Professional Documents
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INDUSTRY EVOLUTION
Introduction
Retailing in India is receiving global recognition and attention and this emerging market
is witnessing a significant change in its growth and investment pattern. It is not just the
global players like Wal-Mart, Tesco and Metro group are eying to capture a pie of this
market but also the domestic corporate behemoths like Reliance, KK Modi , Aditya Birla
group, and Bharti group too are at some stage of retail development. Reliance, announced
that it will invest $3.4 billion to become the country's largest modern retailer by
establishing a chain of 1,575 stores by March 2007. The last couple of years have been
rosy for real estate developers and the retailers are finding suitable retail space in
prominent locations.
The industry is buoyant about growth and the early starters are in expansion mood. There
is increased sophistication in the shopping pattern of consumers, which has resulted in
big retail chains coming up in most metros; mini metros and towns being the next target.
Consumer taste and preferences are changing leading to radical alteration in lifestyles and
spending patterns which in turn is giving rise to new business opportunities. Companies
need to be dynamic and proactive while responding to the ever-changing trends in
consumer lifestyle and behavior.
becoming increasingly common in large cities, and announced development plans project
at least 150 new shopping malls by 2008. The number of department stores is growing at
a much faster pace than overall retail, at 24 per cent annually. Supermarkets have been
taking an increasing share of general food and grocery trade over the last two decades.
Development of mega malls in India is adding new dimensions to the booming retail
sector. Shopping experience in the nation of shopkeepers is changing and changing very
fast. There is significant development in retail landscape not only in the metros but also
in the smaller cities. Even ITC went one step ahead to revolutionize rural retail by
developing ‘Choupal Sagar’ a rural mall. On one hand there are groups of visionary
corporate working constantly to improve upon urban shopping experience and on the
other hand some companies are trying to infuse innovative retail experience into the rural
set up.
Overview
The attitudinal shift of the Indian consumer in terms of "Choice Preference", "Value for
Money" and the emergence of organised retail formats have transformed the face of
Retailing in India. With a growth over 20 percent per annum over the last 5 years,
organised retailing is projected to reach US$ 23 Billion by 2010.
The Indian retail industry though predominantly fragmented through the owner -run "
Mom and Pop outlets" has been witnessing the emergence of a few medium sized Indian
Retail chains, namely Pantaloon Retail, RPG Retail, Shoppers Stop, Westside (Tata
Group) and Lifestyle International.
Given the attractiveness of the Indian retail sector, foreign retailers like Wal-Mart,
Carrefour SA, Europe's largest retailer and Tesco Plc, the UK's largest retailer, were keen
to enter this growing market, despite the Indian retail sector being closed to foreign direct
investment (FDI).
In the last few years, Indians have gone through a dramatic transformation in lifestyle by
moving from traditional spending on food, groceries and clothing to lifestyle categories
that deliver better quality and taste. Modern retailing satisfies rising demand for such
goods and services with many players entering the bandwagon in an attempt to tap
greater opportunities.
• Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and
Grasim first saw the emergence of retail chains
• The latter half of the 1990s saw a fresh wave of entrants with a shift from
Manufactures to Pure Retailers.
• For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and
Music World in music; Crossword and Fountainhead in books.
• Emergence of hyper and super markets trying to provide customer with 3 V’s -
Value, Variety and Volume
• At year end of 2010 the size of the Indian organized retail industry is estimated at
Rs. 14,00,000 crore .
Past
In the early days of grocery retailing in America, an assistant fetched all items from
shelves behind the merchant's counter while customers waited in front of the counter and
indicated the items they wanted.
In addition, most foods and dry groceries did not come in the individually wrapped
consumer-size packages and an assistant had to weigh and wrap the precise amount
desired by the consumer. American retailers found these practices were by nature very
labor-intensive and therefore quite expensive. The shopping process was slow, as the
number of customers who could be attended to at one time was limited by the number of
clerks employed in the store.
In 1916, first Piggly Wiggly store opened in Memphis, Tennessee and developed a self-
service grocery store. The Great Atlantic and Pacific Tea Company (A&P) was another
successful early grocery store chain in Canada and the United States, and became
common in North American cities in the 1920s. The general trend in retail since then has
been to stock shelves at night so that customers, the following day, can obtain their own
goods and bring them to the front of the store to pay for them. Although there were
higher risks of shoplifting, the costs of appropriate security measures ideally outweighed
by the increased economies of scale and reduced labor costs.
Early self-service grocery stores did not sell fresh meats and produce and it was only
after 1920s these stores stated selling perishable items like meats and vegetables.
"loyalty cards". These typically enable the cardholder to receive special members-only
discounts on certain items at checkout.
Present
Present day supermarkets are much larger and offer a wide variety of food and household
merchandise, organized into departments. They typically comprises meat, fresh produce,
dairy, and baked goods departments along with shelf space reserved for canned and
packaged goods.
Most supermarkets also sell a variety of other household products that are consumed
regularly, such as alcohol (where permitted), household cleaning products, medicine,
clothes, pet supplies and some sell a much wider range of nonfood products.
The traditional suburban supermarket occupies a large amount of floor space, usually on
a single level, and is located near a residential area for convenience of their consumers.
