In my previous article (FDI in Retail Series # 1 – Why it could prove a threat to local retailers?), I looked into some critical challenges that may bring the local retail system to a standstill if FDI in retail takes shape. But on the other hand, there story is not as bad as it sounds; in fact it promises to script an even bigger growth story for India. To understand why the Indian Retail Industry needs a 51% FDI in multi brands, we need to look at the consumer first.
The Changing Indian Consumer
In terms of conspicuous consumption, the Indian consumer has evolved over time and has the money power to spend over USD 30,000 a year to flaunt their purchases. Talking about the average Indian consumer, disposable incomes are set to increase at about 9% every year for the next three years. Add to it- the huge chunk of the Gen X population (under 25 years) which is more than 50% of the total population. Also, 40% of the total population is set to go urban by 2020 and with the impact of media, these consumers will definitely want more than Indian brands!
Stage is set for Foreign Retailers
With the Indian consumer continuously evolving, FDI in retail can come in no better time! There are various plus points to this move. The CEO of one of the country’s largest retail chain puts this move as a win-win situation for all, which includes the farm sector, SMEs, the retailers and finally the consumers!
As far as small retailers are concerned, the story may not be that bad for them as foreign retailers just can’t open up bases and outlets in every location, which means that the location advantage may still be there with small time retailers. And with small timers depending on the big ones for better margins ( see Kirana shop owners betting high on hypermarket for better margin) this move might just help them. Another argument in favor of FDI in retail would be that the supply chain would just become better. Elimination of middlemen and directly dealing with the producers will certainly make the system more efficient and price friendly.
Currently, a very low percentage of the retailer segment is under the organized banner; an increase in FDI will definitely up the share of organized retail like it has done in other countries. This would mean more employment opportunities. This would also bring about better quality products for the Indian consumer who now has the spending power! While foreign retailers have more efficient process, they might just bring about these best practices in the Indian Markets! Prices will also get lowered and foreign retailers will be able to introduce more deals which Indian consumers look out for.
Now, there may be more advantages if you were to weigh the pros and cons of FDI in multi brand retail in India. Let us hope that this retail growth is more organic balancing the interests of every member of the supply chain from producers to the consumer!