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Building a New India: The Role of Organized Retail in Driving Inclusive Growth
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Abheek Singhi
Amitabh Mall
February 2011
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Contents
Foreword
Preface
Executive Summary
10
12
Producer Perspective
Worker Perspective
Consumer Perspective
12
16
20
24
28
31
33
35
36
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
Foreword
am very happy to present this report from Confederation of Indian Industry (CII) and the Boston Consulting
Group (BCG). This report will highlight the important role that the Indian retail sector can play towards the
National Agenda of inclusive growth and the way forward for all the stakeholders towards achieving the dual
goal of profitable and socially responsible growth. This report draws attention towards benefits that organized
retail can assure to all the stakeholders namely the consumer, producer and employee. The paper also highlights
different challenges that has to be addressed to enable retail industry as a key driver of inclusion and suggests relevant
imperatives to mitigate these challenges.
The year 2010 has been an inflexion point for the retail industry in India. With rapid economic growth manifested
through 8.59.0 percent in GDP, we are at a point where consumption growth will witness not just increased penetration
in existing categories but also the launch of a number of new products and categories in India.
I am sure that with your support and the support of all other retail stakeholders in India, we will put India on the
retail map of the world in the coming years. I look forward to working even more closely with you to help develop and
grow this industry to its true potential in this country.
I would like to take this opportunity to thank all the members of the CII National Committee on retail for the year
201011 for their valuable contribution towards the findings of this report.
Thomas Varghese
Chairman
CII National Committee on Retail 201011 and Chief Executive Officer
Aditya Birla Retail Ltd.
Preface
nclusion has been a key topic of discussion in recent times. Inclusive growth is a key thrust area for the 12th
fiveyear plan of the Government. Multiple stakeholders including Government, NGOs, the corporate sector and
the broader civil society are getting aligned to deliver against the ambitious target of achieving inclusive growth.
Organized retail is usually associated with increased consumption, larger storefronts and scale benefits. The
impact of the sector in driving inclusion is discussed rarely, if at all. While there has been ample anecdotal
evidence about the impact of the sector on driving growth within the economy, there is absence of a holistic perspective
on the same. CII and BCG have worked together to assess the impact of organized retail on Indias inclusive agenda for
the first time in this report.
The objective of this study has been to develop a factbased, analytical view of the issue. To that end we met with
industry leaders to understand their perspective on the topic and identify relevant examples. A survey of retailers was
conducted to understand their aspirations as well as impact generated on different dimensions. The team interviewed
several consumers, especially from the lower economic strata to assess the benefit they have realized. It also interviewed
several entry level employees in both organized retail as well as other alternate professions. Further, the team conducted
extensive interviews of farmers and traders in areas like the Azadpur mandi, Narayangaon and Vashi APMC market. All
this was coupled with a comprehensive scan of secondary research available on the topic.
This report is an outcome of four months of extensive research conducted by the BCG and CII teams. We hope you will
find it both interesting and insightful. Wed be happy to discuss any findings, or answer any queries that you may have
issues related to the retail sector.
Abheek Singhi
Partner and Director
The Boston Consulting Group
Amitabh Mall
Principal
The Boston Consulting Group
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
Executive Summary
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
The India retail story has been part reality and part
mirage so far. It is critical that concerted action be
taken to make it fully real, such that the economy
derives all the inclusive benefits that come along
with it. For that to happen, both the Government and
the retailers need to work together to make sure that
a set of key imperatives are acted upon:
1. Finding, training and retaining talent
2. Developing and leveraging the right knowhow
3. Driving scale and investment in backend using
collaborative platforms
4. Decreasing bureaucracy and legal hurdles in every
step of the chain
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
US$ Bn
12
8.7%
6
3
4.3%
5.0%
6.2%
2,500
2,000
1,500
3.2%
1,000
0
500
3
6
6574 7584 8594 9504 0509 1020E
0
98
01
04
07
10
13
16
19
Max
Average
Min
10
Exhibit 2. The scenario high on inclusion and global integration is expected to bring the
most sustained growth in India
'Pahale India
India First'
Integration
with
the world
Exclusive
growth and
development
Comparative analysis
Real GDP growth p.a. (moving 5yr averages)
Only scenario that will
bring sustained growth
%
12
10
Inclusive
growth and
development
8
6
4
'Atakta Bharat'
Isolation
form
the world
2
0
Actual
95
Projected
00
05
Pahale
India
10
Bolly
World
15
20
25
Atakta
Bharat
Source: Original CII World economic forum study; Modeling by Oxford Economic Forecasting (OEF) and the NCAER.
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
11
Producer Perspective
Farmers are by far the largest producer set in India.
About 233 million people2, or 57 percent of the total
working population is engaged in agriculture and allied
NSSO, MOSPI and RBI estimates for 200809.
