NIELSEN FEATURED INSIGHTS

REFORMATTING RETAIL
IN INDIA
THE RISE OF MODERN TRADE AND TRENDS
THAT WILL DEFINE THE FUTURE
• The current size of the Modern Trade market for FMCG
categories that Nielsen tracks, is INR 41, 416 crore for MAT
August 2018, a substantial growth of 22% from a year ago.

• Significant government moves like Demonetisation and the

introduction of the Goods and Services Tax, has driven digital
payments and proved beneficial for Modern Trade.

• Omni-channel dynamics, competitive pricing and innovation

in payment methods will drive growth for Modern Trade in the
years to come.

Today, many Indian consumers can’t imagine life without the

convenience of Modern Trade (MT). In fact, even when the term MT was
coined back in the late 90s, it was expected that the nascent organised
retail format would steadily fuel economic growth in the future. In spite
of a great start, impediments like poor infrastructure slowed the sector
down, particularly in the financially trying period between 2008 and 2016.
While new players and formats were seen in the market between the end
of 2015 and through most of 2016, it was a time of deliberation, deep
contemplation and consolidation.

The size of the MT market for Fast Moving Consumer Goods (FMCG)
categories that Nielsen tracks, was INR 30,126 crore as on Moving Annual
Total (MAT) August 2016. Subsequently, there was a surge at the end
of 2016 resulting in a 13% increase in MT sales and culminating in an
improved market size of INR 33,895 crore in MAT August 2017.

Copyright © 2019 The Nielsen Company 1

 Demonetisation and the introduction of Goods and Services Tax (GST)
became tailwinds for the sector by triggering the mass adoption of
digital modes of payment among consumers. Also, advance setting of
systems across both buying and selling, helped MT gain a sizeable growth
advantage over General Trade during the implementation of GST.

The good times continue to roll for MT with the current market size
standing at INR 41,416 crore for MAT August 2018, a healthy growth of
22% from a year ago.

GROWTH IN MODERN FORMAT SALES OVER YA

3% 4% 13% 22%
MAT’ 15 MAT’ 16 MAT’ 17 MAT’ 18

DEMONETISATION AND THE INTRODUCTION OF GOODS

AND SERVICES TAX (GST) BECAME TAILWINDS FOR THE
SECTOR BY TRIGGERING THE MASS ADOPTION OF DIGITAL
MODES OF PAYMENT AMONG CONSUMERS.

MODERN TRADE BY GEOGRAPHY

The national contribution of MT is 10%, with a greater concentration in
urban areas, particularly the top 17 metro cities.

THE CONTRIBUTION OF MODERN TRADE ACROSS INDIA

25%
MT CONTRI. %

15.3%
10%

ALL INDIA ALL INDIA URBAN TOP 17 METROS

Copyright © 2019 The Nielsen Company 2

 Interestingly, the regional composition of MT has not changed much
over the years, as South India still leads with a 22% contribution. West
continues to be the second largest market, though it has narrowed
its gap with the South. The big retail brands have focused on opening
several hyper stores in the West resulting in the perceptible increase in
this zone. Going forward, North India is expected to grow on the back of
expansion by various retailers, followed by the east.

MAT Aug’18 MT Contribution MT % Growth

ALL INDIA 15.3% 22.2%

North 10.6% 25.0%
East 7.5% 27.4%
West 19.0% 20.5%
South 22.4% 21.0%

India’s top 29 metros make up ~72% of the MT business, of which

85% comes from the top 10 metros. Chennai, with a MT contribution
of 40%, and Pune with a contribution of 35%, are amongst the top 10
metros where the share of MT has increased by 5% and 3% respectively.
This growth in the contribution of MT has gone beyond the top cities.
The next rung of cities like Lucknow contributing 27%, and Kochi
contributing 38%, have increased their contribution to MT by 9% and
3% respectively. Even a city like Amritsar with a contribution of 14%,
which is over indexed on cash and carry as a channel, has seen an
increase in MT contribution of 3%. Of the 29 metros that Nielsen reports
cover, 24 have a MT contribution that is higher than 10%. These facts
go to show that MT is here to stay. Increased investments and omni-
channel dynamics will continue to increase the relevance of MT for both
shoppers and manufacturers.

THE REGIONAL COMPOSITION OF MODERN TRADE HAS NOT

CHANGED MUCH OVER THE YEARS, AS SOUTH INDIA STILL LEADS
WITH A 22% CONTRIBUTION. WEST CONTINUES TO
BE THE SECOND LARGEST MARKET, THOUGH IT HAS
NARROWED ITS GAP WITH THE SOUTH.

Copyright © 2019 The Nielsen Company 3

 THE EVOLUTION OF FORMATS
The MT landscape in India comprises both local and national brands,
which consists of chains and strong independent stores. Together, there
are about 600 MT banner stores in India, with the top 20 contributing to
~75% of the business. According to Nielsen estimates the total number of
organised stores is ~18,197, of these, 11,758 are banner stores.
Such stores have grown by 19% as of MAT August 2018, is a clear
indication of the burgeoning size of MT as a channel. Data reveals that
supermarkets1 grew by a sizeable 25%, while hypermarkets grew by 15%
in comparison in the same timeframe. The number of modern trade
stores in small towns of less than 100,000 population, have also seen
a sizeable increase, growing three times faster as compared to metros.

