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Small stores and big, organized retail can co-exist for now

Small stores and big, organized retail can co-exist for now
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First Published: Mon, Feb 25 2008. 11 24 PM IST

Bleak future: The report says when the share of organized retail in food reaches 30%, small retailers will be hit.?That may be in one-two decades.
Bleak future: The report says when the share of organized retail in food reaches 30%, small retailers will be hit.?That may be in one-two decades.
Updated: Mon, Feb 25 2008. 11 24 PM IST
Mumbai: Small stores, also called kirana stores, will continue to grow alongside organized retail, albeit at a slower rate, and it might be a decade before such store owners lose business to the big retailers, providing an ample window for India to help make the smaller players part of the transition in retailing, say the authors of a report that will now become part of another, government-funded report on the impact of organized retail.
Bleak future: The report says when the share of organized retail in food reaches 30%, small retailers will be hit.?That may be in one-two decades.
The report also says that consumers and farmers will be the early beneficiaries of modern retail, and that to ensure that traditional retailers don’t lose out at once, they need to be included either by co-opting them or helping them find alternative jobs.
The report, by Thomas Reardon of Michigan State University and Ashok Gulati of the International Food Policy Research Institute, will become part of a Union government-commissioned study by the Indian Council for Research on International Economic Relations (Icrier) on the impact of the growth of organized retail on unorganized retail. The paper, which has been submitted to Icrier for inclusion in its study that has still not been made public, is called “The Rise of Supermarkets and Their Development Implications” and it draws on experiences from the growth of organised retail in other developing countries to suggest what the impact of organized retail will be on consumers, farmers and smaller retailers in India. Although the Icrier study has been ready for a few months, it is yet to be presented to the government.
Mint had previously reported that the Icrier study showed that 50% of small retailers surveyed reported lower sales and 61% of all retailers pointed to competition from organized retail as reason for their declining financial health. The study surveyed 1,598 small retailers, of which 793 were located close to large retailers and 835 were in neighbourhoods without large retailers.
Those in head to head competition said that sales were down 16% and those in safe neighbourhoods where there were no big retail outlets said that sales were up 2%, suggesting that organised retail had affected the business of small retailers.
Reardon and Gulati’s paper says that experiences in China and Indonesia suggest that both kirana stores and organized retail outlets can coexist, although they will grow at varying rates. “However, structural changes in retail will surely start affecting large numbers of small retailers at some stage, be it after one or two decades, especially when the overall share of organised retail in food reaches about 25-30%,” says the report.
Until then, organized retail could grow at 20-40%. Kirana could grow at 2-5%.
While just 1% of all food and grocery sold in the country is through organized retail stores, the business is growing at a rate of around 30%, according to a report by Man Financial, a Mumbai based brokerage. Several large retailers, including Wal-Mart Stores Inc, Reliance Industries Ltd and the Aditya Birla Group have big plans for selling everything from food items to furniture here. Meanwhile, there have been increasingly strident protests against big retail. India has more than 12 million small retail outlets making it hard for the government to ignore any threat to the livelihood of this large base.
However, traditional retail is typically in need of modernization and the Indian government needs to invest in this the way governments in Singapore, Hong Kong and Taiwan have done to overhaul the system, say in the case of modern wet markets, according to Reardon’s report. It also says that organized retail is a growing source of taxes to the government, which can be ploughed back to modernize traditional retail and build infrastructure to modernize the food supply chain.
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First Published: Mon, Feb 25 2008. 11 24 PM IST