4581_2871_7_1929_71_unorganised vs organised (1)

7/30/2019 4581_2871_7_1929_71_unorganised vs organised (1)

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Unorganised vs organised retail in

India


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Indian retail is dominated by a large number ofsmall retailers consisting of the local kiranashops, owner-manned general stores, chemists,footwear shops, apparel shops, paan and beedi

shops, hand-cart hawkers, pavement vendors,etc. which togethermake up the so-calledunorganized retail or traditional retail.


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Impact of organised retail on

unorganised retail


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Impact on employment

The sampled unorganized retail outlets employmore family labour than hired labour;

on an average they employ 1.5 persons per shop

from the family, and hired employees of 1.1

persons. The survey finds a marginal increase in

overall employment for these outlets over the

period of existence of the sampled organized

retail outlets which averaged 21 months.

However, there has been a general increase in

employment in the South and East but a decline

in the West and virtually no employment change

in the North


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Impact on turnover and profit there has been an adverse impact on turnover

and profit of the unorganized retail sector afterthe opening of organized outlets.

The overall impact has been a decline in turnover

of about 14 per cent and in profit of about 15 percent over the period, which is an average of 21months.

Therefore, the annual decline in turnover and

profit is in the range of 8-9 per cent it is interesting to see that the adverse impact has

been in the first 4-5 years of opening of organizedoutlets after which the negative effects peter out


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Closure of Unorganized Outlets about 4.2 per cent annualized closure of retailers.

This ratio is somewhat higher in the West at 6.8per cent, about 4.5 per cent in the North, 3.5 percent in the South and least at 2.1 per cent in the

East. These rates of closure are very low by

international standards. The US data show a 50per cent closure of small businesses within fouryears of operation

only 41 per cent of the retailers attributed theseclosures directly to competition from organizedretail. This means that the closure of unorganizedretail outlets has been about 1.7 per cent a year

on account of competition from organized outlets.


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Response to competition

unorganized retailers have indicated a number ofsteps taken in response to competition from

organized retail, such as

adding new product lines and brands,

better display,

renovation of the store,

introduction of self service,

enhanced home delivery,

more credit sales,

acceptance of credit cards, etc.


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Use of technology


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Determination to continue in

business


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Consumers preferences


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Location Advantage for the

Unorganized Retailers

Location is a comparative advantage forunorganized retailers as the mean distance to the

residence for consumers at unorganized outlets is

1.1 km compared to 2.6 km for consumers at

organized outlets . As expected, a majority of consumers walk to

traditional retailers, while most of the consumers

use own vehicle to reach organized outlets .


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Preference for Organized vs

Unorganized Retailers

Those who shopped at organized outlets reportedthe main reasons as better product quality, lower

price, one-stop shopping, choice of more brands

and products, family shopping, fresh stocks, etc.

Those who shopped at unorganized outletsattributed it to proximity to residence, goodwill,

credit availability, possibility of bargaining, choice

of loose items, convenient timings, home delivery,


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The consumers at organized outlets were askedwhether their overall spending on food and grocery,and textiles and clothing has increased, decreased, orremained the same after they started shopping fromorganized outlets.

While 32 per cent of sampled consumers declared anincrease in spending, 21 per cent indicated adecrease and the balance no change.

Thus the arrival of organized retail has enhanced

spending in general. The reasons indicated for higherspending have been mainly the purchase of largerquantities due to wider range of products, availabilityof attractive offers like discounts and promotionalschemes, and access to better quality products with

higher prices.


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ompe veness w nc us veness


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ompe veness w nc us venessin anEra of Rapid Retail Transformation

The two basic sources of conflict between thesupermarkets on one side and the traditional

retailers and supermarket suppliers on the other

are

(a) inequality of power based on supermarketsgreater concentration and scale and greater access

to technologies and commercial practices because

of that scale; and

(b) the practices and strategies through whichsupermarkets wield their power, magnifying their

initial advantages through pricing, quality, location,

payment, and contracting.