Its basic appeal is the availability of a broad selection of goods under a single roof at
relatively low prices. Other advantages include ease of parking and the convenience of
shopping hours that extend far into the evening or even 24 hours a day. These
supermarkets usually make massive outlays of newspaper and other advertising and often
present elaborate in-store displays of products. These supermarkets often are part of a
corporate chain that controls the company owned as well franchised stores and supplies
to these stores are made by large centralized distribution centers (CDC).
Supermarkets usually offer products at low prices but certain products typically staple
foods such as bread, milk and sugar are often sold on less than their usual market price to
attract more consumers. Usually there are two pricing strategies; Every Day Low Price
(EDLP) and High Low (HL); and to maintain a profit, supermarkets attempt to make up
for their lower margins in EDLP items by selling more of higher-margin HL items.
Most supermarkets are similar in design and layout and fresh vegetables tends to be
located near the entrance of the store. Milk, bread, and other essential staple items are
VIKAS D JAGTAP Page 6
The Indian Retail
usually situated toward the rear of the store to reduce thawing and to maximize the
customer's time spent in the store, strolling past other items and capitalizing on impulse
buying. Supermarkets use stock rotation, the practice of moving products with an earlier
sell-by date to the front of a shelf so they get picked up and sold first. Many stores also
place consumer durable items and toys near the checkouts to attract families with
children waiting in checkout queues.
In the United States, major-brand supermarkets often demand slotting fees from suppliers
in exchange for premium shelf space and/or better positioning (such as at eye-level, on
the checkout aisle or at a shelf's "end cap"). This extra supplier cost (up to $30,000 per
brand for a chain for each individual SKU) may be reflected in the cost of the products
offered. Some critics have questioned the ethical and legal propriety of slotting fee
payments and their effect on smaller suppliers.
More and more every day facilities like banks, cafés, childcare centers/creches, photo
processing, video rentals, pharmacies, and/or gas stations are being added to bigger
supermarkets to provide their customers one stop shop convenience. A larger full-service
supermarket like this combined with a department store is sometimes known as a
hypermarket.
Indian-owned supermarket Subhiksha is one of the first and the largest retail chain in the
country. Started in 1997 as a single store entity in South Chennai, it is now present
nationally across 1000 outlets and spread across more than 90 cities selling everything
from vegetables to mobile phones.
India's largest private-sector company, Reliance Industries Limited (RIL) also ventured
into the retailing business in 2006 by opening the fresh food "Reliance Fresh" chain of
stores in major cities across India. Other major supermarkets include 6Ten, Spencer and
More. Many other supermarket brands have joined the race but supermarkets in India are
still fragmented and struggling to provide a delightful experience to its customers.
Supply-chain constraints, unorganized real estate markets, irrational tax structures and
shortage of quality retail professionals are some of the factors which are holding back the
growth of organized retail in India specially in supermarkets sector.
Predictions
The supermarket sector is witnessing a major corporate push with large domestic retailers
and foreign giants establishing chains of supermarkets.
India's retail industry, both organized and unorganized, is worth $300 billion at present
and is expected to grow to a staggering US$450 - US$500 billion by 2110. A study
conducted by Mumbai-based brokerage Edelweiss Capital in February'08 had said that
organized retail would form 15% of the retail sales by March 2011 from 4.1% now. But
Deloitte's study says that organized retail grew at a scorching pace in 2007, going to 8%
of total retail sales from 5% in 2006.
As the Indian government continues to reform and liberalize the market, retail giants like
UK's Tesco, France's Carrefour and American Wal-Mart are looking to make a foray into
the Indian retail market.
Wal-Mart has signed a deal with Indian telecom leaders Bharti and is ready to make a
dent by end of 2008. But it will not be an easy ride for Wal-Mart, according to Wharton
professor of marketing David Bell says "Wal-Mart will have to take a close look at the
extent to which they will have to 'customize' their approach to local market conditions.
They have had some failures internationally, like in Germany and Brazil, because they
under-estimated the extent to which someone else already held their market position for
example, Aldi in Germany."
But like telecom sector, when the supermarket attains industry status, there would not be
many differentiating factors in terms of pricing, layout, variety and service quality.
Likewise, once foreign retail giants get established in retail market, each one would carve
a separate niche of their own with their own sets of brands and suppliers and would try
establish their own customer base by providing them royalty cards.
Big question now is that will entry of all these big supermarket players work in the long
run or they will under go a Lose-Lose situation in the long run. Land in India is at a
premium and infrastructural facilities are minimal. Logistically, it is not easy to
incorporate different taxation structures and other demographic factors in formation of
supply-chain. The absences of retail professionals at mid-level management and shortage
of retail educators who can educate form their real experience. All these factors indicate
that supermarket retail chains are unlikely to enjoy a high-profit margins in the near
future.
For now, consumers in India may like supermarkets or may not like supermarkets but
they can not ignore these supermarkets.
