India ventures into Global Retail for Economic rebalancing | Advantage FDI

When the Indian Cabinet approved 51% investment in multi brand retail by Foreign Investors/Global corporations it extended its welcome to Foreign Direct Investors in yet another arena which has been politically sensitive yet remains a priority for this government. While Mamta di ( the elected Chief Minister of West Bengal) may refuse access to Walmart, Carrefour and others , China has earlier had great success with rolling out the red carpet for Western supermarkets

At last count there were 53, 1 million plus cities that will be expected to open doors to Walmart & Co up from 42 as per government estimates Tesco has a joint venture with Tata’s Star Bazaar and Bharti has tied up with Walmart three years ago in anticipation and already operating in the Cash and Carry business

Global Food  & Consumption franchises have been itching to ramp up in India including Yum with $1 bln, Coke with $2 bln and Dominos growing with newly public coy Jubilant Foods. Jubilant is also opening the first Dunkin’ Donuts branches in a month per the plan targeting Tier 2 towns like Jaipur and Hyderabad

Metro, a German wholesaler who was the first to take advantage of 100% FDI in Wholesale Cash and Carry has refused to entertain plans to enter into retail sopping nirvana as it is happy with its 7 C& C stores that require a sales tax license from each buyer to sell a single tube of toothpaste

Numerous global sports and fashion brands like Reebok and Adidas also get 100% investment in single brand retail, even as Reebok introduces a $1 shoe for the Indian villages

Some requirements have been imposed on potential candidates as India expects 30% of the sourcing to be promised to small and medium scale sector manufacturers ensuring local buy in. India also expects to have helped farmers get 15-20% better prices on their fruit and vegetable produce as half of the minimum $100 mln investment and that of each subsequent dollar has to be invested in rural infrastructure, quasi claims of ensuring dents in supply side inflation with private retailer investment funded in Dollars

Earlier Coke and Pepsi entered the country and maintained export commitments claiming welfare of tomato farmers and others in cash crop rich agri areas like Gujarat and Punjab India has also proposed that upto 10 million new jobs will be created by these supermarket chains.

Three years ago when these plans were mooted, India had virtually no players in hypermarkets, or supermarkets but since then local players like Shoppers Stop and Aditya Birla’s Food World have come a long way competing with long present electronics super chains and first candidates for Foreign players who do not want to enter and wet their feet in such a giant market opportunity.

Since the crisis in 2008 however, Indian High street retail has also spent months counted incomplete or empty commercial real estate projects and 2 out of 3 low margin food super chains like Suvidha and Vishal have gone out of business under less than $100 mln in private loan commitments Bharti’s own ‘ffront end’ venture in Easy day retail stores may however get Walmart investment sooner than later and complement the conditionalities of the regulation that even if not burdensome for most global retail chains will prevent earl opening of sales counters before suitable long term supply arrangements are made and rural infrastructure set up with SMEs / aggregate franchises of SMEs

The ruling congress may yet see a resurgence in its poll prospects if a quick 1 mln jobs can be created by investors before India’s own general elections and by the time the 12th Five year plan ends in 2016-17

India has pushed itself out of the regional race in growth with China with slower reforms in a culturally diversified economy. Each state will independently authorize retail investments in its cities A little delay in implementation may also be expected as Metropolitan consumption spending has been dull compared to demand in the hitherto neglected rural areas esp for Non Discretionary spend items like DTH and Autos where MNC brands hardly sell 10,000 cars a month  or 100k motorcycles in a market that sells 1.4 mln cars a year compared to 1.4 mln cars a month in neighbouring China

Multi brand retail extravaganzas are also funding India’s governments in land sales neighbouring metro projects or revitalising old shut down textile mills and their promoters in Delhi and Mumbai respectively

Apart from rural infrastructure investments, global chains would need to eye prime real estate to compete with global brands and high grade shopping malls in larger cities. Investments in supply chain would need to be really stepped  up to hit a 50% investment mark unless initial investments are planned in the range of $1 -2 bln than the required $100 mln

Local consumption champions like ITC and consumer staples producers like Hindustan Unilever and Proctor and Gamble have considerable experience in rural supply chains and brand management in consumer brands. ITC also has a thriving hotels business and an ambition to increase its retail supermarkets footprint (it serves its tobacco farmers in AP) with its fashion brand Wills Lifestyle predating with real estate investment in many of the 1 million population urban conglomerates/cities like Ahmedabad, Jaipur, Pune showing the cusp of a retail revolution and playing catch up witht he big 5 metros of Delhi, Mumbai, Bangalore, Kolkata and Madras

Foreign players have been localising themselves for the big day for most of the last 4 years with Ikea already flaunting local supplier arrangements (though that is single brand FDI) and Carrefour attempting online commerce. Most of the expected $500bln consumption market needs to be developed , the consumer economy hardly 1/3 of its $1.2 tln GDP economy

Manwhile India’s Fiscal fdeficit is expected to creep to nearly 6% this year as the government borrowing increases and sale of public sector assets is postponed

 

 

 

Related articles

• India retail reforms a half measure? (bbc.co.uk)
• Gold rush as India opens door to global retailers (independent.co.uk)
• Wal-Mart, Foreign Retailers May Own 51% of India Ventures (businessweek.com)
• Happy Thursdays! F&O Expiry vs FDI in retail (awardz.wordpress.com)
• India minister: New retail policy has safeguards (seattlepi.com)
• India Ink: Newswallah: In the English-Language Press Friday (india.blogs.nytimes.com)
• India’s FDI renewal – Extant FDI policy guidelines (FDI in Multi-Brand Retail) (advantages.us)
• VIDEO: India opens to global supermarkets (bbc.co.uk)
• Wal-Mart: Greed and the High Cost of Low Price (corporategreedchronicles.com)
• Walmart to open innovation lab in India to boost online presence (thenextweb.com)