Determinants of The Diffusion of Supermarkets in Developing Countries

DETERMINANTS OF THE DIFFUSION OF SUPERMARKETS IN DEVELOPING COUNTRIES
Before the takeoff of 1990, models of the diffusion of supermarkets in developing countries
focused on the demand-side factors determining the emergence of supermarkets. For
example, Goldman's groundbreaking work in the 1970s and 1980s emphasized factors such
as incomes, urbanization, the opportunity cost of women's time, and other enabling
conditions (Goldman 1974). Models developed after the takeoff, such as by Reardon et al.
(2003), reiterate the demand-side factors as necessary but not sufficient and emphasize
policy factors and retail supply-side factorsin particular, procurement system modernization
(driving down prices) and massive retail FDI, as well as massive competitive (and
anticipatory) domestic retail investment that emerged mainly in the 1990s.
Income Growth and Urbanization and Its Squeal
Two sets of demand-side factors influence the demand for supermarket services in developing
countries. They are similar to the factors driving the rise of supermarkets in the United States
and western Europe. First, urbanization since the 1960s, with the entry of women into the
workforce, increased the opportunity cost of womens time and their incentive to seek
shopping convenience and processed foods to save home preparation time. This was
reinforced by the rapid growth in the 1990s in ownership of refrigerators, which meant an
increased ability to shift from daily shopping in traditional retail shops to weekly or monthly
shopping. Growing access to cars and public transport in the 1980s and 1990s further
supported this trend.
Second, real per capita income growth in many countries during the 1980s and 1990s, along
with the rapid rise of the middle class, increased the demand for processed foods. The latter is
the entry point for supermarkets, which could offer these products in greater variety and at
lower cost than could traditional retailers because of economies of scale in procurement and
concomitant actions of large processors
This innovation will help modernize the entire agricultural system, promote its efficiency, and make it more
competitive for growth and income augmentation all along the value chain. The time for such innovation in India is
now, with consumer and investor confidence high and foreign exchange funds sufficient to modernize its economy
within a short period.
As it stands today, the policy environment is not very conducive to the promotion of organized retailing and
processing led by private players in India. The agri-retail venture Reliance Fresh, led by Reliance, suffered a major
setback in Uttar Pradesh when the government asked it to pull out of the state in August 2007. Reliance was thus
forced to rethink major investment plans and expansion of retail stores in the state. However, according to recent
media reports, the Uttar Pradesh government has turned around and expressed its willingness to allow private retailers
in the state.
The government is keen to ensure that these agribusiness ventures create employment opportunities and also take care
of the people displaced in the process (Financial Express 2007). Reliance, which had initially earmarked Rs 250
billion (more than US$6 billion) for its retail venture, has slowed down its pace in states like West Bengal to avoid a
similar backlash. Apprehensions about large retailers displacing small retailers have resulted in farmers coming
together to establish farmers malls. According to media reports, farmers in Pune are planning to take on big retailers
and sell their produce directly to the consumers (Jadhav 2008). It will be interesting to observe how the government
responds to these initiatives and helps organized retail spread its roots. Organized retail is in its infancy in India but
developing fast. The next 5 to 10 years are critical for its scaling up to have a visible impact on the backend operations
of retailers.
Government and business need to work together to ensure that this opportunity is not lost but is used in a manner that
benefits most stakeholders in the chain from retail to tail. This can be done when the government establishes and
follows policies for the continued growth of modern retail, and uses tax revenues collected from organized retailers to
build infrastructure in commodity chains that helps farmers, wholesalers, and traditional retailers, as well as the
procurement activities of modern retail itself. Each commodity chain is unique and needs careful assessment by both
business and government. The transition to organized retail can be made more inclusive by bringing farmers and
traditional retailers into the mainstream of this structural change, without sacrificing the efficiency of the value chains.
The failure to achieve this transition, however, will keep the value chains trapped in low levels of efficiency. They will
continue to give lower prices to farmers and charge higher prices to consumers, not reward quality, not meet food
safety standards, and so on. The only winners in such a system may be a handful of commission agents. However, as
India liberalizes its trade, domestic unorganized value chains face global competition and will not be able to sustain
their existence for long in the face of it. The total collapse of numerous value chains would create much greater pains
than would the gradual transition to modernized and efficient retail chains.
For example, when India introduced computers in banks, railways, and other businesses during the mid-1980s,
employees went on strike for days to stop it, fearing computers would lead to massive unemployment. Twenty years
later, one can only smile at the naivet of those opposing computerization; in 20062007, export earnings from
software and information technology alone exceeded US$30 billion (Gulati 2007). Organized retail is likely to have a
similar experience
PROBLEMS IN MANUAL SYSTEM
Building a standard Supermarket management system was not an easy task looking at the problems of existing manual
system

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DETERMINANTS OF THE DIFFUSION OF SUPERMARKETS IN DEVELOPING COUNTRIES

Income Growth and Urbanization and Its Squeal

PROBLEMS IN MANUAL SYSTEM

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