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India Retail

India Retail

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Published by: Rahul Pratap Singh Kaurav on Nov 18, 2011
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Retail in India

Towards growth and profitability


Timeline of Retailing in India

Source: Citigroup Research

India – a nation on the move
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Current GDP ~ $1 trillion 4th largest in terms of GDP (PPP) terms Target customer base 405 mn. Growth rate likely to be sustained above 8% Changing consumer behavior consumerism Growth in availability of infrastructure and mall space

GDP growth and Retail

Retail, GDP growth

Organized Retail in 2010

The organized players

Indian companies

Foreign Players
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Future Group Reliance Retail Bharti Shoppers'Stop Pyramid Aditya Birla Group Subhiksha Spencer Group Tata – Westside, Tata – Chroma

Nike (Single brand) Levis (Single brand) Wal-mart (JV) Metro (Cash&Carry)

Organized retail, revenue and volume growth

Total size of retail
Size of organized retail

$8bln 3%

% share of Organized retail

Source: Economics times retail knowledge series


Market Profile of Various Formats

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Department Stores: Shopper Stop, Lifestyle, Pantaloons
Hypermarkets: Big Bazaar, Spencer Supermarkets and Conv. Stores: Subhiksha, Trinethra

Source: India Retail Report, 2007, Merrill Lynch

Major Retail Formats
Department Stores


Supermarkets and Conv. Stores

established, limited competition Entrenched in Indian Mindset Score on shopping experience Stress on branding Price not critical as they cater to upper income class

new concept, but already as big as department stores Growing fast, but competition to intensify Price Discount and Wide Varieties act as key attractions Key to success will be efficient Supply Chains and Store locations

challenge to mom and pop stores How to compensate for facilities that mom and pop stores provide namely Home Delivery and Monthly Credit ? Immense Competitions, building scale to achieve cost efficiencies will be critical


Which categories will grow ?
Food and Groceries  Sector that the largest amount of consumer spends is concentrated.  Maximum opportunity for investments Consumer durables  With increasing purchasing power, consumers tend to spend the most on this category.  There is nothing to prevent a company from putting up shops outside the city limits, because consumer durables are a premeditated purchase.  Availability of finance options has increased spending in this sector. Home products  With increasing private ownership of homes by relatively young couples, across most major cities in India, national retail chains offering home furniture (and accessories) have great potential.

Growth Potential In India

Source: AT Kearney , Citigroup Research Report


Government Policies
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51% FDI allowed in single-brand formats 100% FDI in cash-and-carry format NO FDI in multi-brand stores ( like Wal-Mart) Trends indicate that the FDI would open up in retail sector, however political consensus has to be reached before that happens

Pros and Cons of allowing FDI in retail
Benefits of FDI in retail
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Drawbacks of FDI in retail

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Inflow of investment and funds. Improvement in the quality of employment. Generating more employment. Increased local sourcing. Provide better value to end consumers. Investments and improvement in the supply chains and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries and other supporting industries.

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Would give rise to cut-throat competition rather than promoting incremental business. Promoting cartels and creating monopoly. Increase in the real estate prices. Marginalize domestic entrepreneurs. The financial strength of foreign players would displace the unorganized players. Absence of proper regulatory guidelines would induce unfair trade practices like Predatory


Growth Drivers & Barriers
Growth Drivers

Barriers to Entry
Regulatory barriers  Fragmented Suppliers  Lack of infrastructure  Supply Chain Complexities  Lack of skilled Human Resource  Differential Taxation System  Labor Legislation  Clustering of Malls

Boom, Higher

Incomes Favorable Demographics Changing Lifestyles and Preferences Real estate boom Manufacturing Reforms Reduction in import dutiesoffering

Opinions on Formats and Growth Potential

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Consumer financing will be an important tool to drive consumption Income growth alone may not be sufficient Margins to be driven by non-core businesses Retailing will remain concentrated in the top 10 towns Multi-format retailing to thrive Large scope for rural retailing
Views of Mr Kishore Biyani, Pantaloon Retail – India Retail Forum

Views of Foreign Players

Environment not conducive enough

Only 51% FDI in single brand retailing Many retailers (e.g.. IKEA) unwilling to enter without 100% FDI)

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Insufficient data on consumer behavior Focus in India only on growth and not profitability Scope for private labels (only 4% in Asia compared to 17% in western markets)
Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

Outlook and challenges

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Strong long-term growth potential Severe cost pressure largely related to property rentals Profitability likely to remain low - patient capital should survive but weak players likely to exit in the near term Consolidation is on the cards Driven more by traffic growth than ticket growth Convenience stores to remain integral part of retail Need for catering to local flavors Internet retailing still to pick up in India

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

Heard from the street..
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India's Mahindra Group to enter retail sector (Reuters

Reliance Retail Venture Falls Short of Opening Target
(Bloomberg 12/10/2007)

India's Populists Resist Big Retail (WSJ 9/10/2007) Spencer's to reduce retail formats (ET 14/10/2007) Small retailers embrace IT to boost operations (ET


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