Unorganised vs organised retail in India

Indian retail is dominated by a large number of

small retailers consisting of the local kirana shops, owner-manned general stores, chemists, footwear shops, apparel shops, paan and beedi shops, hand-cart hawkers, pavement vendors, etc. which together make up the so-called unorganized retail or traditional retail.

Impact of organised retail on unorganised retail

Impact on employment
The sampled unorganized retail outlets employ

more family labour than hired labour; on an average they employ 1.5 persons per shop from the family, and hired employees of 1.1 persons. The survey finds a marginal increase in overall employment for these outlets over the period of existence of the sampled organized retail outlets which averaged 21 months. However, there has been a general increase in employment in the South and East but a decline in the West and virtually no employment change in the North

Impact on turnover and profit

there has been an adverse impact on turnover

and profit of the unorganized retail sector after the opening of organized outlets. The overall impact has been a decline in turnover of about 14 per cent and in profit of about 15 per cent over the period, which is an average of 21 months. Therefore, the annual decline in turnover and profit is in the range of 8-9 per cent it is interesting to see that the adverse impact has been in the first 4-5 years of opening of organized outlets after which the negative effects peter out

Closure of Unorganized Outlets

about 4.2 per cent annualized closure of retailers.

This ratio is somewhat higher in the West at 6.8 per cent, about 4.5 per cent in the North, 3.5 per cent in the South and least at 2.1 per cent in the East. These rates of closure are very low by international standards. The US data show a 50 per cent closure of small businesses within four years of operation only 41 per cent of the retailers attributed these closures directly to competition from organized retail. This means that the closure of unorganized retail outlets has been about 1.7 per cent a year on account of competition from organized outlets.

Response to competition
unorganized retailers have indicated a number of

steps taken in response to competition from organized retail, such as

adding new product lines and brands, better display,

renovation of the store,

introduction of self service, enhanced home delivery, more credit sales, acceptance of credit cards, etc.

Use of technology

Determination to continue in business

Consumers preferences

Location Advantage for the Unorganized Retailers

Location is a comparative advantage for

unorganized retailers as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets . As expected, a majority of consumers walk to traditional retailers, while most of the consumers use own vehicle to reach organized outlets .

Preference for Organized vs Unorganized Retailers

Those who shopped at organized outlets reported

the main reasons as better product quality, lower price, one-stop shopping, choice of more brands and products, family shopping, fresh stocks, etc. Those who shopped at unorganized outlets attributed it to proximity to residence, goodwill, credit availability, possibility of bargaining, choice of loose items, convenient timings, home delivery,

 The consumers at organized outlets were asked

whether their overall spending on food and grocery, and textiles and clothing has increased, decreased, or remained the same after they started shopping from organized outlets. While 32 per cent of sampled consumers declared an increase in spending, 21 per cent indicated a decrease and the balance no change. Thus the arrival of organized retail has enhanced spending in general. The reasons indicated for higher spending have been mainly the purchase of larger quantities due to wider range of products, availability of attractive offers like discounts and promotional schemes, and access to better quality products with higher prices.

Competitiveness with Inclusiveness in an Era of Rapid Retail Transformation

The two basic sources of conflict between the

supermarkets on one side and the traditional retailers and supermarket suppliers on the other are
(a) inequality of power based on supermarkets greater concentration and scale and greater access to technologies and commercial practices because of that scale; and (b) the practices and strategies through which supermarkets wield their power, magnifying their initial advantages through pricing, quality, location, payment, and contracting.

 The basic source of conflictunequal power or

assets exploited by one group of actors to dominate another grouptranslate into a mission statement for policies and programmes: to alter the power or the uses of power of one group either directly by limiting some action or providing some asset, or indirectly by seeking another objective. For example, when a government institutes hygiene regulations meant to help consumers, it also indirectly (as an intended or unintended action) limits or reduces wetmarkets.

 The total of forces pushing toward modernization or

maintaining the traditional system can be ascertained only by adding up the measures at four levels, or axes: (1) macro-level policies that affect all businesses (without
specifying retailers or other types of businesses) versus policies specific to retailers and their suppliers; (2) meso-level (industry or sector) public policies and programmes; these include retail pricing regulations and programmes to upgrade farms and firms that are specific to the retail retail, retailconsumer, and retailsupplier relations; (3) meso-level private sector collective measures, such as codes of conduct and competitiveness programmes for retailers or wholesalers; and (4) micro-level private sector actions (performed by large-scale private actors and thus often leading to quite important results), such as a cash-and-carry chain with a business measure of helping to upgrade the small shops that compose its main

 Good examples of programmes designed to

upgrade traditional retail, have three elements in common:

(a) They allow supermarket development; (b) they accept the social and market role of wetmarkets and hawkers and small traditional shops but encourage them to locate in uncongested areas and improve their physical infrastructure, sedentarize them (for hygiene and tax payment) into fixed sites, and train the operators in business skills and food safety and hygiene; and (c) some countries (such as Hong Kong and China) experiment with privatizing wetmarket management.

 Example: Taiwans Nanmen Wetmarket

Modernization Programme. In 1979, the Taipei city government modernized its 105-year-old Nanmen wetmarket and turned it into a clean shopping emporium with standardized signboards, refrigeration, and other amenities. In 1998, the national government launched a fiveyear programme to upgrade traditional food and vegetable markets (and solve the problem of illegal markets) throughout Taiwan, using the Nanmen programme as a model.

