PPI sent out this today. I generally delete its messages without reading them since PPI is a seriously confused bunch of people. Very poor understanding of the wealth creation process. But this one was interesting. And demonstrated considerable sense. So I'm reproducing it below.

PPI is a non-player in India's politics, and can't grow since their strategy is seriously flawed. But if there are people within PPI who are starting to think about economics and liberty, they should also join FTI. FTI is a platform designed to bring together sensible good leaders – by sensible meaning those who believe in liberty, understand the wealth creation process, and have strong strategic sense: over and above integrity and capacity to work as a team.

Is FDI in retail a Threat or a Boon ?

September 20th, 2012 | Professionals Party Of India

A lot has been written, discussed and debated on the above topic. The idea is not to repeat those.

The idea of this article is to take the view of the average citizen also called the ‘aam admi’.

The fundamental premise of a multi-brand retail organization is of ‘economies of scale’- economies of scale in every sphere of their operation. They procure in large quantities, store and distribute through large warehouses and complex logistics supply chain and then of course the large stores which is the tail end of the entire chain that you and I are likely to see.

While we hope that the efficiencies that are being talked about in the procurement and distribution chains happen, guess we can leave it safely to the experts.

What we should be concerned about are a few pertinent questions with respect to what will motivate us to buy in a large store like say Wal Mart:

· Convenience of the store from where we reside or work

· Choice and quality of products available satisfying different price ranges

· Price

There is no ‘one size fits all’ method in determining an individual’s motivation to buy in a large store.

Let us take a different cut at this. Why did large stores like these become successful in the US ?

· Everybody in the US has a car (200 million and counting in a population of 300 million)

· On an average the US home is large on a per capita basis as compared to India.

What has been the experience in other Western countries ?

· Other Western countries like UK, Australia and many countries in continental Europe also share similar demographics to the US and therefore the multi-brand retail stores have become successful.

 

Have they ‘killed’ the kirana stores in these countries ?

· Not at all. The ‘kirana type’ stores have continued to survive and thrive. The stores have morphed into providing more and more of the goods and services for e.g. many of them offer postal services too.

The multi-brand stores have also created an economy of specialist stores. For e.g. if you are a bicycle enthusiast you might get a few and inexpensive choices of bikes in a Wal-Mart but if you are a bicycle aficionado you would rather visit a specialist bicycle shop who can sell you bikes from $100 to $10,000.

Therefore how is it likely to play out in India ?

The average Indian owns a 2-wheeler and some a 4-wheeler too. The average home in India is small and limited space available to stock goods in quantities to take advantage of the price and quality benefits offered by a multi-brand retail store.

What this means in our view is both will co-exist. As and when the multi-brand retail come into play, they will bring down prices due to competition and everybody will benefit. Kirana stores are agile, driven by the Marwari and Gujarati communities and you can trust them to transform their businesses to add-on differentiating goods and services to consumers near their location.

As India’s population becomes more and more Middle Class, it will also create a discerning populace. More and more Indians will aspire for goods and services which will be in line with their pursuits (e.g. a super sports bike). While the multi-brand retail outlets will cater for the large base aspirations of the population, the more ‘picky and choosy’ ones will gravitate towards specialist type goods and services. One can expect therefore a significant growth in specialty stores arising out of the multi-brand retail boom.

Net, ignore the politics behind this move and this will benefit every stakeholder in the chain.

Hence PPI.

Professionals Party Of India

20th Sept 2012

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