By Thomas Reardon; Bart Minten

Introduction
India has long relied on a traditional food-retailing system of small shops, wet markets and hawkers. A supermarket revolution took off in the early to mid 1990s in developing and transition countries (Reardon et al., 2003, 2009). The spread of supermarkets has taken place --and continues to take place-- in three waves. Countries in the first wave experienced a surge in the supermarket sector in the early to mid 1990s, primarily in South America, East Asia excluding China and Japan, North-Central Europe and the Baltics, and South Africa. Countries in this first wave saw a level of supermarket diffusion over a single decade which had taken some five decades in the United States. The second wave of countries includes Mexico and much of South-East Asia, Central America and South-Central Europe. The third wave countries are where supermarket revolution began in the late 1990s or early 2000s and grew very quickly, often at three to four times the rate of their rapidly growing GDPs per capita. These areas include parts of eastern and southern Africa, some countries in Central and South America, 'transitional East Asia' (China and Viet Nam), Russia and India.

India is an interesting case because, while its traditional retail system is similar to that of other developing countries, modern retail has emerged over the past two decades in India in unique ways compared with similar trends in other developing countries. This article presents three surprising aspects to retail development in India to contribute to the sometimes heated debate in India on retailing and to add a new angle to international debate on retailing and its effects on development.

The first surprise: State and co-operative retail chains laid the groundwork
India has in fact passed through three waves of retail transformation: the extensive spread of government retail chains during the 1960s and 1970s; the diffusion of co-operative retail chains during the 1970s and 1980s; and the at first slow, then extremely rapid, spread of private retail chains in the 1990s and 2000s, especially since 2006. National and international debates in the emerging literature on the supermarket revolution have neglected the state and co-op retail waves. This neglect may be in part because the state and co-op chains were not recognized as having the basic characteristics of modern retailing. Retail and development researchers have been fascinated instead by how globalization and market liberalization and reform have touched off an explosion in private retail investment, multinational in scale. That focus eclipsed examination of the work of state and co-op chains in transforming the retail, processing and wholesale sectors from fragmented, small-scale, uncoordinated traditional sectors to partially consolidated sectors with large and medium-scale firms (Reardon et al., 2009). That the mainstream literature, supporting reform and structural adjustment, swung to centre on a critique of the state and co-op sectors added to obscuring the fact that initial modernization had already begun.

Finally, part of the neglect seems to stem from the observed 'withering away' of the state and co-op food retailing and processing segments in various countries where modern private retail has been studied. This is the case in transition countries in Central and Eastern Europe, China and Viet Nam, and in other countries that had state-led food system modernization efforts, such as Zambia and Brazil. The integrated story of these three waves has not been analysed in the Indian retail literature, and we aim to address that gap.

Why does it matter that the literature in India and internationally has neglected the first two waves of state and co-op chains to focus on the third, private wave? There are two reasons. First, the state and co-op retail chains were often extensive in the transition countries, as they were and still are in India. There is thus a temporal overlap of the waves in India that is less extant in other developing countries. Second, the overlap of the waves means that state, co-operative and private chains have been interacting. We show that they consciously compete in today's India, influencing each other's behaviour. For example, the leading Indian private supermarket has a chain of small-format hard-discount shops called KB Fair Price Shops that compete with the government Fair Price Shops. The private chain uses the idea of small cheap formats in dense cities and small towns to appeal to and penetrate the market for poor consumers, just as the government had done. We can also ask whether in India-- and perhaps in China, Viet Nam, and Eastern Europe by extension-- the state and co-op chains prepared the way for private chains in two ways. Perhaps consumers got used to shopping in chain stores rather than in traditional shops and wet markets. Perhaps these earlier chains first created expectations and, later, unmet needs and desires that private chains stepped in to fill.

The second surprise: Private retailing surged in the 2000s
The second surprise is the speed of the third wave of retail transformation in India. After the gradual build-up of the first two waves and the first phase of the third wave, a sudden surge of private retailing mounted very quickly from 2006 to 2011. The rate of growth is among the fastest in modern retail growth in the world. We estimate that the average yearly growth rate of sales of modernized private retail (plus wholesale cash-and-carry chains) was 49 per cent for 2002/3 to 2009/10 and that modernized private retail grew about 5 times faster than GDP. The suddenness and size of that rise has not been fully documented and explained in the Indian retail literature, and we aim to address that gap. Earlier work on India retail, such as the ICRIER report (Joseph et al., 2008) or Srivastava (2008), caught the phenomenon at its start. Further assessment is called for after the lion's share of growth from 2007 through 2010.

