Changing Retail Landscape in India

Indian Retail – Buoyed by high GDP growth

10% 9.0% 9.2%

8.90%
9%
8% 6.4%
6.6% 6.0% 6.8%
7%
Real Growth Rate

6.0%
5.4% 5.6%
6% 5.2%

5%
4%
3%

2%
1%
0%
2000

2003

2006

2007
1997

1998

1999

2001

2002

2004

2005
Source :Central Statistical Organization (CS0)

Projections of 8% sustainable real GDP growth rate till 2020

promise high growth potential for Indian Retail…
August 15, 2008
 India Experiencing Rapid Economic Growth

Real Growth Rate

GDP (US$ bn)

9.4% growth rate makes India the second fastest growing

economy in the world
August 15, 2008
Led by Growth in Services Sector
% Increase in growth over the previous year

120%
107%

100%

80%

60% 55%
2005-06
41%
40% 37%
2006-07
21% 21%
20% 13% 14%
6% 7%

0%
Tourist Arrivals Passenger Cars Commercial Domestic Air New Cell Phone
Sales Vehicle Sales Passengers Connections

Services sector adding to GDP in a significant manner

August 15, 2008
 Driven from Consumption Throughout the 1.1 Billion
Population

5-7 million
Super Rich

70 – 80 million
Afford Cars, Private Healthcare &
Foreign travel

250 - 300 million

Afford goods like Refrigerators , Scooters
& Colour TVs

600-700 million (Generally Rural)

verty Line = income less than $ 1/day Afford simple industrial products
e.g. bicycles , radios , textiles

60 % of India’s population are under 24 years

August 15, 2008

ource: McKinsey,
 With High Private Consumption
GDP
US$ 935 billion

Food
Apparel Private Consumption Public Spending and Capital
US$ 580 Billion Formation
Beverages
(62%) US$ 355 Billion (38%)
Footwear
Transport
Consumer
durables Retail Non Retail Communication
US$ 342 Billion US$ 238 Billion Recreation
Appliances
(59%) (41%)
Stationery Cultural
Services
Kitchen utensils
Urban (5,100 towns) Education
Furniture Modern retail – US$ 12 billion
US$ 154 Billion 8% of urban retail spends Rent
Furnishings (45%)
Utilities
Sports goods
Other Services
Health & Beauty Rural (6,27,000 villages)
Modern retail
Personal Care US$ 188 Billion Negligible
(55%)
Jewellery
Timing
Source: Central Statistical Organization (CS0) and Technopak Analysis
Conversion rate: 1 US$ = 40.86 Rs.

August 15, 2008

 About US $530 Billion Retail Market by 2012
GDP*
US$ 1,450 billion

Private Consumption Public Spending and Capital

US$ 870 Billion Formation
(60%) US$ 580 Billion (40%)

Retail Non Retail

US$ 530 Billion US$ 340 Billion
(61%) (39%)

Urban
Modern retail – US$ 78 billion
US$ 252 Billion 31% of urban retail spends
(47.5%)

Rural
Modern retail – US$ 9 billion
US$ 278 Billion 3% of rural retail spends
(52.5%)

*All figures are in nominal terms after taking into account inflation Source: Technopak Analysis

August 15, 2008

Which Makes Indian Retail an Attractive
Market

India tops the Global Retail Development Index

August 15, 2008

Modern Retail – Organized Channels

• The share of organized retail is less than 3% of the total retail market
• The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last
five years

100%
20% 20% 3%
36% 30%
80% 40%
55%
60% 85% 81%

40%

20%

0%
US Taiwan Malaysia Thailand Brazil Indonesia Poland China India

Traditional Channel Modern Channel

August 15, 2008

.. but Rapid Transformation is Anticipated

Current Size & Future Projections for Indian Retail Market

900 800
800
700
600 530
US$ Billion

486
500 445
373 408
400 342
300
200 200
100 87
26 39 59
0 12 18
2007 2008 2009 2010 2011 2012 2017

Total Retail Organized Retail

And may reach a share of 25% by 2017

August 15, 2008
Evolution of Indian retail
Historic/Rural Traditional/Pervasi Government Modern Formats/
Reach ve Reach Supported International

Exclusive Brand Outlets

Hyper/Super Markets
Department Stores
Shopping Malls

PDS Outlets
Khadi Stores
Cooperatives

Convenience Stores
Mom and Pop/Kiranas

Weekly Markets
Village Fairs
Melas

Source of Neighborhood Availability/ Shopping

Entertainmen Stores/Convenie Low Costs / Experience/Efficie
t nce Distribution ncy

