But in a rapidly changing India, this relationship is under threat. India’s retail sector is undergoing a paradigm change, and billions of dollars are flowing into this buoyant industry. The Indian government has gone in for partial reforms in the sector, allowing single-brand foreign retailers to enter the country.
While reformers, both in the ruling dispensation and other parties, are pushing for 100 per cent foreign direct investment (FDI) in the retail sector, the government is moving ahead with abundant caution, fearing a backlash from the powerful traders’ lobby.
The Bharatiya Janata Party (BJP), the main opposition, is vehemently against the entry of foreign retailers, fearing that its main support base – represented by traders and other middlemen – will retaliate. Many BJP leaders are also successful traders and merchants, and the grocers’ lobby is equally powerful in the party.
Other extreme right backers of the BJP, including the Rashtriya Swayamsevak Sangh (RSS), are also opposed to opening the retail sector for international firms. But surprisingly, even the left parties have a similar stance, and are resisting FDI in retailing. The Communist Party of India (Marxist), the leading left party, which normally toes the Chinese line, is strangely opposing FDI in retail, despite the fact that companies like Wal-Mart have been a huge success in China.
Both the BJP and the Left parties have attacked the Congress-dominated United Progressive Alliance (UPA) government, which has relaxed the FDI norms for retailing. Single-brand retailers are allowed to invest up to 51 per cent in ventures, while 100 per cent FDI is allowed for the wholesale cash-and-carry model.
American retail giant Wal-Mart recently tied up with telecommunications major Bharti to set up a joint venture. The two hope to work around the FDI norms, as Bharti will handle the front-end retail operations, while Wal-Mart will look after the back-end cash and carry supply chain.
Both the BJP and the left are now crying foul, accusing the UPA government of allowing the American giant entry through the backdoor. But Prime Minister Manmohan Singh, and federal commerce minister Kamal Nath are pushing ahead with further reforms. The government is likely to allow FDI in multi-brand retailing in specific sectors like electronics, sports goods, stationery and building equipment.
Many international companies have told the government that they would be able to source billions of dollars worth of products from India if they are allowed to set up stores in the country. Wal-Mart already has a major procurement base in Bangalore, and exports nearly $2 billion worth of leather apparel, textiles and jewellery from India.
INDIA’S buoyant retail sector has attracted the attention of both domestic giants and international majors. While foreign retailers such as France’s Carrefour, Britain’s Tesco, Australia’s Woolworth (which has tied up with the Tatas), and Hong Kong’s AS Watson, are eager to enter India, domestic business groups including the Tatas, the Birlas, Mukesh Ambani-controlled Reliance, and Vijay Mallya’s Kingfisher group have announced multi-billion-dollar investments in the sector.
India’s retail industry is currently estimated to be worth around $350 billion, but organised retailing has a mere three to four per cent share of the business. The unorganised sector comprises about 15 million ‘kirana’ stores and tiny shops, where modern retailing concepts are conspicuous by their absence.
A.T. Kearney, an international consultant, estimates that the share of organised retailing is likely to touch $25 billion by 2010, and the industry as a whole will balloon to a massive $550 billion. What is attracting large players – both domestic and international – is the fact that organised retailing will account for 30 per cent of the total business in a few years.
Most Indian metros and large cities now have shopping malls and other retail outlets, and on weekends and holidays there is a massive turn-out of consumers. Retail majors are targeting the 300 million-strong urban middle-class, besides over a 100 million others in rural areas.
Investments are pouring into the sector, and analysts expect a whopping $25 billion to be invested over the next five years. Mukesh Ambani, chairman of Reliance Industries, who has unveiled an ambitious Rs250 billion (about $5.65 billion) retail venture, points out that between 10 million and 15 million new jobs would be generated over the next three to five years because of massive investments in the retail sector.
International consultants like Knight Frank (a property consultant) and KPMG note that organised retailing is expected to grow at around 20 to 25 per cent annually over the next few years.
Interestingly, organised retailing has thrown up some domestic majors as well, including Shopper’s Stop, Pantaloon (and its subsidiaries Future Bazaar and Big Bazaar), and Trinethra. The organised food retailing segment is also booming in India; PriceWaterhouseCoopers, an international consultancy, notes that the segment is expected to expand by 30 per cent annually. It is currently worth $660 million.
Some like Café Coffee Day (CCD), the country’s largest coffee chain, are also heading abroad. Last month, CCD opened an outlet in Karachi, and the company – a division of Amalgamated Bean Coffee Trading Company, the largest coffee conglomerate in India –plans to set up nearly 50 such outlets across Pakistan over the next five years.
CCD also has a café in Vienna in Austria, and plans to open outlets in the Middle East, Eastern Europe, and South East Asia.
LAST week, the Aditya Birla group, a leading industrial house, announced its ambitious retail foray, by acquiring control over Hyderabad-based supermarket chain Trinethra Super Retail, and its online outfit, Fabmall.
The group, which is learnt to have to spent nearly Rs3.5 billion in acquiring the 90 per cent stake in Trinethra, aims to invest nearly Rs60 billion for its retail foray over a period of time. The Rs400 billion Aditya Birla group has a subsidiary – Madura Garments – which operates retail showrooms for its clothing brands like Allen Solly, Van Heusen and Louis Phillipe.
According to Kumar Mangalam Birla, chairman, the acquisition signals the group’s long-term commitment to the retail sector. Birla’s acquisition of Trinethra – which operates about 170 stores in south India – has stunned the retail industry.
While the other two major business houses – Reliance and Tatas – announced ambitious plans for the retail sector, the Birlas were quiet and not showing much interest. However, last week’s surprise announcement saw them get a major lead over their competitors. Birla also does not want to go in for a tie-up with an international retailer.
The Tatas are also believed to be in talks with British retail giant Tesco, which was earlier negotiating with the Bharti group. But after the latter joined hands with Wal-Mart, Tesco has been on the lookout for an Indian partner. The Tatas-Tesco venture is likely to be in the area of hypermarkets.
Last year, Infiniti Retail, a Tata group firm, entered into a technical alliance with Australia’s Woolworth for large-format specialist retail chains for consumer electronics and durables. The Tatas also operate the Westside chain of apparel retail outlets.
With the mega-bucks flowing in, retailing in India is undergoing a phenomenal change. But as a visit to any of the shopping malls or plazas on a weekend in Mumbai, Delhi, Bangalore or Hyderabad will indicate, urban consumers are enjoying every bit of the action.