MNC RETAIL GIANTS-INDIA TO "BEND" THE FDI POLICY FURTHER?

After the euphoria about the likely massive inflow of foreign investment in multi brand retail market operations in India, the earlier enthusiasm seems to be fading in the light of the prevailing ground realities in the country. Many critics raised the issue regarding the adverse impact the new policy would have on the 8 million and odd domestic traders and small stores because of the deep pocket the MNCs have in aggressively pushing their agenda. Eventually it was feared that millions of people would be deprived of their livelihood by the modern air conditioned super markets and malls that may come up under the aegis of internationally established and recognized brands. Now comes the news that some of the major global players are putting pressure on the Government to modify the policy and they seem to be "concerned" about the preconditions like mandatory procurement of 30% of their products from local sources and investment requirement on back-end operations, the very heart of the policy to protect the local interests. Here is a take on this "behind the scene" maneuvering going on at Delhi to influence the government!

"Among the norms making global players jittery are the 30 per cent mandatory sourcing from small and medium enterprises, at least 50 per cent investment in back-end infra and state-wise approvals. The government's stand on not allowing FDI in e-commerce is also seen as a hurdle, as most foreign chains have been pushing the on line format to cut cost and beat competition. According to highly-placed sources, the French retailer, which was keen to expand India footprint from being just a cash-and-carry (wholesale) player, is now "going slow" and might even decide to "review" its investment plans, if things didn't go according to its expectations. Top Carrefour representatives, in their meetings with the government, are learnt to have demanded certain significant changes in the policy. To address foreign retailers' concerns and to woo them back, the commerce ministry is understood to be planning to issue a comprehensive clarification. Asked if the company was reviewing its India plans and had conveyed its disappointment to the French and Indian governments, Carrefour's India spokesperson said the company had "no comments" to offer. Besides India, where it only has cash-and-carry operations, Carrefour is present in two other Asian markets - China and Taiwan. As of December 2012, it had 218 hypermarkets in China and 61 hypermarkets and three supermarkets in Taiwan. Over the past few months, it has withdrawn from key Asian markets like Singapore, Malaysia and Indonesia, to reduce debt and generate cash flow. Among other geographies, it has exited from Colombia and cut stake in Turkish business, triggering speculation it might withdraw from there, too. In India, Carrefour runs a fully-owned cash-and-carry business, with four wholesale outlets - one each in Delhi, Jaipur, Meerut and Agra. It has yet to identify an Indian partner for retail operations.On the other hand, the US' Walmart, which has 20 wholesale outlets in India under a 50:50 joint venture with Bharti, is expected to extend the partnership for front-end retail, too. The UK's Tesco has a franchise agreement with the Tata group for back-end and wholesale; these two are also likely to extend the partnership for retail"

Whether government will buckle or not remains to be seen. However one thing is clear about the so called "muscle" of MNC retailers which was feared to annihilate the poor "mom and pop" stores round the corner of ever street in the country. In spite of massive efforts and investments by many industry giants who entered the retailing sector during the last one decade the organized players have not been able to capture even 5% of the business generated by this sector! Only future will tell whether MNCs will be able to fare better than their domestic counterparts. If government does relax the provisions related to domestic procurement and investment in back end infrastructure, it does not need any extra intelligence to predict that India will be swamped by cheap Chinese products sounding a death knell for the domestic players. Already Chinese products are dominating the markets for many consumer products but food products from China are yet to make a mark. One can only hope that government will stick to the original policy without bending backwards to the clout of some of the retail giants who are eying the lucrative Indian market. 

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

VEGETARIAN FOODS-NEW STRATEGY OF MNCs TO EXPAND BUSINESS

What ever one may say about the functioning of MNCs in developing countries, it is an undeniable fact that many of them represent most modern innovating entrepreneurship. It is true that they have enormous financial muscle that helps them to "pocket" the national governments in pursuing a policy of benevolence towards them which is not shown towards the domestic players, especially the "Desi" entrepreneurs in the small and medium scale sector. Recent reports indicate that an out and out meat food products serving international fast food company is launching 100% vegetarian outlets, providing a clue regarding their approach in India which is considered a predominantly vegetarian country. It nothing but cold statistics which reflect the fact that there are more than 500 million vegetarians, some with considerable disposable income who will not even enter an outlet where meat products are served, no matter how clean the restaurant may be. If an entrepreneur wants to tap this market, it is nothing but a smart move. Here is a critique on this new trend in catering in India.