Indian economy has shown an impressive growth of over 6 per cent for last five years and
continues to surge ahead. GDP growth rate in 2003-04 recorded a fifteen year high of
8.5% and subsequently maintained a steady growth for the next two years. Real GDP
growth accelerated from 7.5 per cent during 2004-05 to 8.4 per cent during 2005-06 on
the back of buoyant manufacturing and services activity supported by a recovery in the
agricultural sector.The central bank forecasts similar growth of 7.5-8 percent during
2006-07. With strong economic growth consumerism is increasing in the country and
India is the fourth largest economy as far as purchasing power parity is concerned, just
behind USA, Japan and China.
The largest form of organized retailing today. Located mainly in metro cities, in
proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and
above. They lend an ideal shopping experience with an amalgamation of product,
service and entertainment, all under a common roof.Examples include Shoppers
Stop, Piramyd, Pantaloon.
• Specialty Stores:
Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer
Crossword, RPG's Music World and the Times Group's music chain Planet M, are
focusing on specific market segments and have established themselves strongly in
their sectors.
• Discount Stores:
As the name suggests, discount stores or factory outlets, offer discounts on the
MRP through selling in bulk reaching economies of scale or excess stock left over
at the season. The product category can range from a variety of perishable/ non
perishable goods
• Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer
needs. Further classified into localized departments such as clothing, toys, home,
groceries, etc.
• Department Stores:
Departmental Stores are expected to take over the apparel business from exclusive
brand showrooms. Among these, the biggest success is K Raheja's Shoppers Stop,
which started in Mumbai and now has more than seven large stores (over 30,000
sq. ft) across India and even has its own in store brand for clothes called Stop!.
• Hypermarts/Supermarkets:
Large self service outlets, catering to varied shopper needs are termed as
Supermarkets. These are located in or near residential high streets. These stores
today contribute to 30% of all food & grocery organized retail sales. Super
Markets can further be classified in to mini supermarkets typically 1,000 sq ft to
2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft.
having a strong focus on food & grocery and personal sales.
• Convenience Stores:
These are relatively small stores 400-2,000 sq. feet located near residential areas.
They stock a limited range of high-turnover convenience products and are usually
open for extended periods during the day, seven days a week. Prices are slightly
higher due to the convenience premium.
• MBO’s :
Multi Brand outlets, also known as Category Killers, offer several brands across a
single product category. These usually do well in busy market places and Metros.
In the face of the economic slowdown, lifestyle brands are putting up a brave front.
While consumer buying may not be as big as one would like it to be and sales growth
rates have dipped, the scene is not as bad as in the Western world, say retailers as they
hope for a positive year ahead. “Fashion retail has not been impacted in a big way. Not
even 0.5 per cent of the working population has been hit in India,” says Mr Tarun Joshi,
CEO and MD of Brandhouse Retails, which manages exclusive outlets for S.Kumars
Nationwide brands - Reid & Taylor, Carmichael House, Stephens Brothers and
Belmonte. (Brandhouse is also the exclusive India franchisee for luxury brands Alfred
Dunhill and Escada.)
The Indian economy is more stable than other economies across the world and one must
not confuse India with the rest of the world, says Mr Sandeep Kulhalli, V-P, Retail and
Marketing, Tanishq. While admitting that the company’s rate of growth has slowed
down, the Rs 2,000-crore jewellery brand believes it can still post a 30 per cent growth in
sales this year. At Tanishq, studded jewellery had a sales growth of 40 per cent in the first
VIKAS D JAGTAP Page 14
The Indian Retail
few months of the financial year; it has dipped to 20 per cent now. “But this is good
enough for us to maintain competition and sustain. The people who are hit worst in India
are those who invested in real estate, property and the stock market, not retail. Of course,
sentiments are poor; there is some pressure. Spending may not be robust but people are
still buying. The salaried class will still be with us,” says Mr Kulhalli.
The unorganised retail sector is expected to grow at about 10 percent per annum to reach
$496 billion in 2011-12 despite the steady expansion of organised retailers, a study
released Wednesday said. The report on the impact of organised retail on small shop
owners, released in parliament by the Delhi-based think tank Indian Council for Research
on International Economic Relations (Icrier), said the retail business in the country would
grow at 13 percent annually from $322 billion in 2006-07 to $590 billion in 2011-12. The
unorganised retail industry was valued at $309 billion in 2006-07. However, given the
relatively weak financial state of the unorganised retailers and the space constraints on
their expansion prospects, this sector alone will not be able to meet the growing demand,
the report said.
Hence, the organised retail that now constitutes a small four percent of the total industry
is likely to grow at a much faster pace of 45-50 percent per annum and quadruple its
share in total retail trade to 16 percent by 2011-12, the Icrier said. However, the Icrier
added that small shop owners in the vicinity of organised retailers have experienced a
decline in their volume of business and profit after the entry of bigger players. According
to the report, consumers have gained with the entry of organised retailers and their
overall spending has also gone up. While all income groups saved through organised
retail purchases, the report revealed that lower income consumers saved more.
Earlier, CII and advisory firm, PricewaterhouseCoopers (PwC) released a retail report on
‘The Benefits of Modern Trade to Transitional Economies’. The report states that with
modern trade, consumers would benefit from widely available choices and quantity along
with rationalization and convergence of prices. It would lead to a zero tolerance policy
for inefficiencies since consumers would be unwilling to pay for substandard products.
