Here's the original post on the Indian Economy Blog, and this below is my rather long-winded, hopelessly typo-ridden comment.
Gaurav - Like you, I have no numbers to substantiate what I believe. Which is more or less in line with what Anshu has commented above, i.e. Kiranas will live - not rule. Here’s why.
I’ll limit myself to one case-study to further what I’m saying (which I also know from personal experience), i.e. Food Bazaar (part of Kishore Biyani’s retail chain, and part of what you’ve referred to above as “Big Bazaar”) at Infinity Mall, Versova. You might call the locality as “the very upper-middle-class”, but then I don’t know what you meant because you’ve not given an income level for that definition.
From what I know it will be hard for me to categorise the people coming to this store inside this very popular mall because they span almost all income categories, for example TV stars, film actors, struggling actors, gym instructors, businessmen, salaried employees, BPOs, etc, etc. Typical Mumbai suburban crowd.
Here’s what I’ve seen at this Food Bazaar
1. Huge variety - within each group, across brands, vegetables, fruits, plastic stuff, etc. etc.
2. Crowds - it’s a big place (not sure of the area, but its large) and fairly packed on weekends (as you pointed to above) with people of the variety mentioned above. What also helps is a 3-4 screen multiplex above and the mall experience.
3. Discounts - On a daily basis, they’ve got offers across almost every
category. On special occasions, such as on Republic Day this year, they had unheard-of discounts, stuff like 2 jeans for Rs500 (shitty quality, but it was there), free atta, rice, etc. etc.
4. Home Delivery - offered around the area for purchases above Rs1,000
5. Credit cards - accepted, some cards (like ICICI) even have higher reward points for co-branded Big Bazaar credit cards
The Food Bazaar Mall is about a year-18months old. Prior to that Lokhandwala Complex (which itself is huge) was almost entirely catered to by the Kirana stores. What’s changed ?
All those kirana stores are still there and doing quite fine. I’m not sure if anyone of them has shut down, but I don’t know if a single one of them is “ruling”.
I know someone who owns one of these places. Here’s his take - his profits have dropped about 25% in the last one-two years because he’s had to offer aggressive discounts, hire a couple of helps and buy cycles to for home-delivery. Sales are doing good, but his customers keep asking him for stuff he doesn’t stock because he doesn’t have space. He just expanded some time back to add more racks and store more stuff but he can’t keep pace with the variety of stuff that each brand is launching. And he can’t buy more space because property prices in Mumbai are just too high.
So, he’s worried. But here’s the good news, he’s hearing that Reliance is coming over..they’ve offered him a good deal to convert to a Reliance franchise format. He is considering that offer.
I’m tempted to give my own example (i.e. I’ve stopped going to a kirana store long time back, I prefer seeing a movie, having a beer and doing a week of shopping all at one place, on a weekend), but I don’t know if its appropriate, or if I’ll be labeled “very-upward-middle-class” (btw, is that bad ?) :)
So here’s my point - I don’t think kiranas will rule, I don’t think they will die. But they will have to get a lot more competitive. As for the Walmarts, Bhartis, Tescos, Ambanis, Biyanis, Birlas, etc. I think there’s enough room for everyone, if one were to believe the India growth story. Sure, there will be winners and there will be losers - and that’s as true for these biggies as it is for the kiranas.
I’m aware that Bombay might not be the ideal comparison for the point of this post, but I think its a fair indicator. Things might be different, but not wildly different, in other cities.
Just one last point - this bit you said But is this tie-up, which has Walmart managing only the back-end supply chain and procurement and Bharti managing the front-end, only a convenient arrangement to scale the policy barriers? Or is it something more? A strategic decision? I suspect it is more of the latter than the former.
Are you a free market proponent ? If yes, you’d not support the barriers on FDI in retail put up by the Govt, right ? But if these barriers are there, then this method (i.e. backend-MNC, front-end local) is probably the only route left to enter the retail sector, isn’t it ?
So, if you think the Bharti-Walmart tie-up is a “convenient arrangement”, then that is also the same for so many others who have followed the same route such as Tata Croma, Spar-RK Foods and Shoprite .
Thanks - would love to hear your thoughts on this.