FDI in RETAILING IN INDIA Retailing

Presentation by Group 1 &2

R ETAILING

According to Philip Kotler “retailing includes all the activities involved in selling goods or Services directly to final consumers for personal , Non business use”.

Indian Retailing: Brief Overview

Retail market in India was valued at INR 16.94 tr in 2010 and is expected to grow at a CAGR of 11%.  It accounts for 22% of the country's GDP and is the second largest employer with 35.06 mn people.  India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearney’s report published in June 2010  The total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015

A BOUT US $530 B ILLION R ETAIL M ARKET BY 2013
GDP* US$ 1,450 billion

Private Consumption US$ 870 Billion (60%)

Public Spending and Capital Formation US$ 580 Billion (40%)

Retail US$ 530 Billion (61%)

Non Retail US$ 340 Billion (39%)

Urban US$ 252 Billion (47.5%)

Modern retail – US$ 78 billion 31% of urban retail spends

Rural US$ 278 Billion (52.5%)

Modern retail – US$ 9 billion 3% of rural retail spends

*All figures are in nominal terms after taking into account inflation

Source: Technopak Analysis

R ETAIL M ARKET NOT LIMITED TO METROS BUT WIDELY ACROSS I NDIA  The classic ”skimming” strategy in the metros is not longer sufficient  100 cities strategy  Ludhiana New Delhi Lucknow VaranasiPatna Jaipur Ahamabad Vadodara Surat Kanpur Indore Bhopal Nagpur Over 250 large size shopping malls are currently under construction Leading cities 2030 are forecasted to be   Mumbai New Delhi Chandigarh Kolkata Pune Hyderabad Visakhapatnam Mumbai Bangalore Chennai Kochin Coimbatore Madurai Above 10 Mn inhabitants Above 4 Mn inhabitants Above 2 Mn inhabitants Above 1 Mn inhabitants   .

Haryana and Punjab and mainly sells wheat and paddy apart from daily need products.  Future Group and Godrej Agrovet's joint venture (JV) in rural retailing.  The company already has 35 agriretailing outlets in the Saurashtra region.   .RURAL RETAILING AADHAR  Champion Agro Ltd Rajkot based Champion Agro Ltd is planning to come up with single window shopping facility for farmers. The overall investment planned is between US$ 66. and is expected to open around 400 outlets at a taluka level across Gujarat by 2016. along with technocommercial suggestions to help them give a better output. is all set for a revamp.7 – US$ 88.94 million. which includes what kind of crop can they plant and when.3 million. The alliance operates stores in Gujarat. The company also provides farmers with solutions to problems regarding their agricultural output. 'Aadhar'. Maharashtra.  It will open 50 new outlets by the end of 2011with an investment of US$ 3.

electronics & appliances. furniture & furnishing. household articles. clothing & footwear. furniture & furnishing. clothing & footwear. household articles. Multi format and Multi Category Birla Convenience and Supermarket . Argos will be providing its brand. furniture & furnishing. electronics & appliances.5 Billion investment by Bharti) Home Retail Group plc Shopper's Stop Ltd and Hypercity Retail India Private Ltd Product Range Food & grocery. Supermarkets and Convenience Multi Channel propositions Tata-Woolworths Sourcing agreement for Consumer durables and Foods under brand name CROMA Multi brand retail chain Staples Inc – Pantaloon Retail Global Sourcing of Office equipments across various businesses Cash and carry Reliance Food & grocery.G LOBAL H EAVYWEIGHTS IN I NDIAN R ETAILING Joint Ventures Bharti-Walmart (with $2. electronics & appliances. household articles. Food & grocery. catalogue and multi-channel expertise and IT support Retail Formats Hypermarkets. Franchising the Argos concept under the terms of the arrangement. clothing & footwear.

 FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. FDI up to 51 % with prior Government approval (i.FDI Policy with Regard to Retailing in India It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.   . FIPB) for retail trade of ‘Single Brand’ products.e. subject to Press Note 3 (2006 Series) FDI is not permitted in Multi Brand Retailing in India.

