A Case for FDI in Retail

Image placeholder
Ashutosh Garg October 27, 2020

Just before the 2004 elections, the BJP manifesto had clearly stated that, if elected, they would support FDI in multi-brand retail. On the other hand, the Congress was against it. Over the past decade, the stand of these parties has reversed. Over this period so many retailers have been forced to shut shop because of their inability to raise money.

I founded Guardian pharmacy in August 2003 after spending 25 years in the corporate sector with a vision that I would build “Boots” in India. In a market fraught with fake medicines and poor retailing practices I had set out to make a paradigm change in the manner in which medicines were sold in India. Most chemist shops in India are small, dusty, counter stores and the customer has to stand outside the shop at the counter in summer and winter. The stores selling medicines to cure the patients were completely unhygienic in their practices. 

Standing outside several chemist shops and observing a customers buying behaviour gave me far more insight than I could have could through extensive research. By way of example I observed the following steps when a customer walked up to a chemist shop to buy medicines:

  1. The customer would walk up to the counter of a chemist shop and ask for a bottle of cough syrup.
  2. The chemist would rummage through dusty store shelves and pull out a dusty bottle.
  3. The chemist would then reach for a dirty rag from underneath the counter and he would clean the bottle of cough syrup with this rag. 
  4. Once the bottle had been cleaned, he would take a paper bag made out of old newspapers or a plastic bag from a shelf below the counter. 
  5. He would then either “blow” into the paper bag to open it or wet his thumb and index finger with his spit and then open the top of the plastic bag. 
  6. The bottle of cough syrup would then be put into its packaging and handed over to the customer. 
  7. If the customer asked for an invoice, it would be issued manually. If no invoice was asked for, it would not be given. 
  8. There would be no checking of the expiry date, the batch number and the maximum retail price printed on the bottle. 

Every stage of this purchase process was unhygienic and lacked transparency. Cleaning a bottle with a dirty rag or blowing into a paper bag or putting spit on a plastic bag was unacceptable when selling medicines and yet the Indian customer did not seem to care. Not taking a bill for a purchase ensured that if there was a problem with the medicine, there was no way to establish that the medicine had been purchased from that particular chemist.

This is what I wanted to change to bring in best practices into a completely disorganised retailing business. The Drugs and Cosmetics Act is an old and archaic law that needs change and the country needs many more drug inspectors.

  1. We started making changes by improving the look and feel, the ambience of the store. By air conditioning a store, we ensured that there was temperature control for medicines, an essential requirement in our country.  
  2. We hired and trained pharmacists across the country. We changed the employment conditions for these pharmacists who were earning below minimum wage in several of the local chemist shops. Today we have a large team of well-trained pharmacists who not only earn much higher salaries but are also earning incentives based on their performance.
  3. We worked hard with the Government to try and get them to allow pharmacists from one state to work in another state. We failed. Surprisingly, this is still not permitted. So a pharmacist from Gurgaon cannot work in Delhi!
  4. We have ensured that no cash sales were made at any store and no medicines were sold without prescriptions. We insisted that all customers take bills for their protection to hold us accountable.
  5. We invested heavily in the front end and back end systems, store renovation, modern and well-equipped warehouses and stock audits.
  6.  We guaranteed our customers 100% reliable medicines and worked with distributors to ensure the right quality medicines were sold at our stores. 
  7. We started bar coding medicines in an industry which continues to defy the need for barcodes because it makes stock identification easier.
  8. We brought in a system into offering discounts for our senior citizens and took away the arbitrary system of offering a discount based on the “pleasure” of the shop keeper.

And we are continuing to do so many more things in our retail segment selling health, wellness and beauty products.

Yet when it comes to expanding our operations, we are told the foreign direct investment in retail is banned. What is the difference between an Indian retailer with unlimited funds from other businesses and a foreign retailer? The case against FDI stands on the flimsy logic that foreign chains will take away the business of domestic “mom and pop” retailers. Are the Indian conglomerates that have huge retail operations any different or have they given guarantees to protect small retailers?

How then can Indian chains built by professional managers turned entrepreneurs as ours survive, thrive and grow? 

This Government recognises the value creation FDI can do in our country. So many hitherto protected sectors have been opened up for FDI. What makes retail deserve such protection from the Government? 

It is important for the Government to take a dispassionate look at FDI in multi-brand retail and look at what is good for the Indian consumer.

Ashutosh Garg

3rd December 2014

The author is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office and The Buck Stops Here - Learnings of a #Startup Entrepreneur.

Latest from the blog

Actionable Insights from eQ coaches

Sign up for the daily newsletter