Evolution of Retail in India

While barter is considered to be the oldest form of retail trade, retail in India has evolved to
support the unique needs of our country given its size and complexity. Haats, Mandis and Melas
have always been a part of the Indian landscape. They still continue to be present in most parts of
the country and form an essential part of life and trade in various areas.

The PDS or the Public Distribution System would easily emerge as the single largest retail chain
existing in the country. The evolution of the public distribution of grains in India has its origin in
the ‘rationing’ system introduced by thee British during the World War II. The system was
started in 1939 in Bombay and subsequently extended to other cities and towns. By the year
1946, as many as 771 cities/towns were covered. The system was abolished post war on attaining
Independence, India was forced to reintroduce it in 1950 in the face of renewed inflationary
pressures in the economy. A detailed discussion forms a part

Tracing the evolution of Indian retail would be incomplete without a mention of the canteen
Stores Department and the Post Offices in India.

The Khadi & Village Industries (KVIC) was also set up post independence. Today, there are
more than 7,050 KVIC stores across the country. The co-operative movement was again
championed by the government, which set up Kendriya Bhandars in 1963. In Maharasthra ,
Bombay bazaar, which runs stores under the Sahakari Bhandar and Apna Bazaars run a large
chain of co-operative stores.

In the past decade, the Indian marketplace has transformed dramatically. However, from the
1950’s to the 80’s investments in various industries was limited due to the low purchasing power
in the hands of the consumer and the government’s policies favoring the small scale sector.
Initial steps towards liberalization were taken in the period of 1985-90. It was at this time that
many restrictions on private companies were lifted, and in the 1990’s, the Indian economy
slowly progressed from being state led to becoming ‘market friendly’.

While independent retail stores like Akbarally’s, Vivek’s and Nalli’s have existed in India for a
long time, the first attempts at organized retailing were noticed in the textiles sector. One of the
pioneers in this field was Raymond’s, which set up stores to retail fabric. It also developed dealer
network to retail its fabric. These dealers sold a mix of fabrics of various textile companies. The
Raymond’s distribution network today comprises of 20,000 retailers and over 429 showrooms
across the country.

Other textile manufacturers who also set up their own retail chains were Reliance which set up
Vimal showrooms and garden Silk Mills with Garden Vareli. It was but natural that with the
growth of textile retail, readymade branded apparel could not be far behind and the next wave of
organized retail in India saw the likes of Madura garments, Arvind Mills etc set up showrooms
for branded men’s wear. With the success of the branded men’s wear store, the new age
departmental store arrived in India in the early nineties.
Traditional formats:

1) Itinerant salesman
2) Haats
3) Moles
4) Mandis, etc

Established formats:

1) Kirana
2) Convenience / Department stores
3) Company / Multi brand showrooms
4) PDS / Fair Price shops
5) Co-operative stores
6) Pan / beedi shops

Emerging formats

1) Exclusive retail outlets

2) Hypermarkets
3) Internal retail
4) Malls / Specialty malls
5) Multiplexes
6) Rural oriented formats
7) Fast food outlets
8) Service galleries etc

This was in a sense, the beginning of a new era for retail in India. The fact that post
liberalization, the economy had opened up and a new large middle class with spending power
had emerged, helped shape this sector. The vast middle class market demanded value for money
products. The emergence of the modern Indian housewife, who managed her home and work led
to a demand for more products, a better shopping ambience, more convenience and one stop
shopping. This has fueled the growth of departmental stores, supermarkets and other specialty
stores. The concept of retail as entertainment came to India with the advent of malls. The
development of malls is now visible not only in the major metros but also in other parts of the
country.

Drivers of Retail Change in India

Retail is the new buzzword in India. Buying ritual has become shopping experience. It is a
celebration and entertainment. Lifestyle is changing rapidly. The concept of value for money is
gaining importance. The information that the Indian consumer has access to is immense which
leads to the freedom of choice and in turn the demand for the differently organized retail formats.
The traditional way of retailing is also organized but differently organized. The changing income
profiles, change in consumption patterns, changing demographics, diminishing difference
between rural and urban India demand the change in the way the retail business is carried out in
India.

We all witness to the change in retail in the country. The local Bania has gradually transformed
himself into a small supermarket. This change is not only restricted to metros but has rapidly
spread over to a smaller cities and towns. The reason for this change is due to the most important
element in the whole process i.e. the Indian consumer.

Population

The size of population in India has always made it a large market. 1.10 billion People and almost
40 % of the population is youth which makes it more lucrative market. Aspiration, wants of these
people thought are different but it definitely creates the opportunities for the retail trade which
keep growing every day. One more aspect of this population is that the 26 % of the population is
still below the poverty line but still catering to the basic needs of these people (As per the
Maslow’s Hierarchy of Needs) is daunting  task which creates enormous opportunities for retail.