August 15, 2008

 Adaptation to Local Market – Road for Success

Samsung microwaves
McDonalds Maharaja Samsung laundry
Mac machine

Nokia 1100 Indian menus with

singe touch
Head & Shoulders

Chicken hamburger to Memory backup to

reach segments that compensate for
do not eat beef frequent power
Anti dust keypad for dirty shortage
roads,
anti slip grip for the heat 10 milli lt. sachet for less
and flash-light in case of than 5 cents increased
electricity shortage the shampoo buying
population dramatically

Price, concern and typical Indian features are some examples

August 15, 2008

McKinsey Quaterly, winning the Indian consumer, 2005
Recent Trends
Traditionally three factors have plagued
the retail industry:
Unorganized : Vast majority of the twelve million
stores are small "father and son" outlets
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.
Store design : Biggest challenge for organized
retailing to create a “customer-pull” environment
that increases the amount of impulse shopping.
Research shows that the chances of senses
dictating sales are upto 10-15%. Retail chains
like MusicWorld, Baristas, Piramyd and Globus
are laying major emphasis & investing heavily in
store design.
Emergence of discount stores: They are
expected to spearhead the organized retailing
revolution. Stores trying to emulate the model of
Wal-Mart. Ex. Big Bazaar, Bombay Bazaar,
RPGs.
Unorganized retailing is getting organized:
To meet the challenges of organized retailing
such as large Cineplex's, and malls, which are
backed by the corporate house such as 'Ansals'
and 'PVR‘ the unorganized sector is getting
organized. 25 stores in Delhi under the banner
of Provision mart are joining hands to combine
monthly buying. Bombay Bazaar and Efoodmart
formed which are aggregations of Kiranas.
August 15, 2008
Recent Trends …..

August 15, 2008

Retail Market not limited to metros but widely across
India

• The classic ”skimming” strategy in the

metros is not longer sufficient
– 100 cities strategy
Ludhiana
• Over 250 large size shopping malls
are currently under construction New Delhi
Lucknow
• Leading cities 2030 are VaranasiPatna
forecasted to be Jaipur
– Mumbai
Kanpur
– New Delhi Ahamabad Indore
Vadodara
– Chandigarh Bhopal Kolkata
Surat Nagpur

Pune HyderabadVisakhapatnam
Mumbai

Bangalore
Chennai Above 10 Mn inhabitants
Above 4 Mn inhabitants
Kochin
Above 2 Mn inhabitants
Coimbatore
Madurai Above 1 Mn inhabitants

August 15, 2008

 Drivers for Indian Retail
High Income Changing Attitude International Necessities to Market &
Opportunities Exposure Lifestyle Government

•Service Sector: creating •From Save to Spend •International travel •Shift of expense •Easing out on
new jobs. basket from basics Import barriers,
•High disposable •Exposure to global
•Working Population in to lifestyle products Government
income family trends
2010 will 70% sponsorship taking
structures on a rise •Increased spend on
•Highest Growth in shape (FDI Policy,
•IT Industry: increasing Apparel, personal
•Nuclear Families outbound tourists in Tax and Duty
care, entertainment
professional the world structure, Subsidies)
•DINKS (Double
opportunities •Easy Bank credit
Income No Kids) •Fluid retail
•Rising Salary levels boosts retail
•Multi income families Segments
•MNCs entering India •M-Commerce & e-
and homegrown Commerce boosts
companies going global retail

Consumption expenditure is 60 % of India’s GDP

Customer value drivers are continuing to fragment as a result of changing demographics & value
systems
August 15, 2008
Global Heavyweights in Indian Retailing
Joint Ventures Product Range Retail Formats

Bharti-Walmart (with $2.5 Food & grocery, electronics & appliances, clothing & Hypermarkets, Supermarkets and
Billion investment by footwear, furniture & furnishing, household articles. Convenience
Bharti)

Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets

Home Retail Group plc - Franchising the Argos concept under the terms of Multi Channel propositions
Shopper's Stop Ltd and the arrangement, Argos will be providing its brand,
Hypercity Retail India catalogue and multi-channel expertise and IT
Private Ltd support
Tata-Woolworths Sourcing agreement for Consumer durables and Multi brand retail chain
Foods under brand name CROMA

Staples Inc – Pantaloon Global Sourcing of Office equipments across various Cash and carry
Retail businesses

Reliance Food & grocery, electronics & appliances, clothing & Multi format and Multi Category
footwear, furniture & furnishing, household articles.

