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Unorganised vs organised retail in
India
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Indian retail is dominated by a large number ofsmall retailers consisting of the local kiranashops, owner-manned general stores, chemists,footwear shops, apparel shops, paan and beedi
shops, hand-cart hawkers, pavement vendors,etc. which togethermake up the so-calledunorganized retail or traditional retail.
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Impact of organised retail on
unorganised retail
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Impact on employment
The sampled unorganized retail outlets employmore family labour than hired labour;
on an average they employ 1.5 persons per shop
from the family, and hired employees of 1.1
persons. The survey finds a marginal increase in
overall employment for these outlets over the
period of existence of the sampled organized
retail outlets which averaged 21 months.
However, there has been a general increase in
employment in the South and East but a decline
in the West and virtually no employment change
in the North
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Impact on turnover and profit there has been an adverse impact on turnover
and profit of the unorganized retail sector afterthe opening of organized outlets.
The overall impact has been a decline in turnover
of about 14 per cent and in profit of about 15 percent over the period, which is an average of 21months.
Therefore, the annual decline in turnover and
profit is in the range of 8-9 per cent it is interesting to see that the adverse impact has
been in the first 4-5 years of opening of organizedoutlets after which the negative effects peter out
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Closure of Unorganized Outlets about 4.2 per cent annualized closure of retailers.
This ratio is somewhat higher in the West at 6.8per cent, about 4.5 per cent in the North, 3.5 percent in the South and least at 2.1 per cent in the
East. These rates of closure are very low by
international standards. The US data show a 50per cent closure of small businesses within fouryears of operation
only 41 per cent of the retailers attributed theseclosures directly to competition from organizedretail. This means that the closure of unorganizedretail outlets has been about 1.7 per cent a year
on account of competition from organized outlets.
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Response to competition
unorganized retailers have indicated a number ofsteps taken in response to competition from
organized retail, such as
adding new product lines and brands,
better display,
renovation of the store,
introduction of self service,
enhanced home delivery,
more credit sales,
acceptance of credit cards, etc.
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Use of technology
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Determination to continue in
business
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Consumers preferences
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Location Advantage for the
Unorganized Retailers
Location is a comparative advantage forunorganized retailers as the mean distance to the
residence for consumers at unorganized outlets is
1.1 km compared to 2.6 km for consumers at
organized outlets . As expected, a majority of consumers walk to
traditional retailers, while most of the consumers
use own vehicle to reach organized outlets .
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Preference for Organized vs
Unorganized Retailers
Those who shopped at organized outlets reportedthe main reasons as better product quality, lower
price, one-stop shopping, choice of more brands
and products, family shopping, fresh stocks, etc.
Those who shopped at unorganized outletsattributed it to proximity to residence, goodwill,
credit availability, possibility of bargaining, choice
of loose items, convenient timings, home delivery,
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The consumers at organized outlets were askedwhether their overall spending on food and grocery,and textiles and clothing has increased, decreased, orremained the same after they started shopping fromorganized outlets.
While 32 per cent of sampled consumers declared anincrease in spending, 21 per cent indicated adecrease and the balance no change.
Thus the arrival of organized retail has enhanced
spending in general. The reasons indicated for higherspending have been mainly the purchase of largerquantities due to wider range of products, availabilityof attractive offers like discounts and promotionalschemes, and access to better quality products with
higher prices.
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ompe veness w nc us veness
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ompe veness w nc us venessin anEra of Rapid Retail Transformation
The two basic sources of conflict between thesupermarkets on one side and the traditional
retailers and supermarket suppliers on the other
are
(a) inequality of power based on supermarketsgreater concentration and scale and greater access
to technologies and commercial practices because
of that scale; and
(b) the practices and strategies through whichsupermarkets wield their power, magnifying their
initial advantages through pricing, quality, location,
payment, and contracting.
