and resources to adapt to the ERP processes of WM/big bazaar. I know that WM/Tesco/CF/Big bazaar etc are investing in dealer colleges and bringing banks and experts etc so that small suppliers / local players get both knowledge and financial support to

    There are many issues with Retail. From gettin 119 licenses from different govt. departments (muncipal to central govt.) to open one multibrand store (which has food and groceries), to crazy real estate evaluations to political pressure groups to name a few. There are some reasons for growth in MR. No where but India/SriLanka , do we have MRP. This allowed stores to deep discount on certain categories (leveraging scale of purchase) and sell others at higher price. We do not have that option in India. (no wonder reliance has petitioned for removal of MRP).
    MR grew in China because the country needed money for expansion of economy and they pushed for MR as it would increase tax collections from otherwise unaccounted( also black money ) small traders etc. (try that in India 🙂

    Try a Tata Trent store in bglr near Forum or in Eejipura mall (tie up with Tesco) and you can sense and feel the difference in store layouts, service levels etc. This is not to say that Indian retailers aren’t good, (big bazaar is exception), but the sheer focus on processes and last mile execution is way superior with WM, Tesco and Carrefour (in Delhi now).

    As Aadisht noted, Service attitude is quite pathetic across industries. But the more you open up to competition that too WM/Tesco and the likes, it will force others to measure up.

  3. + the goverment is looking to mandate investments into higher-up in the supply chain by foreign FDI retailers in conjunction with the opening-up.
    they have an interest in limiting the imports, it has the collateral benefit of improving the farm-to-shelf movement, as you said that needs more help than improving the end customer service.

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