MODERN TRADE DISTRIBUTION GROWTH:

CAGR (2 YEARS)

ALL INDIA 11%

METRO 9%
5-10 LAC 15%
1-5 LAC 15%
LESS THAN 1 LAC 26%

TOGETHER, THERE ARE ABOUT 600 BANNERS IN INDIA, WITH

THE TOP 20 CONTRIBUTING TO~75% OF THE BUSINESS.
Of the 90 FMCG categories tracked, 43 of them have a higher MT
contribution and make up almost 70% of total MT sales. Categories
like Cheese, Breakfast Cereals, Packaged Rice, Hand-wash/ Body wash
and Olive Oils have a much higher MT contribution, to the tune of 50%.
Geographies aside, analysis of seasonal trends reveal that big sale
events in January, May, August and during the festival of Diwali are a
huge draw for consumers, taking the MT contribution to 17% from 15%.
Categories like Washing Powders, Chocolate, Salty Snacks, as well as
large packs of Packaged Rice, Diapers, Packaged Tea and branded packs
of Deodorants are a big part of shopping baskets during events.

1
Supermarkets are defined to include all chain and stand-alone stores, that have an area of less than 15000 sq ft, and not more than
9 POS counters. The rest are classiied as hypermarkets.

Copyright © 2019 The Nielsen Company 4

 43 CATEGORIES OVER-INDEXED IN MT WHICH CONTRIBUTE 70% OF TOTAL MT SALES

70% 63% MT Category Cont% to All Ind Urban

60%
49% 69.3%
50%

TOTAL FMCG %
41%

15.3%
40%
31%
30%
22%
20% 18%
10%
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Source: Nielsen MT Index

MT SHARE PEAKS TO 17% DURING BIG DAY MONTHS

7,000 25.0%
6,000
VALUE (IN RS. CRS.)

17.4% 20.0%
5,000 16.1% 15.8% 14.4% 14.9% 15.2% 16.6% 14.6% 15.0% 15.3% 14.9% 15.2%INDEPENDENCE
13.4% 14.0%
4,000 12.8% REPUBLIC
DAY 15.0%
DAY
DIWALI
3,000 10.0%
2,000
5.0%
1,000
0 0.0%
JUN 17 JUL 17 AUG 17 SEP 17 OCT 17 NOV 17 DEC 17 JAN18 FEB18 MAR18 APR18 MAY18 JUN18 JUL18 AUG18

MT SALES IN CRS MT SHARE IN ALL INDIA URBAN

Source: Nielsen MT Index

WHAT THE FUTURE HOLDS FOR MT AS A CHANNEL

Omni-channel is the new reality - Consumers are no longer
shopping entirely online or offline. Rather, they’re using whatever
channel best suits their immediate needs. In the scenario where
consumers frequently use both, thinking in terms of bricks versus
clicks is fast being replaced by bricks-and-clicks. A large retail brand
has introduced a ‘Click-and-Collect’ model, allowing customers to
shop through the app and collect their groceries at convenient pick-
up centres.

Copyright © 2019 The Nielsen Company 5

 Pricing is still a big draw for MT – The already fierce and ever-
increasing competition in grocery retail has been heightened by the
entry of e-commerce players. So, all the major retailers are focusing
on providing the greatest value to consumers at low prices. A large
retail brand has introduced the ‘everyday low price’ strategy, which
involves offering customers discounts on a daily basis. Another
offers a ‘lowest price guarantee’ across all their stores for key Stock
Keeping Units (SKUs). A third prominent retail brand offers low
prices everyday only in their hyper format stores. In this situation,
price will continue to play a major role until retailers are able to
carve a differentiated identity for themselves.

Innovation in payment options – Technology is a strategic

imperative today, and in this setup, mobile digital wallets are
critical for retail businesses. In addition to simplifying payments
it is also convenient for modern, smartphone users, resulting in
faster checkouts and cashless transactions. A survey by GlobalData 2
reveals that the share of cash or cheque including cash on delivery,
in total e-commerce transaction value, declined from 31% in 2013
to 16% in 2017. During the same period, the share of mobile wallets
jumped from a mere 7% to 29%. Both mobile wallets and digital
loyalty wallets are gaining favour in India. For instance, the app of
a major retail player allows shopping across all group outlets. The
app is specially created for the loyal customer base and gives users
exclusive offers and deals.

With the government’s focus on building infrastructure and facilitating

widespread digital adoption, the environment is conducive for the
continued growth of MT.

2
Source: https://www.google.com/url?q=https://www.globaldata.com/mobile-wallet-gradually-displacing-cash-india-says-globaldata/&sa=D
&source=hangouts&ust=1541827357427000&usg=AFQjCNE8fP0OBD62DuLSNj-PwJjFV70k6g

Copyright © 2019 The Nielsen Company 6

 ABOUT THE AUTHORS

AJAY MACADEN PALLAVI SURESH ABBIE PAUL

EXECUTIVE DIRECTOR DIRECTOR SENIOR MANAGER
RETAILER VERTICAL RETAILER VERTICAL RETAILER VERTICAL

ABOUT NIELSEN
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 THE SCIENCE BEHIND WHAT’S NEXT TM