Reliance and Bharti-Wal-Mart can learn a lesson from ITC

By Vipin Agnihotri

No one is going to argue with the fact that India is on the threshold of a retail revolution. In my opinion, in few portions India has already traversed some way down that path. But there are some portions, such as allowing foreign direct investment in the retail sector that India needs some more work. Agri-retailing in India also need a lot of work.

According to experts, the business model of agri-retailing consists of sourcing farm produce directly from farmers and then selling them to end-consumers. The best part about this model is that it get rid of the middlemen from the value chain, which in turn gives both farmers and end consumers better prices. In addition, it also gives retailer a substantial margin.

But it has been noticed that middlemen have substantial political clout. Seeing their profits disappearing, these middlemen have now struck back. Not so long ago, political “mobocracy” has derailed Reliance Retail’s push into Uttar Pradesh and West Bengal.

And that is where India Inc. can take a lesson or two from the ITC. It is worthwhile pointing that the cigarettes-to-hotels-to-paper-to-FMCG major is also present in the retail segment, through its Choupal Fresh initiative. Unlike Reliance and Bharti-Wal-Mart, ITC is doing quite a good business and that too without any sort of protest.

The main reason why ITC is not facing any protest is because of the fact that they have developed a big rural constituency by working with small and marginal farmers and tribals by investing in afforestation, watershed management, livestock development and rural health and education programmes. Point to be noted here is that ITC has implemented all this not as part of a corporate social responsibility programme, but as a pivotal part of its business plan.

Some may argue that ITC gets a lower commission on their purchase of farm produce, but the fact of the matter is that business model ensures that they continue to earn money round the year. India Inc. will do well to emulate the ITC model.

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