Supermarkets in Emerging

Markets

Surprises in and Lessons for India

Thomas Reardon
Michigan State University

Ashok Gulati
International Food Policy Research
Institute

Food Forum India 2008

May 7, 2008
 Outline of talk
„ International experience of the
“supermarket revolution” – especially in
Emerging Market regions (here
“supermarkets” short for “all modern
retail formats”)
„ India compared with international
experience – what is surprising/different?
What is NOT?
„ What are key lessons for India?
 1. Lightening-Fast “Supermarket
Revolution” in “Emerging
Markets”
a) COMMON HERITAGE in nearly all
countries of “traditional retail”
… kirana “mom and pop” stores selling
groceries
… wetmarkets/vendors/hawkers/
selling produce
Tier 1, US, 1920s/1930s, mainly:
hawkers
Kiranas and pushcarts
And wetmarkets
1. Rolling-Out Supermarket Revolution
a) In US and Western Europe, start
1920s, “TAKE-OFF” circa 1930s/1940s
Æ 80% today
b) Rolling-out in 3 waves over
Emerging Market Countries
„ First Wave in South America and

East Asia: TAKE-OFF in early 1990s

Æ 50-60% today
… 5 times faster than US experience!
(but SLOW compared to 2nd and 3rd
waves!)
„ Second Wave in Mexico/Central
America and Southeast Asia – TAKE-
OFF mid-late 1990s Æ 20-50% today
„Third Wave in India, China, Russia –
TAKE-off late 1990s/2000s Æ 1-20%
today
… China’s supermarket sales growing
3x faster than GDP, and India’s, 5x
 What drove “TAKE-OFF” of
supermarkets in Emerging Markets?
„ Income growth and urbanization
„ Tidal wave of FDI after retail FDI
liberalization
… plus massive competitive domestic
investments
„ Domestic policies favoring
supermarkets AND/OR regulating
traditional retail (hygiene, location,
etc.)
c) Rolling-out in 3 waves inside
countries – first Tier-1, then Tier-
2&3, then larger rural towns

d) Rolling-out diversity of formats –

supermarkets, hypermarkets,
cash&carry, convenience store,
neighborhood market format
e) Rolling-out in 3 waves over
products – first in processed/staples,
then semi-processed (dairy/meat),
last/recently in fresh produce
… US – nearly no produce for first 30-
40 years! Common wisdom WAS:
“folks will buy produce ONLY at
kirana or hawker”
… Mexico – only in past 7 years!
Produce- China Supermarket
Dairy in China Supermarkets
e) Surprises & NON-surprises in India

„SORRY, NO SURPRISE IN THIS,

FOLKS:
What I was told:
As I am told in EVERY country, I was
told about India (in 1999) “there
cannot be a supermarket revolution
in India, we have a unique retail
culture of kirana shops and
hawkers.”
Contradicted by what IS:
… India traditional retail in no way
unique -- same retail tradition is
shared by… ALL countries (Mexico
City! Jakarta! Chicago! Paris!)

… & now there is roaring Supermarket

Revolution started in India!
India Breaking & Re-making the Rules!
„SURPRISE: The extreme speed of
India’s supermarket revolution
(fueled by massive DOMESTIC
investment)
… with or without FDI the train has left
the station and is speeding!
„SURPRISE: Usually RURAL roll-out is
in LAST stage of supermarket
revolution – but in India it is in
FIRST stage!
… “Rural Hubs” combining
consumables and farm input retail
(Hariyali, Reliance, ITC, Tata,
Godrej, etc.) may reach 6 million
rural families by 2010!
„SURPRISE: Usually fresh produce
roll-out is in LAST stage of
supermarket revolution – but in India
it is in FIRST stage!
… AND we find in India (in surveys)
that fruit and veg are CHEAPER in
supermarkets compared to
traditional retailers (that is usually in
the LAST stage!)
 2. Rolling-out Supermarket
Procurement System Modernization
in Emerging Markets
a) Note, in Emerging Markets,
supermarket sales composition
roughly:
… 65% processed/staples,
… 20% perishable semi-processed
(dairy/meat)
… 15% fruit and veg
b) Processed and semi-processed
procurement modernized earliest
„ Distribution Centers

„ Private standards of quality and

safety (often don’t wait for
government to do it)
„ Preferred suppliers among
large/medium processors
… easiest in processed because
EARLIER and PARALLEL consolidation
of processing
… example: Wal-mart, Nestle, Mexico
„ RECENTLY: Follow-sourcing!
„ RECENTLY: Regional and global
sourcing networks (Mongolian,
Australian, Indian Dairy into Chinese
Supermarkets)
b) Fruit/Veg procurement
modernization starts very recently
… example: past 5 years in Mexico
„ Patchwork of emerging

“experimentation” faced with POOR

traditional produce supply chains
most everwhere
„ Distribution centers
„ Private standards emerging
„ Shifting gradually away from
traditional mandis, toward
“specialized/dedicated wholesalers”
(that assure “back end”)
„ RECENT: regional networks
(supermarkets WILL affect trade)
 Comparing India…
a) NO SURPRISE that there are growing
pains!
„ Produce market systems look EXACTLY
like those in Latin America in the
1970s/1980s (I was there!)
… but retail looks like Mexico in the 2000s…
„ And really India is many country-sized
states so the challenge to integrate
markets
..Uttar Pradesh = 2x population Germany!
 India re-making some rules
b) SURPRISE
„ Usually this happens in later stages,
but in India, EARLY roll-out of “links
between back-end and front-end
companies”
… example: Food Bazaar & Godrej and
ITC
„ Early roll-out of collection centers
and rural hubs (happens in other
countries but much later)
3. Challenges and the Need for
Innovation in India
 Challenge: Solving the “Rubik cube”
puzzle: Competitiveness with
Inclusiveness
•Innovative Institutions and
Organizations Linking smallholders
to Modern Value Chains
•Mapping and Designing
Institutions for CISS
•C-Competitiveness
•I-Inclusiveness
•S-Sustainability
•S-Scalability
 Mainstreaming vendors..
Choupal Fresh experiment
 Mainstreaming vendors…
ACME experiment…
„ Direct to Home is a revolutionary concept.
„ Aim to bring the Cold Chain to the consumer and provide a
sustainable livelihood to Urban Street Vendors.
„ The concept is to offer fresh fruits and vegetables routed
through an unbroken cold chain from the farm to the door
step.

• A Pilot project with 70

thermally enabled carts
has been implemented in
Gurgaon, NCR.
• Response from Hawkers &
Consumers has been
encouraging. 32
 Challenge of Indian farm reality:
fragmenting farms and swelling bottom
Less than 2 hectares 2-4 hectares 4 and above hectares

Area of Holdings-India

100%

80%

60%

40%

20%

0%
1970-71 1980-81 1990-91 1995-96 2000-01

Avg Size 2.3 1.82 1.55 1.41 1.37

Number of holdings-India
100%

80%

60%

40%

20%

0%
1970-71 1980-81 1990-91 1995-96 2000-01

Source: Agricultural Census Division, India

Backward integration between big and
small: Towards Rural Business Hubs

RBH

Market
Information Credit &
Insurance
Input delivery &
Extension services
Farmers