Since modern trade players were tax compliant and their sale figures outnumbered that of
the organised sector, revenue collections would increase. Large retailers would require
development of a support mechanism for their operations including logistics,
transportation and warehousing which would generate further revenues for the
government
Over the past few years, India has experienced a boom in organized retailing in its metro
cities—all due to globalization, better incomes, changes in lifestyle and more spending
money. This book deals with the Indian retail industry and explains concepts related to it,
while also detailing applications of these concepts. Case studies of successful retailing
experiences in India include Pantaloon, Shoppers’ Stop, Central, Big Bazaar, Food
Bazaar, Westside, Food World, etc.
RECENT TRENDS
• India is rated the fifth most attractive emerging retail market: a potential
goldmine.
• Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade)
makes up 3 percent or US$ 6.4 billion
• Organized retailing in India has been largely an urban phenomenon with affluent classes
and growing number of double-income households.
• More successful in cities in the south and west of India. Reasons range from
differences in consumer buying behavior to cost of real estate and taxation laws.
• Rural markets emerging as a huge opportunity for retailers reflected in the share of the
rural market across most categories of consumption
– ITC is experimenting with retailing through its e-Choupal and Choupal Sagar rural
hypermarkets.
– HLL is using its Project Shakti initiative – leveraging women self-help groups– to
explore the rural market.
– Mahamaza is leveraging technology and network marketing concepts to act as an
aggregator and serve the rural markets.
• IT is a tool that has been used by retailers ranging from Amazon.com to eBay to
radically change buying behavior across the globe.
• Companies using their own web portal or tie-sups with horizontal players like
Rediff.com and Indiatimes.com to offer products on the web.
Unorganized : Vast majority of the twelve million stores are small "father and son"
outlets
VIKAS D JAGTAP Page 19
The Indian Retail
Fragmented : Mostly small individually owned businesses, average size of outlet equals
50 s.q. ft. Though India has the highest number of retail outlets per capita in the world,
the retail space per capita at 2 s.q. ft per person is amongst the lowest.
Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry
has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve
groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and
more sophisticated in terms of the goods sold (like TVs).
Recent changes:
Experimentation with formats: Retailing in India is still evolving and the sector is
witnessing a series of experiments across the country with new formats being tested out.
Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.
Emergence of discount stores: They are expected to spearhead the organised retailing
revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay
Bazaar, RPGs.
MAJOR RETAILERS
• India’s top retailers are largely lifestyle, clothing and apparel stores
• Following the past trends and business models in the west retail giants such as
Pantaloon, Shoppers’ Stop and Lifestyle are likely to target metros and small
cities almost doubling their current number of stores
• These Walmart wannabes have the economy of scale to be low –medium cost
retailers pocketing narrow margin
Hypermarkets
Big Bazaar Pantaloon Retail
Giant RPG Group
Supermarkets
FoodWorld RPG & Dairy Farm
Nilgiris Nilgiris
Food Bazaar Pantaloon Retail
Discount Stores
Subhiksha Viswapriya Group
Margin Free Markets Independent Retailer
Cash & Carry Germany's Metro Group
Metro Cash & Carry
Department Stores
Shoppers Stop K Raheja Group
Westside Trent Ltd.
LifeStyle Landmark Group
Globus R Raheja Group
Pantaloon Pantaloon Retail
Ebony DS Group
Specialist Retailing
Music World RPG Group
Tanishq TATA
Health & Glow RPG Group
Crossword Shoppers Stop & ICICI Ventures
10 PIRAMYD PIRAMALS 79
• Real estate is key for a retail business during its investment phase.
• Drop in interest rates have made property buying and leasing viable.
• 100% FDI in Construction & Real Estate now permitted.
• Over 600 malls expected by 2010.
• Total investments of USD 5 bn would be required from organized retailers by 2010.
• Real Estate development in India – poised for Dramatic growth
INDIA VS WORLD
• Indian retail is fragmented with over 12 million outlets operating in the country.
This is in comparison to 0.9 million outlets in USA, catering to more than 13
times of the total retail market size as compared to India
• India has the highest number of outlets per capita in the world - widely spread
retail network but with the lowest per capita retail space (@ 2 sq. ft. per person)
• Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the
size of Indian retail industry. Almost 100 times more than the turnover of HLL
(India's largest FMCG company).
• Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of
India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare.
• The sales per hour of $22 million are incomparable to any retailer in the world.
Number of employees in Wal-Mart are about 1.3 million where as the entire
Indian retail industry employs about three million people.
• One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two third of
HLL's annual turnover.
• Developed economies like the U.S. employ between 10 and 11 percent of their
workforce in retailing (against 7 percent employed in India today).
• 60% of retailers in India feel that the multiple format approach will be successful
here whereas in US 34 of the fastest-growing 50 retailers have just one format
• Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has
an average inventory turns ratio of about 18. Many Indian retailers KPMG
surveyed have inventory turns levels between 4 and 10.
• Global best-practice retailers can achieve more than 95 percent availability of all
SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The
stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.