M ILESTONES .FDI POLICY IN R ETAIL .

E NTRY O PTIONS FOR F OREIGN P LAYERS P RIOR TO FDI POLICY .

Disposable incomes are expected to rise at an average of 8.000 a year on conspicuous consumption.N EED FOR O PENING FDI IN R ETAIL  The Changing Indian Consumer:  Indians with an Ability to spend over USD 30.5% p.  Urbanization:  The Indian urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment. which currently comprises 22% of the total population. till 2015.  Demographics:  More than 50% of the population is less than 25 years of age and strong growth is expected to continue in this age bracket. .  Economic Growth:  Greater disposable incomes for the Indian middle class.a.

N EED FOR O PENING FDI IN R ETAIL CONTD …  Expanding Education Sector:  Led to the growing awareness and demands of the youth regarding the brand culture in the country.  Impact of Media:  The change in the thought process of the consumers due to the increased impact of media on their lifestyle has made the retailers find the market for new and lucrative products which were earlier not accessible to the consumers.  Improved Logistics .  Environmental & Agricultural Factors:  The continuous changes in the environmental factors and the changing agrarian facilities with the increasing outputs and better yields have also led to the growth in demands of the consumers.

Local 30 percent sourcing requirement modified  While the mandatory 30% local sourcing requirement continues. artisans and craftsmen. where it is feasible.R EFORMS INTRODUCED IN S INGLE B RAND R ETAIL   The FDI cap of 51% in single brand product retail trading has been revised to up to 100%. small and medium enterprises). village and cottage industries. the policy framework now provides that sourcing in India should be preferably made from MSMEs (micro. Brand ownership by one foreign investor only either directly or under licensing/ franchise/sub-licence arrangements. .   Product should be sold under same brand internationally or foreign owner should be owner of brand. in all sectors.

would be US$ 100 million.R EFORMS INTRODUCED IN M ULTI B RAND R ETAIL CONTD …  Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in multi brand retail trade  The establishment of the retail sales outlets will have to be in compliance with applicable State laws/ regulations.  Minimum amount to be brought in. by the foreign investor. 30 percent mandatory local sourcing requirement  . as FDI.

packaging. agriculture market produce infrastructure etc.R EFORMS INTRODUCED IN M ULTI B RAND R ETAIL  50% of total FDI brought in to be invested in `backend infrastructure` within three years  ‘back-end infrastructure’ will include capital expenditure on all activities such as investment made towards processing. storage. . distribution.  Implication: The Indian retail sector is fraught with lack of adequate infrastructure and increased cost and wastage due to disrupted supply chains and middlemen. design improvement. To address this problem. the requirement for investment in back end infrastructure within a three year timeframe has been introduced. quality control. logistics. warehouse. manufacturing.

R EFORMS INTRODUCED IN M ULTI B RAND R ETAIL CONTD …  Retail sales locations may be set up only in cities with a population of more than 1 million  As per 2011 Census only 53 cities qualify for FDI in multibrand retail locations. States/ Union Territories. the current restriction to Tier 1 and Tier 2 cities seems reasonable given the sensitivity around the sector and prevalent undeveloped / unorganised retail in small towns/ villages which would be unable to compete with large players. would have the flexibility to do so of identifying the largest city where FDI could be allowed. However. which do not have any city with a population exceeding 10 lakhs. .   Implication: The above restriction would limit reach of foreign investor. but are desirous of implementing the policy.

only 5386 stand-alone cold storages  Insignificant FDI inflow in cold-chains. however very limited integrated coldchain infrastructure. though there is no restriction on FDI.A RGUMENTS FOR 100% FDI IN R ETAIL  Need of Investments in backend infrastructure  Estimated losses due to inadequate handling facilities    Food grains: 6 to 7% Valuable spices: 10% Fruits and vegetables: 30 to 40%  India. second largest producer of fruits and vegetables (214 million MT).in the absence of a policy framework permitting FDI in retailing .

