Organised retailing (hypermarkets, superstores and discount stores) is the predominant form of retailing in the developed world. However, it is a fairly new phenomenon in many parts of the developing world, ranging from 36 per cent in Brazil to 20 per cent in China and just 4 per cent in India. Developing economies, specifically India, are appearing on the world retail industry radar due to the size and potential of their markets. In 2006, the total retail sales in India was US $ 322 billion, making India the seventh largest global retail market. India appears to offer significant opportunities to the global retail fraternity, with the consuming class having an annual disposable income above Rs 90,000, and expected to rise from Rs 370 million in 2006–07 to Rs 620 million in 2011–12. Increasing disposable incomes, favourable demographics with a shift to the younger population with less dependency, and increasing urbanisation are magnets for foreign retailers, whose home markets have become crowded. Currently, organised retail is poised to grow at 45-50 per cent per annum and constitute 16 per cent of the total retail by 2011–12.

As organised retail presents enormous business opportunities, big names such as Reliance, Birlas and Tatas, along with the foreign supermarket chains (in partnership with Indian companies), have been making an entry into this sector. Fearing loss of business and employment, traders and hawkers have held large-scale protests in various parts of the country. In the light of this, the Ministry of Commerce and Industry commissioned the Indian Council for Research on International Economic Relations (ICRIER) to analyse the impact of organised retailing on unorganised retail, farmers and intermediaries as a possible input to future policy-making.

The report holds that organised retail will have a positive multiplier effect on the economy due to the investment it will attract and the more efficient supply chain that will result. It advocates a balanced approach to retail expansion and suggests that the government play a major role in shaping its future course.

Main Findings

The survey on unorganised retail covered 2,020 shops, the majority of which were grocery and general stores (the remaining being textile shops, fruit and vegetable vendors and hawkers) in the vicinity of 101 chosen organised outlets of four different retail formats (hypermarket, supermarket, discount and department store) in four regions of the country, covering seven metros and the mini metros of Jaipur, Indore and Kochi.

The survey found that unorganised outlets, on an average, employed 1.5 persons from the family and hired 1.1 persons. During the period of existence of the organised retail outlet (21 months), a marginal overall increase in employment was noticed (it increased in the South and the East, declined in the West and no change in the North).

There was an overall decline in turnover by 14 per cent and in profits by 15 per cent over a period of 21 months. As against this, those not situated in the vicinity of organised retail registered an increase in turnover and profit of 2–5 per cent.

Over a period of 21 months, the annualized rate of closure was 4.2 per cent.

Unorganised retailers have indicated a host of measures such as better display, adding new product lines/brands, introduction of self service, reduced prices/expenses, increased home delivery and provision of cash credit that they took to deal with the competition.

An interesting finding is the use of modern tools such as electronic weighing machines, scanning/bar coding, accepting credit cards, computerised accounting and inventory systems, refrigeration/freezers by kiranas, with the numbers slated to increase in a big way.

Impact

The two sections of society that seem to have gained with the advent of organised retail are the middle-class consumer, who finds greater choice and saves money, especially  at discount stores and supermarkets, and the big farmer. Every other segment, be it the unorganised retailer, intermediary or small farmer, has either had no change in their position or has been affected negatively.

Impact on Farmers: In a survey of the alternative marketing channels available to cauliflower farmers in Hoskote taluka of Karnataka, farmers selling to supermarket chains were seen to earn higher profits than those selling to any other channel. However, these farmers also incurred higher costs of cultivation per acre (on labour, crop care) than any other category. The farmer, who sells to the mandi (numerically, the majority), makes the least profits due to the large number of intermediaries on the way.

A closer look at the data generated shows that, in accordance with international evidence, the better educated, better asset-endowed (irrigated land, transport owning) larger farmer sold his produce to the supermarkets. Small and marginal farmers, who comprise 60 per cent of India’s farmer households, continued to use the traditional channels.

Impact on Consumers: The middle classes, those with monthly incomes of Rs 20,000 and above, are the core consumers of organised retail, though unorganised retail also figures in their buying strategy. Unorganised retail is extremely important for those with low incomes, because 52 per cent of the shoppers buying off push carts were those with monthly incomes less than Rs 10,000.

Thirty-seven per cent of this category also shopped from organised sector outlets.

Besides the proximity to homes (average of 1.1 km compared to 2.6 km for organised sector), there are several reasons for the popularity of unorganised retail.

Consumers at organised outlets said that 43-46 per cent of their spending on vegetables, fruits, non staple food items, cooking oil and other packaged food items (30 per cent of their monthly expenditure) was from unorganised sector outlets.

