FDI IN RETAIL: PART 2 Unfair Competitive Practices resulting in joblessness

FDI IN RETAIL IS A BIG HOAX PROMOTED BY US MNCs AND INDIAN MEDIA

The Government is planning to bring in FDI In Retail, in On-Line Retail and In Defence. 

We all have a keen interest in knowing the effects of FDI in these sectors.
We start with the effects of FDI on the Indian retail sector. 
We are presenting you a series of articles, to help you come to an informed conclusion.

PART 2: Unfair Competitive Practices

(Summary: As we saw in Part 1, the supermarket chains, all over the world, create market dominance by cornering a market share of 50-88%, divided up among less than 5 players. In this Part 2 we see how with this mammoth market dominance, they squeeze the suppliers to the point of ruining them financially, source products from foreign suppliers in the name of benefit to customers, limit customer choice by offering only selected brands and packs, kill small players by unfair pricing policies and force customers to buy unwanted products. Proofs of these practices, both from consumer and professional organizations, are presented.)

The FDI in Retail claims to benefit the customer by lower prices and the farmer by better margins. How true are these claims?

A fair and healthy competition benefits the customer. Customers get the best product at the cheapest price. FDI in Retail supporters have been singing from media roof-tops that FDI in Retail will help in improving variety, quality and price for the Indian housewife, and give better terms to the farmer. To know the truth, let us analyse how these same corporate are operating in the countries of the developed world, how fair is the competition there and how much is the benefit to the housewife and the suppliers. The story in India will be a repetition of the same.

Price manipulation to kill competition from the smaller stores: 

Superstores are long term players, with deep pockets. They are prepared to lose money in the short-term to gain market dominance. They are well aware that the small-store owner has limited financial capability. So they use the strategy called “Loss-leader pricing” for selling a few products at cost or even below cost.

In a report produced in September 2012 by Consumers International, for the European Union states,” Supermarkets routinely practise selective deep discounting, often referred to as below-cost selling. This was identified by the UK Competition Commission in its 2008 study as a practice with the potential to have an adverse effect on consumers. Although the Commission expected consumers to benefit from lower prices, they recognised that the practice could “mislead consumers into thinking that the prices of all products sold  by a grocery retailer are lower than is really the case”. Supermarkets know very well that, in a one-stop shopping expedition, consumers are unlikely to buy deeply-discounted baked beans at one supermarket and deeply-discounted dog food at another.”

The small store cannot afford to match the prices of the superstore “Loss-Leaders” nor their promotion in mass-media. Over a period of time, the small store starts losing its regular customers and starts losing money. In the finale, either the small store closes down, or the superstore buys it off at a throw-away price, making the owners and their employees job-less. With competition gone, the superstores can now start charging higher prices and also start offering lower quality goods, thus increasing their profit margins. This is how in every developed country 3-5 supermarket chain stores have cornered up to 88% of the market share.

In a report commissioned in 2012, International management consultants Deloitte state,” ‘Down-Down’ is Coles pricing and marketing campaign. This has been a high profile campaign from its commencement in early 2010. Other supermarkets have their own pricing strategies to compete, including IGA’s with “Locked Down Low Prices” from July 2012 and Woolworths’s “everyday low prices”. The chart shows data from Coles, having 37% of the Australian grocery market share. By using “down-down” price strategy, over the last three years, Coles has managed to increase sales of selected products by 50-333%.” The total market growth is barely 5%. This implies that Coles has gobbled up the sales of the smaller retailers, driving them to ruin.

Picture shows a dairy farmer from Queensland, Australia, who was driven to bankruptcy by Coles’ “Down-down” milk pricing strategy.

EVIDENCE FROM CUSTOMERS:

The truth of the above statements is well-known in the developed countries, but is well-hidden by the Indian media from the domestic customers. Many of you may be buying from the same small kirana store for decades. Possibly your mother also purchased at the same store, and the owner knows all of you. Here are some personal experiences of Australians, writing on a famous Australian blog, called “Whirlpool” (actual quotes of people, names removed for compliance with privacy laws): 

i. "It seems retailers in Australia are copping flak left, right and centre for all sorts of reasons. I'm sure lots of Whirlpool members have fond memories of retailers that have either been taken over or closed down over the years".
ii. "Brashes (an electronic small store) was good for most music and good for TV's …. until JB (an electronic superstore) started popping up everywhere…, then JB turned to crap when they realised they could sell more things for higher prices, and all they needed was a box and sales people, with very limited product knowledge".
iii. "Have fond memories of Waltons in Bankstown (Sydney) and of McEwans in Northland. I live near Northland now and when I go I try to remember where it used to be".
iv. "I miss Brashs, still have a shopping bag from them around the house somewhere".
v. "Now I miss just independently owned stores; walking through Melbourne CBD, it's all just big brand franchises. These corporations knocked out our small businesses".
vi. "I am 45. I was very young and remember the store and knew it used to be Foy's but it was also taken over by Woolworth's and became a Woolworth's variety".
vii. "Skinny's music store on Adelaide in Brisbane. Actually had ok prices for an independent. Along comes JB (an electronic superstore) and kills them". 

I can give you hundreds of such examples from real life people, showing how small businesses have been killed by superstores. The Indian media shows us manipulated market research reports, prepared by paid agents, to show that the FDI in Retail will bring a shopping haven to India. As you can see its nothing but a lie.

EVIDENCE FROM MEDIA AND AUTHORITIES:

Big name superstores, all over the world, like Wal-Mart, Tesco, Aldi etc. sell more than 75% of their products with “Made in China” label. This strategy has gradually killed the local manufacturers and vendors, who cannot match the Chinese prices. Their owners are workers have been rendered jobless.

Let us now see the facts found out by Australian authorities, in charge of ensuring fair competition, and published in the media.

Kate Carnel, Chief Executive of the Australian Food and Grocery Council, writing in Sydney Morning Herald, a leading Australian newspaper, says, “Aggressive price promotion and discounting by supermarkets is a normal part of competitive retailing to encourage customers into stores…… advertising new unsustainably low prices on staple products ………… will inevitably flow through to farmers and affect the viability and competitiveness of both farmers and the agri-food manufacturing sector, which employs more than 288,000 Australians, including half in rural and regional areas…… If these companies cease and reduce manufacturing in Australia, then infrastructure, employment and the social fabric of many rural towns will be significantly undermined… supermarket chains have moved many non-food manufacturing base offshore – we don’t want the same to happen to food products. Australians don’t want ….. cheap imports for our food supply.” 

Most customers in the developed countries are unhappy with the foreign outsourcing and quality of these products, but have little choice. The local governments are unable to do anything because of WTO rules, where trade restrictions and tariff protection is nearly impossible. It is like the genie of the bottle – once released you cannot put it back in to the bottle.

Conclusion: What will be the consequence of this unfair pricing? The smaller retailers, the farmers and the agro-based manufacturers will be forced to keep reducing prices, till they become nonviable and close down. What will happen then? Just more products with “Made in China” labels! Do you want this to happen in India in the next 15-20 years? As India is primarily an agrarian economy, the consequences of rural job losses will be catastrophic.

The Census 2011 report has said that 20% joblessness exists in the youth, both male and female. If FDI in Retail is allowed to come in to the country, the coming years will see this jobless figure jump to anywhere between 40-50%. Imagine while half of our country’s youth will be jobless, the foreign companies, owning the FDI in Retail, will be laughing all the way to the bank.

PART 3: In this part we shall analyse the truth of the claim that FDI in Retail will provide better margins to farmers and smaller manufacturers.

Sincerest Regards,
AAP - THE ROAD AHEAD

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