May, 2008

Research Perspective and Comments & Analysis

Mumbai Magic

PMA’s International Council recently met in Mumbai, India’s commercial capital. Together with PMA members from every continent, we studied the country’s produce distribution and marketing through tours, meetings and discussions with Indian leaders. This was research by observation, seeing a very different world and trying to make sense of its opportunities.

Trying to make sense of the massively complex social and economic values in this country of more than 1 billion people is daunting. It is mysterious, it defies labeling. But don’t for a moment think India won’t grow in power and influence on our global industry.

We were all products of Western education and culture raised on rational thought. Order, symmetry and reason rule our thinking and our business practices. How would we respond to what A Passage to India author E.M. Forster called India’s "muddle," and others have called a study in contrasts or organized chaos?

Consider these Indian snapshots:

• The economy has been averaging 8.5 percent growth per year
• It is currently the world’s largest producer of fruit and the second largest producer of vegetables (China is first)
• Its high-quality grape exports (certified by GlobalGAP) now compete late season in European markets with established southern hemisphere producers
• 80 percent of Indian produce imports are apples; the U.S. supplies 1/3 of those
• India has the world’s largest vegetarian population

The Vashi wholesale market near Mumbai is a massive sprawling place where horns honk as trucks, boys pushing carts and others carrying baskets filled with produce jostle for a place on the narrow paths between buildings. Multicolored, highly decorated trucks back up to decrepit concrete loading docks to offload pineapples, grapes, onions, garlic and more. The items are piled high on the truck and are offloaded by men with large baskets — three feet wide by one foot deep. They stack as much as they can from the truck into the basket, and then make their winding way, basket on head, through a mass of humanity to the stall of the wholesaler. You’re hard-pressed to find corrugated or plastic packaging.

When the hauler gets to a stall, the basket is unloaded — usually onto the concrete floor — and the produce is piled up for sale. Then a strange "covered hand" ritual often takes place, with buyer and seller making and accepting or rejecting the offer to buy by placing their hands together under a cloth and using hand signals nobody else can see to make the deal!

Trash is everywhere in the market, dogs are common, and someone remarked that a U.S. food inspector coming close to this market would be in shock. A foreman stands knee-deep in a huge pile of onions on the floor being sorted by women, dressed in colorful saris and seated on their ankles as he shouts direction. But return late in the day, and you will find everything tidied up; the muddle has disappeared, magically.

Markets like these will likely go through 50 years worth of upgrading in the next five to 10 years if they’re to meet the demands of the growing retail and foodservice sector. The incoming trucks were completely without refrigeration as were most of the market vendors themselves. I’d estimate 98+ percent of the produce didn’t see the inside of a cooler. Labor is everywhere; work is done by hand.

Organized retail outlets comprise less than 3 percent of the consumer food market today but staggering expansion is planned. A Reliance Fresh store (around 12,000 square feet) is one of 500 now operating in India with thousands more in the works by 2010. The produce was clean and merchandised well. The much larger, 2-level HyperCity store showcased produce near the entrance with lots of fresh-cut produce (cut in the store’s backroom), and multiple freestanding wooden bin displays for the rest of the bulk product. The manager of HyperCity talks enthusiastically about plans for another two dozen stores to be added soon.

Demographic trends are with the retailers. The working population and household disposable income are growing fast. There are many more working couples, and younger professionals are savvy about global brands and the Western shopping experience. But to get there will require massive investments in public and private infrastructure: good roads, refrigerated storage and transportation, packaging enhancements, training and more.

Making sense of — and money from — Forster’s "muddle" is where leading companies are heading. Just days after our visit, one of our host companies, the agribusiness giant Mahindra, along with South African global fruit marketer Capespan announced a 12-month pilot project to investigate forming a long-term joint venture. The goals are lofty, yet they focus keenly on the critical needs of the Indian marketplace: technical support to farmers, developing import and export capabilities, and acting "as a receiver, handler and distributor of selected produce into the emerging retail and foodservice sector."

In China two years ago, our PMA group saw the marvels of modernization. There, the pace of change is amazing as the government decides, then acts, brushing people out of the way, carving new freeways and railways where before there were houses. Development comes first, people second. India is a democracy, though, and the pace of infrastructural development has been painfully slow.

