India Insight

India’s kiranas, or small general stores, fear that the country’s decision to allow Wal-Mart and other foreign companies to invest in grocery stores and other kinds of retailers will hurt their businesses.

They should go to Bangalore and talk to Nandini. She might brighten their mood.

Nandini, who lives in Bangalore’s Indiranagar neighbourhood, was at Aditya Birla Group’s More retail store, eyeing the detergents when I interviewed her about the new rules on foreign direct investment, or FDI.

“Things here are more attractive,” she said. “You can see more options, but for my daily chores I always run in to our local shop nearby.”

Many Indians find it more convenient to call upon their nearest kirana “uncles” rather than rushing to a posh housing development to buy rice or noodles at the Big Bazaar or Star Bazaar.

Fear that the kiranas and other homegrown retailers will suffer at the expense of big, foreign investors exploiting India forced a large nationwide strike this week. The move, aimed at resuscitating India’s economy, also was one of the reasons that the coalition government that rules India just lost one of its main allies, Mamata Banerjee’s Trinamool Congress.

They shouldn’t worry, experts said.

“Local shops have co-existed with the organised retailers. They  are now already selling private labels of  these retail chains,” said Ernst & Young retail and consumer partner Paresh Parekh. “India is a big market. There is room for everyone.”

India retail is a $435 billion business, according to a study by global consulting firm A T Kearney and cited by Macquarie Equities Research (Correction: Because of an editing error, we had the names in the wrong order). Modern trade accounts only for 7 percent of that, according to the report. While that could rise to 20 percent by 2020 because of the new investment rules, kiranas might benefit from difficulties that the big companies have in retail: poor infrastructure, high real estate costs, inefficient supply routes, difficult tax laws and rigid labour rules.

Chennai-based Subhiksha which ran around 1600 outlets selling groceries and medicines to mobile phones across the country, shut down in 2007, primarily because of a cash crunch. Vishal Retail went bust after several attempts to revive itself. According to news reports, Kishore Biyani’s  Future Group, which runs Big Bazaar, Food Bazaar and Pantaloon retail stores among others, is sitting on a debt of more than 60 billion rupees (about $1.13 billion). Aditya Birla Group reportedly lost 4.23 billion rupees ($79.4 million) last year.

While much-needed capital to fund their expansion plans is likely to come through foreign investment, the Macquarie report said opposition from some several state governments will slow the process.

“Even well funded business groups have not been able to grow their retail businesses rapidly,” the report said. “Similarly, despite its global expertise, Wal-Mart hasn’t been profitable in China for last 12 years.”

On the other hand,  sources in the Indian fast-moving consumer goods business (toiletries, soft drinks, foods, etc) said they will still continue to depend on selling their products through kiranas because most of their customers live in rural areas where organised retail outlets haven’t opened.

“It will be hard to ignore the other 93 per cent of the market,” said an official who works with a popular Indian company in this business, but declined to be identified because he did not have authority to speak about the topic. “We are here to do business with both (local shopkeepers and big chains). The rural market is very significant for us.”

Companies  such as Dabur, Godrej Consumer Products, Emami and Wipro Consumers get significant amounts of their business from rural regions. For now, kiranas and local dealers are the way in. The next question: when does Wal-Mart start its kirana division?

(A customer shops at a family-owned store at a market in New Delhi. Reuters photo by Mansi Thapliyal)