![](\"..\/images\/spacer.gif\"){kind=spacer}
Meghna \n Maiti, Financial Chronicle<\/i><\/p>\n Meghna \n Maiti, Financial Chronicle<\/i><\/p>\n
Mumbai, \n August 16, 2013<\/i><\/p>\n
![](\"..\/images\/supermarket-mumbai-reuters.jpg\")
\n On the evening of July 13, an Apna Bazaar store, opened by the \n Maharashtra government in the Mumbai suburb of Andheri, ran out \n of vegetables in two hours flat. Ditto was the case with 100 similar \n outlets set up by the state government to sell vegetables at prices \n a third lower than the market.<\/p>\n
Around the same time, in the Inorbit mall in nearby Malad, a \n supermarket was buzzing with shoppers. The aisles selling fancy \n imported foodstuff were busy but those selling fresh produce were \n nearly empty.<\/p>\n
The contrasting scenes succinctly capture how futile organised \n retail’s attempts to sell daily needs like fruit and vegetables \n has been. Most organised retail ventures have none of the three \n pillars of the fresh produce business: direct procurement from \n farms, transport to outlets and cheap prices (at least cheap enough \n to draw in volumes).<\/p>\n
For most, the back-end of the supply chain go no farther than \n local mandi or wholesale market. That’s why government-run \n outlets set up across Maharashtra, Kerala and Tamil Nadu to sell \n fresh produce at cheap rates are doing roaring business where \n organised retailers have failed — though both source produce \n from wholesalers such as the state-run agricultural produce market \n committees (APMCs).<\/p>\n
Farm-to-fork is a strategy much vaunted but not practiced. Even \n farmers prefer to sell to wholesalers and in mandis where they \n get better prices. Mandis get business from organised retailers \n by offering them discounts.<\/p>\n
Sanjay Pansare, director of Maharashtra APMC, says wholesalers \n offer organised retailers reasonable credit terms.<\/p>\n
In states where the APMC Act is not in force, organised retailers \n are free to buy from farmers. But as Devangshu Dutta, CEO of \n Third Eyesight, another Delhi-based consultancy, says, the organised \n retailers buy from the mandis.<\/b><\/p>\n
In western markets, produce is engineered for a long shelf \n life and transported in controlled temperature. Indian retail \n chains have yet to scale up so as to do this. “Modern Indian \n retailers sell highly perishable vegetables and fruits that may \n have been badly handled in the farm-to-store chain,” he adds.<\/b><\/p>\n
Very few Indian retailers have successfully managed the farm-to-fork \n chain, according to Thomas Varghese, former CEO and MD of Aditya \n Birla Retail, and now head of the group’s textile business. \n Mother Dairy’s Safal is one of them. Organised retailers \n find it difficult to match the streetside vendor’s flexibility \n in terms of pricing, credit, he says.<\/p>\n
The traditional farm-to-fork model is fraught with redundancies \n and inefficiencies. The market environment is hyper- competitive.<\/p>\n
The local small retailer is no pushover, says Amitabh Mall, partner \n and director in Boston Consulting Group. This results in losses \n for the retailer, low price realisation for the producer and fluctuating \n prices for the consumer. “For the small farmer, the problems \n get compounded in absence of finance and technical knowhow, which \n limit him from growing his business,” argues Mall.<\/p>\n
Experts say big retailers like Reliance Retail, HyperCity and \n Aditya Birla rely on middlemen after having failed to establish \n direct links with farmers. This despite the fact that Reliance \n Retail has set up three process centres in Hyderabad, Ahmedabad \n and Pataudi which cater to markets in the north, west and the \n east.<\/p>\n
A Reliance Retail official, however, claimed that where the APMC \n Act is in force the company buys directly from farmers. Elsewhere, \n it is problematic. So is the farmer’s commitment. When market \n prices are low, they want to sell to the company but when prices \n are high, they sell in the mandis.<\/p>\n
Plus, setting up collection centres close to the farms is not \n easy for lack of electricity and IT connectivity. “Then there \n is political pressure, vested interests, villagers campaigning \n against us and spreading rumours,” said the official who \n chose to remain anonymous.<\/p>\n
