Open Up Big Ticket Retailing

For many years now, a shrill debate is being conducted on the entry of big money, including foreign capital, into the retail sector – that is, organized retail, or supermarkets.

Joining in the debate now is a government report on employment – a report that predicts job losses if supermarkets are allowed to do business in India.

This prediction is not based on sound theory. It is mere play with figures.

Consider this: Supermarkets will cater to the well-off, who can buy a month’s groceries at a time.

The corner-shop will always be there for those who buy their needs on a daily basis – those who earn daily wages: the bulk of the population.

This is the reason why 70 per cent of the shampoo sold in India comes in small sachets. This packaging concept is seen across the board in many consumer goods, and is designed with the lesser-off consumer in mind. What is the theory behind this phenomenon?

As Peter Bauer’s pioneering studies of developing countries showed many decades ago, the “distributional chain” in developing countries is long, requiring the “breaking down of bulk” into smaller and even smaller portions, because the capacity to buy is low.

This is why cigarettes are sold loose by retailers: many consumers buy just one cigarette at a time, unable to invest in a full packet. This is why the bulk of IMFL alcohol is sold in "quarters" of 180ml. There is in India this vast majority that buys loose dal half-a-kg at a time.

Since the bulk of the population buys everything in very small quantities, supermarkets will not drive custom away from small shopkeepers.

However, supermarkets will deliver huge gains to the middle and upper classes, when they buy shampoo in big bottles and rice in 5 kilo bags. These savings should not be sneered at – for the money saved will be spent on other things, or invested, and thereby contribute to further economic activity, which will benefit the lesser-off.

Further, supermarkets will be big players in real estate – and the construction industry will benefit. The government report says that this is the biggest employer today. Then why quash its growth?

The report also talks about the potential of tourism – but does not see that tourists like to shop.

In the final analysis, this government report on employment is like an RBI report I read in the early 90s that warned against ATMs as they would cause unemployment. Yet we see today that ATMs have vastly improved efficiency – and created millions of more jobs; that too, productive jobs. This government report on employment is based on Luddite reasoning.

Supermarkets create big gains – by buying in bulk and selling in bulk. These gains are for the big consumer. But it is rarely seen that in an underdeveloped country wholesale supermarkets could create similar gains for the small retailer – and inject much-needed efficiency into the retail sector as well.

So away with statistical analyses and their gloomy predictions. Let us have sound theory instead – and Liberty!

And Progess as well.