Supermarkets in India - will they work?

Thirty-five-year-old Manohar Lal, a vegetable seller in the northern city of Chandigarh, India, inherited his father’s vegetable cart in one of the city’s open-air markets. Today, he sells to the children of his father’s clientele.
But will their children’s children still shop the same way? Supermarkets are hoping to invade the Indian market aiming at the Indian middle class.

The Indian retail sector is witnessing a major corporate push with large domestic retailers and foreign giants establishing chains of stores and supermarkets, raising fears among small traders that they’ll be pushed out of the market in no time.

India’s organised retail market is expected to grow from US$ 350 billion in 2006 to US$ 427 billion by 2010, according to recent figures released by the India Brand Equity Foundation.

A worried Manohar Lal says he’ll soon have to pack up his vegetable stall. “Selling vegetables is a poor man’s means of earning a livelihood.”  This is being taken away from him because these big stores are selling vegetables and fruits at a cheaper price. “I don’t know why the government is allowing this,” says a disappointed Lal, who supports a wife and three children.

But according to Gurinder Kapur, CEO of Indian retail chain Reliance Fresh, “There is room for everyone. Our all-inclusive model will ensure it’s a win-win situation for all retailers. We plan to integrate our supply chain and technology with small retailers, making them a part of a win-win relationship. India is a land of a billion-plus people. To think any one corporation can cannibalize an entire industry would be presumptuous and unfounded. ”

Forging into Indian retail

As the Indian government continues to reform and liberalize the market, retail giants like UK’s Tesco, France’s Carrefour and American Wal-Mart are looking to make a foray into the Indian retail market.


Domestic companies are also active. Indian-owned Subhiksha, one of the first and the largest retail chain in the country, has over 760 supermarkets selling everything from vegetables to mobile phones.

India’s largest private-sector company, Reliance Industries Limited (RIL), ventured into the retailing business in 2006 by opening the fresh food “Reliance Fresh” chain of stores in major cities across India.


“Organized business is here to stay and retail is no exception”, says Kapur. “The evolution of agricultural markets driven by organized retailing can usher in rural prosperity at one end of the spectrum while benefiting the millions of consumers who will benefit from the efficiency-induced lower prices, better quality and superior service at the other.”

Reliance aims to open stores in 784 Indian cities and 6,000 smaller towns by the first quarter of 2011.

 
“They’re stealing our livelihood!”

 
In the past few months, small-scale vendors and traders have staged massive protests against the stores like Reliance Fresh and Subhiksha.

  
Reliance Fresh was forced to shut down some of its outlets in the northern state of Uttar Pradesh earlier this year due to violent protests by a group of local traders.

  
Protesters in Ranchi, in the eastern state of Bihar, vandalized Reliance Fresh stores, smashing window panes and pulling down shelves in May 2007.

  
Those opposing supermarket chains like Subhiksha and Reliance Fresh fear they will be forced out of the market in no time.

  
Ramesh Singhal, a grocery store owner in Chandigarh accuses the government of taking away small retailers’ livelihood “The state government is helping companies like Reliance and Subhiksha. The poor will starve to death if their means of livelihood (selling vegetables) is taken away.”

 
The sector is largely unorganized and consists primarily of small-scale family run businesses.

  
“There are many gains from these retail chains but one will end up losing much more,” says Shyama Ramani, an Indian economist at INRA, a French national agricultural research institute. “In India, where millions of poor push the vegetable carts, enjoying their freedom of self-employment, and millions of middle-class families with young children and elderly are without cars and buying from the push-carts, saving time and effort on transport, how are the supermarkets going to compensate for the loss of jobs for the poor, and the lack of access to the elderly and families to fresh food without private transport?”





Are Indians ready for change?

Business is booming in India with the economy growing at 8% a year. The rising upper and middle class are reshaping the consumer market.

 
Grabbing a shopping cart and heading for the aisles in a supermarket is a new experience for most Indians.

 
Anju Malhotra, a 35-year-old school teacher in New Delhi, finds shopping in a store like Subhiksha more convenient. “Everything is available under one roof; I can take my time shopping and selecting products.”

  
For customer Puneet Dhillon, a young college professor in the northern city of Chandigarh, “shopping in a supermarket is a welcome change. Products are cheaper and more hygienic”.

 
But many consumers are gradually switching back to their old bazaar merchants. Buying vegetables in bulk and storing them isn’t feasible for them.

 
“In a big supermarket, we save money if we buy goods in bulk. The low-quality products are cheap but the good ones are as expensive as anywhere else,” says Indira Nayyar, a Delhi resident, who switched back to her old bazaar merchants after trying different mini supermarkets close to her home.

 
“The wives of the rich who don’t work and who have servants taking care of their children can go in chauffeured cars and push their shopping cart in the Indian version of a Western supermarket, but for majority of the population fresh food has to be almost bought on a daily basis because of frequent power cuts, especially in the summer” says INRA’s Shyama Ramani.

  
Easy access and a personalized service is another factor that has led many customers like Indira Nayyar to go back to their old shopping habits.

  
“For the moment big retail chains don’t have a personalized service. My vegetable seller delivers the goods at my doorstep and I’m sure of the quality. Even if big supermarkets start a home delivery service I’ll never be sure of the quality.”

 
“Distances and traffic are a big problem” for 45-year-old Adesh Malhotra living in the country’s capital New Delhi. “The retail store close to my house has little or no variety at all. The bigger supermarkets are far from residential areas and it takes more than two hours to get there.”

  
The amount I try saving on groceries, I end up spending it on petrol.”


‘Bumpy ride for foreign giants’

Wal-Mart signed a deal with Indian telecom leaders Bharti in 2006 and is ready to make a dent in the first quarter of 2008.

But it will not be an easy ride for Wal-Mart, according to Wharton professor of marketing David Bell says “Wal-Mart will have to take a close look at the extent to which they will have to ‘customize’ their approach to local market conditions. They have had some failures internationally, like in Germany and Brazil, because they under-estimated the extent to which someone else already held their market position for example, Aldi in Germany.”

Ramani sees the entry of supermarkets as a ‘lose lose’ situation in the long run. “Land in India is at a premium and infrastructural facilities are minimal. Therefore, only ‘mini-supermarkets’ offering a minimum variety can be installed and given the poverty burden, prices have to be low. So retail chains are unlikely to enjoy high-profit margins as in the West on capital investment.”