FDI - Impact on Kirana Stores

FDI IN MULTIBRAND RETAILIMPACT ON KIRANA STORES

The Policy

- Urban areas having a population over 1 million

The Policy

- Minimum investment USD 100 Million

50% in rural areas

50 percent of total investment to be invested in 'backend infrastructure' within 3 years of the induction of FDI.

The Policy

- 30% of sourcing from SMEs

Arguments Against MBR

• Kirana shops will go out of business• Millions of jobs will be lost• Monopoly of entities like Walmart

The Facts

• Argument 1: Kirana shops will go out of business– present policy allows FDI in multi-brand retail only in those Indian

cities with a population of one million or more. It is restricted, therefore, to only 53 cities.

– For example, Delhi. One simply can’t imagine a Walmart store being set up in Chandni Chowk or in any part as densely populated.

MBR Outlet

Kirana Store10 meters

10 kilometers

The Facts

• Argument 2: Millions of jobs will be lost– The new reforms restricts MBR to only 53 cities– The 30% sourcing policy will ensure more jobs – FDI in MBR will instead create more Job opportunities

• Self employment for farmers• Transport Jobs• Logistics related opportunities

– Domestic retailers will evolve leading to more employment• Door delivery services• Online order mechanisms• New intermediary roles

The Facts

• Argument 3: Monopoly of entities like Walmart– It is Indian retail which is ultimately going to tie up with FDI in MBR– Domestic retailers who have survived over the years will compete and

there is enough domestic demand to cater to consumer’s needs.– Multi-brand retail already exists in India, which has not adversely

affected other retailers.

Challenges in MBR

• Principal-Agent problem– MR stores are run by employees who are :-

• not properly trained to run a store • Don’t have the decision making power to make quick decisions • Don’t have an insight into the overall running of a store.

– At the other end a Kirana is store is run by the same person

• Lack of customer focus– Improper assortment of categories– Untrained staff– Focus is more towards price sensitivity– At the other end Kirana stores enjoy more loyalty

Challenges in MBR

• Location– MBR outlets are not easily accessible as Kirana stores– Sky rocketing real estate prices– Unlike America India has less no. of car owners

• Price– Cheaper for people who buy a month’s supply at once– Not cheaper for the consumer with the Just-in-time approach– Maintaining quality at low price

Why Kirana Stores are Going to Stay ?

• Low cost structure– Low cost structure– Less operational expenses

• Location in residential area– Reach of Kiranas is very high and responsive

• Travelling expenses– Increase in fuel prices– Worsening traffic

Why Kirana Stores are Going to Stay ?

• Indian diversity• Indian mindset

– Indians believe in the JIT concept

• Smaller SKU’s• Free credit facility• Personal touch

Future Strategy for Kirana Stores

• Door Delivery services

• Online orders

Future Strategy For Kirana Stores

• Offering discounts over MRP

• Building domestic retailers association

Retailer’s association

QUESTIONS

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