thomas reardon-ashok gulati seminar may 7 version final

8/8/2019 THOMAS Reardon-ASHOK Gulati Seminar May 7 Version Final

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Supermarkets in EmergingSupermarkets in Emerging

MarketsMarkets

Surprises in and Lessons for IndiaSurprises in and Lessons for India


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Thomas ReardonThomas Reardon

Michigan State UniversityMichigan State University

Ashok GulatiAshok Gulati

International Food Policy ResearchInternational Food Policy Research

InstituteInstitute

Food Forum India 2008Food Forum India 2008May 7, 2008May 7, 2008


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Outline of talkOutline of talk International experience of theInternational experience of thesupermarket revolutionsupermarket revolution especially inespecially in

Emerging Market regions (hereEmerging Market regions (heresupermarketssupermarketsshort forshort forall modernall modern

retail formatsretail formats)) India compared with internationalIndia compared with international

experienceexperience what is surprising/different?what is surprising/different?

What is NOT?What is NOT?

What are key lessons for India?What are key lessons for India?


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1. Lightening1. Lightening--FastFast SupermarketSupermarket

RevolutionRevolution inin EmergingEmergingMarketsMarkets

a)a) COMMON HERITAGE in nearly allCOMMON HERITAGE in nearly all

countries ofcountries oftraditional retailtraditional retail

kiranakiranamom and popmom and popstores sellingstores sellinggroceriesgroceries

wetmarkets/vendors/hawkers/wetmarkets/vendors/hawkers/selling produceselling produce


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Tier 1, US, 1920s/1930s, mainly:Tier 1, US, 1920s/1930s, mainly:

hawkershawkers


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Kiranas and pushcartsKiranas and pushcarts


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And wetmarketsAnd wetmarkets


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1. Rolling1. Rolling--Out Supermarket RevolutionOut Supermarket Revolution

a) In US and Western Europe, starta) In US and Western Europe, start

1920s,1920s,TAKETAKE--OFFOFFcirca 1930s/1940scirca 1930s/1940s

80% today80% today


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b) Rollingb) Rolling--out in 3 waves overout in 3 waves over

Emerging Market CountriesEmerging Market Countries First Wave in South America andFirst Wave in South America and

East Asia: TAKEEast Asia: TAKE--OFF in early 1990sOFF in early 1990s 5050--60% today60% today

5 times faster than US experience!5 times faster than US experience!

(but SLOW compared to 2(but SLOW compared to 2ndnd and 3and 3rdrd

waves!)waves!)


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Second Wave in Mexico/CentralSecond Wave in Mexico/Central

America and Southeast AsiaAmerica and Southeast Asia TAKETAKE--OFF midOFF mid--late 1990slate 1990s 2020--50% today50% today


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Third Wave in India, China, RussiaThird Wave in India, China, Russia TAKETAKE--off late 1990s/2000soff late 1990s/2000s 11--20%20%

todaytoday ChinaChinas supermarket sales growings supermarket sales growing

3x faster than GDP, and India3x faster than GDP, and Indias, 5xs, 5x


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What droveWhat drove TAKETAKE--OFFOFF ofof

supermarkets in Emerging Markets?supermarkets in Emerging Markets? Income growth and urbanizationIncome growth and urbanization

Tidal wave of FDI after retail FDITidal wave of FDI after retail FDIliberalizationliberalization

plus massive competitive domesticplus massive competitive domesticinvestmentsinvestments

Domestic policies favoringDomestic policies favoring

supermarkets AND/OR regulatingsupermarkets AND/OR regulatingtraditional retail (hygiene, location,traditional retail (hygiene, location,

etc.)etc.)


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c) Rollingc) Rolling--out in 3 waves insideout in 3 waves inside

countriescountries first Tierfirst Tier--1, then Tier1, then Tier--2&3, then larger rural towns2&3, then larger rural towns

d) Rollingd) Rolling--out diversity of formatsout diversity of formats

supermarkets, hypermarkets,supermarkets, hypermarkets,

cash&carry, convenience store,cash&carry, convenience store,neighborhood market formatneighborhood market format


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e) Rollinge) Rolling--out in 3 waves overout in 3 waves overproductsproducts first in processed/staples,first in processed/staples,

then semithen semi--processed (dairy/meat),processed (dairy/meat),

last/recently in fresh producelast/recently in fresh produce

USUS nearly no produce for first 30nearly no produce for first 30--

40 years! Common wisdom WAS:40 years! Common wisdom WAS:folks will buy produce ONLY atfolks will buy produce ONLY at

kirana or hawkerkirana or hawker

MexicoMexico only in past 7 years!only in past 7 years!


