Why domestic M&As may be way forward for Indian retailers

When they knocked foreign doors, Indian retailers didn't find the ideal partners. For foreign entrants the Indian market was way too complex, way too political. So last week two homegrown retail companies realised their marriage – built on India's construct and business climate – may last longer. Bharti Retail and Future Retail got together driven by an expanding market as more and more consumers going shopping to stores. This was bound to happen sooner or later as such mergers help with the high investment involved in setting up stores, bringing in and building brands and there on constantly innovating to expand the consumer base.

Bharti's 200-plus stores including easydays added to Future's larger format Big Bazaars will allow for better leverage on the formats the combined entity wants to pursue. From a consumer's point of view, stores are unlikely to bear any immediate change. Early goals will be more on the operational and efficiency fronts. Here are some thoughts on why Indian retail mergers may be better than cross border ones.

1. The Indian consumers are now far savvier than they were five years ago when global retailers were scouting for an India-entry. They are less misty-eyed about shopping in a WalMart, Carrefour when Indian brands are offering similar or in some cases a better experience.

2. The discount hunger, flaunted by big bang retailers as their trump card is no longer a USP. Given how solid the sales and offers are online from Amazon, Snapdeal, Flipkart and others, the lure of big retail-big deals is almost none.

3. Real estate rentals have been a big deterrent for companies to set up retail shops in India, and that scenario may not change. In this respect Indian companies with an earlier-on expansion such as Future, Bharti will carry a benefit. Combination of the two brands will mean the option of leveraging not just locations but also rentals and mall space.

4. While Indian companies are far from the high-end and process driven supply chains, they have learnt a bit along the way. Bharti possibly from its WalMart association and Future from its multi format and multi leverage across retail formats. One may call this a hit and trial but some things are getting in place. It will be a while before Indians shopping chains become as systematic as global ones. Hopefully the hunger for profits will drive this.

5. The Indian consumer's needs are changing as well. We may see bulk buyers and then niche buyers eliminating the need for large scale super markets. Instead what India may see is hypermarkets for wholesale buying and regular or express supermarkets to fit in neighbourhoods. What will continue to survive as the small kirana stores driving business from short and quick needs.

Indian retail's multi brand FDI dream still remains unfinished. But with the current boom in online shopping, some intelligent mergers at home, one wonders why India is desperate at all for foreign retailers?