BRICs and beyond: Local factors hindering grocery retail in India

By Mini Pant Zachariah | 30 January 2014

Organised retail in India is on rise but country needs investment in infrastructure and supply chain to allow sector to realise potential

Organised retail in India is on rise but country needs investment in infrastructure and supply chain to allow sector to realise potential

Poor logistics, including a lack of infrastructure and trained manpower, keep modern branded food retail from actualising its potential in India, industry experts have told the country’s 7th Food and Grocery Forum India in Mumbai.

India wastes INR440bn's (US$6.95bn) worth of fresh produce and grains annually because of poor distribution, according to Central Institute for Post-Harvest Engineering and Technology, in the Punjab. Of this, the amount of fruits and vegetables wasted annually because of inadequate cold storage facilities and refrigerated transport vehicles, is estimated at INR133 billion (US$2.10bn) - 18% of total production.

Fish wastage is also expensive – with annual losses in India's marine and inland fisheries sector worth more than INR150bn, according to analysis from the Associated Chambers of Commerce and Industry of India (Assocham). 

Despite being the second largest producer of milk globally, milk wastage in India due to poor storage and refrigeration facilities equals the total milk production of the EU, according to some industry estimates, the forum was told. 

This has restricted the development of value-added dairy products, which have a huge potential in India, noted VPS Malik, sales vice president for Parag Milk Foods, the Pune-based dairy manufacturer of the Go Cheese and Gowardhan milk brands.

The 6,300 cold storage facilities in India have an installed capacity of 30.11 million metric tonnes, less than half the country's requirement of 61 million metric tonnes, according to a report by Emerson Climate Technologies India. 

Added to this, bad roads delay and hinder transport, causing costly breakdowns said Sumit Chandna, chief merchandising officer, Aditya Birla Retail Ltd. These logistical problems make it less likely that lorries can pick up goods after dropping off deliveries, leaving them empty for a return journey, reducing revenues.

Another problem is the multiplicity of local, state and national taxes. The government is discussing establishing a unified Goods and Services Tax (GST), and if this was introduced, food transport costs would fall by 5% to 10%, said Aseem Soni, director - consumer sales for Cargill India Private Limited told the forum.   

Despite all these problems, there is nonetheless optimism that India’s cold chain will grow. Indeed, according to Assocham it will grow at a compound annual growth rate of around 25.8% between 2009 and 2017 to reach a value of INR64bn. The Indian government's 2012 decision to allow 51% foreign direct investment (FDI) in multi-brand retail should boost distribution infrastructure. In fact, since the 2011-12 national government budget, 100% FDI has been allowed for cold chain facility investments. A year earlier, the government exempted air-conditioning equipment and refrigeration panels used in cold chain facilities from excise duty and allowed the duty-free import of refrigerated units used in reefer (refrigerated container) trucks. 

Meanwhile, retail players such as the Future Group have been streamlining their operations using information technology. The Future Group, which runs 160 retail outlets under the Big Bazaar, Food Bazaar and high-end Food Hall brands, all of which sell food sell food, has established a centralised distribution centre, which is automated using the Infor Warehouse Management System (WMS) application to manage inputs and the Put To Light system, which helps segregate and sort packaged items to speed up logistics. "We save 25% in manpower at distribution centres and retail outlets and there is a 50% to 90% drop in shrinkages and pilferage," Balaji V, chief operating officer, Future Group supply chain solutions, told just-food at the event.

Such solutions are available from India’s strong software sector. For instance, Bangalore-based FrontalRain Technologies offers affordable software via cloud applications that can bring manufacturers, producers, retailers and distribution centres together on one platform to provide a more effective management and monitoring of supply chains. 

Innovative technical solutions are also being developed. Small-scale rapid milk chillers operating on batteries are being developed by Promethean Spenta Technologies to reduce wastage, for example, quickly reducing milk temperatures from 37C to 4C. This saves milk from spoilage, which can then "be used for value-added products that fetch a better price for the milk producer as well as the retailer," said Rustom Irani, CEO of Promethean Spenta Technologies. He later told just-food: “All the players have to come together to help fix the supply chain problem in India.”

Such innovation is a welcome change. Chandramohan Gupta, a supply chain director for Coca Cola said as regards cold chains. "Though similar economies such as Indonesia, for instance, follow best practices, India lags behind five to six years in adopting them."

Indeed, small retailers have weak skills on handling food products noted Srinivas Ramanujam, business head at apple trader Adani Agrifresh Ltd. And conservative consumers do not help because they avoid air-conditioned food stores: "He is willing to walk into an air-conditioned store to buy shoes [and hence pay an extra price] but not for fruits and vegetables that he consumes and that impacts his health," he said.

Sectors: Emerging markets, Retail

Companies: Cargill

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