. designs and technological knowhow.    ..A RGUMENTS FOR 100% FDI IN R ETAIL CONTD .  Indian farmers realize only one-third of the total price paid by the final consumer: as against two-thirds by farmers in nations with a higher share of organized retail Domination of intermediaries in the value chain: leading to non-transparent pricing Absence of a ‘farm-to-fork’ retail supply system: Ultimate customers pay a premium for shortages and a charge for wastages Transfer of new and innovative retail technologies by foreign retailers -Indian companies can access global best management practices.

.. Enable the small enterprises to get integrated with global retail chains.Inflow of FDI in retail sector to pull up the quality standards and costcompetitiveness of Indian producers in all the segments.A RGUMENTS FOR 100% FDI IN R ETAIL CONTD . thereby enhancing their capacity to export products from India. .    Better choices of products for consumers More employment opportunities Small manufacturers will benefit from the safeguard pertaining to a minimum of 30% procurement from Indian small industries.   Improvement in quality standards .

Many of the small business owners and workers from other functional areas may lose their jobs.  The domestic organized retail sector might not be competitive enough to tackle international players and might loose its market share.A RGUMENTS AGAINST FDI IN RETAIL  FDI could drain out the country’s share of revenue to foreign countries which may cause negative impact on India’s overall economy.  .

Reliance. Traditional retailing has been established in India for many centuries. and is characterized by small.   . familyowned operations. Future Group and the Birla's. They pay little by way of taxes. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector.I MPACT ON T RADITIONAL M OM AND P OP S TORES  Account for 70% of the retail business even after the arrival of national retailers from the corporate giants like the Tata.

I MPACT ON T RADITIONAL M OM AND P OP S TORES  As the big players would come with advanced capabilities of scale and infrastructure in addition to having deep pockets.  . Fears have also been raised over the lowering of prices of products owing to better operational efficiencies of the organised players that would affect the profit margins of the unorganised players. this would result in the loss of jobs for lakhs of people absorbed in the unorganised sector.

I MPACT ON FARMER G ROUPS

When farmers enter supermarket channels, they tend to earn from 20 to 50% more in net terms. Farm labour also gains. But supplying supermarket chains requires farmers to make more up-front investments and meet greater demands for quality, consistency, and volume compared with marketing to traditional markets.

I MPACT ON FARMER G ROUPS

In a pan-Indian survey conducted in December 2011, overwhelming majority of farmers support the retail reforms. Nearly 78 per cent of farmers said they will get better prices for their produce from multi format stores. Bharat Krishak Samaj, a farmer association with more than 75,000 members says it supports retail reform. Given the perishable nature of food like fruit and vegetables, without the option of safe and reliable cold storage, the farmer is compelled to sell his crop at whatever price he can get.

I MPACT ON E XISTING I NDIAN
RETAIL FIRMS

They expect a flurry of joint ventures with global majors for expansion capital and opportunity to gain expertise in supply chain management.

Spencer's Retail with 200 stores in India, and with retail of fresh vegetables and fruits accounting for 55% of its business claims retail reform to be a win-win situation, as they already procure the farm products directly from the growers without the involvement of middlemen or traders.

which are merely a “listing platform for brands”. are welcome to operate in India.O NLINE M ULTIBRAND R ETAILING   FDI in online Multi brand retail continues to be restricted to brick and mortar stores The Press Note 1 of 2012 issued earlier in the year imposed   FDI restrictions on e-commerce firms engaging in eretail in B-2-C 100% FDI in B-2-B retailing.  Foreign firms that buy and sell any goods or services are still banned from conducting their activities .  Foreign firms.

Bestbuy Impact No impact unless they want to set up their own venture in India Business would run as usual. but now FDI only up to 51 %. expedia.com.com.com.com Flipkart. metaljunction. as they do not have any inventory Will come under FDI rule if they want foreign investment No impact as FDI norms for multibrand retailing Until now 100% allowed.H OW DOES NEW FDI NORM FOR RETAIL AFFECT E COMMERCE PORTALS CATEGORY Foreign sites operating outside Indian shores Foreign sites operating in India.com Single Brand Retailing B2B portals . but only lists products Indian Sites Example Amazon. snapdeal. thus huge impact eBay.com Dell Indiamart.

