Tuesday, December 13, 2011


At a time when a fierce discussion is going in India regarding the newly proposed liberalization policy on Foreign Direct Investment in the retail sector, the country is on threshold of a dilemma regarding what good or harm such mega players like Wal-Mart will or can do to the consumer, farmer, SMEs and the trading sector. One of the "tall" claims made by the Government  is that with new investment coming from foreign firms, the farmers will be benefited and additional employment to the tune of 1o million during the next 3 years! Also averred is that the traditional small stores will flourish under the patronage of the "Big Fishes". Can these be true? If one goes by the experience in a country like Australia, large retail players have a tendency to "kill" the competition through many unfair and unethical measures. Here is a take on this disturbing issue

"The Federal Industry Minister has come close to accusing the big supermarket chains, Coles and Woolworths, of abusing their market power. Kim Carr has sent the competition watchdog, the ACCC, a raft of allegations. He says on the basis of claims put to him by reputable food manufacturers there is "serious cause for concern about an abuse of market power". Senator Carr says everyone's seen their favourite Australian brands disappearing form supermarket shelves and the food industry is reluctant to speak out for fear of retribution. The Industry Minister has told Alexandra Kirk in Canberra of the complaints from retailers which he's now given to the independent regulator.--- We've had a number of companies, a significant number of reputable companies approach us and through the Grocery Council have pointed out that there have been practices, including the auctioning off of shelf space, with the view to excluding competitors from being able of getting access to the shelves in supermarkets, extracting of concessions for contract negotiations by denying access to shelf space. The arbitrary deducting of costs for stock handling services, even when those services are not required. The rescinding of contracts mid term. The use of home brands to destroy intellectual property of food manufacturers. We've been told for example the suppliers are forced to divulge their product plans for the next 12 months to the major supermarkets and then they find that there are copycat products arrive either at the time that their products arrive or shortly thereafter".

For any dispassionate observer of Indian retail sector as it exists now, even if the organized players control hardly 5% of the market, they have enormous clout with the suppliers of goods to them and through their financial muscle power many small suppliers are "bludgeoned" into submission to their whims and fancies. Some of the undesirable practices indulged by them include fixing ridiculously low buying prices, insisting on supplying goods under the retailer label, undue delay in payment, casual buying in stead of through long term contracts. etc. How can any small scale manufacturer swell is goods to the retailer at 35-50% discount or commission? If the organized retail takes root in the country, many small traders are likely to disappear because of the lower prices offered by the "Big Fishes" who will have a free run once competition is killed. The Australian experience must open the eyes of countries that want to welcome FDI in the retail sector.


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