Then I remembered the metaphor one Indian produce leader shared: "India is like an elephant: difficult to see all at once, moving slowly, with a vegetarian diet. But when it runs, look out — it is unstoppable."

Country Of Contradictions

On the success of India much depends — and that is problematic, as India is slow in deciding things, not only because it is a democracy but also because it a seething cauldron of people, languages and castes. For example, India has a larger Muslim population than every country in the world save Indonesia, yet Muslims are a small minority in populous India.

Indeed, the great miracle of the post-independence governments of India is that the country has not unraveled. It stands as the world’s most populous democracy, astride history, one foot anchored in the past and one food firmly in modernity.

India is so far from America that it is more mysterious to us than China, our great neighbor across the Pacific. Yet India shall not be denied. Its decision to go nuclear, for example, is best understood as an unwillingness to accept a post-colonial identity that relegated it to a position lesser than China’s.

We interact with modern India often. In business, if you work with Tesco’s Fresh & Easy division and want to get paid, that transaction is processed in India. Personally, call up any number of customer service or technical support lines and you’ll be calling India.

Much depends on India because peace typically depends on a balance of power maintaining equilibrium in a region. Only a rising, modernizing and vibrant India will be able to offset the ambitions of a powerful China to the north and east and a rising Islamic world to the west. This thesis was set out by Samuel P. Huntington, a political theorist based at Harvard University in his seminal article in Foreign Affairs entitled "The Clash of Civilizations?" and expanded in his book, The Clash of Civilizations and the Remaking of World Order.

Admittedly, this is all heady stuff and, although India is a heavily vegetarian nation — 31 percent vegetarian, with an additional 9% consuming eggs, according to a 2006 Hindu-CNN-IBN survey — it seems unlikely that the produce sector will play much of a role in any great clash of civilizations that we may be unlucky enough to experience.

Yet, a produce sector functioning on world-class standards — as in the export of GlobalGAP-certified India grapes to Europe in the example Bryan gives — is a sign of both modernization and economic integration with the West — as trade and commerce weave a web that serves to tie India closer to the West and the West closer to India. A closeness we both may come to cherish if Huntington’s thesis should come to pass.

Another change, both marker and cause of integration with the West, is the rise of western-style retailing. Although, as Bryan identifies, this is still a small matter, companies such as Pantaloon Retail India Ltd., Aditya Biria Group, RPG Group and Reliance Industries have been transforming the retail scene.

Most recently Bharti Retail Ltd., a subsidiary of the Bharti Enterprises, which, among other things, operates a big cell phone company, has opened its first "Easy Day" food and grocery stores. Bharti also has a joint venture with Wal-Mart to provide the "back end" in the form of logistics and supply-chain management for stores and to open a chain of "wholesale" or "cash-and-carry" type stores.

These convoluted arrangements are legally necessary because India is still a very closed market. Foreign firms may open retail stores to sell only a particular product line — say a Gucci or Hermes boutique. Carrefour and Tesco are both known to be in negotiation for joint ventures similar to the one Wal-Mart has in place. Metro AG and Shoprite Holdings both have wholesale operations in India.

Yet although modern, clean and efficient shopping may be welcomed by many consumers and, over time, doubtless will both enhance standards of food production and processing throughout the country and offer consumers many new options from across India and around the world, for now western-style retailing is very controversial. Protests, some becoming violent, have roared across the country as there is a popular fear that modern retailers will drive independent vendors and small shopkeepers out of business.

This is a concern particularly acute regarding fresh fruit and vegetable vendors. Some western-style retailers are agreeing not to sell fresh produce, while others are making a point to hire displaced shopkeepers. It is an eternal battle in India, as steps toward modernity — such as modern western-style retailing — must battle with powerful interests that seek to preserve the status quo.

This column is typically about research, and we typically think of research in terms of surveys and focus groups. Yet the most important part of research is knowing what areas to research. The buggy whip manufacturer would not be saved by more intensive surveying on consumer attitudes toward better buggy whip features.

So great research begins with stepping out of our conceptual lens and seeing the world anew. The very best way to do that is to travel and see the sites, hear the sounds, touch the textures and absorb the scents. It may remind you of things you have known; it often has hints of a world we have yet to see.

PMA has very few members in India, and its other members do very little business with India. Very few associations in that situation would think to have a meeting in India. Yet such an effort is research at its most valuable, confronting a new world and thinking about the questions we might ask.