Changing Income Profiles

The definition of income classes vary from one study to another. According to NCAER the
average middle class family’s disposable income rose by more than 20% from 1993 to 2006. The
middle income and the upper income categories are likely to witness the most significant
expansion in the coming decade. The upper and middle class are likely to increase their share in
the population from 19.6% in 1995 – 1996 to 42.6% in 2009 – 2010. , a substantial increase,
while the middle income group likely to witness an increase from 32.9% to 39.8% in the same
period.

Diminishing difference between Rural and Urban India

Rural India amounts to 70 % of India’s population and this itself offers a tremendous opportunity
for generating volume driven growth. It is interesting to note that LIC sold 50% of its policies in
Rural India in year 2005-06. Of the over two million BSNL mobile phone connections more than
50 % are in small towns and villages. This kind of phenomenon is evident in all type of products
and services. So the diminishing difference between the Rural and Urban India is pretty evident.
This makes it easier for the marketer to develop and market new goods and services for the
Indian consumer.

The rise of the self-employed

Rural India has always been largely self-employed. But now the proportion of the self-employed
in urban India has risen to 40% plus, replacing the employed salary earner as the new
'mainstream market'. A Hansa Research Group (HRG) study shows that even in the 'creamy
layer', comprising the top two social classes in towns of 10 lakh plus population in urban India,
40% of chief wage earners of households are shopowners, petty traders, businessmen and self-
employed professionals.

Unlike the salary earner, the self-employed use products much more to signal success and are
also fast adopters of any productivity tools, like cellphones and two-wheelers, that can help them
earn more.

Striving

Most Indian consumers, whether rich or poor, want to get ahead in a hurry. From being destiny-
driven and resigned, they are now destination-driven and striving to grasp opportunities to earn
more in order to construct a better life for themselves and their children. If one were to segment
the country into the Arriving, the Striving and the Resigned, the proportion of Resigned has
definitely decreased and become geographically concentrated, rather than well-dispersed, as it
was earlier.

The rise of the woman

Like the self-employed, women too are saying "I can and I will," and emerging as partners in
family progress. Not so much from earning the second income (a mere 23% of Indian households
have working wives and that proportion decreases as incomes increase) but by being CEOs of
households and intellectual nurturers of their children.

Drivers of Retail change in India

We are witness to the change happening in retail in the country. The local grocery shop has
gradually transformed himself into a small supermarket. The transformation of what used to be
known as Phoenix Mills, into High Street Phoenix is a reality. This change is not restricted to the
metro cities but has rapidly spread to smaller cities and towns as well. The person driving this
change is the Indian consumer. In this article we look into the reasons of the retail change in
India.

The size of the population in India has always made it a large market. However, from the 1950’s
to the 80’s investments in various industries was limited due to the low purchasing power in the
hands of the consumer and the government’s policies favoring the small scale sector. Initial steps
towards liberalization were taken in the period of 1985 – 90. The late Prime Minister PV
Narasimha Rao and the finance minister, Manmohan Singh are credited with having ushered in
the first level. It was at this time that many restrictions on private companies were lifted, and in
the 1990’s the economy slowly progressed from being state led to becoming ‘market friendly’.

Socio Economic Factors:

Socio-economic factors are seen as fundamental to development. India is today a nation which
has a large middle class, a youth population which is happy spending and a steady rate of growth
of GDP.

The primary indicator of socio-economic change is the increase in life expectancy from 58 years
in the year 1991-92 to an average of 66 years in 2006-07. India aims to achieve 100% literacy
(15 – 35 age groups) by the year 2006-07. Basic amenities like drinking water and electricity are
also likely to be commonly available. Thus we can say that there is a definite improvement in the
basic quality of life of an average Indian citizen. With the basic necessities being taken care of,
there is, a good chance that the demand for other products and services may increase.

Changing Income Profiles:

Steady economic growth has fuelled the increase in personal income in India. The middle class
forms, the backbone of the India market story and it is the rising incomes in the young middle
class population that is fuelling its growth. The definitions of income classes vary from one study
to another. For the purpose of this article, the income classification done by NCAER is
considered. According to the NCAER data, the middle income and the upper middle income
categories are likely to witness the most significant expansion in the coming decade. The upper
and middle class are likely to increase their share in the population from 19.6% in 1995-96 to
42.6% in 2009-10, a substantial increase, while the middle income category to witness an
increase from 32.9% to 39.8% in the same period.

Not only does the population determine the volume of the market, but the relative size of the
different income segments as well. The building up of the Indian middle class and the higher
income echelons will provide a demand for niche and branded products.

The disposable income of Indian consumers has increased steadily. The proportion of the major
consuming class (population that has an annual income that is higher than Rs 90,000 has risen
from 20 percent in 1995-96 to 28 per cent in 2001-02; this is expected to move up to 35 per cent
by 2005 – 06 and to 48 per cent by 2009-10. This translates into a CAGR of 9.3 per cent over the
next 8 years and will result in higher spending capacity and eventually, in greater consumption.