C HALLENGES  Political Challenges:   Policy implemented under vehement opposition 26 out of the 45 cities eligible to allow FDI multibrand retail operation in the country are located in states that are ruled by opposition Early entrants like Walmart cannot capitalise as majority of its cash and carry stores are in Non Congress ruled states and convincing opposition parties is a challenge.  .

cost-effective manner clause of mandatory $100 million investment which is to be done within the first 3 years worrying foreign investors Policy still needs clarity with regards to companies’ buying retail assets in the country The clause of 30 % sourcing norms    .C HALLENGES  Other Challenges:   Prices of real estate too high A dearth of buildings with the right configuration. where the logistics of retail can be handled in a seamless.

729 worldwide Stores: 2.3 bn Sales: $130 bn Sales: $101 billion Earnings: $12.2 billion Stores: 3.5 bn France UK Sales: $102.800 worldwide Earnings: $5.5 billion Stores: 2.9 billion Stores: 6.221 Earnings: $4.422 worldwide Earnings: $5.258 .6 billion Germany US Sales: $77.US Sales: $374.2 billion Stores: 87.5 billion Earnings: $1.

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 It is is the largest retailer in the world and It is also the biggest private employer in the world with over two million employees.A BOUT WALMART  Walmart. Walmart remains a family-owned business.  . as the company is controlled by the Walton family . is an American multinational retailer corporation that runs chains of large discount department stores and warehouse stores.

5 to 24.738.000 square feet (9.7 m2).   .247..901.9 m2).000 to 261.They carry general merchandise and a selection of groceries.3 m2). Walmart Supercenters : size varying from 98.810.A BOUT WALMART (C ONTD .000 square feet (4.000 square feet (3.104.)  It consists of three retail formats :  Discount Stores :size varying from 51. They are used to fill the gap between discount store and supercenters. Walmart Market : is a chain of grocery stores that average about 42.1 m2) to 224.000 square feet (20.

The joint venture is establishing wholesale cashand-carry stores and back-end supply chain management operations in line with Government of India guidelines. .  The cash and carry wholesale facility has been named “Best Price Modern Wholesale”. Bharti and Walmart hold 50:50 stakes in Bharti Walmart Private Limited.W ALMART AND I NDIA    Bharti Walmart Private Limited is a joint venture between Bharti Enterprises and Walmart.

in-store displays. They help kirana stores manage their inventory better by enabling them to purchase in quantities they need and at the time they require They have also created an innovative kirana model “My Kirana” that provides them training and insights into areas such as assortment planning. different education programs for members with customized modules like taxation.   .B ENEFITS TO KIRANA FROM B EST P RICE   SHOP OWNERS Best Price stores offer them access to quality products at the lowest prices. have also been introduced. food safety etc. In addition. value added services etc. inventory management. food preparation. hygiene.

B ENEFITS TO FARMERS   7-10% higher price to farmers than what they get from Mandi 3-4% incentive for the quality of the produce farmers deliver to Bharti Walmart based on customer requirement Expert advice on better crop planning and management Efficient crop calendar management aimed at catching early and late seasons for better prices Opportunity to maximize and improve income by offering better quality.    .

  .R ECENT DEVELOPMENTS  The GOI has announced 51% FDI in multi brand retail. Limited availability of real estate space coupled with high real estate costs would be one of the major challenges before its Indian retail foray.P.20 months. The first stores may be rolled out in the states of Maharashtra and A. Walmart is planning to launch retail stores in India within 18.

.  .R ECENT DEVELOPMENTS (C ONTD .)  Bharti Walmart also sees bad supply chain environment in big cities as another key challenge before its retail foray in view of restrictions on inter-state movement of goods  Another key challenge before the MNC retailers was to train and provide meaningful employment to local population. Though the opposition is against the entry of Walmart. many progressive farmers see it as a win – win situation.