India retail industry is the largest industry in India, with an employment of around 8%
and contributing to over 10% of the country's GDP. Retail industry in India is expected to
rise 25% yearly being driven by strong income growth, changing lifestyles, and favorable
demographic patterns.
It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200
billion. India retail industry is one of the fastest growing industries with revenue expected
in 2007 to amount US$ 320 billion and is increasing at a rate of 5% yearly. A further
increase of 7-8% is expected in the industry of retail in India by growth in consumerism
in urban areas, rising incomes, and a steep rise in rural consumption. It has further been
predicted that the retailing industry in India will amount to US$ 21.5 billion by 2010
from the current size of US$ 7.5 billion.
Shopping in India have witnessed a revolution with the change in the consumer buying
behavior and the whole format of shopping also altering. Industry of retail in India which
have become modern can be seen from the fact that there are multi- stored malls, huge
shopping centers, and sprawling complexes which offer food, shopping, and
entertainment all under the same roof.
India retail industry is expanding itself most aggressively, as a result a great demand for
real estate is being created. Indian retailers preferred means of expansion is to expand to
other regions and to increase the number of their outlets in a city. It is expected that by
2010, India may have 600 new shopping centers.
In the Indian retailing industry, food is the most dominating sector and is growing at a
rate of 9% annually. The branded food industry is trying to enter the India retail industry
and convert Indian consumers to branded food. Since at present 60% of the Indian
grocery basket consists of non- branded items.
India retail industry is progressing well and for this to continue retailers as well as the
Indian government will have to make a combined effort.
VIKAS D JAGTAP Page 26
The Indian Retail
• Reliance Retail: investing Rs. 30,000 crore ($6.67 billion) in setting up multiple
retail formats with expected sales of Rs. 90,000 crore plus ($20 billion) by 2009-
10.
• Pantaloon Retail: Will occupy 10 mn sq.ft retail space and achieved Rs.9,000
crore-plus ($2 bn) sales by 2008.
• RPG: Planning IPO, will have 450-plus Music World, 50-plus Spencer's Hyper
covering 4 mn sq.ft by 2010.
• LIFESTYLE :Investing Rs.400 crore-plus ($90 mn) in next five years on Max
Hypermarkets & value retail stores, home and lifestyle centres.
• Raheja's: Operates Shoppers' Stop, Crossword, Inorbit Mall, and 'Home Stop'
formats. Will operate 55 "Hypercity" hypermarkets with US$100 million sales
across India by 2015.
• Piramyd Retail: Aiming to occupy 1.75 million sq.ft retail space through 150
stores in next five years.
• TATA (Trent Ltd.): Trent to open 27 more stores across its retail formats adding 1
mn sq.ft of space in the next 12 DLF malls. Titan industries to add 50-plus Titan
and Tanishq stores in 2006.
• Aditya Birla Group: Investing $3.35 billion in over 6000
stores in a combination of large and small stores, over three years
• Bharti – Wal-Mart Partnership: Will boost the number the stores further up.
• AT Kearney has estimated India’s total retail market at US$ 202.6 billion which is
expected to grow at a compounded 30 per cent over the next five years.
• With the organised retail segment growing at the rate of 25-30 per cent per
annum, revenues from the sector are expected to triple from the current US$ 7.7
billion to US$ 24 billion by 2010.
• The share of modern retail is likely to grow from its current 2 per cent to 15-20
percent over the next decade
• Over next two years India will see several Indian retail businesses attaining a
critical mass as growth in the industry picks up momentum driven by two key
factors:
• Wal-Mart : huge plans for India. Moving a senior official from its headquarters in
Bentonville, Arkansas, to head its market research and business development
functions pertaining to its retail plans in India.
• New York-based high-end fashion retailer Saks Fifth Avenue has tied up with
realty major DLF Properties to set up shop in a mall in New Delhi.
• Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi,
Ahmedabad, Lucknow and Bangalore in the next four months.
• Over past 5 years, India has moved from culture of Traditional Street Retail
Markets to a Shopping Centre Culture.
Over next decade India’s Urban Markets could grow by over Ten Times.
One year ago less than 5% of Indian retail facilities were within Organized
Shopping Centers.
Rate of Shopping Center development grew by 37%in 2007.
Expected to grow by a further 42%in 2008.
In urban markets such as Delhi’s Gurgaon, Retail Spending Power is growing at
24%per annum.
First Wave of Indian Shopping Center development have evolved as Enclosed
Vertical Malls.
Anchored by local Indian Brand Fashion Department Stores or Hypermarkets.
India is currently having the largest young population in the world and 54 per cent of
India’s population is below 25 years of age and 80 per cent are below 45 years. As per
India’s Marketing Whitebook (2006) by Businessworld, India has around 192 million
households. Of these only a little over six million are ‘affluent’ – that is, with household
income in excess of INR215, 000. Another 75 million households are in the category of
‘well off’ immediately below the affluent, earning between INR45,000 and INR215,000.
This is a sizable proportion which offers excellent opportunity for organized retailers to
serve.
AC Nielsen’s Retail and Shopper Trends 2004 Report made the following observations
on shopper’s behaviour in India:
(1) Indian shoppers spend an average of INR2500 on food, groceries and personal care
items every month and (2) convenience stores are booming in most markets, as the
number of such stores exceeds 80,000.