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The basic source of conflictunequal power orassets exploited by one group of actors to
dominate another grouptranslate into a mission
statement for policies and programmes: to alter
the power or the uses of power of one groupeither directly by limiting some action or providing
some asset, or indirectly by seeking another
objective. For example, when a government
institutes hygiene regulations meant to help consumers, it also indirectly (as an intended
or unintended action) limits or
reduces wetmarkets.
f f
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The total of forces pushing toward modernization or
maintaining the traditional system can be ascertained only
by adding up the measures at four levels, or axes:
(1) macro-level policies that affect all businesses (withoutspecifying retailers or other types of businesses) versus
policies specific to retailers and their suppliers;
(2) meso-level (industry or sector) public policies and
programmes; these include retail pricing regulations andprogrammes to upgrade farms and firms that are specific to the
retail retail, retailconsumer, and retailsupplier relations;
(3) meso-level private sector collective measures, such as
codes of conduct and competitiveness programmes for retailersor wholesalers; and
(4) micro-level private sector actions (performed by large-scale
private actors and thus often leading to quite important results),
such as a cash-and-carry chain with a business measure of
helping to upgrade the small shops that compose its main
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Good examples of programmes designed to
upgrade traditional retail, have three elements in
common:
(a) They allow supermarket development;
(b) they accept the social and market role of
wetmarkets and hawkers and small traditional
shops but encourage them to locate in uncongested
areas and improve their physical infrastructure,sedentarize them (for hygiene and tax payment)
into fixed sites, and train the operators in business
skills and food safety and hygiene; and
(c) some countries (such as Hong Kong and China)experiment with privatizing wetmarket management.
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Example: Taiwans Nanmen WetmarketModernization Programme. In 1979, theTaipeicity government modernized its 105-year-old
Nanmen wetmarket and turned it into a clean
shopping emporium with standardizedsignboards, refrigeration, and other amenities.
In 1998, the national government launched a five-
year programme to upgrade traditional food and
vegetable markets (and solve the problem ofillegal markets) throughout Taiwan, using the
Nanmen programme as a model.
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Today the Singapore government views small shops and
hawkers as integral partsalong with supermarkets and
wetmarketsof the Singapore food economy. The essence
of the governments strategy is cherish but upgrade andmodernize.
In 2001, the government launched its 10-year Hawker
Centres Upgrading Programme.By 2005, 71 hawker
centres had been selected for upgrading: 35 had been
upgraded and 36 were in progress.
Temporary markets are built to maintain the hawkers while
the original hawker areas are razed and rebuilt into areas
with better comfort and ambience: new tables and chairs,
wider passageways, drier and cleaner floors, improved
ventilation, refurbished toilets, better lighting, and improved
layouts.
Consumers res onded stron l to the u radin .
Wholesale Market Modernization to Support
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Wholesale Market Modernization to SupportTraditional Retailer Competitiveness
Improvements in wholesale markets as well as other
commercial infrastructure are important to(a) increase market alternatives to small farmers and make
them more
competitive;
(b) improve the efficiency of the main source of freshproducts for traditional retailers and thus control costs for
traditional retailers;
(c) help the traditional wholesale markets compete with the
emerging specialized wholesalers used by supermarkets;and
(d) help the wholesale markets continue, for as long as
possible, to be a viable and competitive sourcing base forsu ermarkets.
Private Sector Alternatives to Public Wholesale Markets to
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Support Upgrading of Traditional Retailers
Cash-and-carry chains are alternatives to wholesale
markets for traditional retailers.
To be an attractive alternative to traditional suppliers and
wholesale markets, the cash-and carry chains must
have one or more competitive advantages:
(a) lower costs, achieved by buying in bulk from suppliers;
(b) quality, attained through supply chain management and
sorting/grading;
(c) variety (in breadth and depth) from large stores and
many stock-keeping units (SKUs); and
(d) added services, such as assembling and delivering
packs or sets of products to small stores, and training and
advising small shops on product selection and
merchandising to enable small shops to strategically
position themselves.