Birla Food & grocery, electronics & appliances, clothing & Convenience and Supermarket
footwear, furniture & furnishing, household articles.

August 15, 2008

12
Format Definition
Key categories Typical size Example
Formats Description
retailed Sq.ft.
A large superstore,
combining a supermarket Food, groceries, apparel, 15,000-100,000 Big Bazaar, Hypercity, Spencer,
and departmental store, furnishings, consumer Star India Bazaar, Vishal
offering full lines of grocery durables Megamart
Hyper markets and general merchandise all
under one roof

A large self service outlet Food, groceries, medicines 3,000-15,000 FoodWorld, Trinethra, Subshiksha,
Super offering food and household Food baazar
goods
markets

Small size, easily accessible Food, groceries, medicines 500-2,000 In&Out, Trinethra, Subhiksha,
stores offering a quick traditional stores
Convenience shopping, fast check out
experience and extended
stores working hours

A large self service outlet Apparel, Jewellery, watches, 10,000-50,000 Shopper’s Stop, Lifestyle,
offering a variety of fashion accessories, footwear, Pantaloon, Westside
Departmental merchandise furniture, furnishings
stores

Large speciality stores

Electronics, office supplies,
focussed on one or a few 20,000-100,000 Best Buy – Circuit City, Staples
apparel
categories of merchandise,
Category offering a wide selection at
killers low prices
August 15, 2008
12
Format Definition (Contd.)
Key categories Typical size
Formats Description Example
retailed Sq.ft.
Warehouse style large stores, Food, groceries •100,000 + Metro cash and carry, Costco,
offering goods in bulk at Sam’s Club
Warehouse discount prices to members
clubs

Retail outlet offering products of Apparel, footwear, tyres, food •1,000-5,000 Nike, Adidas, Colourplus,
Single brand a single brand services, furniture McDonalds, Gautier, Gucci, TBZ
outlets

Multibrand Retail outlet offering multiple Footwear, apparel, electronics, •1,000-20,000 Planet Sports, Planet Fashion,
branded products belonging books Crosswords
speciality to a single category class
stores

August 15, 2008

Organizing Retail in India-Challenges

• Heterogeneous market
– Product offerings in different stores across the country will be
very different
– No standard mode of operation across formats
– Market not mature (has to be validated)
• Infrastructure will bring about logistical challenges
– Though, improvements in road networks, power supply are
underway
Retail Challenges
• Trained employees with understanding of retail business are
inadequate compared to the needs of organized retail
• Barriers to Entry
– High taxes, bureaucratic clearance process and labour laws
• High cost of real estate
– though over 600 malls are to come up all over the country by the
next 4 years
• Indian retailers are deeply entrenched, are expanding and
building on logistics and technology initiatives

August 15, 2008

 At ground level ….
• Complex Processes - Multiple MRP, Deals & Promotions, Forecasting &
Replenishment, Lean supply chain – JIT inventory, flow through warehouse
Processes
• Evolving processes in Supply chain & merchandising
• Global Best Practices not adopted

• High disposable income

Consumer • Changing consumer preferences
• 28 states, 100+ religion, 250+ festivals

• Supply chain not reliable. Cold storage infrastructure evolving

Infrastructure • Outsourced transportation
• Low level automation in warehouses

• Little or no collaboration between vendor & retailer

Supplier/ • Low fill rates from vendors
Vendor • Highly localized assortments leading to relationship with multiple vendors
• Complex trading contracts and off invoice discounts

• Multiplicity of disparate Systems & Data Formats

Current IT • No architecture roadmap
• Base ERP and home grown POS solutions. Low investments in store systems
• No investments in planning & optimization technologies
August 15, 2008
The Way Ahead

• India is amongst the least saturated of all major

global markets in terms of penetration of modern
retailing formats

• Many strong regional and national players emerging

across formats and product categories

• Most of these players are now gearing up to expand

rapidly after having gone through their respective
learning curves

• Real Estate Developers are also moving fast

through the learning curve to provide qualitative
environment for the consumers

• The Shopping Mall formats are fast evolving

• Partnering among Brands, retailers, franchisees,
investors and malls
In view of a compressed
evolution cycle, retailers need to
simultaneously address issues of speed,
Execution and efficiency

• Improved Infrastructure

August 15, 2008

Thank You