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  1. 1. Indian retailThe supermarket’s last frontierIndia says it will open up to foreignretailers. Battles loom, commercial andpoliticalSIX”, mutters the owner of Standard Broilers as he slips his hand out of a dead chicken andcounts half a dozen mucky eggs from a pile into a bag in exchange for 21 rupees (40 cents).At the back of his reeking street stall, a cage full of half-alive birds watch. Food shopping inIndia is not a precious affair, even in Bandra, a posh suburb of Mumbai. German cars and$100 highlights are common here, but supermarkets are nowhere to be seen.Less than a tenth of India’s $450 billion of annual retail sales take place in “organised” shopsresembling those of the rich world. But that could soon change. On November 24th thecoalition government, led by the Congress party, said that in cities of over 1m folk, foreignfirms could now own 51% of “multi-brand” retailers, such as supermarkets (up from zero),and 100% of single-brand chains (up from 51%).Its motives are benign. Facing a wobbly rupee and high inflation, it wants to show it is stillcapable of bold action to boost business confidence. Liberalisation should lower food pricesby cutting out middle men and waste. Perhaps a third of crops rot on roadsides and inwarehouses before anyone has a chance to smother them in spices and wolf them withchapatis.Foreign supermarket chains, such as Walmart, Tesco and Carrefour, have raised half a cheer.They are keen to sell yogurt, vegetables and celebrity cookbooks to India’s rising middleclass. The shares of local retailers soared initially, on speculation they would be takeovertargets for foreign firms, with some of which they already have small joint ventures in India.International supermarkets would prefer to own all of their operations in India. But AnilGupta at INSEAD, a business school, does not think the continuing restrictions on ownershipwill be a big deterrent. Walmart entered Mexico and Brazil via joint ventures. It worked verywell, since the American behemoth benefited from its partners’ local know-how.In contrast, IKEA of Sweden, the world’s biggest maker of home furnishings, has beenwaiting years for permission to take full ownership of its local operations in India. As asingle-brand retailer, it now can. A few days after the announcement, an elated MikaelOhlsson, IKEA’s boss, rushed to India. Yet once Mr Ohlsson saw the fine print of the reformand the political turmoil it is causing, his enthusiasm abated. An announcement of IKEA’sinvestment plans for India, planned for November 30th, was cancelled.Bhaarat Bhalla, who owns a small butcher’s in Mumbai, is sure that the government will “U-turn” on the reform. Mr Bhalla is no xenophobe—he spontaneously professes a weakness forMarks & Spencer underwear—but says the reform is too controversial to be enacted. Themain opposition party, the BJP, which enjoys the support of millions of stallholders, is doing
  2. 2. Indian retailThe supermarket’s last frontierIndia says it will open up to foreignretailers. Battles loom, commercial andpoliticalits best to whip up anger. This is not hard. Many Indians feel an emotional attachment to littlekirana stores, and fret that foreign invaders will destroy them.Although the change does not need Parliament’s formal approval, its proceedings have beenbrought to a noisy halt since the announcement. Critics may keep obstructing parliamentarybusiness unless the government backs down.What is more, Indian states are not obliged to follow the central government’s lead. Manymay refuse to liberalise foreign ownership on their territory. Standard Chartered, a bank,reckons that of 53 cities with over 1m people, 28 are run by politicians who say they willblock the reform.The practicalities of setting up supermarkets are daunting, too. To see why, head ten milesnorth of Bandra to the nearest megastore, part of a chain called HyperCity. It is impressiveenough, with wide aisles, modern tills and a big selection of non-food items, from toys totennis racquets. But dodgy roads make it hard to reach from the city centre. And its freshfood is not obviously cheaper than at local markets. Six eggs for example, cost 32 rupees.Peppers are better value here, oranges dearer.Big local business groups, such as Reliance Industries and Aditya Birla, have beenexperimenting in retail, without finding a magic formula. Foreign firms will hope to bringtheir expertise to bear. To offer cheaper food, they will need to bypass the middle men, dealdirectly with farmers and build logistics chains. That is easier said than done, says ManojMenon of Kotak, a stockbroker. Farming is fragmented, subject to arcane rules and as hot apolitical potato as retailing. A rickety legal system makes it hard to enforce contracts. Underthe reform, foreign-controlled shops will have to buy a chunk of their processed andmanufactured goods from small firms, which may add to their costs.Foreigners will also have to find affordable land in packed and expensive cities. As in China,they may try to team up with local property developers, acting as anchor tenants in newmalls. Anurag Mathur of Cushman & Wakefield, a property consultancy, says some Westernfirms have already been scouting out sites. But he cautions that “supply is limited”, as localfirms have already found. Western luxury-goods firms may be able to tolerate extortionaterents for central locations. Some outfits may prosper with a few out-of-town stores thatpeople visit infrequently, spending lots. But general retailers need both cheap land andproximity to their customers—not an easy mix.Will India ever learn to love the supermarket? CRISIL, a research firm, reckons the reformcould attract up to $3 billion of foreign investment over five years—welcome, but not nearlyenough to fund India’s current-account deficit or transform the industry. India’s consumer-
  3. 3. Indian retailThe supermarket’s last frontierIndia says it will open up to foreignretailers. Battles loom, commercial andpoliticalgoods firms, among its most profitable, have thrived in the era of backward retailing andsupply chains, but are betting on gradual change. The biggest, Hindustan Unilever, hasseconded staff to stores in America and Britain to learn how they work. In an interviewearlier this year its boss, Nitin Paranjpe, said he was “absolutely certain” that organised retailwould take off. But he reckoned it would take a decade to capture a quarter of the market.That is enough to worry rather than terrify local shopkeepers. Across from the butcher’s, atGala Provisions, Venod Gala is resigned to change. He reckons that traditional stores inMumbai’s outskirts, where supermarkets can find land, will be in “big trouble”. About hisown fortunes he is more sanguine. “We’ll survive,” he says