Tuesday, April 5, 2011

What can FDI in multi brand retail do to Indian consumers?

There have been multiple debates around the possibility of having FDI in multi brand retail in India and I believe this will certainly happen in the coming year or two.  The onset of FDI in multi brand retail in India will have several ramifications for the Indian industry.
One very key ‘know how’ that FDI in multi brand retail will bring to India is in the area of supply chain management. Stores like Wal-Marts and TESCOs of the world work with supply chain management as their ‘core competence’. Their supply chains are optimized to the highest level of detail and their operations hum smoothly bringing in operational efficiencies every day. Indian retailers are far behind the Wal-Marts of the world when it comes to deep expertise in operating large retail operations and the ability to leverage the supply chains to the fullest.
Looking at the current food inflation in India which is primarily attributed to the supply side shortages which are further accentuated by the poor public distribution systems and wastages we certainly can take a leaf or two from the global supply chain best practices and thus avoid the wastages of thousands of tonnes of food grain every year in transportation and storage related losses. The tax-rebates given by the government to the cold storage industry will also help build and efficient distribution system that cuts down losses due to rotting food grains.
FDI in retail will help in bringing the global best practices in the areas of ‘organized farming’ and mass farming where in the retailers assure the farmers good returns for good quality of produce. The retailers also continuously engage with the farmers during the entire life cycle of production starting from supply of grains to harvesting and supply of fertilizers and pesticides etc. Such practices increase the yield per acre and also improve the quality of output.
FDI in retail will also help in bringing a wide assortment of high quality goods and global brands to the door step of Indian consumers at an ‘affordable’ price due to the global know-how and repository of knowledge in handling the large retail operations. The Indian customers will immensely benefit from the cost benefits that accrue from the operational efficiencies that the global retailers will showcase. Stores like Wal-Mart and TESCO are an integral part of the lives of consumers in US/UK and the same will happen once these stores arrive in India. Indians will be able to buy an assortment of brands at every day low prices  at a convenience store near their homes.
There are several sections of the Indian society who believe that the introduction of FDI will place large Indian organized retailers as well as the unorganized retailers like the local kirana stores at a disadvantage. There are also fears that the Indian retail sector will be decimated with the introduction of FDI in multi brand retail. However this will not be the case. Several industry experts in retail believe that the foreign retailers will lack the local knowledge and insights into the Indian consumer behavior which are the critical success factors when it comes to stocking the merchandise in the points of display and in choosing the assortment of merchandise that will occupy the shelf space.
All said and done the local retailer ( kirana shop owners ) will have a very close connect with his customers. He will be able to understand the consumer needs and preferences very well and thus will be able to service the customers much better than the global retailers.
I would actually tend to believe that the introduction of the FDI in multi brand retail will usher in a number of benefits to the Indian consumers and the benefits that would result from this would far outweigh the cons. The foreign retailers will co-exist with the traditional kirana stores and other organized retailers in India and this will be a win-win situation for everyone where in the Indian retailers can benefit from the global best practices of global retailers and the global retailers can benefit from the consumer insights of Indian retailers.

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