"McDonald's Corp., the fast food chain that brought the hamburger to the world, is opening what may be its first vegetarian-only restaurants. The world's biggest hamburger chain said Tuesday that the locations in India will serve only vegetarian food because of customer preferences in the region. The company could not immediately say when the restaurants would open or how many there would be. A 2006 poll found that about 40 percent of Indians do not eat meat, and McDonald's is eager to tap that 500-million-strong market. Already, McDonald's said its restaurants in India do not sell beef or pork, and that the kitchens are separated into sections for cooking vegetarian and non-vegetarian food. They have menu items that cater to local tastes, such as the Maharaja Mac, which is a Big Mac made with chicken patties instead of beef. It also offers a McAloo Tikki, a burger made with a spicy breaded potato patty, red onions, tomatoes and a "special vegetable sauce." The chain offers such localized options in countries around the world. The opening of the vegetarian-only restaurants "further speaks to McDonald's efforts to cater to local tastes," the Oak Brook, Ill.-based company said. Without providing details, it said the restaurants will be in areas that are popular pilgrimage destinations. McDonald's said the new restaurants are the only ones it's aware of that will serve only vegetarian food. However, local franchises in India and other regions may already have meatless menus. For religious reasons, beef is not eaten by Hindus, who make up the majority of India's population of about 1.2 billion people. McDonald's has more than 33,500 locations around the world, but only about 250 are in India".

There is a famous saying that one should "behave like Romans when in Rome", just for the etiquette but here the consideration is more than that and that is to modify the strategy to suit Indian conditions. If reports from China are to be believed almost all MNCs pitching their tent there are bending backward to modify their food preparations to suit the culinary preferences of population there. Even in India products like snacks are being flavored with traditional spice mixes which cannot be found in any other countries. Similarly even internationally established soft drinks are being redesigned to make them more acceptable to Indian palate. Probably this may be a win-win situation for both the industry and the Indian consumer. One only hopes that the traditional Punjabi Dabas and Udipi Hotels will not become targets for these MNCs which can spell doom to millions of small food vendors. Indian entrepreneurs must be wise to such possibilities and improve their service in order not to loose their business to the new type of MNCs in future.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

"INDIANIZING" WESTERN FOODS-THE NEW MOTTO OF MNCs

Those food companies which enter tradition bound countries like China, India, Vietnam and others have two routes to get into the heart of the consumers to make enough money for survival. The first approach as tried out by many MNCs during the last five decades involves converting the mindset of local people into accepting new foods through massive promotion bordering on "brain washing" and stay in the country for long time with sustained investments incurring losses for many years before getting to the break even point. The other route is based on the precepts that "when you are in Rome behave like Romans" by adapting their products to the native tastes and flavors. If Americans have been able to convert many populations in Asia into Wheat eating societies by switching over from Rice, it is entirely due their over whelming marketing muscles, deep pockets and unlimited patience to influence the minds of people to accept wheat as a staple. However modern American enterprises seem to be taking the second route through a process of reinventing their product mix to suit the palates of the consumers in countries and establish their presence. Here is an example of an American MNC going through this route to score significant success in India where there are more than 5000 traditional ethnic foods popular with some or the other segments of the population across the length and breadth of the country.

"When McDonald's first came to India 15 years ago, it ditched the Big Macs and Quarter Pounders to try to fit in in a country where cows are sacred and most people frown on eating beef. The chain tried re-creating its American classics with lamb, but it was a flop. Instead, McDonald's introduced homegrown alternatives like the vegetarian McAloo Tikki potato burger to go along with its non-beef standards like chicken nuggets and fish sandwiches. Now, following the success of its vegetarian meals, which make up half of its current menu, McDonald's is going one step further. This month, the chain announced a plan to open its first 100 percent vegetarian McDonald's in India. "India has been a huge experiment for McDonald's. The issue in India is, a vegetarian is a strict vegetarian. There have been instances that I've seen where a person who's vegetarian would not even sit with a person who's eating non-vegetarian food. It is that level of seriousness," says Rajesh Kumar Maini, head of communications for McDonald's in India".