O l f h d i th l b l h i
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One example of a cash-and-carry is the global chainMetro. In Poland, the Metro Cash-and-carry has an Arobrand programme (Aro is one of Metros private labels).
Metro and a small shop sign an agreement with aminimum of sales and SKU requirements. The shop
gets a discount on promoted Aro brand products and
agrees to stock the brand. In return, the shop receives
merchandising consultation and support (advice onassortment, merchandizing, equipment, and layout)
from Metro smallretail advisors, outside decoration
(signage), loyalty programme discounts, Aro mailings,
and various marketing tools. The shop gains visibility,quality standard branding, a mass marketing
programme, product price discounts, and special
procurement deals with suppliers (Metro Group 2007).
Similar operations are being run in India by ITC,
egu a on o e a rocuremen
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egu a on o e a rocuremenPractices and RetailerSupplierRelations
The relatively sudden and rapid rise ofsupermarkets has tested the commercial law
system and found it wanting. That has
exacerbated the tensions between retailers and
suppliers. However, a combination of legal-regulatory and self-regulatory approaches is
emerging
The Code of Good Commercial Practices had
four basic provisions:
(a) compliance with contracts by both retailers
and suppliers;
(b) equal treatment among suppliers;
eso-programmes o pgra e
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eso programmes o pgra eSuppliers and Create an EnablingEnvironment
Governments have the option of providing marketintelligence capital for suppliers at the same time
they facilitate business links between suppliers
and supermarkets. This includes:
(a) providing market information focused ondetailed trends in the food industry and facilitating
face-to-face meetings (bilateral and multilateral,
business round tables, conventions ) between
retailers and suppliers; and
(b) follow-up investments by the government to
help suppliers meet the requirements of
supermarket chains and thus enter that market.
Source Directly from Farmers and
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Source Directly from Farmers andUpgradeSuppliers
Although not yet common, cases are emerging ofretailers setting up direct sourcing programmes
from co-ops of small farmers that include
upgrading activities, in many cases supported by
governments, donors, or non-governmentalorganizations.
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Initiatives to be taken in INDIA
Modernization of Unorganized Retail
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Modernization of Unorganized RetailAssist the formation of co-operatives or associations of
kirana stores, which inturn can undertake direct
procurement of products from manufacturers andfarmers. By eliminating intermediaries, kirana stores canobtain their suppliesat lower prices, while farmers getbetter prices for their produce. The European and US
experience of co-operative retailing needs to be studiedin greater detail.
Encourage setting up of modern large cash-and-carry
outlets, which could supply not only to kirana stores but
also to licensed hawkers at wholesalerates. The case inChina where the central government is using Metro
Cash & Carry to modernize the entire supply chain and
source directly from farmers is a case in point.
Make available credit at reasonable rates from banks and
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Make available credit at reasonable rates from banks and
micro-credit institutions for expansion and modernization
of traditional retailers. Promotion of innovative banking
solutions for unorganized retail like Syndicate Bankslending for small business linked with the collection of
daily or weekly pigmy deposits.
Convert all uncovered wetmarkets to covered ones and
modernize those markets in a time-bound manner withemphasis on hygiene, convenience to shoppers, proper
approach roads, entry, exits, etc. The route of public-
private partnerships (PPPs) is advocated for this purpose.
Facilitate the formation of farmers co-operatives todirectly sell to organized retailers. In this case, while the
government could provide tax incentives and capital
subsidies, equity support should be avoided.
Regulation of Organized Retail
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Regulation of Organized Retail
New restrictions on organized retailers are not
advocated as this will dampen the modernization
efforts of traditional retail. However, there is the need
for organized retailers formulating certain private
codes of conduct governing their relationships with
suppliers including manufacturers, wholesalers, and
farmers.
Modernization of government regulated markets in the
states is suggested on the lines on the NDDB Safal
mandi model in Bangalore. The infrastructure of thesemarketsneeds to be improved by providing closedplaces for trading, better access roads, and also better
hygiene with an effective waste disposal system.