The Walmarts and Tescos of the world must be excited at the thought of setting up shop in India; they?ve been cooling their heels for a long time now, making the most of the cash and carry opportunity in the country. Moreover, they must be even more delighted that they can have a controlling interest of 51% and that the catchment is a large one comprising cities with a population of over one million people.

While the details aren?t known, it must be a big relief that they would not have to knock at the doors of state governments for permission to set up shop. And while it won?t be easy to source 30% of the merchandise from small-scale units, the ecosystem will have to be created over time. Like everyone else, they too must be somewhat surprised that the government has allowed FDI into the multi-brand retail space just ahead of the elections in UP; as has been pointed out, it?s a sensitive issue and some political parties will use it to their advantage.

But while it?s a great first step and there is absolutely no doubt that the benefits of opening up the organised retail will flow through, it probably won?t happen as soon as people expect. For instance, if people are expecting that prices of fruit and vegetables will come crashing down as soon as big retailers set up shop, that?s not going to happen. Given the way the regulation works, especially the APMC, it will be a while before the mandis are no longer in control of produce and prices. It?s in very few states that organised retailers today are able to access the farm gate directly and even when they do, they?re not always able to move produce from one region to another. In fact, the discussion paper put out by the DIPP last year said that the ?wholesale regulated markets, governed by state APMC Acts, have developed a monopolistic and non-transparent character.? That means the farmer, too, will have to wait before he gets a better deal; today, his share, of the price paid by the consumer, is estimated at around 20-25%, or even less according to one World Bank study, way below the world average of 50%. Unless, the numerous intermediaries in the chain between the farmer and the consumer?aggregator, market trader, wholesaler, sub-wholesalers?are eliminated, the farmer?s lot is not going to improve and neither is the consumer?s. Also, while some foreign retailers would want to get into contract farming or even a loose arrangement, it could be a while before it all falls into place. But McDonald?s and Pepsi seem to have made headway, so it?s not entirely impossible.

In the interim, the better storage facilities created by foreign retailers will make a difference to prices simply because there will be less wastage. However, the stipulation that half the investment by foreign retailers needs to be channelled into back-end infrastructure could pose a few problems even for food retailers, because there is a limit as to how much a retailer can spend on the back-end piece; logically, any retailer would make optimal use of a certain level of infrastructure while rolling out more stores.

So, while we will surely see the top foreign chains marking their presence by putting down the mandatory $100mn or about R500 crore, bringing in very large amounts could be a bit of a challenge once they have the optimal infrastructure in place. Indeed, life will be even more difficult for non-food retailers, those selling apparel, for instance, who don?t need to keep investing in the back-end; a Harrods or a Selfridges could easily spend $200mn or even more doing up the stores because they would need to look good but they wouldn?t really need to put in as much money to invest in the back-end. Also, going by the fact that the returns on capital for department stores are lower than those for hypermarkets, it may be a tad unfair to have a common set of rules for different formats.

India is a difficult market purely because customers? tastes are so diverse across the country. Moreover, the Indian housewife has time to spend and doesn?t mind whiling away the afternoon looking through varieties of groceries or condiments. Given the exorbitantly high rentals, there?s always the dilemma of which format to choose. If one opts for small supermarkets or food stores, it?s not possible to stock too much variety and so the revenues don?t add up. Shoppers Stop, for instance, had opened five Expresscitys in Jaipur but was forced to close them within seven months. The larger stores, of 25,000 sq ft, have not done too well either because Indians don?t really pick up very large quantities at one time and that again results in lower than optimal revenues. The big concern about organised retail in India so far has been that the top line doesn?t seem to materialise, which means being able to gauge the potential of the catchment is crucial. In fact, with the initial novelty, shopping in a big store is giving way to pragmatism; fewer couples today want to turn the visit to the hypermarket into a family outing because they find it hard to refuse their children?s demands and are left spending more than they would like to. Indeed, given that autorickshaw fares aren?t coming down in a hurry, kiranas aren?t going anywhere for a long time.

shobhana.subramanian@expressindia.com