According to the report, 48 per cent of shoppers in India admit that they ‘love to try new
things’, making them the most novelty seeking shoppers around the region and total
average monthly expenditure is only $50, of this, $21 is spent on fresh food, comprising
42 per cent of the entire monthly spend. Indians also appear to spend more on groceries
and personal care items.
Business communities believe that sizable disposable income in India is concentrated in
the urban areas and well off and affluent classes; income distribution is unequal
compared to other Asian economies. In fact, the 20 million middle class home in rural
India equal the number in urban India and thus have the same purchasing power.
Therefore, there is significant and considerable opportunity for organized retailers in the
rural areas. There is no denying that the rural market holds immense promise for the
organized retail but companies ponder over how to serve that market profitably.
Unlike the urban market, it is less developed in terms of infrastructure and facilities.
More than any thing else, the larger issue is to find out a suitable business model and
retail format to fit local taste and preference. Of course cost of doing business in rural
market would be lesser compared to urban market but reaching out to the mass is a
concern. It is not impossible but a bit more difficult. For example the most successful and
the largest incorporation Wal-Mart started in the rural market where as competition
started in the urban market. This retailer has proved that it is important to understand how
do you operate your business model rather than where you do it.
Given the increasing urban exposure of rural India, the urban and the rural upper-income
groups can form an interesting continuum market, giving it a scale of 23 million
households, or 115 million consumers. In 2006-07, the consuming class would be about
60 million households, or 300 million consumers.
NCAER data shows that for 1998-99, for a basket of 22 FMCG products it tracks, a total
of over Rs 91,500 crore was spent. Of this, 37% was spent by the two lowest-income
groups in rural India, and only about 20% by the top two income groups in urban areas.
This is, perhaps, the best and only statement of the structure and potential of the Indian
market. Hence, marketers have to worry about purchasing power of consumer not where
he is living. For example there are nearly 42,000 rural haats, average number of sales
outlets per haat is 300 and average sales per outlet is INR 900 and average foot fall in a
haat is about 4,500. In rural India there are 50 million Kisan Credit Card (KCC) holders
and in 2002-03, LIC sold 50 percent of its policies in rural India. These are some of the
indicators how rural India is performing.
The Indian Retail growth can be attributed to the several factors including
• For the average Indian, dusty and dirty means fresh from the farm. The Indian
consumer likes to pick out the produce themselves and barter over the price.
• Providing damaged fresh produce, as well as good-quality produce in the same
box, gives shoppers a chance to choose and think they are getting a better deal.
• Indian consumers aren't used to processed and packaged goods, so the stores sell
wheat, rice, lentils and other products out of large buckets. Consumers like to
touch and smell the grains.
• Products are often displayed in large bins, rather than on shelves, because Indian
consumers are accustomed to looking down as they shop.
CHANGE IN RETAILING
BEFORE AFTER
NO IT ADVANCED IT
1. Shopping Malls- These are becoming increasingly common in large cities and
development plans. It is projected that at least 150 new shopping malls by 2009.
2. Department store- This segment is growing much faster than overall retail, the
number of stores has been growing by an annual 24% and sales have grown at
around 34% during 1999-2002
3. Hypermarkets- This segment been taking an increasing share of general food &
grocery trade, as well as hard goods.
Technology in Retail :
Over the years as the consumer demand increased and the retailers geared up to meet this
increase, technology evolved rapidly to support this growth. The hardware and software
tools that have now become almost essential for retailing can be into 3 broad categories.
Point of sale systems use scanners and bar coding to identify an item, use pre-
stored data to calculate the cost and generate the total bill for a client. Tunnel
Scanning is a new concept where the consumer pushes the full shopping cart
through an electronic gate to the point of sale. In a matter of seconds, the items in
the cart are hit with laser beams and scanned. All that the consumer has to do is to
pay for the goods.
• Payment
Payment through credit cards has become quite widespread and this enables a fast
and easy payment process. Electronic cheque conversion, a recent development in
this area, processes a cheque electronically by transmitting transaction
information to the retailer and consumer's bank. Rather than manually process a
cheque, the retailer voids it and hands it back to the consumer along with a
receipt, having digitally captured and stored the image of the cheque, which
makes the process very fast.
• Internet
• ERP System
• CRM Systems
The rise of loyalty programs, mail order and the Internet has provided retailers
with real access to consumer data. Data warehousing & mining technologies
offers retailers the tools they need to make sense of their consumer data and apply
it to business. This, along with the various available CRM (Customer
Relationship Management) Systems, allows the retailers to study the purchase
behavior of consumers in detail and grow the value of individual consumers to
their businesses.
APS systems can provide improved control across the supply chain, all the way
from raw material suppliers right through to the retail shelf. These APS packages
complement existing (but often limited) ERP packages. They enable consolidation
of activities such as long term budgeting, monthly forecasting, weekly factory
scheduling and daily distribution scheduling into one overall planning process
using a single set of data.
