Dear Modi Govt, Big Retail is Trouble — Be It Videshi or Swadeshi

Indian retail giants have the same harmful effect on small shop-owners as their foreign counterparts.

Image of Indian and logos of foreign big retail giants used for representational purposes.

(Photo: Kamran Akhter / The Quint)

My friendly neighbourhood grocer knows my voice. When I call his shop to order stuff, I never have to give him my house number. And, I can order a bar of soap or chocolate, or even call for a dozen different things — it always reaches me within 10 minutes. What’s more, I get everything on credit. The bills are squared up once a month.

This traditional model of running a kirana shop requires nimble use of working capital. My grocer tells me that he himself gets nothing on credit; all his suppliers need to be paid in cash as soon as the maal is delivered to his store. He still supplies goods to his customers on credit, in effect, paying interest to all of us. This comes out of his wafer-thin margins.

• My local kirana shop man has started feeling the heat from Big Retail. It started a few years ago, when his atta, rice and daal sales started dropping.
• Modinomics says, ‘Foreign Big E-Commerce is bad, Indian Big Retail is good’. So, Amazon and Walmart-owned Flipkart are barred from holding inventory on their own, or selling them through their own vendors.
• But it is disingenuous to believe that Indian e-commerce companies or even brick and mortar retail giants do not have the same effect on small shop-owners.

How Do Local Kirana Shop Owners Get By?

How does he survive? He pays very little to the young boys who man the shop and cycle down to deliver orders. I am not sure how much of his sales he actually declares. He also charges everything at MRP when he sends them home, but he gives you a discount if you go to his shop and pay in cash. And, most importantly, he has a long-standing loyal customer base, who buy their bread, anda and doodh from him every single day.

However, the man has started feeling the heat from Big Retail.

It started a few years ago, when his atta, rice and daal sales started dropping. Although he tried to give small discounts to counter it, he just didn’t have the deep pockets to match the rebates the big boys were giving. So, he tried to fight it like some political parties do – by spreading ‘fake news’. “Big Bazaar mein mat jaiye (don’t go to Big Bazaar)” he told me. “Puraane maal par naya sticker lagaakar bech dete hain.”

Of late he has started campaigning against Amazon and Flipkart. “Sir kucch boliye na TV par,” he said, the other day. “Yeh Amazon waalon ka kya? Yeh toh saste mein dus hazaar botal tel utha lete hain, aur phir usey saste mein bechte hain. Inko nuksaan bhi hua toh kya? Amriki dollar yaahan laakar customer ke mooh par phenk rahe hain. Yeh galat baat hai.”

Why Assume Indian Retail Giants Won’t Harm Small Shop Owners?

Now, Modinomics says, ‘Foreign Big E-Commerce is bad, Indian Big Retail is good’. So, Amazon and Walmart-owned Flipkart are barred from holding inventory on their own, or selling them through their own vendors. They are accused of ‘predatory pricing’, which is selling things at less than cost to capture the market.

There is a lot of truth to this. Amazon and Flipkart, along with other online retailers, absorb huge losses and give mega discounts to attract customers. Between the two of them, they lost more than Rs 11,000 crore in 2018-19, much of which would have gone to subsidise middle-class consumption in India. Small retailers cannot match this, and they are hurting badly, especially those who sell electronic items, mobile phones, clothes and books.

But it is disingenuous to believe that Indian e-commerce companies or even brick and mortar retail giants do not have the same effect on small shop-owners.

If it’s a question of deep pockets, economies of scale and the ability to absorb losses, Indian retail giants are more than a match for any foreign retail player.

How Vendors Go Bankrupt

Big retailers can guarantee big orders to suppliers and, therefore, get big discounts from them. This makes it easier for them to sell below MRP. They have greater access to funds, both as loans and equity investments. This reduces their cost of capital and allows them to finance short-term losses. They also have the advantage of high sales volumes. This means they can make large profits with narrower margins.

Once they have captured the market, big retail can begin to dictate terms. Vendors are the first to be affected. Big retail chains place massive orders and induce suppliers to increase capacity. Once a vendor is stuck with extra capacity, they have nowhere else to go. And, then, the big retail player forces them to push down prices. Ultimately, the vendors are forced to sell below cost price, they go bankrupt and have to shut shop.

Why Does Modi Govt Shun Videshi Big Retail But Not Swadeshi?

There are examples, from across the world, that show what big retail does to suppliers. As Sukhpal Singh of the Institute of Economic Growth writes, in 2005, South Korea fined the French supermarket chain Carrefour for forcing suppliers to cut prices by 1.7 million dollars over a 10-month period. Indonesia fined the same company for not buying from a listed supplier and pushing it into bankruptcy. (paraphrased)

A study published in 2006 estimated that Tesco paid 4 percent less to vendors in the UK, compared to other retailers.

Consumers gain initially, but as the local mom-and-pop stores start disappearing, they are left with no option but to buy everything from the big retail chains or e-commerce players.

It is then that the big retailers start increasing prices. And consumers can’t do anything about it.

The question then is: why would the Modi government consider videshi big retail bad for small shopkeepers, but have no problem with swadeshi big retail? Is it just a case of misdiagnosing an economic problem or is it a matter of balancing the needs of the large voter-base of small retailers and the big political funds of big domestic capital?

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)