Monday, December 5, 2011

Indian Retail: Paging Dr. Kurien

Amidst the first week of furor after the Central cabinet approved foreign investment in Indian supermarkets, the Universe sent us a small but important signal: Varghese Kurien turned 90. 

The life of the US-trained engineer who quit a government job in 1949 and went on to fashion the cooperative of milkmen in Gujarat that became Amul, now a Rs. 10,000 crore dairy group, has important lessons for the retail industry.

Kurien turned on its ear the conventional wisdom of his day that the future of the milk industry lay in large, well-funded farms using the latest technology. The “White Revolution” he engineered left the ownership and care of cows in the hands of traditional herders – Amul now has 30 lakh milkmen organized in 15 district cooperatives – and focused on the modernization of processing, distribution and marketing. Widely imitated around the country, the model that made India the world’s top milk producer ended all talk of the need for giant “modern” dairy farms.

We can do the same with the Indian retail industry, but we need a band of genius entrepreneurs to incorporate producers, middlemen and retail outlets into a new business model revolutionizing the linkage of rural and urban economies. It will require action on the following five fronts:

1. Grouping of retail and service shops into neighborhood mini-malls developed according to a standardized building, lighting, and display model (allowing for easy replication around the country). Street hawkers can be incorporated into the operations of these mini-malls to perform their home delivery function. All the small businesses involved would retain their individual ownership and decision-making capacity, but in every urban area, a single agency staffed with professional managers would oversee the building and organization of these mini-malls. The businesses would also have support from four other agencies representing their shared interests: 

2. A common purchasing agency, also professionally staffed, to represent all the mini-malls in an urban area; it would procure supplies from nearby farmers, artisans, and SMEs and be responsible for matching supply and demand.  

3. An infrastructure development agency working with existing middlemen to minimize waste of farm products, arrange for standardized packaging, and timely delivery of supplies.

4. An agency to work with producers to establish cooperatives focused on maintaining environmental and quality standards and ensuring a fair return.
 5. A financing agency to work with banks in creating a new investment product, the micro-bond. Marketed to the populations served by different parts of the new system, micro-bond issues can finance every aspect of its development and operations, building and keeping wealth within the community.

Such a reorganization of the retail industry would resolve the issue of foreign investment by making it impossible for any mega-corporate model to compete with it. It would also support strong, equitable economic growth and keep prices firmly under control.

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