• Visual Merchandising
The decision on how to place & stack items in a store is no more taken on the gut
feel of the store manager. A larger number of visual merchandising tools are
available to him to evaluate the impact of his stacking options. The SPACEMAN
Store Suit from AC Neilsen and ModaCAD are example of products helping in
modeling a retail store design.
Investment Opportunities :
• Location: with modern retail formats having made their foray into the top cities
namely Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune, Chennai,
Bangalore, Delhi, Nagpur there exists tremendous potential in two tier towns over
the next 5 years.
• Sectors with High Growth Potential: Certain segments that promise a high
growth are
Clothing
Furniture and Fixtures
Pharmacy
Durables, Footwear & Leather, Watch & Jewellery
• Fastest Growing Formats: Some of the formats that offer good growth
potential are:
• Rural Retail: Retail sector offers opportunities for exploration and investment in
rural areas, with Corporates and Entrepreneurs having made a foray in the past.
India's largely rural population has caught the eye of retailers looking for new
areas of growth. ITC launched the country's first rural mall ' Chaupal Sagar',
offering a diverse product range from FMCG to electronics appliance to
automobiles, attempting to provide farmers a one-stop destination for all of their
needs. There has been yet another initiative by the DCM Sriram Group called the '
Hariyali Bazaar', that has initially started off by providing farm related inputs and
services but plans to introduce the complete shopping basket in due course. Other
corporate bodies include Escorts and Tata Chemicals (with Tata Kisan Sansar)
setting up agri-stores to provide products/services targeted at the farmer in order
to tap the vast rural market.
• Wholesale Trading: wholesale trading also holds huge potential for growth.
German giant Metro AG and South African Shoprite Holdings have already made
India
Growing opposition against local large scale
Local Opposition
retailers e.g. Reliance
Opposition to big-box retailing in some states like
Inadequate infrastructure of logistics network and roads, ports and freight etc. creates
significant supply chain issues resulting in out of stocks and inadequate
fill ratios. Also an issue with consumer access to the stores.
Scramble to lock in quality real estate by retailers led by aggressive growth plans and
rising real estate costs.
• Stamp duty charges on transfer of property varies from state to state
• Conversion of agricultural land acquired into commercial land is a long drawn
process
• Unavailability of good prime locations for retailers in metros and other cities due
to fragmented land holdings.
Challenges Ahead
Infrastructure
Even though there is huge investment coming especially in the area of retail space
development in the form of mall development, the challenges remain same from a
retailer’s view point as the cost to acquire retail space in mall is increasing. Researchers
from Knight Frank India, a real estate consultancy, cipher that rentals in established malls
in top metros have jumped by 20-30 % in the last six months. Generally retailers work
out a rent-to-revenue ratio with developers at which they feel they can sustain their
business. Normally, this figure varies between 4% for a hypermarket (that is, rent will
constitute 4% of revenues) and 10% for a department store, to nearly 20% for very niche
retailers. But, at a monthly rate of Rs 200 per sq ft, a department store might have to
make Rs 2,000 per sq ft per month just to break even.25 In such a scenario the reality of
retail business could change and sustaining profitable business could pose the highest
threat of its kind.
Technology
VIKAS D JAGTAP Page 40
The Indian Retail
Technology is going to play a major role in retail development in India. Retailers are
going to experience the impact of technology in retail. Currently most of the retailers are
operating almost everything manually. A country where almost 97 percent of retailing is
in the hand of unorganized retailers it is predictable that the retailers are going have
operational inefficiency. They face several challenges like maintaining inventory,
ordering and above all keeping track of customer by maintaining consumer data base.
Technology can be useful in this aspect. Most of the organized retailers are using
available and affordable technology to capture consumer information. Modern retailers
are using scanner data to figure out answer to lot of questions. Through technology
retailers can capture a whole lot of segmentation variables and subsequently use them for
shopper segmentation. Technology helps to take better decision in some critical areas
such as new product introduction, suitable product offering, quicker ordering and
assortment planning. Retailers use shopper’s loyalty data to design customized
promotional offering for different set of customers.
3. Ineffective Sourcing:
• Sourcing strategies not tailored to the demand
• No supporting infrastructure and vendor management
Customer Impact:
Items not on the shelf at the right time, at the right price or of the right quality
Till now most retailers in India have invested majorly into the front end but relatively
little on the back end and supply chain. Even in countries like the USA, Germany and
VIKAS D JAGTAP Page 42
The Indian Retail
England where organized retail is highly developed supply chain efficiency is a concern.
The nature of retail sector in India is different from other countries around the world. The
biggest retailer in India, Pantaloon Retail is yet to open stores in each & every major city
in India. Probably that is an indication of how the retail concentration is happening
mainly in big cities. The sector is highly fragmented and organized retail contributes
hardly 3-4 percent of total retailing pie. There are huge inefficiencies in the supply chain.
For example Indian supply chain for food products is characterized by extensive wastage
and poor handling. The wastage occurs because of multiple points of manual handling,
poor packaging, and lack of availability of temperature controlled vans. The most
important part of retailing business is to find a balance between investing in front-end and
back-end operations. The channel dynamics is going to change over next couple of years
as the retailers start growing in size and their bargaining power is likely to increase.
