The supermarket revolution

Michel Egger, Alliance Sud

The retail industry is undergoing turmoil not just here at home. It is symptomatic of a worldwide phenomenon, namely the rise of powerful retailers in international trade. Supermarket chains such as America's Wal-Mart, France's Carrefour, Germany's Metro or Britain's Tesco are playing an ever-growing role in world business. The 30 largest firms already control more than one-third of the world's retail business. Owing to the limitations of their home they are expanding into other countries. The emerging countries in the South are particularly attractive, especially where the economies are booming, urbanisation is well advanced, and the last trade barriers are being removed (see box).

Scant protection for small operators

Over the past decade there has been a veritable supermarket boom, especially in Latin America, where in a mere 10 years, mass distributors have captured a market share that it took them 50 years to achieve in Europe. In Latin America today, 70 per cent of foodstuffs are sold through supermarkets, whereas that figure was a mere 20 per cent at the end of the 1980s. In that region, the 10 biggest chains currently control 22 per cent of the market, led by Wal-Mart, France’s Casino and Carrefour.

In Asia, the power of supermarkets is somewhat less, but the trend is in the same direction. There was a veritable investment boom in Thailand's retail sector between 1997 and 2001, for example. For Britain's Tesco, the Siamese Kingdom has now become the third most important overseas market (14 per cent of sales in 2004), and Carrefour too has a strong presence.

Traditional business people are virtually being steamrolled by these giant retailers. In many countries in the South the retail sector is still marked by the presence of millions of small family-run kiosks. In 2002, the Thai government wrote to the WTO as follows: «Acute political outcry against retail service liberalisation» became «a very hot potato for the current administration» and has «given rise to serious thoughts on having appropriate and sound regulatory framework set before liberalisation is unleashed in a fast and uncontrolled manner».

The fact is that so far only a handful of countries in the South have taken steps to protect the traditional retail business and to ensure more balanced relations between producers and mass distributors. This is the case above all in Malaysia, where new supermarket openings have been banned in certain areas until 2009. India too has taken significant protective action. To date, supermarkets control a mere three per cent of the retail trade in the subcontinent. The remaining 97% is in the hands of the over 12 million small «mom and pop» stores, family shops and street vendors. In India, there are five shops for every 1,000 inhabitants, which makes it the world densest network. The retail sector is the second biggest employer after agriculture, employing 40 million people and generating 14 per cent of gross national product. Therefore, any attempt to open it up to foreign investors is social dynamite.

Wal-Mart in India

In India too, things are changing and the major chains are in the starting block. Not so long ago, a headline in The Economic Times daily spoke of the prevailing «supermarket fever». The PricewaterhouseCoopers trust company for its part is rhapsodising about a «gold rush». With sales of 350 billion dollars and a fast-growing urban middle-class – more than 300 million consumers – the retail business is the country's most promising economic sector. According to McKinsey, India should have the world fifth largest retail market by 2010.

These prospects are spawning some cupidity. All the more so as India opened up its retail markets slightly to foreign investors in 2006. They may now invest -- though only in partnership with a local enterprise and holding a maximum 51-per cent stake. Yet Carrefour and Tesco did not manage to gain a foothold. World leader Wal-Mart, however, has benefited from the opening and embarked on a joint venture in August with Bharti, an Indian group active in food and telecommunications.

The arrival of the US giant elicited critical comments, amongst others, from Sonja Gandhi, the leader of the ruling Congress Party. It also triggered numerous demonstrations by thousands of small business people and producers who fear for their future. The protests were even stronger for the fact that Wal-Mart, which is embroiled in numerous lawsuits in the United States, has such a poor image. Wal-Mart is reputedly a ruthless corporation that goes after market share with a «cheap at any price» approach, and whose policy is characterised by social dumping, hostility to trade unions, and exploitation of producers and employees .

5,000 supermarkets in three years

Yet it is not only foreign corporations that are of concern to India's small business operators. Many large local concerns also have their ambitions. A case in point is Reliance Fresh, a conglomerate active in petrochemicals, telecommunications and financial services. In January 2007, Reliance Fresh opened its first supermarket in the Delhi agglomeration, and under the slogan «It's a whole new way to live», announced that 5,000 large outlets would be opened in 1,500 cities over the coming three years.

The company claims to be pursuing two goals: first, it wants to provide consumers with fruits and vegetables at half the price offered by its competitors. Reliance Fresh stresses that this does not mean squeezing producer prices, but cutting out the numerous middlemen. Second, it would better harness India's agricultural potential – today, some 40 per cent of farming output rots on site for lack of suitable storage and transportation infrastructure. Reliance Fresh has promised to create at least 500,000 jobs over the next three years, which would compensate for the losses in the traditional small business sector.

Opinions diverge as to the final outcome of what the UN Food and Agriculture Organisation (FAO) has termed the «supermarket revolution. The Indian government recently released a study confidently stating that India's small-scale retailers would find a way to adapt to the new situation and come to an arrangement with the mass distributors.

Family shops in jeopardy

Small retailers associations, trade unions and many non-governmental organisations for their part fear that without support measures, there will be merciless competition which only the strongest will survive. Local research has yielded predictions that one in two stalls in Mumbai will go under. The publisher of «Consumer Voice» magazine predicted in the June edition that for every 1,000 formal jobs created by supermarkets, 15,000 informal jobs would disappear. And this quite apart from the impacts of a standardised production system for mass consumption and export on agriculture and small farmers. Grassroots and non-governmental organisations have called on the government to set up a task force including all the parties concerned to monitor the impacts of the «supermarket revolution» on the traditional retail business and to take rapid corrective action where necessary.

Contact: Michel Egger