FDI IN RETAIL: PART 1 IT 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 1: Market dominance

(Summary of PART 1: It has been said by the media and by the politicians repeatedly that FDI in Retail will only have a market share of 3-5%. It will thus have no impact whatsoever on the market dynamics of pricing or purchase control. The truth is just the opposite. In all developed countries, where supermarket chains operate, they control between 50-88% of the market share. They completely dominate all aspects of purchase and sales pricing. The small retailers, manufacturers and farmers have no say at all.)

The story told by Politicians In Support of FDI in Retail:
The Biggest bluff that the Indian politicians and the Indian media are telling the public is that FDI in retail sector will have multiple benefits for the Indian economy. It will bring in billions of dollars in investment, boost employment, reduce wastage of food grains and other edibles, set-up modern storage and transportation facilities, increase revenues and profits of the primary producers and reduce prices to the end-consumers. 

The Biggest bluff that the Indian politicians and the Indian media are telling the public is that FDI in retail sector will have multiple benefits for the Indian economy. It will bring in billions of dollars in investment, boost employment, reduce wastage of food grains and other edibles, set-up modern storage and transportation facilities, increase revenues and profits of the primary producers and reduce prices to the end-consumers.

Nothing can be farther from the truth.

The facts from developed economies, from where we are planning to copy the superstore-retail model, tell a completely different story. Based on my personal experience of such superstore chains of Australia, where I live, and from discussions on the subject with many close friends, who work in retail super stores, I find that the Indian public is being taken for a royal ride. 

The impact of superstore proliferation has also been analysed by many well-respected International management consultants. Their analysis and conclusions are available as private reports and as published articles in leading newspapers. Let us study what all they have to say and whether they also extol the virtues of the retail-superstore model. Does their analysis also match what is being told to us by the Indian media and .politicians?

Let us take up each of the arguments offered in support of the retail super-store model.

    1.    The superstores will only have a market share of 3-5% and thus hardly impact the total economic scenario:

The facts from various world markets, by well-respected sources, tell us a completely different story:

a)     Professors Graeme Samuel AC and Stephen King, co-directors of the Monash Business Policy Forum, who led a research project on Australia’s national Competition Policy, have this to say in an article published on 1/.Aug/.2013 “Australia’s ‘big three’ account for 95 per cent of grocery sales. Equivalent ‘big three’ shares in other countries range from around 65 per cent in Canada and Sweden, to 50 per cent in the UK and Austria, down to about 40 per cent in Germany”.

Coles and Woolworths, account for around 75 per cent of Australia’s sales of packaged groceries.

b)    
     A report produced with the financial assistance of the European Union, for Consumers International, documents the high degree of national grocery markets in a number of countries. In all cases not more than 5 supermarkets share 50 - 88 % of the National Food Market. This is a very high concentration of buying and selling power. A diagrammatic representation shows how in UK 4 supermarkets control 76% market share from 7000 suppliers and have a client base of 25 million households.

 c)  As per Stuart Alexander, a leading marketing and distribution consultant in consumer marketing, “It is estimated that there are over 10,000 small and independent retailers across Australia. The total market share of these is 2%”. It is very clear that over the years, the major players have squeezed out the small independent corner stores, similar to our Indian kirana stores, who are now left with a mere 2 market share. Majority of the existing 10,000 stores are in very small localities, where big superstores do not find it viable to operate.

d)   Euromonitor International, a leading tracker of supermarkets all over the world says, “Wal-Mart Stores Inc. remained the largest grocery retailer in the US with 25% value share of overall grocery retailers. Wal-Mart’s value sales grew by 2% in 2013”. Thus Wal-Mart, which also has operations in India, alone controlled 25% of the retail grocery market share, and this grew by over 2% in 2013, a year in which the US economy was in recession. This would imply that more and more small retail players are being systematically squeezed out.

What does this mean for us in India:  Once we allow FDI in retail in India, over a few years the independent retailers will be squeezed out from all major markets. They will only be able to operate in small and uneconomic geographical areas, where super-stores will not like to go. The cumulative market share of the major superstore chains will not be 3-5%, but more like 40-50%.

PART 2: In this part we shall analyse what will be the consequences of such market dominance by the super-stores.