The Opposition parties may have declared war against the UPA government seeking withdrawal of the decision to allow 51 per cent foreign direct investment (FDI) in multi-brand retail but experts and analysts believe that it is a blessing in disguise for Indian retail firms, such as Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and ShopRite.
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On one hand, such retail firms can opt for joint ventures with global majors, while on the other they can explore funding options from global players to expand their footprint, apart from gaining technological advantage in supply chain management.
Spencer's Retail operates more than 200 stores in India.
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Fresh vegetables and fruits account for 55 per cent of its business. The firm has launched its own version of contact farming, which does not bind the cultivators to the company.
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"It is a win-win situation for us, as we procure the farm products directly from the growers without the involvement of middlemen or traders. This is beneficial to both parties because of transparency," said D. V. Ram Kumar, vice-president (food & agriculture), Spencer's Retail Ltd.
There is scope for Spencer's to expand its footprint in terms of store location as well as procuring farm products. "FDI in retail will end up improving the lot of farmers and supply chain efficiencies. These Indian retail outlets will gain from these investments made in the Indian market place," pointed out V. Ravichandar, chief executive officer (CEO), Feedback Consulting.
Foodworld, which operates 60-plus stores, plans to ramp up its presence to more than 200 locations. It has already tied up with Hong Kong-based Dairy Farm International. With the relaxation in FDI in retail, the relationship will only get stronger.
FDI in retail will provide more benefits to consumers through lower prices, wider availability and significant improvement in supply chain logistics.
"Indian outlets like Nilgiri's and Spencer's can do well provided they innovate and provide value to their target consumers - they have the advantage of knowing the consumers' psyche and will be well placed to service their needs. The competition from MNCs in retail will force these chains to improve and that will serve them well in the long run," noted Ravichandar.
Nilgiri's, South India's biggest retail store operator, also procures farm produces directly from the cultivators. It is planning to expand to 250 stores from the existing 140 by 2013 with the help of funding mopped up through an initial public offer (IPO) next year. In 2006, UKbased private equity firm Actis Capital LLP acquired 65 per cent of Nilgiri's. With the new FDI policy, Nilgiri's may look at buying back Actis Capital's share and prospecting a new investor.
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"There are several options for Indian players in retail. This will be a growth phase for them in the long run. There are examples from the automobiles space. We saw foreign firms setting up joint ventures with Indian players and later floating their own brands in India. Similar activity will be witnessed in the retail space as well. Indian retail firms will gain a lot in the process," said Krishna Malhotra, partner, KPMG. He pointed out that international retail firms are known for their superior technology and backend supply chain management.
He added that this move will curb unemployment in Tier-II and Tier-III cities. "Imagine, big stores entering towns that have not had the retail experience. Each store can provide employment to hundreds of people," he said.
KPMG partner Krishna Malhotra feels that FDI in retail would also help curb unemployment in Tier-II and III cities.
Courtesy: Mail Today