Identifier
Created
Classification
Origin
08KOLKATA200
2008-07-07 10:26:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Kolkata
Cable title:  

LARGEST INDIAN SUPERMARKET CHAIN GROWS IN HEART OF

Tags:  ECON EINV EAGR PGOV IN 
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VZCZCXRO0805
PP RUEHBI RUEHCI
DE RUEHCI #0200/01 1891026
ZNR UUUUU ZZH
P 071026Z JUL 08
FM AMCONSUL KOLKATA
TO RUEHC/SECSTATE WASHDC PRIORITY 2063
INFO RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1937
RUEHCG/AMCONSUL CHENNAI PRIORITY 0893
RUEHBI/AMCONSUL MUMBAI PRIORITY 0898
RUEHKA/AMEMBASSY DHAKA 0604
RUEHKT/AMEMBASSY KATHMANDU 0587
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUEIDN/DNI WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHCI/AMCONSUL KOLKATA 2521
UNCLAS SECTION 01 OF 03 KOLKATA 000200 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EAGR PGOV IN
SUBJECT: LARGEST INDIAN SUPERMARKET CHAIN GROWS IN HEART OF
COMMUNIST-RULED INDIA

REF: A) 07 KOLKTA 0289 B) MUMBAI 0025

UNCLAS SECTION 01 OF 03 KOLKATA 000200

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EAGR PGOV IN
SUBJECT: LARGEST INDIAN SUPERMARKET CHAIN GROWS IN HEART OF
COMMUNIST-RULED INDIA

REF: A) 07 KOLKTA 0289 B) MUMBAI 0025


1. (U) Summary. "Spencer's," India's largest supermarket
chain, and member of the Kolkata-based RPG Group, continues to
expand in West Bengal despite the problems faced by rival
Reliance Retail. Spencer's Senior Vice-President, Operations
Ramesh Menon attributed this success to the fact that his
company's revenues from food retailing are limited and that
Spencer's was not trying to disrupt the existing agriculture
supply chain unlike Reliance. When questioned about the
different treatment that Reliance and Spencer's have been given,
Naren Chatterjee, the Chairman of the West Bengal State
Marketing Board and a representative of the Forward Bloc, which
ransacked a Reliance outlet in August 2007, became noticeably
uncomfortable and made similar arguments as Menon. He also
stated that Spencer's representatives had promised him that they
would not market agricultural goods even though they now did.
He warned that he thought Spencer's food operations were illegal
because they had not received a clearance, and they were being
watched and could face protests in the future. Chatterjee
warned that the Forward Bloc saw organized retail as a threat to
the rural cooperative banking system of West Bengal and would
also continue to oppose the entry of FDI because it would
endanger the livelihoods of 300,000 retail intermediaries in
West Bengal. End Summary.

-------------- --------------
Spencer's Expanding and Making Profits in West Bengal
-------------- --------------


2. (U) With 17 stores of different sizes in Kolkata alone and
20 in all of West Bengal, Spencer's Retail, India's largest
supermarket chain, is going strong in the heart of
Communist-governed India. Only recently on July 5, were there
limited protests by local hawkers at one of its stores. Ramesh
Menon, Senior Vice-President for Operations for Spencer's Retail
Limited, informed Econoff that Spencer's has some of its largest
operations in two Communist-governed states: West Bengal and
Kerala. The chain, consisting of 400 stores in 65 cities, is
part of the Kolkata-based USD 3.4 billion RPG Group. He went on
to add that the company planned to add two more hypermarkets

this year in Kolkata as well as smaller stores in other parts of
West Bengal. Despite Menon's optimism, hawkers disrupted the
inauguration of Spencer's second hypermarket in Kolkata. The
hawkers' representatives said the hypermarket will rob them off
their livelihood. However, the agitating hawkers were not led
by the Left Front partner Forward Bloc, which is spearheading
the movement against corporate retail in West Bengal, especially
against Reliance Retail.


3. (U) When pressed about why the company faced little
opposition in Left-governed states, Menon added that the Left's
rhetoric has not translated into ground-level opposition and
that is how politics operates in India. He added that Spencer's
revenues from food and groceries were very small. On the
question of the problems faced by Reliance Retail which had to
shut down its West Bengal retail operations because of protests
in September 2007 (Ref A),Menon stated that Spencer's Retail
does business in a different way. He noted that Spencer's keeps
a low profile in the markets that it enters, whereas Reliance
always comes in with a great deal of publicity. He added that
just as important is the fact the company works within the
existing agriculture supply-chain and does not try to disrupt it
like Reliance was trying to do. Menon appeared to be amused at
the problems encountered by Reliance pointing out that the
opposition that had become organized to take on Wal-Mart appears
to have pointed its guns at Reliance instead; this is a view
shared by other retail executives (Ref B).

