"BUDGET"-FOR WHOM?

One of the severest criticisms about the latest Budget presented by the Finance Minister is that the much hyped poor "aam aadmi" is again left fending for himself while corporate sector continues to receive government's priority attention. Many reforms have been set in motion to free the manufacturing sector from unnecessary bureaucratic control, interference and messing up but the much awaited agricultural reforms and smooth backward linkages for the food processing industry have not received the attention due to it. The Budget takes care of just increasing food production on a short term basis to prevent serious shortages of food, in stead of any long term strategy to lay a firm foundation for the farming sector. It looks more like a fire fighting operation which is bound to fail no matter how much money is pumped into the prevalent archival farm management system. Here is a take on this issue articulated by some news media.

"Removing supply-side constraints - a major cause of food inflation - is among the five focus areas that Mukherjee outlined in his speech. Steps likely to follow include importing food in small amounts during occasional shortages to keep supplies up, taking perishables out of government regulation, avoiding multiple taxation of food items and increasing inter-state trade. Foreign Direct Investment in multi-brand, which would have been the biggest farm-sector reform, is still stalled amid political opposition. "Agriculture will continue to be a priority for the government," Mukherjee said. Total funds for the department of agriculture have gone up to Rs 20,208 crore in 2012-13 from Rs 17,123 crore last year, up 18%. As it takes farmers to grow food, but scientists to show them how, the new budget has set aside Rs 200 crore for boosting research in the field of agricultural technology. Kisan credit cards for farmers are being upgraded to smart cards that can be used in ATMs. However, despite all the positive factors, the big miss continues to be big-ticket reforms, which alone can deliver high farm growth. The country's contrast with China is stark, which began with reforms in agriculture, not industry. India freed industry first, but remains cagey about opening up its farm sector. Without reforms, agriculture cannot do anything more than just feed the nation".

It is truly said that a paltry Rs 200 crore for R & D to upgrade farm technologies for achieving quantum jump in land productivity cannot be expected to yield much positive results. The realization that subsidies do not work in motivating farmers but good infrastructure and correct inputs, both for production and marketing only can make agricultural system vibrant and strong, has not yet dawned on the government. As every body knows China is where it is to day, is largely due to agricultural reforms and with such a strong agricultural base it is a power to reckon with in the global arena. If with all the subsidies amounting to trillions of rupees during the last few years, India still cannot stop the farmer suicides taking place across the farm belt, there is no way it can reach a position any where near China.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

ORGANIZED RETAILING IN INDIA-A DANGEROUS "MINEFIELD"?

The retail market in India is again in the news but for a wrong reason. The reported failure of Reliance Retails to achieve even 5% of its targetted turn over after operating for over 5 years is a reflection on the tough market environment in the country. Those following the saga of Reliance Retails feel that the future for this group is going to be tougher in coming days with GOI talking about opening this sector for FDI. While opening more than 1000 outlets during the last 5 years by itself is an achievement considering the enormous logistical constraints in the country, it was expected that this industrial giant that dominates the landscape here would be able to at least gain the number one status leaving others way behind. This has not happened and it is difficult to foresee its future at this juncture as there will be a "blood bath" with many native players falling by the way side once FDI is allowed in the retail sector. Here is a commentary on the performance of Reliance Retails based on their track record so far and likely future scenario.  

"With retail giants Wal-Mart Stores Inc and Carrefour circling India in anticipation of a rule change that would allow foreign investment in supermarkets, Asia's richest man is scrambling to capitalise on his early mover advantage. Over the past few months, Reliance has accelerated store openings, brought in a management team from Wal-Mart China and launched wholesale operations that serve the small mom-and-pop players dominating the $450 billion Indian retail sector. It has also rolled out its first large-format hypermarket outlets selling everything from food to furniture. "In retail they are still a long way off," said Michiel van Voorst, portfolio manager for Asia-Pacific equities at Robeco Hong Kong, which is considering buying into the stock it sold off three years ago, tempted by its 22 percent decline in 2011. "The business will still require a lot of investments, and there is no synergy to any of other activities of the company," said van Voorst, whose firm manages $2 billion in Asia. Reliance battles the same problems that have thwarted faster growth for organised retail in Asia's third-largest economy, including expensive real estate and opposition from politically powerful small shop-owners, farmers and middlemen. At the launch of the retail arm in 2006, the energy-focused conglomerate set out to build a $20 billion-revenue business by 2011. For fiscal 2011 ended March 31, however, retail sales were just 56.77 billion rupees ($1.1 billion), according to two analysts' estimates, an increase of 27 percent, but a tiny share of the group's total haul of $53 billion. Net loss in the business is estimated to have doubled to 4.46 billion rupees. The company acknowledges its  retail business is loss making but declined to verify those figures".

