MUMBAI -- Shoppers from overseas, accustomed to an almost overwhelming amount of choice, may be shocked by what they find on Indian supermarket shelves -- or rather what they don't find. A major upscale supermarket in Mumbai stocks only a few types of bottled water, mostly local brands. Names like Volvic, almost ubiquitous outside of India, are nowhere to be seen.
Foreign shoppers would be equally shocked to find very few fruit or vegetable juices with no added sugar. Freshness, like choice, is also in short supply. Most eggs are more than a week old, and some yogurts are only a day or two before their "best-by" dates. Fresh greens like parsley are less than green, covered as they are in fine soil.
In short, supermarkets serving the world's second-largest population offer less variety and lower quality than stores in many other parts of the world.
The underdevelopment of the retail industry -- which accounted for as much as 30% of India's gross domestic product in 2016, according to India Brand Equity Foundation -- offers perhaps the most visible example of the supply-side bottlenecks plaguing the Indian economy.
More than 90% of the total retail market is "unorganized," made up of small traditional shops, stalls and individual sellers. The supply chains connecting farmers to these small retailers are extremely fragmented and often have multiple layers of middlemen offering barely profitable prices for goods and produce. This makes it difficult to increase supply or improve productivity.
The lack of reliable, efficient nationwide distribution channels, together with complex regulations and high tariffs, also discourages global food and beverage brands from exporting to India, exacerbating the lack of consumer choices. And because of the relative lack of competition, even leading premium supermarket chains have little incentive to improve their shoddy inventory management.
Grofers CEO Albinder Dhindsa sees opportunity here. "It does not make sense that poorer villagers are paying higher prices for well-known brand products at micro stores than the richer urban middle class do at supermarket chains, which offer the same products for lower prices," he said. "If we provide cheaper, high-quality alternatives to those villagers, they are happier and we can grow."
Grofers uses its own IT system to manage its inventory, and employs standardized handling and delivery procedures. The upshot is a wider stock of items that are fresher and cleaner.
If the Grofers model catches on, it would be a classic example of a newcomer disrupting a market and helping to solve supply-side structural issues. But not everyone is happy with disruption, especially when it is backed by foreign capital, as the backlash targeting the Flipkart-Walmart deal shows.
Walmart, the world's largest retailer by revenue, recently acquired a 77% stake in Flipkart and is expected to provide its new subsidiary with its world-class supply chain management skills and sourcing power. Walmart has promised to boost direct procurement of perishables from Indian farmers and increase collaboration with local small retailers. This would bring more farmers and small sellers into a large, advanced supply chain, resulting in more choice and better-quality goods for consumers. Inevitably, however, there will be those left out of that system.
Nationalist opponents of the deal accuse Walmart of flouting India's rules on foreign direct investment. But by trying to block larger, more advanced players from entering the market, these critics are in effect calling for the preservation of an underdeveloped retail sector. This is not unique to India. Whenever a nation undertakes structural reforms, vested interests tend to push back.
At the core of Prime Minister Narendra Modi's economic agenda are structural reforms aimed at eliminating bottlenecks in order to boost supply and demand without stoking inflation. The experience of more advanced economies tells us that this is no easy feat, politically speaking. The shelf life of Modinomics will depend at least in part on how deftly the government handles the Walmart-Flipkart issue.