Similarly, consumers at the unorganised sector outlets bought 39 per cent of their monthly shopping (toiletries, readymade garments, etc.) at organised sector outlets.

One of the key findings of the survey is the overall increase in spending due to the arrival of organised retail and the wider range of products available and the promotional schemes such as discounts.

Impact on Intermediaries: A large proportion of the unorganised sector, especially the smaller sellers, dealing with rice, fruit and vegetables, has had its turnover and profit adversely affected.

Impact on Manufacturers: Tauter supply chains with larger margins for the big brands are the norm. In the process, smaller manufacturers have been threatened by the big retailers putting in their own brands and pressure on prices and margins. Some manufacturers expressed interest in selling directly to kiranas to counter the threat posed by big retail.

Policy Recommendations

Some of the policy recommendations the study makes include easy access to credit for unorganised retailers from banks for their modernisation. Also, a time-bound national ‘kirana and wet market reform programme’, with co-operatives or associations of kirana stores to undertake direct procurement from manufacturers and farmers; modern, large cash-and-carry outlets to sell to kirana stores and hawkers at wholesale rates such as the Chinese example of Metro modernising this chain; conversion of all uncovered wet markets to covered ones, the provision of approach roads, improved hygiene and waste-disposal facilities through public-private partnerships as in Taiwan, Singapore, Philippines and China; the facilitation of the formation of farmer’s co-operatives to sell to organised retailers. Further, the study recommends that there be no new restrictions for organised retail. There is need to formulate ‘codes of conduct’ to govern relationships with farmers, suppliers and manufacturers. The government could also consider legislation to ensure this.

Employment

The retail sector in India is one of the biggest employers, accounting for 35.06 million people, divided between rural (16.08 million) and urban (18.98 million) segments and constituting 7.3 per cent of the workforce in the country (NSSO, Employment and Unemployment Survey, 2004-05). Wholesale trade employs 5.48 million, the majority being in urban India.

The study estimates that 1.7 million front-end jobs will be created in five years in modern retail. According to it, these are ‘high-quality, productive’ jobs that will be available to those with minimum educational qualifications. Besides, there will be new jobs in sectors such as small manufacturing especially food processing, packing, IT, transport, cold chains and logistics-related industries, and unskilled jobs in sorting, packing, grading and labelling. The jobs displaced in unorganised retail will be that of intermediaries related with traditional supply chains and are likely to be ‘low-end, low-quality, underproductive’ jobs. In reality, the situation is far removed.

With rising real estate prices and a slowdown predicted in the economy, organised retail formats are slowing down expansion and reinventing themselves in the neighbourhood store format. So while the ‘high-quality, productive’ jobs no longer exist, the low-end job also might well have disappeared as the neighbourhood kirana gives way to a small store owned by Kishore Biyani (Pantaloon has just launched a range of neighbourhood small stores).

An interesting point that the study highlights is that the restrictions on growth in modern retail are more stringent in developed than developing countries. For example, in most West European countries, the setting up of hypermarkets has become very difficult since the late 90s and the early 2000s because the governments have become sensitive to the demands of the traditional small retailers.

Given this context as well as the large volume of employment in unorganised retail, it seems foolish to provide unfettered growth to organised retail, which will decimate existing jobs and not create any new ones. Instead, policy measures are needed to provide an impetus to support unorganised retailing.

 Small Vendors – A Possible Future

In the course of recent fieldwork on the marketing channels available to small farmers, one of the key takeaways for this researcher were the conversations with fruit and vegetable push-cart vendors at a residential locality in Bangalore. At 7 a.m., they had lined up outside the SAFAL (the umbrella brand of Mother Dairy, set up by National Dairy Development Board (NDDB), that deals with fruits and vegetables) centre to stock up on their daily supply of fruit and vegetables. Earlier, they had to travel to the local mandi 5 km away. At the SAFAL outlet, opened exclusively for hawkers and street vendors in the morning (and for consumers in the evening), it was possible to procure fresh vegetables at rates lesser than at the mandi, besides saving on the transport costs.

The hallmark of any systemic change is how it affects those at the bottom of the pyramid and this is one example of hawkers and vendors availing of modern technology and the benefits of cold storage, to make better margins on their daily sales. This is the nature of change that needs to be wrought for the unorganised retail sector, changes that allow it to grow from strength to strength. This is where policy needs to become proactive.

Not much policy attention has been paid, however, to improve supply chains for the unorganised. East Asian economies such as Singapore and even China in recent years have undertaken policy measures to modernise and support the unorganised retail sector, and the markets that cater to them, without seeking to reduce them in any way. If measures are not taken, we might well land up in the situation that developed economies find themselves in today—a behemoth organised sector and belated attempts to preserve an extinct species, the neighborhood kirana store.