Big Retail Has Started Bleeding Mom-n-Pop Stores

Though currently accounting for just 3-4 % of the Rs 12L crore retail market, big organised retail has already raised the hackles of 12-million plus standalone mom-and-pop stores across the country. Is the threat of the big fish gobbling up the small one real after all ?

Basically, the entry of big players in the retail market is provoking a lot of uncertainty in the retail sector. We’ve been opposing the entry of foreign direct investment (FDI) in the retail sector based on a detailed analysis of the sector in the country. Essentially, only 2%- 3% of the unorganised retail market is organised. The retail sector today is the second highest income generator, after agriculture. The employment in the retail sector is also representing disguised unemployment as well as underemployment because unorganised retail does not entail a high level of investment in our country. Therefore, a lot of people, not only the young but also the old, do run their own retail outfits from a portion of their own or rented residential premises, which have come to be called mom-n-pop shops. A concrete analysis of the unorganised retail sector also reveals that the own account enterprises, both in the urban and rural areas, mainly comprise the retail sector. An extrapolation from the total volume of turnover of the retail trade per such own account enterprises in the retail sector shows that the turnover is far less than the turnover per employee of giant retail multinational chains. The Left parties’ note on the retail sector explaining the reasons for opposition to FDI in retail has brought out this calculation basing itself on the annual per employee turnover of Wal-Mart International. Therefore, the entry of entities like Wal-Mart will have a similar effect in our country as well. Since the space for retail trade is finite, so the per employee turnover of major corporate retail chains cannot but happen without displacing some of these unorganised retail outfits. The other problem is that such big retail players do not only endanger employment in the retail sector alone. Today, the business model of the retail sector involves a complete cycle starting from influencing production to point of sale traversing its journey through procurement, transportation, storage and distribution. The entire chain involves major capital intensive investment with significant control over supply chain management. This, therefore, gives the big retailer a disproportionate leverage vis-à-vis the primary producer both in the agriculture sector as well as in the small and medium enterprises. It is obviously fashionable to shed tears for the ‘bleeding’ small retailer – but the truth lies elsewhere. First, the fact is that small retail has never been in such great health that they have now started bleeding – it has always been a subsistence livelihood for 99.9% of small retail and that has not been because of big retail but because the monopolistic/oligopolistic nature of the FMCG companies who have squeezed them to extreme low margins (in contrast to their own high margins and ROCE and PE’s). Of course, small retail has added to its own problems by not having the scale to harness efficiency or the ability to invest and modernise and provide better value to the consumer. Indian consumers spend more share of their income on food and daily necessities than counterparts elsewhere and while part of this is because of lower incomes, a large part of this stems from the inability of small retail to deliver value to consumers. The reality is that the Indian consumer is paying the price for the inefficiency of the small retailer and for the dominance of the FMCG marketer - and both are interlinked. As larger retailers emerge, two things will change – there will be far greater ability to harness scale efficiencies – be it in buying or store operations or backend logistics or whatever – and also gain bargaining power in dealing with the FMCG companies: both these will ensure that big retail is able to become significantly more efficient than the small retailer. No one needs to be told that cutting 5-6 layers of intermediaries by direct sourcing or putting in IT systems to monitor fresh produce movement across the chain will not cut down costs - and of course the fact of intense competition that the organised retail sector is seeing coming up means that these efficiencies cannot be the profits of the retailer but really the savings of the consumer. The emergence of big retail will really mean sharply lower prices for the billion – blue or red whichever – and the ones to shed tears really if at all would only be the intermediaries who were profiting out of the inefficiencies. After all, we do not stop expansion of mobile phones because the STD/PCO owner will go out of business – and surely there can be no case to hold that whatever little additional pain is caused to small retail is not more than substantially offset by the benefit to the billion consumers. Since the space for retail trade is finite, so the per employee turnover of major corporate retail chains cannot but happen without displacing some of these unorganised retail outfits. Besides, aggressive marketing driven by huge expenditure on advertisements allows the big retailers to draw consumers away from the mom-n-pop shops .Small retail has never been in such great health that they have now started bleeding – it has always been a subsistence livelihood for 99.9% of small retail and that has not been because of big retail but because monopolistic nature of the FMCG companies who have squeezed them to extreme low margins.

Courtesy: EconomicTimes
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