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ProduceProduce-- China SupermarketChina Supermarket


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Dairy in China SupermarketsDairy in China Supermarkets


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e) Surprises & NONe) Surprises & NON--surprises in Indiasurprises in India

SORRY, NO SURPRISE IN THIS,SORRY, NO SURPRISE IN THIS,

FOLKS:FOLKS:What I was told:What I was told:

As I am told in EVERY country, I wasAs I am told in EVERY country, I wastold about India (in 1999)told about India (in 1999)therethere

cannot be a supermarket revolutioncannot be a supermarket revolution

in India, we have a unique retailin India, we have a unique retail

culture of kirana shops andculture of kirana shops and

hawkers.hawkers.


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Contradicted by what IS:Contradicted by what IS:

India traditional retail in no wayIndia traditional retail in no wayuniqueunique ---- same retail tradition issame retail tradition is

shared byshared by ALL countries (MexicoALL countries (MexicoCity! Jakarta! Chicago! Paris!)City! Jakarta! Chicago! Paris!)

& now there is roaring Supermarket& now there is roaring Supermarket

Revolution started in India!Revolution started in India!


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India Breaking & ReIndia Breaking & Re--making the Rules!making the Rules!

SURPRISESURPRISE: The extreme speed of: The extreme speed of

IndiaIndias supermarket revolutions supermarket revolution

(fueled by massive DOMESTIC(fueled by massive DOMESTICinvestment)investment)

with or without FDI the train has leftwith or without FDI the train has leftthe station and is speeding!the station and is speeding!


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SURPRISESURPRISE: Usually RURAL roll: Usually RURAL roll--out isout is

in LAST stage of supermarketin LAST stage of supermarketrevolutionrevolution but in India it is inbut in India it is inFIRST stage!FIRST stage!

Rural HubsRural Hubscombiningcombiningconsumables and farm input retailconsumables and farm input retail(Hariyali, Reliance, ITC, Tata,(Hariyali, Reliance, ITC, Tata,Godrej, etc.) may reach 6 millionGodrej, etc.) may reach 6 millionrural families by 2010!rural families by 2010!


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SURPRISESURPRISE: Usually fresh produce: Usually fresh produce

rollroll--out is in LAST stage ofout is in LAST stage ofsupermarket revolutionsupermarket revolution but in Indiabut in Indiait is in FIRST stage!it is in FIRST stage!

AND we find in India (in surveys)AND we find in India (in surveys)that fruit and veg are CHEAPER inthat fruit and veg are CHEAPER insupermarkets compared tosupermarkets compared totraditional retailers (that is usually intraditional retailers (that is usually inthe LAST stage!)the LAST stage!)


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2. Rolling2. Rolling--out Supermarketout Supermarket

Procurement System ModernizationProcurement System Modernizationin Emerging Marketsin Emerging Markets

a)a) Note, in Emerging Markets,Note, in Emerging Markets,supermarket sales compositionsupermarket sales composition

roughly:roughly: 65% processed/staples,65% processed/staples,

20% perishable semi20% perishable semi--processedprocessed(dairy/meat)(dairy/meat)

15% fruit and veg15% fruit and veg


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bb) Processed and semi) Processed and semi--processedprocessed

procurement modernized earliestprocurement modernized earliest Distribution CentersDistribution Centers

Private standards of quality andPrivate standards of quality andsafety (often donsafety (often dont wait fort wait forgovernment to do it)government to do it)

Preferred suppliers amongPreferred suppliers amonglarge/medium processorslarge/medium processors

easiest in processed becauseeasiest in processed becauseEARLIER and PARALLEL consolidationEARLIER and PARALLEL consolidationof processingof processing

example:example: WalWal--mart, Nestle, Mexicomart, Nestle, Mexico


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RECENTLY: FollowRECENTLY: Follow--sourcing!sourcing!