-------------- --------------
--------------
Forward Bloc Says that Spencer's is Too Small to be a Threat to
Traders
-------------- --------------
--------------


4. (U) When questioned by EconOff as to why the Forward Bloc, a
coalition member of the Left Front, protested against Reliance
Retail but not Spencer's, Forward Bloc leader Naren Chatterjee
(who is also the Chairman of the West Bengal State Marketing
Board [WBSMB]) appeared noticeably uncomfortable. WBSMB CEO
Asok Santra, shared Chatterjee's discomfiture. They informed

KOLKATA 00000200 002 OF 003


EconOff that Spencer's outlets, as well as Food Bazaar and
Metro, in Kolkata are illegal because they received no clearance
from the WBSMB to sell vegetables. They claimed that Spencer's
representatives had promised them that they would not sell
agriculture products even though they are. In his view only a
small number of people go to Spencer's to purchase groceries so
it is not as much of a threat as Reliance would have been.
However, the Forward Bloc felt that Spencer's was expanding
surreptitiously. Santra, in particular, stated that Forward
Bloc cadres were watching Spencer's very closely and if its
sales of food products became significant or they tried to
circumvent the current agriculture distribution system, then it
too will face protests. He emphasized that he had warned
Spencer's in a letter.


6. (U) When pressed to answer why Reliance Retail was singled
out, Santra answered that Reliance would have been a large scale
operation and would have threatened the existence of the
"mom-and-pop" stores that the Forward Bloc was defending.
Second, Reliance would have created its own agriculture
distribution system and thus endangered the existence of the
3,000 small rural markets, 300 municipal markets and 40 markets
in Kolkata in addition to the Agriculture Product Marketing
Committees. Third, Santra explained that Reliance would
eventually start using contract farming techniques which would
have led to small farmers losing their independence to decide
what to produce, how to produce and what kind of inputs and
seeds to use. This would have endangered the land reforms
initiatives of the Communist government in West Bengal.


7. (U) Chatterjee, who is also chairman of the West Bengal
state rural cooperative bank, explained that FDI, contract
farming and corporate retail in agriculture will dismantle the
existing rural credit chain which operates through rural,
district and state cooperative banks. These banks advance
working capital loans to farmers, traders and others associated
with agricultural supply chain. According to Chatterjee, this
rural credit system is rather efficient in West Bengal, where
85-90 % borrowers repay their loans with interest. He explained
that the entrance of organized retail could diminish the role of
cooperative banks because an alternative financial system led by
corporate retailers, contract farmers, and commercial banks
would be competing with the cooperative banks for rural
customers. He went on to note that the cooperative banking
system has already been jarred by the loan waiver scheme
announced by the Central government; he noted that the waiver
means a loss for West Bengal's rural cooperative banks because
most these loans would have been repaid.


8. (U) Chatterjee acknowledged that he understood that the
current agriculture distribution infrastructure had problems.
Santra admitted that the APMCs had been neglected for too long
and more needs to be spent from the state's development budget
to improve them. He agreed with Econoff that investment in the
supply chain and cold storage was needed to help reduce waste
and unlock value for farmers, middlemen and consumers. He
mentioned that he was keen to create a joint venture in storage
and the cold chain with organized retailers like Spencer's. He
also envisioned creating a retailer called Bengal Fresh, which
will be run as a joint venture, with the state government
through the WBSMB holding the controlling stake to compete
against Spencer's and the other organized retailers. He added
that the joint venture partner would be with a yet to be
determined private organized retailer.


9. (U) Chatterjee was adamant that the Forward Bloc would
continue to oppose FDI in organized retail. He noted that the
issue was not foreign money per say but the fact that it would
endanger the livelihoods of 300,000 retail intermediaries in
West Bengal, because he imagined that foreign players would
bring increased automation to the supply chain. When pressed on
the fact that the Forward Bloc was suddenly in agreement with
the BJP on an issue, his response was that he did not know the
BJP's stance on the issue.


10. (SBU) Comment: The continued expansion and profitability of
India's largest supermarket chain in Communist-governed West
Bengal, while Reliance Retail was not even able to establish a
presence does raise several issues. Unanswered is the question
why Reliance was singled out. Clues to this may lie in the
strikingly similar statements made by Spencer's executive Menon

KOLKATA 00000200 003 OF 003


and representatives of the Forward Bloc stating that the
agricultural portion of Spencer's operation was small and that
the company was not trying to disrupt the existing supply chain.
Corruption and payoffs are known to be rampant in the existing
agricultural marketing system. It is quite possible that
Spencer's is buying-off the political Parties. Though, with or
without the presence of Reliance, West Bengal consumers benefit
from the expanding presence of organized retail. Chatterjee's
comments regarding the present rural credit system, while
generally disingenuous in failing to comment on the extortionate
lending practices facilitated by the present system, also
underlined how state political leaders are closely aligned with
the many middlemen and loansharks who exploit the farmers. The
entrenched financial-political interests in West Bengal, as in
much of India's rural agricultural sector, perpetuates
resistance to outsiders who seek to break-up the existing
system. It is reasonable to conclude that the Reliance Retail
constituted a direct threat to that system and was blocked.
Spencer's took a more indirect approach and was able to operate.
JARDINE