Posted by: John Elliott | October 28, 2007

Hurdles ahead for India’s retail

We will be tackling some of the basic issues raised by the massive surge of activity in India’s retail industry at Fortune’s Global Forum in Delhi on Tuesday. Kishore Biyani, founder and chairman of the Future Group, which is India’s largest and most successful retailer with Pantaloon and other stores, will explain how he’s managed to expand quickly without running into the sort of opposition faced by Reliance Fresh stores, whose windows have been smashed and stores ransacked in some areas.

Arvind Singhal, who runs Technopak, a leading consultant who has advised many retailers, will add breadth to the discussion, which I will be moderating. Mr H.B. Lee of Samsung Electronics will bring the perspective of a foreign consumer goods manufacturer that has successfully entered the Indian market.

When the Forum organizers decided to put retail in the program, they probably thought that it was going to be a “good news” session, with foreign investment as the only controversial subject (foreign retailers are not allowed to invest directly, except for in single-brand stores). But Reliance’s troubles show that the good news is riddled with problems – the company has even withdrawn from the two key states of Uttar Pradesh and West Bengal because of the risk of customers and employees being harmed. The “why” is simple to explain. How to solve it is more difficult.

The reason for the problems is that Reliance, plus Bharti Enterprises which is joining up with Wal-Mart (WMT) and will open stores next year, is challenging established wholesale and farmer-to-retailer distribution channels run by avaricious public sector employees, middle-men, money lenders and others. Along with all fast-growing retail groups, they are feared by family-owned kirana mom-and-pop shops, but it is these middle-men traders, supported by the political Left and some other local politicians, who are adding destructive muscle to a broader based “anti-bigness” campaign.

Biyani’s ambition is to “deliver everything, everywhere, every time to every Indian consumer in the most profitable manner,” and he is not doing badly. His first-comer advantage is that he bought sites for his stores a few years ago at a fifth of the prices now being paid, according to industry sources. He already runs 6 million square feet of retail space in over 450 stores of various formats in 45 cities.

The outlets vary from the company’s original fashion stores called Pantaloon (which used to be the name of the group), to Big Bazaar hypermarkets, and Food Bazaar supermarkets as well as stores specializing in home improvement, furniture and furnishings, consumer electronics, and books, music and gifts – plus futurebazaar.com online retailing.

Reliance Industries (RIL), which launched its retail activities with Reliance Fresh, is chasing him in all those areas and has over 370 stores. It will also have jewellery and “wellness” shops, and even plans to put modern art galleries in its biggest hypermarkets by 2009.

But Biyani has not attracted much attention because, like others including the Aditya Birla group, he has expanded relatively quietly. And his shops are broad-based, not focussed on food. Reliance on the other hand started off by launching dozens (now over 360) fresh-produce based stores across the country, and its plans have been splashed in newspaper headlines for more than a year. Similarly Bharti, through a high profile export-oriented joint venture with the Rothschild banking family called FieldFresh, started direct involvement in farming, which immediately aroused opposition from local vested interests (and has now been scaled back, partly because of delivery hassles).

The problem is how to placate the vested interests that take produce from farmers and deliver it to retailers. That will have to happen before retailers will be able to link up with farmers to improve the unreliable quality of their produce, and replace antiquated distribution systems.

So it should be a good discussion on Tuesday – and I’ll report back on this blog afterwards.


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