Between events in the town, STORE WARS introduces Wal-Mart, the world's largest retailer and the second largest employer (behind only the federal government) in the United States. Colonizing the world through relentless expansion, Wal-Mart opens a new megastore every two business days and has expanded on average into one new country every year. A truly global company, Wal-Mart has redefined the shopping experience for the American consumer.
Today's story is about Wal-Mart, other Western retailers, and large Indian corporations making inroads into the Indian retail space. Significant opportunities exist for retailers wishing to operate in the country by consolidating a highly fragmented distribution and retailing system. As in any half-decent political economy story, however, there are those who benefit from the entrenched system who would like things to remain as they are. (Some have argued that these concerns are misplaced and that both the old system and modern retailing can coexist.) Another thing that has raised warning flags for would-be foreign investors in India is the presence of militant unions, which you will read about shortly. The fight rages on. From BusinessWeek:
Police were everywhere at Mumbai's famous Azad Maidan—Independence Grounds—on the morning of Oct. 10. The intense security, usually reserved for rallies by some of the city's rabble-rousing politicians, was for India's largest demonstration ever against organized retail in India.
More than 7,000 porters, traders, shopkeepers, street hawkers, and farmers came from Mumbai and all over the state of Maharashtra to protest against companies like Wal-Mart and Germany's Metro. Some protesters carried the Indian tricolor. Others were more direct, waving red flags scribbled with "It's Now or Never: Wal-Mart Quit India."
The protest was organized by the Federation of the Association of Maharashtra, which represents 750 trade associations. The demonstrators turned out, under a searing sun, to oppose the arrival of big retailers such as Wal-Mart and Metro that they consider a threat to their livelihood. They also targeted Reliance Retail, the newly established Indian retail operation of the $27.2 billion petrochemicals player Reliance Industries.The Federation promises more such protests across the country. "This is only the beginning," yelled Mohan Gurnani, the Federation chairman, from a six-foot-high, red-carpeted dais packed with federation officials.
The past two years have seen sporadic agitation against large retail operators in India, mostly from the small, unregulated street-side vegetable vendors and the 12 million neighborhood mom-and-pop shops called kirana stores. But now among those protesting are traders, hawkers, and porters—people who are high in India's poorly run but active retail ecosystem, the Agricultural Producers Marketing Co-operatives (APMC).
These state-run open markets sell fruits and vegetables and are starting to feel the heat of big businesses edging them out of their established space. APMC traders are the single-point intermediaries between the farmers and retailers for fixing the prices of fresh produce and grains.
Four years ago, New Delhi invited private players to set up APMC-like wholesale markets across India. There were no local takers, but the foreign players seized the chance to get a foothold in the Indian market. Germany's Metro now has wholesale outlets in Hyderabad, Bangalore, and Kolkata, and plans to open one in Mumbai soon. Wal-Mart, which has a tieup with Bharti Enterprises, is planning to open its first wholesale outlet by mid-2008, while Bharti will go solo with retail until New Delhi relaxes rules for multibrand multinational retailers, i.e., Wal-Mart and its ilk.
What began as protests against international chains like Wal-Mart, Tesco (TSCO.L), and Carrefour (CARR.PA) entering India has now grown into a full-blown opposition to organized retail, including Indian players. In the last two months, Reliance has been at the receiving end of protests in the Indian states of West Bengal, Orissa, Uttar Pradesh, and Kerala. Last month, the government of heavily populated Uttar Pradesh, in the northern part of the country, shut down Reliance stores. This was followed by similar moves in Bengal. Reliance has had to lay off staff—400 in Bengal and 1,000 in Uttar Pradesh. The company has four stores in Mumbai's eastern suburbs but, fearing further agitation, has put expansion in the city on hold.
People like Ramdeo Chavan, 50, genuinely fear the looming changes. Chavan has worked as a porter for more than three decades at a state-run open market in Mumbai, loading and unloading goods. Now he believes he could be one of the casualties of Reliance Retail's growth.
At the protest rally, Chavan explained that he makes $80 to $100 a month. He worries that 200,000 porters like him working in Maharashtra's 29 markets could lose their jobs if private-sector companies expand aggressively. "We know no other job but this," says Chavan.Organized retail has plenty of potential in India. It accounts for just 3.5% of India's total $336 billion retail market—and the opportunities are enormous. By 2017, retail consultant KSA Technopak projects organized retail will account for 28% of the $1 trillion Indian retail market...
To realize the full potential of retail in India, New Delhi still has to repeal archaic laws that hinder land acquisition for organized retail. So far, the government has moved cautiously. Only single-brand foreign companies are permitted to set up retail operations in India. Multibrand players can set up wholesale or cash-and-carry operations. Metro has been doing that since 2003 and Wal-Mart's joint venture with Bharti will be opening something similar next year. Neither Tesco nor Carrefour has been successful in searching for local partners and both have shelved their India retail plans for now...
ndia has just begun to change into an economy with an organized retail environment. And as more supermarkets and hypermarkets spring up around India, the mom-and-pop shop owners are likely to become more aggressive. It's a good bet there will be a lot more demonstrations like the one at Mumbai's Independence Grounds in the coming months.