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The global lesson: Kirana store risks can be cushioned

Integrating millions of neighbourhood stores into a modern retail set-up may pose a challenge for policy makers, but there are enough international models that the government can tailor to suit the local environment. HT reports. Friendly neighbourhood stores

business Updated: Dec 02, 2011 01:44 IST
HT Correspondent
HT Correspondent
Hindustan Times

Integrating millions of neighbourhood stores and street vendors into a modern retail set-up may pose a challenge for India's policy makers, but experts say there are enough international models that the government can tailor to suit the local environment.

Last week's Cabinet decision to allow foreign direct investment (FDI) up to 51% in multi-brand retail triggered howls of protest from opposition parties and small traders. Their argument: large deep-discount retailers would put the livelihood of small traders at risk.

Traditional retailers (kirana stores, street hawkers, and wetmarket stall operators) occupy almost 99% of food and grocery sales.

"What happens to their livelihood as modern retail expands is a legitimate concern that every policymaker must recognise," said a former government official, who was involved in the drafting of the policy that was conceptualised a few years ago.

The experience of China and Indonesia shows that traditional and modern retail can coexist and grow, albeit at different rates, for many years, even decades. While kirana stores may be growing at 2%-5%, organised retail may be growing at 20%-40% or more.

In Indonesia, even after several years of the emergence of supermarkets, 90% of fresh food and 70% of all food is still controlled by traditional retailers.

In China, the overall story is not very different, though supermarkets have moved faster into cities.

Experts said Japanese model of making organised retailers co-opt several kirana stores and hawkers drawn from the pool of traditional retailers. They can be upgraded with capital infusion, and trained to better meet the demands of customers.

A government-commissioned study by Indian Council for Research in International Economic Relations (ICRIER) found that kirana shops in the vicinity of organised retailers did experience a decline in their business and profit in the initial years after the entry of large organised retailers, but this impact weakened over time.

"It is important to remember that organised retail is not just about big-box malls but is also about neighbourhood storesand even push-carts. Many dairy and ice cream companies such as Mother Dairy and Kwality Walls are organising push-carts," the ICRIER study said.

In the original proposal moved by the department of industrial policy and promotion (DIPP), the government had planned to make it mandatory for large retailers to ensure that 30% of their sales were to small kirana stores.

"We have been in the business for several years now, but despite deep discounts, we have not been able to the match the convenience of neighbourhood kirana stores," said the CEO of the Indian retailer who did not wish to be identified.

First Published: Dec 01, 2011 21:28 IST