Exhibit 3. Organized retail has the ability to drive inclusion for different stakeholders
Producers
Employees
Higher remuneration
and benefits
Opportunity for growth
Superior working environment
Consumers
Superior quality
Increased affordability
Greater choice
Government
Greater transparency and control over supply chain
Higher revenues by taxes
12
15
12%
23%
Gross profit
23%
Leakages
24%
Valueadd
30%
Farmer realization
18%
10
14%
5
14.5
5%
4.5
30%
0
Farmer
Aggregator
Market
trader
Wholesaler
Sub
wholesaler1
Retailer
Consumer
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
13
Exhibit 5. Australian fruits and vegetables supplychain leaner and more efficient
Organized retailers play a key role
India
3540%
Australia
1525%
4045%
Traditional
farmer
Aggregator
Market
trader
Wholesale
Sub
wholesaler
Retailers
3035%
1215%
46%
1520%
1015%
1823%
Modern
farmer
Organized
retailers
6570%
3035%
Traditional
farmer
Aggregator /
wholesale market
Organized
retailers
5060%
1520%
2530%
Traditional
farmer
Aggregator /
wholesale market
Independent
retailers
5060%
1520%
2530%
xxxx%
xxxx%
14
Selling expenses
Selling experience
Farm extension
services
Rs. 2025 / kg
Rs. 2530 / kg
Volume
Income
Effective realization
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
15
Worker Perspective
Today there is a great deal of mismatch between the
demand and supply levels of the talent pool in India.
There is an oversupply at the lower education levels.
Over 90 percent of new labour supply in India in from
20112020 is estimated to have an educational
qualification of Class XII or below, while the demand for
such individuals from the high growth services sector is
<70 percent. A recent BCGCII study estimated a
shortage of 1.5 million jobs by 2012 for persons who
have studied till class XII and lower.
While the ideal solution to bridge the mismatch is
education and training of the talent pool, a more
immediate approach is to encourage professions and
sectors that are better suited to the supply of the
workforce.
Organized retail employs majority of its staff in stores,
backend logistics, transportation and distribution
centers where attitude and not education, is the most
critical recruitment criteria. Our primary survey of
organized retailers suggests that 7080 percent of direct
510%
2030%
50
8590%
9095%
7080%
1015%
0
Supply of
Indian workforce
XII pass and below
Demand from
organized retail
Demand from
IT and BPO
Source: Expert interviews; responses to BCG questionnaire; CIIBCG report Indias Demographic Dilemma; NASSCOM; BCG analysis.
16
Exhibit 7. Higher remuneration and opportunities for growth offered by organized retail
Organized retail offers higher overall benefits over most true alternatives
Entry level job opportunities for class X educated in major city suburb
70007500
BPO / backoffice
65007000
Driver
Organized manufacturing
60006500
Organized retail
57506250
Unorganized retail
40004500
40004500
31003400
31003400
Security
28003000
26002800
0
Bonus
2,500
5,000
7,500
10,000
Approximate starting costtocompany / month (Rs.)
Years to
promotion
Starting
salary
8X
Zonal
/ HO
4060%
2.04.0 years
5X
Store
manager
4060%
1.53.0 years
3X
Assistant store
manager / incharge
515%
1.53.5 years
2X
Supervisory store
staff / floor manager
520%
1.02.5 years
Typical entry
Outsourced staff cleaning, security etc.
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
17
Exhibit 8. Organized retail provides planned career growth with multiple upskilling
opportunities
Examples of employees with potential and capabilities who have made significant career progression
Rs. 000 / month
50
Nisha, 24 years
Educational background:
HSC / 12th pass, basic English
40
Rohan, 30 years
Educational background:
graduate / agronomist
Store manager
Customer
service
associate
Senior
customer
service
associate
C
160
Assistant
store
manager
30
20
Area manager
Supervisor
120
80
10
40
E
0
0
Y0
Y1
Y2
Y3
E Point of entry
C Current position
Note: Names changed on request.
Source: Primary interviews; BCG analysis.
18
Y4
Y5
Y6
Y7
Y8
Y9
Y10
Y11
Y12
Y13
Salary (costtocompany)
No of direct reports
Organized retail providing higher remuneration, better opportunities for growth and a
superior working environment
Employer
Remuneration
Opportunities for
growth
Raju Yadav
Minakshi
23 year old
20 year old
10th pass
10th pass
Kirana store
Organized retailer
Work
Environment
What do they
have to say?
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
19
Consumer Perspective
Indian consumers are becoming increasingly demanding
they want good quality and great choice at affordable
prices. These demands are not only restricted to the high
income consumers but have become increasingly
common for all.