We identified several causes for and consequences of the recent dramatic surge. Surprisingly, it has been spurred almost completely by domestic capital alone, not by foreign direct investment, which has not been liberalized. The rapid rise also seems linked in part to the nature of the transformation -- the strategies of market penetration. As a consequence, the suddenness and size of the take-off has sparked reactions in policy and political circles -- surprise, fear and sudden hope, depending on the quarter. The political reaction is not unique: Reardon and Hopkins (2006) show that such reactions were much stronger in the United States in the early decades of supermarkets than anything one observes in developing countries -- including India -- today. Nor is it surprising that supermarkets have taken-off quickly in the traditional retail settings of India; Although Indians tend to perceive their traditional retail settings as unique, they resemble traditional markets in much of Asia, characterized by dense cities and many small farmers, for example. India's supermarket revolution as well as its traditional retail system and local consumption habits before supermarkets, are similar to those around the world.

The third surprise: Private chains focused early on market penetration and expansion
The third surprise is the way the Indian retail transformation has developed in its early stages. Besides the already mentioned overlap of modern-private retail with state and co-op chains, two sets of characteristics stand out. First, Indian modern retailing has developed in ways that other developing country retailers have followed, but much earlier or in a different sequence, including:

  • expansion into tertiary cities and among poor consumers;
  • penetration of fresh fruit and vegetable retailing;
  • expansion into rural areas;
  • format diversification into small and even mobile formats to penetrate dense urban areas.

Second, Indian modern retail has some unique characteristics. A prime example is the rural supermarket, called a rural business hub. These hubs combine three kinds of goods and services all in one location:

  • fast-moving consumer goods, including processed foods and staples, white goods and clothing;
  • retail of agricultural inputs cum extension, equipment and crop procurement; and
  • joint-venture retailing of insurance, credit, and health services.

Such multisectoral retail is unique, and offers rural consumer market penetration linked with agricultural goods and service.

Why does the unique nature of Indian retail matter? We argue that these early and unique features of India's retail transformation has been important to the speed and spread of its rise providing creative adaptation to the challenges of the Indian setting with trial and error innovations. Those challenges are similar to those of many developing countries that are already well along n their supermarket revolutions, but India is advancing faster, combining lessons learnt from others and creating new solutions. Lessons learned from India's experience may help predict where and how modern retailing will continue to develop in third and even fourth wave countries.

Heated policy debates have emerged around this retailing surge, focusing on several issues (Reardon and Hopkins, 2006; DIPP, 2010):

  • What are the patterns and dynamics of its diffusion? How quickly has modern retail grown, how important is it now, how important could it be in the future?
  • What are its impacts downstream in the food supply chain? Has it and will it push out traditional retailers? Has it and will it help or hurt consumers?
  • What are the patterns and dynamics of retail's procurement system transformation, including its impacts upstream in the food supply chain? Has it and will it help or hurt midstream actors in processing, wholesaling and logistics? And has it or will it help or hurt farmers?

The stakes in the policy debate range over whether retail foreign direct investment will be liberalized, whether supply chain deregulation will be accelerated and whether and how farmers should be equipped to deal with the transformation.

Conclusions
We identified three surprises in the rise of modern food retailing in India. First, the rise has occurred since the 1960s with successive waves of government, co-op and private retail. Second, the private retail wave has been extremely fast, particularly during its second phase over the past 6 years when it grew at 49 per cent per year on average, some 5 times faster than the fast growth in India's GDP. Third, the rise has unique features: unique or rare drivers supported in large part by domestic capital, not foreign investment, and earlier penetration of food markets in small cities and among the poor compared with prior experiences in other developing countries. Part of this swift penetration is due to the use of diverse formats.

Three sets of policy issues related to Indian retail transformation are hotly debated in India and carry implications for international debate on retail and development. The first issue is what path is the diffusion taking, at what speed, and with what unique characteristics that might imply that it will continue? We focus on these questions in the present article. The other two issues we have researched, and on which we expect to share findings in the near future, are what impacts modern retail diffusion is having downstream on consumers and traditional retail, and midstream and upstream on processors, wholesalers, logistics and farmers.

Our findings on the first issue indicate that modern retail has spread quickly and looks slated to continue, as it varies in growth rates but trends upward, including some bounce-back after recession. India will likely continue to experience a supermarket revolution similar to that of other developing countries over the next several decades. It also seems probable that modern retail will continue to spread into the food markets of the poor if the Delhi survey results are mirrored by research in other cities. This could mean better food security for poor consumers due to cheaper food. Cheaper food could in turn, as David Ricardo noted in the 1800s in Britain, help make non-food goods and services more competitive.

The most heated debate related to retail in mid 2011 is whether multibrand retail foreign direct investment should be liberalized. We do not take a side in this debate. Our findings suggest that, whether or not retail foreign direct investment is liberalized, modern retail diffusion is likely to continue at its rapid pace of several times GDP growth for some time. The drivers on the demand and investment supply side are not expected to diminish. Liberalizing foreign direct investment may accelerate it, will probably by definition multinationalize it and may increase the overall level of retail development by bringing more international experience and technologies to bear. As it has in China and elsewhere, such liberalization is likely to create more 'procurement doors' for two-way flows of product imports and Indian agricultural exports.

(References available upon request)