FDI in Retail2

8/3/2019 FDI in Retail2

1/31

www.time4education.com

FDI inRetail


2/31

INDIAN RETAIL


3/31

Modern Retail

Supermarkets, ExclusiveShowrooms

Sophisticated operations

Shelves are accessible tocustomers

Multiple brands under a single roof

Discounts on MRP are common

Big Bazaar, Croma etc


4/31

Urban Retail

Neighborhood Kirana Shops

90% products are Branded

Extremely good Inventory turnover Low margins

Average Size of shops is small

Gives credit Home delivery


5/31

Rural retail

Hand cart and pavement vendors

Unbranded items are higher in number

Two consumers may pay different pricesfor the same product on the same day

Mandis and village Haats

Small average size of establishment


6/31

Some Pics


7/31

Indian Retail

Contributes 15% to GDP

Estimated to be $450 Billion

Employs 40 Million (8% of employed Indians)

Over 14 million outlets operate in the country

Only 4% of the outlets are more than 500Sqft

Food consists of 70% of the retail sales


8/31

Indian retail chains

Bata, Nike

Titan

Zara Catmoss

Food Bazaar

Reliance Fresh


9/31

What is FDI?

FDI is a measure of the ownership ofproductive assets, such as factories,

mines and land and water

To acquire a lasting managementinterest (10 percent or more of votingstock) in an enterprise


10/31

FDI Types

By incorporating a wholly ownedsubsidiary or company

By acquiring shares in an associatedenterprise through a merger

An acquisition of an unrelated enterprise

Participating in an equity joint venturewith another investor or enterprise


11/31

Current FDI Limits

Sector FDI Limit

Hotel & Tourism 100%

Pharmaceuticals 100%

Power 100%

Roads & Ports 100%

Single Brand Retail 100%

Telecom 74%

Wholesale Cash and Carry Stores 100%

Insurance 26%


12/31

Current Operations (Foreign)

Already present in single brand retail

Franchisee Retailers (ZARA,Mango)

Sourcing is local Adidas, Nike etc manufacture too

Pepsi was forced to invest in India in

factories for potato products Cash and Carry Wholesale (Metro)


13/31


Views of Affected

Parties


14/31

Why is the Govt interested?

WTO agreement

Most retailers interested in food

Procurement on large scale Upgradation in agriculture

Investment in food processing and cold

storage


15/31

Continued

Farmers will get more from same piece ofland

Consumers will benefit SMEs will be able to access foreign

markets

No chain has monopoly in the world


16/31

Cold storage Infrastructure

Cold Storage facilities very poor

5386 stand-alone cold storages, having atotal capacity of 23.6 million

80 % capacity used for potatoes Rest 20% capacity < 1% of the annual farm

output of India

100% FDI allowed in Cold Storage

Not much interest in establishing coldstorage facility

20-40% wastage in case of perishables


17/31

Some numbers

Increased taxes from organized retail through VAT(from 30,000 Crore to 250,000 Crore)

Low inflation will ensure low interest rates

Long term growth of over 9% can be achieved

% of unorganizedTraders *

60% 30% 10%

VAT paid on goods * NIL 1% 4-12.5%

* PWC Report


18/31

Small retailers

Concerned about losing their livelihood

Razor thin margins

Advantage of low inventory turnover(bestin world) and credit to customers

If someone undercuts them then they will

have to shut shop Credit Card is a competitor


19/31

Continued

Compare Wal-Mart to East IndiaCompany

Kirana stores have closed down in largecities with advent of large chains (365)

Worried about planned householdpurchases


20/31

Farmers

Small Indian farmers realize only 1/3rd ofthe total price paid by the final Indian

consumer (Fruits and vegetables) Internationally farmers receive 2/3 times

At mercy of middlemen

in 2010 tomatoes sold at 50 Rs werebought at 5 Rs from farmers


21/31

Continued

Govt provides MSP

Mandis ensure better prices in case of

Grains, pulses and oilseeds Low-productivity


22/31

Middlemen

Excellent Procuremnt skills

Modern indian retailers have not been

able to match them Farmers have not been able to break the

nexus of middlemen

All business happens early morning (4a.m.)

All is cash


23/31

Who is worried?

Modern retail: They are ok as they cansell their existing brands

Rural retail: No Wal-Mart will go tovillages

Urban Retail: Worried

Middlemen:W

orried as betterprocurement capacity will run them down


24/31


Some Interesting

Facts


25/31

Country OrganizedRetail %*

UnorganizedRetail% *

India 3 97

China 20 80

South Korea 15 85

Indonesia 25 75

Philippines 35 65

Thailand 40 60

Malaysia 50 50

*Source: CRISIL

Retail Trade in S E Asia


26/31

Share of retailing in employment

across different countries

Country Employment in %

India 8% (4 Crore)

USA 11% (1.5 Crore)Poland 12%

Brazil 15%

China 7%


27/31

Facts

Even a small shop costs over a crore

Falling prices will help Aam Admi so why theparties favor the Crorepati Bania against the

aam admi?

50 Million retailers launched a bandh againstFDI which is larger than the entire organizedsector (30 Mil)

Strong trader lobby, fund elections

Previously RPM was in place in US and UK

Abolished in 1964


28/31

Pros and cons of FDI in retail

Wal-Mart has highest number of law suitsagainst it by employees

Retail requires low skilled people soemployment will be similar

Unemployment of Kiranas

W

al-Mart Big Box model needs acres ofparking

US pays the highest subsidy inagricultural products


29/31

Kirana Vs Online retail

In thanksgiving season 39% bought goods fromonline shopping Vs 44% from Hypermarkets

4000 megastores closed in Britain alone in lastyear

Small Bookshops Vs Borders and Barnes &Nobles Vs Amazon

Educated children does not want to stay inKirana

GST will not allow Kiranas to evade tax

Expensive labor will make cheap home deliverydifficult

Credit Card usage expanding


30/31

Summary

FDI in retail helps farmers

Good for government

Good for consumers Worrisome for Kiranas and Middlemen


31/31

Thank You!

FDI in Retail2

Documents

Transcript of FDI in Retail2