RECENTLY: Regional and globalRECENTLY: Regional and globalsourcing networks (Mongolian,sourcing networks (Mongolian,

Australian, Indian Dairy into ChineseAustralian, Indian Dairy into ChineseSupermarkets)Supermarkets)


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b) Fruit/Veg procurementb) Fruit/Veg procurement

modernization starts very recentlymodernization starts very recently example: past 5 years in Mexicoexample: past 5 years in Mexico

Patchwork of emergingPatchwork of emergingexperimentationexperimentationfaced with POORfaced with POOR

traditional produce supply chainstraditional produce supply chainsmost everwheremost everwhere


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Distribution centersDistribution centers

Private standards emergingPrivate standards emerging Shifting gradually away fromShifting gradually away from

traditional mandis, towardtraditional mandis, towardspecialized/dedicated wholesalersspecialized/dedicated wholesalers

(that assure(that assureback endback end))

RECENT: regional networksRECENT: regional networks

(supermarkets WILL affect trade)(supermarkets WILL affect trade)


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Comparing IndiaComparing Indiaa)a) NO SURPRISE that there are growingNO SURPRISE that there are growing

pains!pains!

Produce market systems look EXACTLYProduce market systems look EXACTLYlike those in Latin America in thelike those in Latin America in the

1970s/1980s (I was there!)1970s/1980s (I was there!)

but retail looks like Mexico in the 2000sbut retail looks like Mexico in the 2000s And really India is many countryAnd really India is many country--sizedsized

states so the challenge to integratestates so the challenge to integrate

marketsmarkets

..Uttar Pradesh = 2x population Germany!..Uttar Pradesh = 2x population Germany!


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India reIndia re--making some rulesmaking some rules

b) SURPRISEb) SURPRISE

Usually this happens in later stages,Usually this happens in later stages,but in India, EARLY rollbut in India, EARLY roll--out ofout oflinkslinks

between backbetween back--end and frontend and front--endendcompaniescompanies

example: Food Bazaar & Godrej andexample: Food Bazaar & Godrej and

ITCITC

Early rollEarly roll--out of collection centersout of collection centers

and rural hubs (happens in otherand rural hubs (happens in othercountries but much later)countries but much later)

3 Ch ll d th N d f3 Ch ll d th N d f


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3. Challenges and the Need for3. Challenges and the Need for

Innovation in IndiaInnovation in India

Challenge: Solving theChallenge: Solving the Rubik cubeRubik cube


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Challenge: Solving theChallenge: Solving the Rubik cubeRubik cube puzzle: Competitiveness withpuzzle: Competitiveness withInclusivenessInclusiveness

Innovative Institutions andOrganizations Linking smallholders

to Modern Value Chains

Mapping and DesigningInstitutions for CISS

C-Competitiveness

I-InclusivenessS-Sustainability

S-Scalability

Mainstreaming endorsMainstreaming vendors


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Mainstreaming vendors..Mainstreaming vendors..

ChoupalChoupal Fresh experimentFresh experiment

Mainstreaming vendorsMainstreaming vendors


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Mainstreaming vendorsMainstreaming vendors

ACME experimentACME experiment Direct to HomeDirect to Home is ais a revolutionaryrevolutionary concept.concept. Aim to bring the Cold Chain to the consumer and provide aAim to bring the Cold Chain to the consumer and provide a

sustainable livelihoodsustainable livelihood to Urban Street Vendors.to Urban Street Vendors.

The concept is to offer fresh fruits and vegetables routedThe concept is to offer fresh fruits and vegetables routed

through anthrough an unbroken cold chainunbroken cold chain from the farm to the doorfrom the farm to the doorstep.step.

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A Pilot project with 70thermally enabled cartshas been implemented inGurgaon, NCR.

Response from Hawkers &Consumers has beenencouraging.

Challenge of Indian farm realityChallenge of Indian farm reality::


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Challenge of Indian farm realityChallenge of Indian farm reality::

fragmenting farms and swelling bottomfragmenting farms and swelling bottom

0%

20%

40%

60%

80%

100%

1970-71 1980-81 1990-91 1995-96 2000-01

Area of Holdings-India

Less than 2 hectares 2-4 hectares 4 and above hectares

0%

20%

40%

60%

80%

100%

1970-71 1980-81 1990-91 1995-96 2000-01

Number of holdings-India

Avg Size 2.3 1.82 1.55 1.41 1.37

Source: Agricultural Census Division, India

Backward integration between big andBackward integration between big and


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small: Towards Rural Business Hubssmall: Towards Rural Business Hubs

Market

Information

RBH

Input delivery &

Extension services

Credit &

Insurance

Farmers

thomas reardon-ashok gulati seminar may 7 version final

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