The German wholesaler Metro AG, which has been operating in Bangalore for quite a few years now, has received the official nod for beginning operations in West Bengal, despite opposition from a key minister. (The chief minister intervened.) Read the news here.
Why is there so much opposition to supermarkets? And to FDI in this sector?
Metro is a big player in wholsesale trading. They do not retail. Thus, the ToI lead edit of today misses the point: this is not a “retail revolution”; rather, this is a “wholesale revolution.”
Now, all the politicians who oppose FDI in retail do so in the interest of the small cornershopwallahs – the so-called “mom-and-pop stores.”
But these small retail shops will only benefit from a wholesale revolution!
In India, wholesaling is very inefficient. Small shopkeepers suffer because of this. The distributional chain becomes excessively long, and includes multiple wholesalers as well as sub-wholesalers. With wholesale supermarkets located in easily accessible parts of the city (unlike the wholesalers of today), small shopkeepers will be able to buy their stocks at cheaper rates. Their profit margins will improve. Their customers will also gain.
But who thinks of the consumer?
Actually, big-ticket retailing is in the interest of the consumer. And here FDI must be allowed. Wal-Marts in every city and town will deliver big gains to ordinary folk. And it is simply not true that these Wal-Marts will lead to the closure of all our mom-and-pop stores. The reason is simple: The bulk of our consumers are poor daily wagers. They do not buy big bottles of shampoo; they buy a small sachet instead. They do not buy rice and wheat in big sacks; they can only afford to buy half a kilo at a time. For all these small consumers, the mom-and-pop store will remain the only retail outlet of choice. Thus, wholesale supermarkets like Metro will be good for these small consumers. It makes no sense at all to oppose Metro’s operations. Efficient wholesaling is in the best interests of both small shopkeepers as well as their poor customers.
I have always been strongly in favour of increasing the efficiency of the distributional chain by allowing retail and wholesale supermarkets – and I have always been in favour of allowing FDI in this area. Here is an article from the ToI I wrote 3 years ago.
FDI in distribution will bring in capital as well as knowledge. There will be a huge impact on the real estate market. Our politicians are foolishly opposing what is in the best interests of all of us – not only as consumers, but equally as small shopkeepers.
I totally agree with the fact that the retail chains will be beneficial for the consumers. I think they should be allowed. But I am not sure I agree with the details in your analysis. wal-Marts of this world will lead to the closing of many mom-and-pop stores. This has happened in every town in US that has seen a new Wal-Mart. Wal-Mart will serve the needs of the poor consumers. they will sell smaller packs of rice and shampoo sachets. They are known to target the low-income earners. Albeit the low income earners in US are totally different from those in US. Also, since everyone's retail needs are currently, for the most part, taken care of, the supermarket chains will have to steal share from someone.
ReplyDeleteI say so-what if the mom and pop shops have to close? If we as a community prefer them, then the chains will not be successful. if we as a community prefer going to a chain, then it means that we prefer the mom-and-pop shops closed. Either way, it does not make any sense to stop the chains from opening.