FDI in Multi Brand Retail by Prof Sri

FDI in Multi Brand Retail by: Prof. Sri Ram Khanna Managing Editor, Consumer Voice, New Delhi 1 & Professor , Dept of Commerce, Delhi School of Economics, Delhi

Implications of Organsied Retailing for Consumers Vertical Issues Specific to Product Groups e. g. Food Standards , Nutrition & Safety Horizontal Issues related to Greater Competition : Large vs Small Retailing Consequence of Economic Growth , rise in GDP, PCI and standards of living Political implications for Vote Banks and their contestants 2

Vertical Issues Better compliance to standards e. g Food Standards and their Compliance Better Nutrition , Safety and Labelling for consumers It could Reduce Corruption in Food Control systems Can it Provide Traceability ( Mustard Oil Deaths) 3

Impact on market Consumers Farmers MSMEs Small Retailers and Wholesalers 4

Implications for Farmers Provides alternative buyers to Agri. Mandi under APMC Regulations Introduce Contract farming to farmers Possibility of quality agr inputs and sound technical advise Reduce Exploitation of farmers at Mandis Farmers organsiations like BKU welcome the reform 5

Implications for MSMEs Opportunity for scaling operations as large retailers have economies of scale Long run supply contracts for Private labels owned by large Retailers Can Circumvent distribuion cahannels to sell direct to Retailers Case in point: Auto ancillary producers have scaled operations due to Auto FDI 6

Implications for Small Retailers Greater Competition at Retail will bring down retail markups and profits Traditional Retailers will have to work harder and innovate to maintain sales in face of competition No immidiate threat to their existence but impact will show over medium and long term 7

Implications for Traditional Wholesalers No visible impact inspite of FDI in cash and carry wholesale by Metro, Walmart They will continue to serve traditional retailers but margins to come down due to downward price pressure Will slowly lose market share over Medium and long term – gradual change 8

Implications for Consumers Downward pressure on retail prices will provide consumer savings Below MRP will become the norm Greater Quality, Choice for consumers Availability of low priced Products for bottom of the pyramid with large scale sourcing 9

Large Retailers in Japan 1. Japanese law gives the small retailer enormous advantage over the development of larger stores and competition. All these factors have supported the continued viability of small stores d) 2. Large-Scale Retail Store Law and Its Successor: Competition from large retail stores controlled by Daitenho - the Large-Scale Retail Store Law. Designed to protect small retailers from large intruders into their markets, the law required that any store larger than 5, 382 square feet (500 square meters) must have approval from the prefecture government to be "built, expanded, stay open later in the evening, or change the days of the month they must remain closed. " Proposals for new "large" stores were first judged by the Ministry of International Trade and Industry (MITI). Then, if all local retailers unanimously agreed to the plan, it was swiftly approved. Without approval at the prefecture level a process that could take several years (10 years) for approval. Japan's largest supermarket chains needed 10 years to get clearance for a new site. Toys "R" US fought rules and regulations for over three years before it gained approval for a store. (See Page. 479) 10

Large Retailers in Japan 3. Regulations On Japan have changed : Large cracks in the system: the most recent is the Large. Scale Retail Store Location Act of June 2000. New law takes MITI out of the approval process. Local government has the authority to block construction if it thinks the new project will exacerbate pollution, traffic congestion, or noise. e) 4. Changes in the Japanese Distribution System: Specialty discounters are sprouting up everywhere, and entrepreneurs are slashing prices by buying direct and avoiding the distribution system. Kojima, a consumer electronics discounter, practices what it calls "global purchasing" and buys merchandise anywhere in the world as cheaply as possible. Kojima's tie with General Electric enables it to offer a 410 - liter GE refrigerator for $640, down from $1, 925, to reduce the 550 - liter model from $3, 462 to $1, 585. The "new" retailers are relatively small and account for no more than 5 percent of retail sales. But the impact extends beyond their share of market because they are forcing the system to change. 11

Expectations from Organised Retail l l Improve Food Quality & protect Indian consumers from risks of food borne illnesses due to microbial pathogens, bio toxins and chemical or other contaminants in food. Encourage holistic approach from farm to table to reduce food borne hazards for consumers Adopt modern principles of Risk Analysis based on better scientific knowledge of food borne illnesses and preventive measures for food safety and quality. Bring the best practices in Value Chain to Indian consumers 12

Expectations………. . l l Improving the level of public safety from human risks from food and food related illnesses to reach global standards. Food standards should include components that will enhance the level of nutrition and human safety from the health point of view. Truth in communications on food labels and in food advertising. Better Implementation of Food standards Improved consumer awareness about quality, safety, nutrition and standards for a healthy lifestyle 13

Horizontal Benefits of Organised Retail Enhancing Competition between Large & Small Retailers Improved Product Quality and Lower Retail Prices Greater Degree of Consumer Protection 14

FDI vs Domestic Capital FDI brings with it mgmt systems, technology and global sourcing If it has worked in a wide range of industries why not multi brand retail Decentralised retail has lesser degree of competition FDI will shake it up 15

India is not the first Country: FDI and organised retailing in many countries Introduce safeguards eg. Japan provincial governments license stores above floor size Make declaration of FPP mandatory along with store MRP against deceptive pricing. Package to assist small retailers to form chains , retails coops with finance, tax incentives in affected areas. Start with discount stores on periphery of cities 16

See my blog on this subject : Wordpress. com/sriramkhanna 18

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Thank You www. consumer-voice. org sriramkhanna@yahoo. co. in 22