Wednesday, December 7, 2011

Why this Kolaveri (F)DI?

“1 kilo onions do” (Give me a Kilo of Onions). The neighbourhood sabjiwala from Kerala was busy gathering vegetables when he asked me, “Bhaiyya, ye FDI kya hota hai?” (Brother, What is this FDI?). Surprised I turned towards him; Not that I was astonished at the question but why me? Does he know I am an “yum-bee-ay”? Anyways I started explaining to him what FDI means and how it works. After I finished my rumbling, as if I was pitching to a client, he nodded with a smile in an assuring manner. He asked “Mere dost bolte hain ki agar bahar ke log aayenge tho humara nuksaan hoga. Who log bade bade dukaan kholenge aur yahan ke IT log sab wahi challenge. Phir humara kya hoga. Aapko kya lagta hai?” (My friends tell me that FDI would mean that foreigners would open up big outlets and drive away us small retailers. All the IT people would start going there, then what would happen to us?) This piece of conversation got my brain cells in overdrive as I started to think about how an ordinary Indian will convince one of his own as to the benefits of this move. Now I know why they say sitting in power is tough. Even a good deed needs convincing. Sometimes even educated people don’t see the benefits. It’s the change philosophy. No one likes it even if it means life becomes easier and better.

Let us first understand what Retail really is. It’s a medium of distribution which reaches right to the customer’s doorstep. Thanks to small time Kirana shops, you don’t really have to walk more than 100m to reach the nearest shop. So convenient and easy. The major point of opposition to the FDI bill is that they would send the mom and pop stores to oblivion. Let us not complicate the answer to this by saying FDI would improve Supply Chains, Reduce food wastage etc…The most important thing to understand is the psyche of the Indian customer. We are simple, lazy people. We love the options of home delivery. Isn’t this why Domino’s is so successful in India. Even if Walmart were to sell things 20% cheaper, we would still prefer the nearby Kirana which will offer us a home delivery. The neighbourhood shop would also treat you with respect and remind you if you forget to buy something. He probably knows your home needs better than you do. We are not the type of people who will make a list and plan our shopping. We are impulsive buyers; we buy things as and when we remember or see them. When was the last time your family bought your monthly groceries all at once. It is so easy for mothers to just step put of the house and find the nearest sabjiwala. Sometimes he might come in front of your house with his rhythmic screams, “Tamatar, Aloo, Bhindi..” Who wouldn’t buy from him?

Taking the case of a city like Bangalore, Walmart would open at the most 2 or 3 shops, somewhere in the outskirts where real estate is cheap and in plenty. In MBA they always talk about value added to the customer. The value you get from a Walmart is basically cheaper goods. Quality is something which I believe would be the same throughout. The pains which you would take to commute to the shop, then carry all those bags back might just equal the return you get. Once you come back, you realize you have forgotten something. Nothing worse than that.

The point is there is nothing wrong in giving more options to the consumer. Its always better for us to have everything under one roof. Its easier to find stuff and plan. Since the big chains source directly from the botton of the supply chain, the prices you get would be better and in order to maintain the quality there would be improvement in the logistics aspect. WSJ once reported that nearly 30% of the country's fruits and vegetables perish due to a lack of cold-storage facilities, while thousands of tons of food-grain spoil in ill-equipped warehouses. A collosal waste for a developing country like ours. Foreign players would definitely solve this problem leading to lesser wastages and better prices for farmers. The elimination of middlemen would reduce jobs is another argument against FDI. Although this is true, but these people can venture into other areas which would open up due to FDI. There would be a large scale requirement of Warehouses, Material Handling Equipment, Transportation vehicles etc… Each store would employ by the thousands as they would be needed for billing, guiding customers, movement of goods, back end operations, accounting etc… All in all this is a win win situation for the country. If anyone has any doubts then they need to remember the effect which Retail chain like Food World, Reliance Fresh etc… had on the Indian Retail scenario. No one lost their jobs or no kiranas closed due to this.

Like we enjoy the benefits of KFC, Pizza Hut, etc… in India, let us also open up in retail. This is a move in the right direction and the benefits far accrue the losses. As for my sabjiwala, he says, “Bhaiyya, aap tho mere paas hi aayenge na” with a smile.

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