Even with all this hassles, Reliance Retail, if this anonymous \n official is to be believed, has a fresh produce business contributing \n 20 per cent of its total revenue. In absence of official comment \n from the company, how truly the anonymous official’s claims \n reflect the reality is anybody’s guess.<\/p>\n
Clearly, the grand hope expressed in the economic survey for \n logistics with forward and backward linkages to develop modern \n retail, agro-processing and cold chains has not materialized.<\/p>\n
In Aditya Birla Retail too the farm-to-fork strategy has hit \n a roadblock. The company had decided to use the network of the \n Birla Shaktiman Krishi Seva Kendras and network of fertiliser \n outlets to source produce.<\/p>\n
Part of the plan was to supply seeds and nutrients to farmers \n so that they could get better prices by selling produce in the \n company’s retail outlets or directly to their supermarket \n chain More. Well, things are not going the expected way.<\/p>\n
“Back-end, logistics need huge investments. It takes time \n to make money (in this business),” rues Pranab Barua, business \n director for apparel and retail of the goup.<\/p>\n
Back-end is where success lies. Walmart, the immensely successful \n American chain, is still in the process of investing in the back-end \n in India. To begin with, it is trying to make back-end supply \n chain management efficient so as to, in companyspeak, ‘maximise \n value for farmers, retailers, and consumers.’<\/p>\n
The accent is on reducing waste in the supply chain, so that \n the benefit of lower prices can benefit our customers, says Arti \n Singh, Walmart India’s senior vice president for corporate \n affairs. The idea of what the company calls ‘direct farm \n programme’ is similar to what the Aditya Birla company intends \n to do, i.e, develop a supply chain, link farmers directly to consumers \n and introduce best farming practices.<\/p>\n
The programme now includes over 12,500 farmers in Punjab, Uttar \n Pradedh, Delhi NCR, Haryana, Karnataka, Maharashtra, Himachal \n Pradesh, Andhra Pradesh and Rajasthan. They are all small or marginal \n farmers and supply up to 20variteies of fruit and vegetables. \n By 2015, the number of participants will go up to 35,000, says \n Singh.<\/p>\n
Walmart has tied up with a logistics company in north India to \n transport fresh produce to its stores by refrigerated trucks. \n Fresh produce accounts for nearly 30 per cent of Walmart’s \n sales in India.<\/p>\n
But a consumer consultant based in Delhi thinks Walmart’s \n farm- to- fork strategy has failed because it has been spreading \n out to too many random locations too fast.<\/p>\n
Bharti Walmart, the Indian joint venture with the Bharti Group, \n is into wholesale cash- and- carry business, not a front-end retail \n operation. It has 20 stores in eight Indian states. Fresh fruit \n and vegetables is critical to its business, claims Singh.<\/p>\n
Pradipta Kumar Sahoo, horticulture business head of Mother Dairy, \n agrees that most retailers buy from wholesalers. Mother Dairy \n has been in the business of selling fruit and vegetables and partnering \n with farmers for long a time. It has sired 110 farmers associations \n in 15 cities and a huge distribution centre around Delhi.<\/p>\n
Metro cash & carry has local fruit and vegetable collection \n centres in Malur in Karnataka, Vontimamidi in Andhra Pradesh, \n Malerkotla in Punjab, Manchar in Maharashtra and Barasat in West \n Bengal (Barasat). But, according to a company spokesperson, imparting \n collection and waste education to farmers is still a challenge.<\/p>\n
The Future Group and Spencers of the RPG group declined comment.<\/p>\n
Logistics is a big headache for organised retail. Both warehousing \n and cold chains, where they exist do so not in a chain but spurts, \n bedevil the supply chains of all retailers. The quality of warehouses \n is poor. So wastage is inevitable,” says Arvind Singhal, \n CEO of Technopak Advisors. Big food retailers must investment \n more in cold chains. Also needed are specialised third- party \n agencies which could also invest in the back end, he suggests.<\/p>\n
Back-end infrastructure typically includes warehouses, processing \n plants, cold chains and logistical support.<\/p>\n