"Reliance is the country's second-largest retailer by sales behind Future Group's Pantaloon Retail, but its overall market share is small in a country where more than 90 percent of the industry is made up of mom-and-pop stores. After launching operations in November 2006, it grew to about 1,000 stores within three years, but soon found it did not have the systems and infrastructure to support that expansion. Staff attrition, poor locations, supply-chain issues and infrastructure problems prompted it to shut nearly 50 stores within two years of the launch. Since then, the company has standardised its operations and increased centralisation of its supply chain."During the 2008 slowdown, we thought we were insulated but we have learnt a lot from what we did ," Bijou Kurien, chief executive of Reliance Retail's lifestyle arm, told Reuters. Reliance's supermarket push hit major hurdles in 2007 and 2008, when it was chased out of the states of West Bengal, Jharkhand and Uttar Pradesh, India's most populous region, after protests by small-shop owners and farmers. Reliance still does not have supermarkets in Uttar Pradesh, which was supposed to generate 15 percent of its retail revenue by 2011. It also lacks a major store presence in eastern India. The standalone "kirana" shops, or neighbourhood mom-and-pop stores, and street-side vendors where most Indians buy groceries are popular because they are convenient and give credit. They also operate with little overheads, forcing chains to compete on razor-thin margins. Still, some of Reliance's local rivals including Pantaloons and Shopper's Stop have managed to make a profit, helped by a compact network of stores".

Getting into wholesale market may be an appropriate strategy considering that the existing players like Metro Cash & Carry have done well in this sector, serving as a feeder source for thousands of so called "mom & pop" stores, especially in small towns and villages. One of the biggest problems facing retail food players is the difficulty involved in linking with growers for sourcing good quality food materials and establishing synergy with the processing industry for filling the shelf space. The tendency to compete with established brands through in-house brands can be suicidal till the organized retailing captures at least 20% of the market in the country. What is needed in India is an institutional linkage between the growers and the retailers with the latter providing reliable inputs and assured buy-back arrangement. Agricultural technologists and Food technologists must be an integral part of the retailing organizations to ensure lower prices and better products to the consumers. Food retailing cannot be based purely on "management" skills but also needs technical inputs of experts. Sooner this lesson is learnt better it will be for the country as a whole.  

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

"POP UP" STORES-A NEW PHENOMENON IN FOOD RETAILING

India is a country where retailing of foods is controlled by the so called "pop & mom" stores, about 8 million in number working from small kiosks to large family owned provision stores, spread across every conceivable nook and corner of the country. Advent of modern retailing formats in the form of super markets, departmental stores and hyper markets did make a small dent in the predominance of the small scale stores and in spite of enormous investments by most of the major business tycoons in the retail sector, some with foreign assistance, organized sector still commands less than 5% of the retail market. The foreign investment policy of GOI has restricted the entry of many international players in the retailing field so far but sooner or later under WTO regime and other compulsions, India will have to throw open this sector to foreign players. In case that happens what will be the future of the retail landscape in this country? A new phenomenon called "Pop-Up" stores is emerging in the west and many of the local retail players may adopt this format for survival against the juggernaut of the organized players.

"Starting at 5 p.m. on a recent Wednesday, more than 200 shoppers descended on a red-painted building in an otherwise unremarkable Oakland neighborhood and left with some pretty fancy dinner fixings in their reusable grocery bags. Some carried pounds of boudin blanc sausages from former Eccolo chef-owner Chris Lee, bronze-cut rigatoni from his ex-sous chef Samin Nosrat, or chicken confit from Soul Food Farm. Others took home heat-and-serve potato-chard gratin from Mary Jo Thoresen and Curt Clingman of the recently closed Jojo, or frozen heritage pork gyoza from Sylvan Brackett, who worked in Alice Waters' office before starting his new Peko Peko catering business.By 7 p.m., the shoppers were gone, and the Pop-Up General Store closed down for two or three weeks, leaving local fridges and freezers well stocked with restaurant-quality foods to cook at home. The store is part of the new phenomenon of temporary eateries, farm stands and even one "underground market" that spring up here and there around the Bay Area, sometimes regularly in the same location, sometimes not. But so far the Pop-Up General Store is one of a kind because its wares carry an exceptional pedigree: They're made with pristine ingredients - Becker Lane pork, Soul Food Farm eggs, Riverdog produce - by a dozen or so Bay Area chefs, almost all of whom cook or have cooked at Chez Panisse".

With real estate costs soaring in many urban towns the existing retail shop owners may sell of their stores and get into the pop up store mode to continue with their lives. Probably many consumers might like their well known neighborhood retailer coming to their area in mobile platforms for providing them with their grocery needs. This phenomenon is already happening in many places in the country in a limited way with mobile vendors selling apparels, fruits, vegetables, hot foods, plastic goods etc from regular locations in residential areas with easy access to the house wives. Probably larger players may emerge in future using bigger trucks with more diverse merchandise once the organized retailing takes a stranglehold in the country.

V.H.POTTY

http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com