Probably there may be a few examples of similar approach adopted by other MNCs. Though the popular potato chips market which is dominated by one or two players  who were able to establish their foot prints by "killing" many local entrepreneurs, there are unmistakable signs that they are also bringing out products with traditional flavors to increase their business. Even local names are being used to promote their brands in a sustained manner. Frantic efforts in buying out some of the leading domestic brands engaged in manufacture of many savory/snack products as reported some time back, fits into their new strategy that "if you cannot beat them join them" philosophy. Of course one cannot find fault with such a strategy as the gainers would be the Indian consumers in this game of making more and more diversified products suiting Indian palate. More interestingly the concept of 100% vegetarian food products is bound to be an unqualified success as vegan population in India is sizable compared to situations obtaining in other countries. The practice of printing a green dot on the label of products, free from animal derived ingredients, is a pointer to the consumer behavior in this country.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

SMALL SCALE FOOD PROCESSORS-UNCERTAIN FUTURE IN INDIA

The reputation of India as a lethargic, foot dragging mammoth, incapable of taking vital decisions in time or executing developmental projects with 100-500% time and cost overrun, is increasingly being felt world over. More importantly a sense of frustration and desperation is slowly creeping among the masses because of the paralysis visible in the government circles in spite of the vast potential the country has in scaling new heights and achieving unparalleled laurels. Take for instance the case of food quality and safety related administration in the country. The following excerpts from a recent report about the travails of the industry and the consumers in the food sector due to ill panned moves by the government to steamroll its callous policy on the country without anticipating its adverse impact, amply illustrate the above point.

Twenty-one Members of the Parliament from Tamil Nadu have signed a petition urging the Union Minister of Health and Family Welfare Ghulam Nabi Azad to address "shortcomings" in the Food Safety and Standards Act (FSA) 2006. The Act established the Food Safety and Standards Authority of India (FSSA) as a statutory body coming under the Health Ministry for laying down science-based standards for articles of food and regulating manufacturing, processing, distribution, sale and import of food. The petition was the result of a campaign undertaken by Tamil Nadu Foodgrains Merchants Association, which met all the 40 MPs from the State at New Delhi recently and highlighted the adverse impact the Act could have on farmers and small food business operators. Addressing a press conference in Madurai on Tuesday, association president S.P. Jeyapragasam said that rules and regulations of the FSA were heavily influenced by multinational companies and domestic corporates who dominated the 123-member committee formed to frame the standards under the Act. He also noted that this committee was dissolved by the Supreme Court on February 2011. Even M.S. Swaminathan, the Rajya Sabha MP known widely as the 'Father of the Green Revolution,' whom the delegation met in New Delhi, concurred with the traders' opinion and voiced his concern with the Union Health Minister. The Act, which replaced the Prevention of Food Adulteration Act, levied penalties in the range of Rs. 1 lakh to Rs. 10 lakh besides prescribing jail terms ranging between six months to 10 years. Further, it had retained the standards set in 1954 for most of agricultural food produce though farming practices and the environment had undergone a sea change since then. "While we welcome the intentions of the Act to provide quality and hygienic food to the public and coming down heavily on adulterated food, its rules and regulations are impractical. The Act was framed in 2006 but notified in 2011 and yet, the Government did not utilise the five intervening years to crate awareness among the business community." He also noted that Tamil Nadu was being considered as being in the forefront of implementing the Act by officials in New Delhi even as several States were yet to establish the offices for implementing agencies. Further, Mr. Jeyapragasam said, the standards of food produce would surely vary from region to region and sometimes within the region itself depending upon rains or lack of it, fixing one quality for all was not a practical move. The association also urged the Central Government to rectify the various "anomalies" in the Food Safety Act 2006.

No one doubts the intention of the policies and objectives of the Government agency concerned. However sheer callousness, shoddy drafting, lack of understanding about the dynamics of Indian food industry landscape, inebriated by the enormous power conferred on the agency, ill qualified people doing the job and the mindless insensitivity to the sufferings of the citizens have created a situation which may result in eventual collapse of the micro enterprises and small and medium scale food industries. What would be the consequences of such an eventuality? Probably people in Delhi have neither the time nor the inclination to think about such "mundane" things as they are more busy "handling" the various "scams" created during the last one decade!

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com