The Madras Management Association (MMA) is holding a two-day convention titled ‘This India knows no boundaries’ on February 3 and 4, 2006 to mark its golden jubilee. Union Minister for Communications and IT, Dayanidhi Maran, delivered the keynote address, while Tamil Nadu Governor, Surjit Singh Barnala, delivered the presidential address.
After the first two Sessions on IT and pharma, it was time for the retail Industry to take centerstage. P K Mohapatra, President and CEO, Technology Business Sector, RPG Enterprises, chaired the session, and the two speakers were Raghu Pillai, MD and CEO, Home Solutions (Retail) India Ltd and Arvind Singhal, Managing Director, KSA Technopak India Pvt Ltd.
Setting the tone for a lively discussion on the retail industry, Mohapatra recalled the inauguration of India’s first supermarket chain by M S Subulakshmi 10 years ago at Chennai. At that time, it was estimated that India had 20 million sq ft of retail space, and a single company (Wal-Mart) operating in one country, occupied more space than that.
He divulged that a study done with McKenzie to understand the future of the retail industry at the time threw up rather accurate insights. He said, “We said we’d see the first billion dollar-plus company in the space in India. We said food would lead the way, and garments and others would follow. We said it would be an urban phenomenon, and we also said that the chances were that retail would become one of the biggest employers.”
Arvind Singhal presented the significance and size of the retail industry, before he attempted to dispel certain myths that surrounded the industry.
He said, “The Indian economy, which is the 10th largest in the world, is worth $691 billion. A staggering 64 per cent of this is attributed to private consumption – larger in terms of share of GDP than several countries, even that of Europe and Japan. Of this, $258 billion or 56 per cent comes from retail. Of the retail pie, rural consumption accounts for 62 per cent. The total retail consumption is expected to increase to $415 billion, by 2010 – an approximate addition of Rs 700 crore.”
Explaining that the largest player was still very small, Singhal said that this player was estimated to cross only the Rs 1,800-crore mark by 2006-07. The second largest was expected to cross only Rs 800 crore by the same time period, according to Singhal.
“But the signs are positive and there are a lot of imminent changes we are staring at. FDI of $2 billion is expected on the supply side alone. The size of the modern retail industry is expected to touch Rs 200,000 crore by 2011. An additional 2.5 million direct retail jobs are expected to be added on in the next five years,” said Singhal.
While the top 10 players (by 2011) were expected to be of a size of Rs 2,500 crore and above, the top five will be greater than Rs 6,000 crore. He further said that the largest was estimated to exceed Rs 50,000 crore by 2011.
Countering the belief that traditional retail was more efficient, Singhal said that the efficiency needed to be seen in the entire value chain. Quoting findings from a research done in the Bangalore and Chennai markets a few weeks ago, he noted that in India “we see the highest gap between the farm gate prices to the kitchen. This difference was found to be 400 per cent in the case of onions, 500 per cent in the case of potatoes, and 200 per cent in the case of wheat.”
Another myth he took on was that traditional retailing was more consumer-friendly. Moving on, he contended that the logic of left and other parties who claimed that modern retail would usher the end of traditional retail was based on ‘misleading arguments’.
“The assumption is that the consumption and urbanisation will be in a steady state, and therefore, the growth of modern retail will be at the cost of traditional retail. In reality, over the next five years, traditional retail will grow too,” explained Singhal.
Citing that even in the US, Wal-Mart had captured only 6-7 per cent of the total market, he added that there was no reason to believe that ‘mom and pop’ stores would be affected by the advent of modern retail. The risk to ‘mom and pop’ stores, he reasoned, was the same as the risk to organised retail. He asked of the audience to think over how people could believe, that there would be loss of jobs when billions of square feet of retail space were being created.
In summation, he said that the need was for modern and traditional retail to co-exist, and underlined the need for a clear retail policy. He concluded that there was a pressing need to move from the present ‘FDI and No FDI’, to supply chain efficiency and management.