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The basic source of conflictunequal power orassets exploited by one group of actors to

dominate another grouptranslate into a mission

statement for policies and programmes: to alter

the power or the uses of power of one groupeither directly by limiting some action or providing

some asset, or indirectly by seeking another

objective. For example, when a government

institutes hygiene regulations meant to help consumers, it also indirectly (as an intended

or unintended action) limits or

reduces wetmarkets.

f f


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The total of forces pushing toward modernization or

maintaining the traditional system can be ascertained only

by adding up the measures at four levels, or axes:

(1) macro-level policies that affect all businesses (withoutspecifying retailers or other types of businesses) versus

policies specific to retailers and their suppliers;

(2) meso-level (industry or sector) public policies and

programmes; these include retail pricing regulations andprogrammes to upgrade farms and firms that are specific to the

retail retail, retailconsumer, and retailsupplier relations;

(3) meso-level private sector collective measures, such as

codes of conduct and competitiveness programmes for retailersor wholesalers; and

(4) micro-level private sector actions (performed by large-scale

private actors and thus often leading to quite important results),

such as a cash-and-carry chain with a business measure of

helping to upgrade the small shops that compose its main


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Good examples of programmes designed to

upgrade traditional retail, have three elements in

common:

(a) They allow supermarket development;

(b) they accept the social and market role of

wetmarkets and hawkers and small traditional

shops but encourage them to locate in uncongested

areas and improve their physical infrastructure,sedentarize them (for hygiene and tax payment)

into fixed sites, and train the operators in business

skills and food safety and hygiene; and

(c) some countries (such as Hong Kong and China)experiment with privatizing wetmarket management.


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Example: Taiwans Nanmen WetmarketModernization Programme. In 1979, theTaipeicity government modernized its 105-year-old

Nanmen wetmarket and turned it into a clean

shopping emporium with standardizedsignboards, refrigeration, and other amenities.

In 1998, the national government launched a five-

year programme to upgrade traditional food and

vegetable markets (and solve the problem ofillegal markets) throughout Taiwan, using the

Nanmen programme as a model.


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Today the Singapore government views small shops and

hawkers as integral partsalong with supermarkets and

wetmarketsof the Singapore food economy. The essence

of the governments strategy is cherish but upgrade andmodernize.

In 2001, the government launched its 10-year Hawker

Centres Upgrading Programme.By 2005, 71 hawker

centres had been selected for upgrading: 35 had been

upgraded and 36 were in progress.

Temporary markets are built to maintain the hawkers while

the original hawker areas are razed and rebuilt into areas

with better comfort and ambience: new tables and chairs,

wider passageways, drier and cleaner floors, improved

ventilation, refurbished toilets, better lighting, and improved

layouts.

Consumers res onded stron l to the u radin .

Wholesale Market Modernization to Support


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Wholesale Market Modernization to SupportTraditional Retailer Competitiveness

Improvements in wholesale markets as well as other

commercial infrastructure are important to(a) increase market alternatives to small farmers and make

them more

competitive;

(b) improve the efficiency of the main source of freshproducts for traditional retailers and thus control costs for

traditional retailers;

(c) help the traditional wholesale markets compete with the

emerging specialized wholesalers used by supermarkets;and

(d) help the wholesale markets continue, for as long as

possible, to be a viable and competitive sourcing base forsu ermarkets.

Private Sector Alternatives to Public Wholesale Markets to


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Support Upgrading of Traditional Retailers

Cash-and-carry chains are alternatives to wholesale

markets for traditional retailers.

To be an attractive alternative to traditional suppliers and

wholesale markets, the cash-and carry chains must

have one or more competitive advantages:

(a) lower costs, achieved by buying in bulk from suppliers;

(b) quality, attained through supply chain management and

sorting/grading;

(c) variety (in breadth and depth) from large stores and

many stock-keeping units (SKUs); and

(d) added services, such as assembling and delivering

packs or sets of products to small stores, and training and

advising small shops on product selection and

merchandising to enable small shops to strategically

position themselves.