Organized retail is uniquely equipped to serve these
consumers and provides three inclusive benefits:
a) Superior quality
b) Increase affordability
c) Greater variety
a) Superior quality
Consumers often suffer due to non compliance of
unorganized retailers with food safety standards and
counterfeit products. For example, adulteration continues
to be a cause of concern in India. Testing conducted for
over 1.6 million random samples in 2008 by the
Government under the Prevention of Food Adulteration
Act, 1954 reported adulteration of over 7 percent in food
products. This is exacerbated for lower income
households, with serious consequences on health.
Exhibit 9. Organized retail has strict internal processes to enhance food safety
Quality parameters
Moisture content (% w/w)
PFA specification
Organized retail
Local kirana
Max 14
Max 12
1416
Max 1.0
23
Max 0.25
35
Max 0.5
45
Broken/split (% w/w)
Damage discoloured (% w/w)
Max 5
Max 1
Max 0.25
1.52
Max 6
Absent
12
Max 0.1
34
NMT3%
Max 0.1
23
Absent
Absent
No testing
Absent
Absent
No testing
NMT100
Absent
No testing
Aflatoxin (microgram/kg)
NMT30
Absent
No testing
Source: Quality specifications at a leading Indian retailer; primary & expert interviews and BCG analysis.
20
Exhibit 10. Organized retail offers a more affordable alternative for lowincome groups
A consumer with
monthly family
income of
Rs. 10,000
spends ~Rs. 2,100
purchasing food
and grocery
Organized
retail
Kirana
Save
330
441
270
96
120
232
11
380
141
49
51
110
44
43
2,102
360
495
300
96
124
260
12
400
146
50
52
128
45
46
2,244
8%
11%
10%
0%
3%
8%
8%
5%
3%
2%
2%
14%
2%
7%
6.3%
Illustrative monthly
shopping list
b) Increased affordability
Organized retail passes on some of its scale benefits to its
customers as a result of which it offers reduced prices. A
dipstick survey to compare the prices of a sample monthly
basket at an organized retail player to that in the
unorganized retail sector (or kirana) shows a pointin
time saving of ~6.3 percent (on a basket of ~Rs. 2,100).
This money can be used to pay one months electricity
bill or for premium for a systematic investment plan to
secure a childs future (as shown in Exhibit 10).
Organized retail is thus a more affordable alternative,
especially for lowincome groups. An Indian Council for
Research on International Economic Relations4 (ICRIER)
survey shows that typical savings range from 510
percent, and the number increases as the household
income drops. Households earning less than Rs. 10,000
per month are indicated to be the biggest beneficiaries of
organized retail, saving between 810 percent when
buying from organized retail.
c) Greater variety
With companies increasing the number of offerings and
the media educating customers, the demand for variety
has increased manifold in the recent past. This demand
is not restricted to the affluent classes but is more
widespread. A BCG study of the Next Billion Consumers5
showed that as their incomes rise, they spend less as
fraction of the total on basic items, and more on cosmetics,
entertainment, etc. and are already consuming a broad
range of products in FMCG, apparel and durables.
Due to limitations of space and economics of a traditional
retail store, it is impossible to harbor the variety that will
be required. With its self service model and larger store
sizes, organized retail is well equipped to handle the
variety at the frontend. At the backend, with their
sophisticated supply chain capabilities, modern retailers
can manage this complexity efficiently.
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
21
3035
30
1822%
Gross profit
1216%
Leakages
1218
1520%
Valueadd
4050%
4050%
Farm
812%
79%
1216%
20
46%
10
0
Farmer
Aggregator
Market
trader
Wholesaler
Sub
wholesaler1
Retailer
Consumer
Source: Primary and expert interviews in Delhi / Azadpur mandi, Narayangaon, Vashi APMC market; BCG analysis.
Note: % at each stage is share of final consumer price.
1
There are 13 subwholesalers; assumed 2 here as an average.
22
Rs. / kg
Rs. / kg
100
100
1216% 7585
1216% 7585
68%
1418%
46% 24%
68%
2030%
3545%
46%
35%
4050%
1216%
50
4050
48%
50
1822%
2030
5060%
68%
5060%
2535%
2535%
0
0
Farmer
Market
Sub
Consumer
1
trader
wholesaler
Retailer
Aggregator Wholesaler
Farm
Valueadd
Sub
Consumer
Market
trader
wholesaler1
Retailer
Aggregator Wholesaler
Farmer
Leakages
Gross profit
Source: Primary and expert interviews in Delhi/Azadpur mandi, Narayangaon, Vashi APMC market; BCG analysis.
Note: % at each stage is share of final consumer price.
1
There are 13 subwholesalers; assumed 2 here as an average.