 Today the Singapore government views small shops and

hawkers as integral partsalong with supermarkets and wetmarketsof the Singapore food economy. The essence of the governments strategy is cherish but upgrade and modernize. In 2001, the government launched its 10-year Hawker Centres Upgrading Programme.By 2005, 71 hawker centres had been selected for upgrading: 35 had been upgraded and 36 were in progress. Temporary markets are built to maintain the hawkers while the original hawker areas are razed and rebuilt into areas with better comfort and ambience: new tables and chairs, wider passageways, drier and cleaner floors, improved ventilation, refurbished toilets, better lighting, and improved layouts. Consumers responded strongly to the upgrading.

 Wholesale Market Modernization to Support

Traditional Retailer Competitiveness Improvements in wholesale markets as well as other commercial infrastructure are important to (a) increase market alternatives to small farmers and make them more competitive; (b) improve the efficiency of the main source of fresh products for traditional retailers and thus control costs for traditional retailers; (c) help the traditional wholesale markets compete with the emerging specialized wholesalers used by supermarkets; and (d) help the wholesale markets continue, for as long as possible, to be a viable and competitive sourcing base for supermarkets.

Private Sector Alternatives to Public Wholesale Markets to Support Upgrading of Traditional Retailers
Cash-and-carry chains are alternatives to wholesale

markets for traditional retailers. To be an attractive alternative to traditional suppliers and wholesale markets, the cash-and carry chains must have one or more competitive advantages:
(a) lower costs, achieved by buying in bulk from suppliers; (b) quality, attained through supply chain management and sorting/grading; (c) variety (in breadth and depth) from large stores and many stock-keeping units (SKUs); and (d) added services, such as assembling and delivering packs or sets of products to small stores, and training and advising small shops on product selection and merchandising to enable small shops to strategically position themselves.

 One example of a cash-and-carry is the global chain

Metro. In Poland, the Metro Cash-and-carry has an Aro brand programme (Aro is one of Metros private labels). Metro and a small shop sign an agreement with a minimum of sales and SKU requirements. The shop gets a discount on promoted Aro brand products and agrees to stock the brand. In return, the shop receives merchandising consultation and support (advice on assortment, merchandizing, equipment, and layout) from Metro smallretail advisors, outside decoration (signage), loyalty programme discounts, Aro mailings, and various marketing tools. The shop gains visibility, quality standard branding, a mass marketing programme, product price discounts, and special procurement deals with suppliers (Metro Group 2007). Similar operations are being run in India by ITC,

Regulation of Retail Procurement Practices and RetailerSupplier Relations

The relatively sudden and rapid rise of

supermarkets has tested the commercial law system and found it wanting. That has exacerbated the tensions between retailers and suppliers. However, a combination of legalregulatory and self-regulatory approaches is emerging The Code of Good Commercial Practices had four basic provisions: (a) compliance with contracts by both retailers and suppliers; (b) equal treatment among suppliers;

Meso-programmes to Upgrade Suppliers and Create an Enabling Environment

Governments have the option of providing market

intelligence capital for suppliers at the same time they facilitate business links between suppliers and supermarkets. This includes: (a) providing market information focused on detailed trends in the food industry and facilitating face-to-face meetings (bilateral and multilateral, business round tables, conventions ) between retailers and suppliers; and (b) follow-up investments by the government to help suppliers meet the requirements of supermarket chains and thus enter that market.

Source Directly from Farmers and Upgrade Suppliers

Although not yet common, cases are emerging of

retailers setting up direct sourcing programmes from co-ops of small farmers that include upgrading activities, in many cases supported by governments, donors, or non-governmental organizations.

Initiatives to be taken in INDIA

Modernization of Unorganized Retail

Assist the formation of co-operatives or associations of

kirana stores, which in turn can undertake direct procurement of products from manufacturers and farmers. By eliminating intermediaries, kirana stores can obtain their supplies at lower prices, while farmers get better prices for their produce. The European and US experience of co-operative retailing needs to be studied in greater detail. Encourage setting up of modern large cash-and-carry outlets, which could supply not only to kirana stores but also to licensed hawkers at wholesale rates. The case in China where the central government is using Metro Cash & Carry to modernize the entire supply chain and source directly from farmers is a case in point.

 Make available credit at reasonable rates from banks and

micro-credit institutions for expansion and modernization of traditional retailers. Promotion of innovative banking solutions for unorganized retail like Syndicate Banks lending for small business linked with the collection of daily or weekly pigmy deposits. Convert all uncovered wetmarkets to covered ones and modernize those markets in a time-bound manner with emphasis on hygiene, convenience to shoppers, proper approach roads, entry, exits, etc. The route of publicprivate partnerships (PPPs) is advocated for this purpose. Facilitate the formation of farmers co-operatives to directly sell to organized retailers. In this case, while the government could provide tax incentives and capital subsidies, equity support should be avoided.

Regulation of Organized Retail

New restrictions on organized retailers are not

advocated as this will dampen the modernization efforts of traditional retail. However, there is the need for organized retailers formulating certain private codes of conduct governing their relationships with suppliers including manufacturers, wholesalers, and farmers. Modernization of government regulated markets in the states is suggested on the lines on the NDDB Safal mandi model in Bangalore. The infrastructure of these markets needs to be improved by providing closed places for trading, better access roads, and also better hygiene with an effective waste disposal system.