Once again Indian Government is in the dilemma for allowing FDI in multi brand retail sector. On one hand opening up of one of the world's largest market for retail trade will meet the huge funding needs of this emerging sector in order to provide dynamism and efficiency in the system along with strengthening the back end infrastructure and on the other hand it may put millions of Kirana stores (Mom n Pop Stores) and pushcart vendors out of the business and will lead to unemployment.
Certainly, Govt's this step will boost the growth of retail industry in India currently valued at $450 billion and expected to reach at $640 billions by 2015. However organized retail constitutes a small 4 % of total retail sector and is likely to grow at a much faster pace of 45-50 % per annum and quadruple its share in total retail trade to 16 % by 2011-12. Development of new cold chains and back-end infrastructure could generate new employment and prevent further losses of fruit, vegetables and agricultural produce worth Rs 1,00,000 crore every year. But on counterpart it could affect badly on unorganized retail sectors consist of more than 15 million Kirana type stores which has created nearly 39 million (nearly 9.2 % of the country’s population) employment opportunities in the country.
It has been seen in past that significant nos. of Kirana type store has been shut after opening door for FDI in retail sector. However the rate of closure was 1.7 per cent on account of competition from organized retail which is much lower than the international rate of closure of small retailers. There are fair chances that this rate may increase if FDI is allowed in multi brand retailing. But it does not mean that Kirana type retailers should start protesting Government’s positive step of allowing FDI in multi brand retailing. Instead, they should now start focusing on strengthening their position by creating competitive advantage against organized retailing.
There are mainly 4 factors influencing customers in selecting retail store, these are; price, product range, convenience and experience. However price is the main factor for attracting and retaining consumers. Organized retail stores have a competitive advantage in terms of price, range and experience as they have strong bargaining power due to bulk purchase, good infrastructure for storage and product display and can manage to deliver good customer experience. Whereas kirana stores have the competitive advantage of convenience as most Indian consumer purchases daily and prefer to shop from corner stores. In addition to this, kirana stores have significant competitive strengths, including consumer goodwill, credit sales, amenability to bargaining, ability to sell loose items, convenient timings, and home delivery.
Considering price as a key factor for Indian consumers in selecting retail store, Kirana stores should mainly focus on building their capabilities in offering competitive price as compare to big retail chain store. Big retail chain stores have strong bargaining power as buying in bulk, offers huge discount and such a low selling price for grocery and other lifestyle products that Kirana stores cannot offer.
Now it’s time for unorganized retailers to think seriously about pricing issue and this may be possible if the new association of such Kirana type stores is being formed city wise and existing associations take initiatives with an objective to strengthen their bargaining power by directly purchasing from supplier and farmers. An association of 1000 stores can easily control a supplier company in terms of price and other business terms. Also, companies can not take risk to fight with such associations who can even boycott them in case face injustice for such issues. Also association can play important role in improving performance and skill of Kirana stores as well as protecting consumer rights.
An example of Rajkot Engineering Association (REA) will throw more light on benefit of such initiatives by existing and newly formed association. REA is an association of more than 1100 small and medium size foundries and other engineering industries in Rajkot which purchases more than 15000 MT of pig iron (raw material for foundries) every year in bulk for their members at 5-6% lower cost than the market. This way they have succeeded to manage the cost effectiveness of Rajkot's foundry industries which is backbone of fast and consistently growing Rajkot’s engineering cluster. Other association like theNational Association of Retail Grocer Australia (NARGA) and Small retailer association of Crotia had initiated same way in competing with organized retail specifically for price factor. Recently The Nagpur ItwariKirana Merchant Association has also taken such initiative on procuring directly from supplier and farmers, which indicates that the unorganized retail players are now preparing themselves to fight against coming situation.
If this strategy is being successfully implemented by such association with the support of Govt. and industry experts, It will not take much time to convert unorganized retailing in to fully organized retail sector.