Arvind Singhal: Minimising conflict

MARKETMIND

As developments in modern retail begin to live up to the hype, a number of conflicts have started to emerge. There are four primary protagonists here. This list includes the small traders and wholesalers; the medium and large Indian business groups now entering retail with a big bang; the major international retailers already in the country or have announced their intention to be in India shortly notwithstanding the restrictions on FDI in this sector; and lastly, the medium and large FMCG and other consumer products suppliers whose primary channel of distribution is the millions of small, independent retail outlets.

The first conflict is between the large and the small retail. It has manifested through the vandalisation of Reliance Fresh stores in Ranchi, supposedly by small local fruit and vegetable vendors and local middlemen. While India has been seeing a rapid emergence of modern retail outlets in urban areas, with players like Foodworld, Subhiksha, Trinethra, Big Bazaar/Food Bazaar, Spinach, Spencer's Hypermarkets, Shopper's Stop, and an isolated Shoprite and a Hypercity and some others, for some reason the emergence of Reliance on the retail scene seems to have acted as a catalyst for the emergence of this conflict.

The second conflict, still at the under-currents stage, is likely to become more visible in the next 12 months as some really large global retailers begin to set up shop (literally) in India, thereby competing with some very large Indian business houses who have recently entered modern retail. The conflict will be to achieve supremacy at this nascent stage, since in the retail business, a strong market share does give a long-term competitive edge. India has seen such large business to business conflicts in the past, but mostly the players have been domestic and the battle was usually followed behind the scenes through political and media channels. In this instance, the competition will spill beyond political and media manipulatory tactics and touch personnel, suppliers, and indirectly the consumer through impending price and promotion wars.

The third conflict flared up more than once in the past 12 months between FMCG and select other consumer product category suppliers having powerful brands and the medium/large retailers. Reports have indicated several tussles for margin and shelf space between behemoths like HLL and Pepsico/Frito Lay, on one side, and current retail leaders such as Future Group and new entrants such as Reliance, on the other.

While limited conflict is probably good since it keeps everyone on his toes, and the net result in this instance could be beneficial to the economy and consumers of all classes, if the conflict is not played out under progressive, transparent operating rules, it has the potential to create severe damage to players and consumers.

A start has to be made by our political class. They cannot continue to ignore the relevance of an efficient, modern, streamlined, and vibrant distribution and retail sector. Rather than trying to facilitate the transition from a totally fragmented and, when viewed across the entire value-chain, a highly inefficient retail environment to a more modern, efficient one, politicians of all hues and shapes find this situation yet another one to mess up and think of it as another populist vote bank pandering opportunity. It is nobody's argument that the traditional retail and the tens of millions of Indians whose livelihood depends on this trade have no reason to survive in the coming decades. However, it cannot be anybody's argument, either, that the status quo has to be maintained since the reality is that the status quo is fundamentally harmful to India's economic growth potential and its consumers. The government has dithered for far too long in coming out with a pragmatic vision and policy for internal trade that tries to balance the national interests with the interests of various sub-groups such as the four that have been listed above. The time for debating is over, and so is the time for meaningless and regressive debate on FDI (or the ownership) of retail channels. Instead, a bold and visionary policy on this sector is the need of the day.

Large modern retailers also have an important role to play. Their industry association such as the Retailers Association of India (RAI) has to be more "inclusive" and should go out (humbly and magnanimously) to seek membership of independent shops and their local associations so that there is a unified voice of retail trade rather than that of large versus small. Retail groups like Future, Reliance, Birla, and others should proactively (and in a unified manner) embark upon a campaign to educate our policymakers and the Indian citizens at large about the benefits of modern retail infrastructure, whether it is for the farmer or the small-scale consumer goods maker or local and central governments in terms of tax compliance, or the consumers in terms of getting lower prices, genuine and better quality, and overall superior service.

And finally, retailers have to acknowledge that their shelves should be stocked with what consumers want and not those products that give them better operating margins. If some brands have won consumers' confidence, they should be given shelf space and the owners of such brands respected for their efforts and given an appropriate price. Likewise, the large FMCG companies should acknowledge the important role (of market and category expansion) that will be played out by leading retailers and for doing so, such retailers have to be supported through better margins and more cooperative product planning, supply chain, and replenishment. Taking a conflicting stance is not going to benefit either the retailers or the FMCG behemoths.

arvind.singhal@technopak.com