The government allows organized retail to buy directly from farmers \n to remove the middleman and to create infrastructure. A study \n of the Indian Council for Research on International Economic Relations \n in 2008 said farmers get 25 per cent higher prices for their produce \n when sold to organised retail. The thrust of the five- year plans \n has been on creating regulated markets, warehouses and cold storages, \n grading facilities, processing units and collating market intelligence \n – but all this mainly in the cooperative sector.<\/p>\n
Retailers who Financial Chronicle spoke to said off the record \n that they are forced to sell vegetables at subsidised rates. If \n they didn’t do that, they risked cancellation of their direct \n marketing licences.<\/p>\n
“We do not have any choice but to sell at low prices. This \n does not increase our margins or footfalls. So vegetables earn \n very little revenue and almost no profit,” says a Mumbai-based \n retailer.<\/p>\n
Organised retail find it an enormous task to ensure quality and \n maintain freshness. Equally difficult is to expose the customer \n to innovative technologies.<\/p>\n
Add to that location and space, says Sushmita Paul, marketing \n head of Star Bazaar. Indians don’t travel big distances to \n do their daily shopping, preferring the nearby store or vendor.<\/p>\n
What of kind of back-end Star Bazaar has is something she refused \n to share. But she did say Star Bazaar looks at buyer behaviour \n before laying out stores.<\/p>\n
Nothing unique about that: every organised retailer worth his\/her \n salt claims to do exactly that – but still ends up looking \n sorry.<\/p>\n
Here’s a consumer perspective: Sohini Sengupta, 34, a software \n person in Kolkata, does not buy fruit and vegetables from supermarkets \n because they are not always fresh. Even pricewise, they are not \n attractive.<\/p>\n
“Instead, it is more convenient to buy from the roadside \n vendors. In the evening you can actually get a better bargain,” \n she points out.<\/p>\n
Piyush K Sinha, professor of marketing at IIM Ahmedabad, speaks \n of the shoddy way fresh fruit and vegetables arte stocked in organized \n chains. “Inconsistent supplies often mean stockouts are common, \n irritating the customer.”<\/p>\n
Govind Shrikhande, CEO of Shoppers Stop, agrees. In the fresh \n produce business demand outstrips supply and gives less than 20 \n per cent of the revenue of HyperCity, the supermarket chain of \n the Raheja group.<\/p>\n
Problems identified by Mark Ashman, CEO of HyperCity, are: getting \n consistent quality, getting imported quality stuff and dealing \n with perishable products. Getting profits too is not easy, for \n HyperCity, it seems. It was in a loss in April-June last year; \n and in a bigger loss the same quarter this year.<\/p>\n
For all their warts, retail chains remain upbeat about the fresh \n produce business. Why? Barua answers: “Fresh fruits and vegetables \n are a key for footfalls, frequency of purchase and the image of \n freshness and quality a store can convey.”<\/p>\n
For Walmart too fresh produce is critical. Its ‘best price’ \n modern wholesale stores have significant membership in the fruit \n and vegetable category from business- members such as hotels, \n restaurants, caterers, institutions and small resellers. “We \n offer them better prices too,” claims the Bharti Walmart \n spokesperson.<\/p>\n
Senthil Natarajan, MD of Kovai Pazhamudir Nilayam in Chennai, \n is not worried about government stores selling cheap. “Our \n target customer is different. We cater to the middle and upper \n middle classes who want a variety in what they eat. The government \n stores sell just essential stuff,” he exults.<\/p>\n
May be that’s the way to go. The retail supply chain needs \n to add variety in terms of niche products which would bring in \n committed customers.<\/p>\n
(With inputs from Trushna Udgirkar in Hyderabad, Sangeetha \n G in Chennai, Vikas Srivastav in Mumbai, Michael Gonsalves in \n Pune) <\/i> <\/p>\n","protected":false},"excerpt":{"rendered":"
Meghna Maiti, Financial Chronicle Mumbai, August 16, 2013 On the evening of July 13, an Apna Bazaar store, opened by the Maharashtra government in the Mumbai suburb of Andheri, ran out of vegetables in two hours flat. Ditto was the case with 100 similar outlets set up by the state government to sell vegetables at […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-3317","post","type-post","status-publish","format-standard","hentry","category-press-quotes"],"yoast_head":"\n