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Unorganised retail should cooperate or combat for survival: JBIMS study

Chitra Unnithan  |  Mumbai/ Ahmedabad 

In order to survive in the growing reorganised retail market, the kirana stores business should either cooperate or combat with the organised Indian retail. This is the proposed futuristic model for the unorganised Indian retail by the students of Mumbai-based Jamnalal Bajaj Institute of Management Studies (JBIMS) to ensure the growth of this sector without incurring losses to any of the stakeholders.

Given the relatively weak financial state of unorganised retailers, and the physical space constraints on their expansion prospects, the students feel that this sector alone will not be able to meet the growing demand for retail. Apart from this, traditional unorganised retail is expected to face tough times to withstand against modern, organised retail which now constitutes a small four per cent of total retail sector.

The organised retail is likely to grow at a much faster pace of 45-50 per cent per annum and quadruple its share in total retail trade to 16 per cent by 2011-12. Government is also apprehensive about the uncertain future of this sector. Considering the vote bank attached to the unorganised retail, political environment is not quite willing to take the risk of letting 100 per cent Foreign Direct Investment (FDI) in retail.

To conduct the study, the students adopted various methods, including studying secondary data related to around the globe markets where organised and unorganised retails co-exist. Primary data was collected from Indian retail stakeholders like traditional shops, modern retails, manufacturers (FMCG companies, farmers), government or bureaucrats and intermediaries. Based on data analysis, the students have developed feasible cooperation or combating models balancing benefit to all stakeholders.

“After studying more than 300 kirana stores in and around Maharashtra, including Mumbai and Nashik, we suggested a business-to-business model, where the kirana stores can club with the modern retail. This will help elevate the dwindling sales that the kirana stores are facing due to the coming up of retail outlets, besides ensuring quality management. The advantage to the retailers would be brand visibility and penetration into deeper pockets by reaching out to the sub-middle class,” says Umesh Divate, one of the students who conducted the research.

The working paper further goes on to say that the real GDP of India is expected to grow at 8-10 per cent per annum in the next five years. As a result, the consuming class with annual household incomes above Rs. 90,000 is expected to rise from about 370 million in 2006-07 to 620 million in 2011-12. Consequently, the retail business in India is estimated to grow at 13 per cent annually from US $322 billion in 2006-07 to US $590 billion in 2011-12.

According to the study, the grocery and Fast Moving Consumer Goods (FMCG) markets alone was a $236 billion market in the year 2006 and expected to become $302 billion market by 2010.

“The concern for the kirana stores is primarily holding back the government from opening the gates for FDI in retail. An earlier study conducted by the government alongwith the Indian Council for Research on International Economic Relations (ICRIER) had suggested a cooperative model for the dying kirana industry. But we found out that there was lack of trust among the organised and unorganised sectors. So, another option to revive the unorganised retail sector is to bring in a third party in the form of a Non-Government Organisation (NGO) to ensure that the wholesalers and retailers do not kill the kirana stores,” adds Divate.

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First Published: Tue, November 25 2008. 00:00 IST