FDI In Retail In India

FDI in retail industry means that foreign companies in certain categories can sell products
through their own retail shop in the country. At present, foreign direct investment (FDI) in pure
retailing is not permitted under Indian law. Government of India has allowed FDI in retail of
specific brand of products. As India is one of the developing countries, so FDI must be promoted
but must be kept under control as it can affect the economy of the country.
 FDI in INDIA
FDI in my opinion is bad for the country’s economy. As we are in the category of developing
country and to develop properly we need to control the country’s economy very carefully. If the
% in FDI in retail sector (multi-brand) is increased then the investment in India’s retail market
will be from foreign investors and the profits are also drained to the investors. And moreover in
INDIA, the retail sector mainly depends upon the agricultural sectors and the producer and if
FDI is increased then it is going to affect the agricultural sector of the Country very badly and
which will affect the country’s economy. And if the % of FDI is increased to 100% in retail
(both single and multi-brand) sector then government will lose the control over this sector
completely and then it cannot help in controlling this sector with its rule and regulations as the
whole retail sector would be privatized. And this privatization can make a very serious effect on
the country’s economy.

Top Foreign Investors

And one of the most disadvantage of FDI in retail sector is that as we know that the retail sector
is one of the major employment provider and permitting FDI in this sector can displace the
unorganized sector and leading to loss of livelihood the most favoring example is if wall mart
entry in retail sector is allowed then it will kill the millions of local shops and jobs. The global
retailers would exercise monopolistic power to raise prices and monopolistic power to reduce the
prices received by the supplier. Hence both the consumer and supplier would lose while the
profit margin in such retail change would go up. So from the above points i can say that  FDI in
retail sector is not good for India.
 Advantages of FDI in Retail in India

 Growth in Economy
 Job Opportunities
 Benefits to Farmers
 Benefits to consumers
 Lack of Infrastructure
 Cheaper Production facilities
 Availability of new technology
 Long term cash liquidity
 Conducive for the country’s economic growth
 FDI opens up a new avenue for Franchising
Disadvantages of FDI in Retail in India
 Impact on Local Markets ( Kirana Shops)
 Limited Employment Generation
 Fear of Lowering Prices
 Negative Impact on Indian Economy
 Negative Impact on Indian Domestic Market
Challenges to Retail Development in India

Organized retail in India is little over a decade old. It is largely an urban phenomenon and the
pace of growth is still slow. Some of the reasons for this slow growth are:

1) Retail not being recognized as an industry in India: Lack of recognition as an industry

hampers the availability of finance to the existing and new players. This effects growth and
expansions plans.
2) The high costs of real estate: Real estate prices in some cities in India are among the highest in
the world. The lease or rent of the property is one of the major areas of expenditure; high lease
rentals eat into the profitability of a project.
3) In addition to the high cost of real estate, the sector also faces very high stamp duties on
transfer of property – it varies from state to state (12.5% in Gujarat and 8% in Delhi). The
presence of strong pro-tenancy laws makes it difficult to evict tenants. The problem is
compounded by problems of clear titles to ownership, while at the same time, land use
conversion is time consuming and complex, as is the legal processes for setting of property
disputes.
4) Lack of adequate infrastructure: Poor roads and the lack of a cold chain infrastructure hampers
the development of food and fresh grocery retail in India. The existing supermarkets and food
retailers have to invest a substantial amount of money and time in building a food chain network.
5) Multiple and complex taxation system: The sales tax rates vary from state to state. While
organized players have to face a multiple point control and tax system, there is considerable sales
tax evasion by small stores. In many locations, retailers have to face a multi point octroi. With
the introduction of Value Added Tax (VAT) in 2005, certain anomalies in the existing sales tax
system causing disruptions in the supply chain are likely to get corrected over a period of time.
Retail Snapshot Below focuses on an additional surcharge on retail proposed by the government
of Kerala

The government of the state of Kerala said it would slap a 10 per cent surcharge on the profits of
retail giants to discourage them from opening more outlets.

The state’s government known for taking on multinationals such as Microsoft Corp, and Coca –
Cola Co, announced the tax in its annual budget. We have shown a red light by imposing a
surcharge tax on the net profits of big retail companies.

The move was the latest salvo by the Kerala government against plans by domestic conglomerate
to operate chain stores in the palm fringed coastal region, one of the country’s main tourist
destinations.

The decisions underlined the obstacles facing big retailers in modernizing India’s small
shopkeeper landscape of 15 million family run outlets which fear being forced out of business by
lower priced, plastic wrapped produce.

The announcement came after a demonstration against big retail last month by tens of thousands
of traders in Thrissur, 300km north of the state capital Thiruvananthapuram.

India’s largest private sector company, Reliance Ltd. (RIL) has already opened stores in Kerala
and elsewhere but has been forced to scale back its plans for more retail openings because of the
protests.

The Uttar Pradesh government last year ordered the closure of stores run by RIL and another
chain after attacks by protesters. Lack of governments permits also forced RIL to put store
openings on hold in West Bengal.

At this stage, we analyze the Indian retail industry by using the five forces framework created by
Michael Porter. Michael Porter’s Five Force analysis is a tool for the structural analysis of
industries. Understanding each of the five forces and how they interact with one another provides
a clear picture of the degree of competition being faced within an industry, and therefore, its
relative attractiveness