Organized Retail in food sector is not new to India. Discount retail chain, Subhiksha, opened its first store in Chennai way back in 1997 and the RPG group’s Spencer’s Daily (previously known as FoodWorld) setup the business in 1996 itself. However ever since Reliance Fresh opened its first store in Nov’06 the noise against the organized food retailing starts to get louder. In places like Ranchi, the protests turned violent and the irate vegetable vendors vandalized three of the four Reliance Fresh stores in the city two weeks ago.
So what is the big difference with Reliance Fresh, that pushed all those who remained silent so far to start protesting now. The pace at which they open new stores is one thing, but the major differentiator is the price advantage Reliance Fresh enjoys, as it directly buys the stock from the farmers cutting out the wholesalers and other intermediaries in the supply chain.
So what can Reliance Fresh do to mitigate the hatredness among the traders? One thing they can easily do is to pass on the advantage they have by dealing with the farmers directly to other small traders. And they have big plans for that too. Reliance Retail has its B2B format store called Ranger Farms where they sell fresh fruits and vegetables. This will be of great benefit to many street-side vegetable sellers, push-cart vendors and other small retailers and also this will be a good sourcing alternative than the wholesalers they are dealing with now. Reliance Retail needs to open more such stores to bring small traders on their side.
For the wholesalers, going will be more difficult as soon another major retail chain Bharti-Walmart, too enter the B2B segment. And in the competition between these two biggies to capture the market share, wholesalers and other middlemen will suffer the most. Sure protests against these retail chains will gain more ground in the coming days, however these protests utmost can end up only in delaying the roll over of more retail outlets, but not completely stop them.
Karthik, in the Indian Economy Blog points out that, given the Government’s desire to control the inflation, it will be difficult to say no to the entry of retail chains, as they can help in keeping the prices under check due to their direct dealing with farmers and also by following better process in storage and transportation. So the change in food retailing is inevitable and the wholesalers and other intermediaries need to get prepared for this change and improve their process to remain competitive.
Firstly, don’t compare Reliance with other retail outlets. Reliance is known for their explicit fraud they commit in every field they enter. Their orientation towards various political parties is also known; how much tax sops they get in many states is also a known fact. These tax sops are extended even to the movies based on them. While they get free land (or cheap land) in many states for farming, other ordinary traders have to procure greens from the markets without enjoying any tax benefits.
Why is all the noise now?…well, Reliance is not investing Rs.4000 crores to serve the people of this country, or do they?! They WILL want to swindle as much money as they could.
Reliance is there in every field, why not in retail ?..A little thought into this will give us an answer. Who takes to retail in Tamil Nadu, for that matter any state? Those who lost their stand in other fields; farmers who have faced famine; in a nutshell, those who have been stomped out of their ‘usual’ business they have been doing for ages. These people are the ‘intermediaries’ we are talking about. Now, Reliance and the government are committed towards wiping them out of life totally.
Like everyone is a Cricket critique, now everyone is an economist. It is extremely farcical to say that these new retailers are going to control inflation. When big shots enter a field, they most often hold sway over the pricing of the products. Imagine if there are only 10 saloons in the whole city, and they fix Rs.500 to cut hair, we would have no other option than to go by them. Just because there are more shops of that kind, we have the pricing a little stable. This was proved in the case of cement manufacturers. Cement big shots didn’t heed to the finance minister’s words and hiked the price without worrying about inflation. Why wouldn’t the same thing happen to retail sector if big retailers take control of it? Rates will be fair only if there are more small traders. Pushing them out of business will expose everyone to a great risk.
Reliance can say that they are not competitors to small traders. But in reality, their foremost aim is to pull customers away from small traders. There is no uniform pricing in Reliance. They fix their prices a little lesser than the nearest market. They even go to the extent of selling vegetables for a loss. What is the motive behind this? Philanthropy? NO WAY.
Siva, I feel the motive behind any business should be maximizing share holder’s value (of course ethically) and not philanthropy. Just like industrialization and computerization displaced many jobs and created new ones, this retail revolution will also be painful to few as they are helpful to others. But protectionism is not the way to go.
Its not about ‘job’….its about ‘life’.If protectionism could save a few lives…why not follow it ? In the business you are talking about, those who ‘Help’ and those who are being ‘Helped’ are not the poor people who fight for a life. I don’t want to be ‘Helped’ at the cost of someone else’s life. Lets not be Nero’s guests…..
http://alternativeperspective.blogspot.com/2007/03/are-you-among-neros-guests.html