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
23
Exhibit 11. Size of organized retail in 2010 is ~US$ 28 billion with 67% share and has two
possible scenarios for growth
Detailed size of retail market
Clothing
US$ Bn
10.1 (36%)
300
3.8 (14%)
Electronics
260
3.5 (12%)
2.6 (9%)
Footwear
170
1.8 (6%)
Leisure3
1.7 (6%)
Furniture
Accessories5
1.5 (5%)
Pharmacy
0.7 (2%)
0.2 (1%)
HPC
200
2.2 (8%)
Food services
100
28
28.1
Organized retail
0
10
24
20
30
2010
US$ Bn
Includes appliances
Includes jewellery and watches
2020
Asis
scenario
2020
True
potential
Size of Prize
If organized retail were to reach its true potential, it
would have a significant impact on the inclusive agenda.
Exhibit 12. Historical growth has been below expectations and benchmarks
Example: Food and grocery organized retail penetration across markets
Penetration of organized grocery retail (%)
90
Germany
na
France
na
Italy
60
30
na
Chile
4 years
South Africa
8 years
China
8 years
Russia
6 years
Thailand
6 years
Malaysia
6 years
Turkey
7 years
Morocco
7 years
India
na
0
75
80
85
90
95
00
05
09
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
25
Exhibit 13. Organized retail would have significant impact across all stakeholders by 2020
Producers
Employees
3 Consumers
Increased employment
opportunities
Superior quality
Better health, safety
and nutrition
Increased affordability
5-10% savings across
categories
Total savings of
~US$ 2530 Bn / year
Greater choice
Products to match every
need and choice
26
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
27
Profile
Skill requirement
Hiring pool
Store staff
basic skills
VII XII,
Diploma /
Graduates
Store staff
advanced skills
(supervisor, etc)
XII /
Graduates
Store managers
Graduates /
MBAs
Visual
merchandiser
Entry level
executives
(operations, etc)
Diploma /
vocational
Graduates /
MBAs
Issues
Scale
Employability
Shortage of experience people
28
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
29
Exhibit 15. Several bureaucratic and legal hurdles that exist today
Sourcing
Agricultural Produce
and Marketing
Committee act not
uniformly
implemented makes
direct sourcing difficult
Supply chain
Essential commodities
limits on stock
quantities and inter
state movements
Store opening
Multiple licenses
required to open a
store e.g. for
different categories
and locations from
different Government
bodies
Ongoing business
Compliance and
monitoring for Shops
and Establishment
Act makes it
cumbersome to run a
store
30
10.1 (36%)
3.8 (14%)
Electronics2
Food and beverages
3.5 (12%)
2.6 (9%)
Footwear
2.2 (8%)
Food services
1.8 (6%)
Leisure
1.7 (6%)
Furniture4
Accessories
1.5 (5%)
Pharmacy
0.7 (2%)
0.2 (1%)
HPC
Organized retail
28.1
0
10
20
30
US$ Bn
31
Categories
Reasons / comments
Similarities in category
maturity and profile
32
Largely nonexistent in
organized retail as of today
Gasoline stations
As is Scenario
'04
'05
'06
GDP
(US$ Bn)
718
837
958
PFCE
(US$ Bn)
427
487
554
676
727
744
891
992
Total retail
(US$ Bn)
220
244
276
316
362
368
425
471
528
590
653
725
799
899
Organized
retail
(US$ Bn)
11
15
19
22
28
35
44
55
69
85
106
134
168
210
262
3%
3%
4%
5%
5%
6%
7%
7%
8%
9%
11%
12%
13%
15%
17%
19%
21%
% share
'07
'08
'09
'10E '11F '12F '13F '14F '15F '16F '17F '18F '19F '20F
1,187 1,260 1,298 1,590 1,808 2,056 2,339 2,660 3,025 3,441 3,914 4,452 5,063 5,759
1,121 1,260 1,405 1,570 1,742 1,974 2,226 2,500 2,798
1,007 1,123 1,248
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
33
Organized
retail
(US$ Bn)
% share
'04
'05
'06
'07
'08
'09
'10E '11F '12F '13F '14F '15F '16F '17F '18F '19F '20F
11
15
19
22
28
34
42
50
60
71
85
101
121
144
171
3%
3%
4%
5%
5%
6%
7%
7%
8%
8%
9%
10%
11%
11%
12%
13%
14%
34
Acknowledgements
This study was undertaken by The
Boston Consulting Group (BCG) with
support from the Confederation of
Indian Industry (CII).
Special thanks to Thomas Varghese,
Chairman, CII National Committee
on Retail 20102011 & CEO, Aditya
Birla Retail Ltd. for his passion and
guidance.
We would also like to thank the CII
Secretariat members: Daniel
Romans, Divyasri Nair, Greeta
Varughese and Radhika Dhall.
Building a New India: The Role of Organized Retail in Driving Inclusive Growth
35
36
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02/11