Survival of the small

As modern retail begins to make an appearance across urban India, the debate on their impact on the traditional Indian retail businesses including the neighbourhood kirana stores gets shriller. Those against opening the Indian market to foreign direct investment use a barrage of arguments. The most superficially potent one is the impact on the livelihood of the millions currently eking a living from their small retail businesses.

Is this really the way it will pan out in the Indian context when it comes to the fight for the share of customer spending between the presumably powerful modern retailers and the helpless, small traditional ones? Will the growth of organised retailers across urban and rural India lead to massive unemployment over the next 10 years? Technopak attempted to address this question and after an effort spread over 24 pan-India markets, more than 1,000 retailers and distributors of all sizes and then using this data to develop different models and scenarios in order to come out with some predictions for what will be the composition of various forms of retail channels in India by 2011.

Defying naysayers, and supporting the minority that believes modernised retail will not lead to any significant disruption or unemployment almost anywhere in India, the results indicate that in top towns (population above 1 million), within the next 10 years, the number of retail outlets will actually increase from the current estimate of about 0.68 million to 1.29 million. In towns between 50,000 and 1 million population, the increase will be from 0.84 million to 1.58 million. In towns smaller than a population of 50,000 and neighbouring rural clusters, the increase will be from 5.6 million outlets to 9.5 million. Investments of over Rs 1,00,000 crore have been factored in leading to a size of modern retail touching Rs 3,00,000 crore by 2011 itself. Why are these findings so counter-intuitive? The key lies in the very basic appreciation of the fact that the Indian consumer spending has been rising at almost 7-8% per year for the last 8-10 years. There is no reason to believe that any slowdown in this spending is in the offing. From the current level of about Rs 13,75,000 crore (spent through conventional retail channels), the overall level of consumer spending is likely to rise to over Rs 20,00,000 crore. Hence, even if the modern retail businesses account for Rs 3,00,000 crore of the consumer spending, the additional value that will be spent through traditional retail channels will exceed Rs 3,25,000 crore within the next 5-6 years or an increase of almost 25% from the level of consumer spending through traditional retail channels last year.

Of course, it is likely that retail businesses falling in close proximity of hypermarkets and supermarkets may get impacted negatively. However, it is unlikely that even by 2015, India will see more than 2,500 hypermarkets and 6,000 supermarkets. Hence, the actual numbers of those impacted directly will be a very small proportion of the total universe of traditional retail outlets.