Thursday, November 24, 2011

Big Box retail: Observations in China

I can't comment on how FDI in retail will pan out in India. The best I can do on the Indian context is point you to this very informative blog post by twitter user @GirishLN.

What I can do though, is narrate my experience as a customer in China, where I lived for more than a year. If I'm right it will be quite similar to what we're going to have here.

In my time there I lived in two apartment buildings. Both had something I've never seen in India. Down in the basement, both buildings had what was essentially a mini mart. These shops had everything from instant noodles, bread and milk to 100-year-old eggs and toothpaste. In short, if I was either hungry or very urgently in need of a course of dental hygiene, these shops were literally only an elevator ride away. I'd liken them to the kirana dukaan; the good ol' mom & pop store. They're not far from you and they've got pretty much everything you'd need to keep the house going a few days. I reckon I did about 50% of my shopping at these places.

What these shops did not have were things like fresh vegetables, fruits and meat. For those, I went to dedicated stores, which were slightly further away; perhaps a 5-minute walk at most. I didn't eat meat everyday. So, if I did, I was prepared to take the short walk to these stores. These shops accounted for a further 30 percent of my budget.

Occasionally, I needed a bit more - sauces or winter shoes or a bottle of wine. This stuff I couldn't get either in our basement or at the neighbourhood store. That's where Carrefour came in. It was a 20-minute subway ride away. I didn't particularly enjoy going that far to shop. But it was the nearest place that sold everything under the sun. If I needed it and no one else had it, I'd find it in Carrefour.

One reason it was so far is because it needed so much space to stock everything. Space isn't cheap. Carrefour makes money by selling a lot of stuff at low prices. So it needs to rent cheap. That's only possible a relatively long distance from most homes.

The vast majority of my money and time was spent in smaller stores, closer to home. It's not that these small shops provided me fantastic service. It was just easier to take a 5 minute walk to buy fruit than take a 20-minute subway ride.

Carrefour is basically what we in India call "FDI in retail". But there's also Subhiksha or Spencer's or Big Bazaar; DI - domestic investment - in retail. And all of us know how often we shop at such places. For example, I don't buy milk at Big Bazaar; or bread or eggs. There's a shop 2 minutes from my house in Noida that stocks all of that for me.

What I'm trying to say is this. The fears of the Carrefours & Wal-marts taking away mom-&-pop jobs is simply not true. In all my time in China I went to Carrefour five, maybe six, times. I'm likely overestimating. If anything, more stores create more jobs, more efficiently. They're likely to be higher-paying too, especially for the store assistants.

Yes, mom-&-pop stores immediately around the Big Boxes may shut down. But remember, these Big Boxes can't - thanks to sheer rental costs - be located in every neighbourhood. So, this is job disruption, not destruction. Frankly, more jobs will be created in these stores than ones lost around them.

Opponents of FDI in retail also cite a serious impact on farmers from big retail. I simply don't see how that's possible. Yes, large-format retail, pressures suppliers to sell to them at low prices. Those suppliers (farmers) also have the option of selling to mandis at minimum support prices (and we all know they're cheated here). They don't HAVE to sell to the big-box guys. Why not let the farmers decide whom they want to sell to? Big Boxes that offer them steady demand or mandis that frequently cheat them.

In fact, Big Box retail will hasten the introduction of cold-storage to reduce wastage of food. It will streamline delivery from farm to store, meaning we consumers food fresher and cleaner than before. And it will give consumers wider choice at lower prices.

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