Probably that would bring some kind of mutual understanding between manufactures and
retailers to develop strong supply chain network. In such a scenario, both the existing
operators and new operators must put collaborative efforts to phase out inefficiencies in
the supply chain network. In a special lecture series at Indian Institute of Management,
Ahmedabad, honorable minister for Railway, Mr. Laloo Prasad Yadav raised his concern
over safe transportation of food. The minister is looking forward to use railway
infrastructure to carry fresh fruits and vegetables in temperature controlled containers
from various nodal points essentially opened in railway stations to different parts in India.
Probably that would help a lot in reducing wastage in the supply chain and retailers
would be happy to use railway infrastructure rather than spending huge amount of money
in developing infrastructure. New entrants like Reliance Retail is believed to be investing
substantially in the supply chain especially cold chain as it is set to start its venture by
opening ‘Reliance Fresh’26 stores.
Human resource
Even though AT Kearny places India as most attractive retail market for the second
consecutive year in a row but it is lagging behind in the retail labor index and positioned
in the 8th place. At this point of time talent is in short supply and employee churn has been
high for all players. It is very difficult to get experienced store managers to run stores.
For example, currently Pantaloon Retail India is operating around 48 Food Bazaars
across the county and planning to increase the number to over 80 stores by the end of
2006. The retailer is ready with retail space in different malls and high traffic retail
location but availability of qualified and experienced personnel is still a big concern for
the retailer. Almost all retailers are indulged in poaching which is not a permanent
solution. There is absolutely no issue in getting retailing space in prime locations but the
bigger concern is to find additional store managers. The way the sector is growing in
terms of opening stores it is very predictable that there is going to be huge scarcity of
professionals to manage stores. Reliance Retail is planning to employ half a million work
force in various levels in next five years. Currently the sector is facing a shortage of
human resources. It is very difficult to develop human capital in a short time span of five
years. If we look at the human resources employed by global retailers like Wal-Mart,
Carrefour, Tesco, Home Depot and Ahold, we find that none other than Wal-Mart
exceeds half a million.
Considering our robust policies for retaining and developing workforce, retailers should
not worry about shortage of talent pool in the long run. The country also possesses a
rapidly growing cadre of promising professional managers, a large educational system,
and there is a cultural willingness among employees to work cooperatively with
management. If, we use these resources properly we can develop a large talent pool to
fulfill the growing demand for various positions in the retail organization.
Growth of this sector holds paramount importance to the Indian economy, so any
augmentation of this sector will have a resultant growth effect on the economy. Although
at this point in time FDI in retailing is receiving mixed reaction, but our feeling is that
FDI would bring a lot of positive changes both for the operators and the consumer. The
infusion of much-needed foreign investment would result in: (1) retail consolidation and
increase in the share of the organised retail sector, (2) increase in employment in retail (3)
increase supply chain efficiency which would lead to lower prices, superior quality for
consumers, (4) enhanced opportunity for domestic operators to join hand with global
retail players to bring in technical know how and global practices, (5) making shoppers
feel international shopping experience.
However, as India's retail revolution unfolds, a number of defining issues are framing this
evolution:
• Lack of differentiation among the malls that are coming up. One option may be to
look at specialization.
• Poor inventory turns and stock availability measures - retailers clearly need to
augment their operations.
• Sales tax laws - lead to retailers having state-level procurement and storage leads
to Indian retailers having higher inventories. VAT has helped alleviate this a bit.
Conclusion :
In the 2008 India Economic Summit, delegates conveyed mixed message about FDI but
one final message was loud and clear that India’s retail development is inevitable.
Most of the organized retailers in India are harping on quality, service, convenience,
satisfaction and assured benefits to lure shoppers into the store. Retailers should create
value for the consumer and must decide suitable vehicle to deliver desired consumer
value. No doubt that retail format is one of the vehicles to deliver value proposition and
also it helps to position the store in the mind of target shoppers. Probably in a growing
market no one finds difficulty in pulling customer into store but that may not be sufficient
to operate profitably. Retailers need to find out what matches consumer requirement and
VIKAS D JAGTAP Page 46
The Indian Retail
offer better than competition. Retailers certainly need to be innovative in designing the
value proposition and deciding the format to deliver that to the consumer. It is not all
about deciding the format but all about serving the consumer better, faster and at less
cost.
Retailers can use their store as an indicator of what they stand for and what value they
offer. Retailers have to out think consumer in providing service and value. At this
juncture, most of the retailers are concerned about growth in number of stores rather than
creating value for consumer. Some companies like Pantaloon Retail has gone one step
ahead to start e-tailing format along with brick and mortar formats. The most important
issue in e-tailing is credibility and trustworthiness of the supplier. If Pantaloon Retail
India gets the same credibility and trust it is able to find from current customer base it is
highly probable that the new format is going to be successful. Again some of the product
categories books are highly successful on internet as those categories require less feel and
touch.
Our conclusion is that consumer is the focus of retail business and the retailers should
serve the consumer better, faster and at less cost.
BIBLIOGRAPHY
Reference books:
Marketing Management by Philip Kotler
Retail Marketing
Websites:
www.google.com
www.wikipedia.com
www.scribd.com
www.projectparadise.com