O l f h d i th l b l h i


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One example of a cash-and-carry is the global chainMetro. In Poland, the Metro Cash-and-carry has an Arobrand programme (Aro is one of Metros private labels).

Metro and a small shop sign an agreement with aminimum of sales and SKU requirements. The shop

gets a discount on promoted Aro brand products and

agrees to stock the brand. In return, the shop receives

merchandising consultation and support (advice onassortment, merchandizing, equipment, and layout)

from Metro smallretail advisors, outside decoration

(signage), loyalty programme discounts, Aro mailings,

and various marketing tools. The shop gains visibility,quality standard branding, a mass marketing

programme, product price discounts, and special

procurement deals with suppliers (Metro Group 2007).

Similar operations are being run in India by ITC,

egu a on o e a rocuremen


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egu a on o e a rocuremenPractices and RetailerSupplierRelations

The relatively sudden and rapid rise ofsupermarkets has tested the commercial law

system and found it wanting. That has

exacerbated the tensions between retailers and

suppliers. However, a combination of legal-regulatory and self-regulatory approaches is

emerging

The Code of Good Commercial Practices had

four basic provisions:

(a) compliance with contracts by both retailers

and suppliers;

(b) equal treatment among suppliers;

eso-programmes o pgra e


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eso programmes o pgra eSuppliers and Create an EnablingEnvironment

Governments have the option of providing marketintelligence capital for suppliers at the same time

they facilitate business links between suppliers

and supermarkets. This includes:

(a) providing market information focused ondetailed trends in the food industry and facilitating

face-to-face meetings (bilateral and multilateral,

business round tables, conventions ) between

retailers and suppliers; and

(b) follow-up investments by the government to

help suppliers meet the requirements of

supermarket chains and thus enter that market.

Source Directly from Farmers and


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Source Directly from Farmers andUpgradeSuppliers

Although not yet common, cases are emerging ofretailers setting up direct sourcing programmes

from co-ops of small farmers that include

upgrading activities, in many cases supported by

governments, donors, or non-governmentalorganizations.


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Initiatives to be taken in INDIA

Modernization of Unorganized Retail


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Modernization of Unorganized RetailAssist the formation of co-operatives or associations of

kirana stores, which inturn can undertake direct

procurement of products from manufacturers andfarmers. By eliminating intermediaries, kirana stores canobtain their suppliesat lower prices, while farmers getbetter prices for their produce. The European and US

experience of co-operative retailing needs to be studiedin greater detail.

Encourage setting up of modern large cash-and-carry

outlets, which could supply not only to kirana stores but

also to licensed hawkers at wholesalerates. The case inChina where the central government is using Metro

Cash & Carry to modernize the entire supply chain and

source directly from farmers is a case in point.

Make available credit at reasonable rates from banks and


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Make available credit at reasonable rates from banks and

micro-credit institutions for expansion and modernization

of traditional retailers. Promotion of innovative banking

solutions for unorganized retail like Syndicate Bankslending for small business linked with the collection of

daily or weekly pigmy deposits.

Convert all uncovered wetmarkets to covered ones and

modernize those markets in a time-bound manner withemphasis on hygiene, convenience to shoppers, proper

approach roads, entry, exits, etc. The route of public-

private partnerships (PPPs) is advocated for this purpose.

Facilitate the formation of farmers co-operatives todirectly sell to organized retailers. In this case, while the

government could provide tax incentives and capital

subsidies, equity support should be avoided.

Regulation of Organized Retail


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Regulation of Organized Retail

New restrictions on organized retailers are not

advocated as this will dampen the modernization

efforts of traditional retail. However, there is the need

for organized retailers formulating certain private

codes of conduct governing their relationships with

suppliers including manufacturers, wholesalers, and

farmers.

Modernization of government regulated markets in the

states is suggested on the lines on the NDDB Safal

mandi model in Bangalore. The infrastructure of thesemarketsneeds to be improved by providing closedplaces for trading, better access roads, and also better

hygiene with an effective waste disposal system.

Documents

4581_2871_7_1929_71_unorganised vs organised (1)