France Largest Hypermarket Chains with 1395 hypermarkets at the end of 2010   Second Largest Retailer Group in the world in terms of revenue and third largest in terms of profit It operates in 4 store formats Hypermarkets Supermarkets Convenience Cash & Carry .C ARREFOUR   French international hypermarket chain headquartered in Boulogne Bullecourt.

C ARREFOUR A ROUND T HE W ORLD .

express “Whole hearted gratitude to Government of India for taking this great initiative” .C ARREFOUR I N I NDIA  Carrefour Wholesale Cash & Carry Opened its first Cash & Carry Store in India on 30th December. Delhi   Currently operates 2 cash and carry stores in India It plans to enter the multi-brand retail segment with homegrown retail giant. Future Group Signed an all exclusive franchise agreement with the Landmark Group to build up hypermarkets in the country   Kean Noel Bironneau.2010 in Shahdara.

000 employees from 150 nations are working at over 2.M ETRO    Metro is the world’s 4th largest retailing Pioneered by Dr. Otto Beisheim. first C&C store in Germany in 1964 300.200 outlets in 32 countries in Europe. Africa and Asia   Annual Turnover is € 68 bn Metro Portfolio Services Metro Cash & Carry Real hypermarkets Media Market and Saturn Galeria Kaufhof .

there are 5 wholesale centers in operation 2 in Bangalore 1 in Hyderabad 1 in Mumbai 1 in Kolkata .M ETRO IN I NDIA   Metro entered into India by establishing two sales branches in Bangalore The first METRO Cash & Carry wholesale center in India opened in Bangalore in 2003.      At present.

. Consumption of luxury brands has grown 29% in products and 22% in services    .L UXURY M ARKET IN I NDIA  India’s luxury market is pegged at $5.the shift in luxury market is from owning a luxury brand to experiencing a luxury.72 billion by 2015 India is likely to emerge as the top 10 luxury markets of the world According to the BCG .75 dollars and is likely to grow at $14.

which has around 3. GAP is operating through franchises and is present in Delhi. and babies under the Gap. Hyderabad and Mumbai    Gap also in consultation with other leading Indian apparels brands which will ease its entry into the Indian Market .100 stores across the globe. had revenues of $1. women. Banana Republic.6 billion in 2011 In India. and personal care products for men.GAP IN I NDIA  Gap sells clothing. Old Navy. children. Chennai.2-billion specialty retailer GAP. Piperlime and Athleta brands The $14. accessories.

and Harrods are among the company’s clients  .S OLVING E FESO  It is a top management consultancy firm with a leading reputation for connecting strategy with action  The company announced its entry into the India market with the acquisition of Gurgaon-based company Q-Spread Global retail groups present in India include Walmart. Walmart. Tesco. Carrefour. Metro and Tesco.

plans to open some 10 stores in India soon. It will subsequently produce 100% India-made high-end bags. British menswear brand Hackett is set to open manufacturing in India. which has recently formed an equal joint venture with Aditya Birla-owned Madura Fashion and Lifestyle.   .R ECENT SEGMENT  EVENTS IN THE LUXURY The worldwide chief of the world's biggest luxury brand Louis Vuitton. clutches and clothes for the global market. to make shoe uppers for unnamed luxury footwear brands starting December. blasted India's policy of imposing a 30% local sourcing requirement for luxury groups such as his as 'nonsense'. Yves Carcelle . La Compagnie (A company by Regnis Fournier) plans to invest Rs 350 crore in a facility in Puducherry. The company.

But foreign luxury brands. feel that the policy changes will open up a window of opportunity for them. Kanpur. Veneta. although in a small way. Lucknow and Jaipur. in cities such as Delhi. hoping to supply to global luxury goods makers keen on setting up shop in India. Polo Ralph Lauren. suppliers to brands such as Armani. a clutch of businessmen are retooling their businesses. among others. are not as enthused by the sourcing conditions   . Across India. keen as they are to set up shop in India. Already.

  There are 15 Star Bazaar outlets operating in India. build up its retail business. the Trent hypermarket offer.TESCO  In August 2008 Tesco had entered into a franchise agreement with Trent(Retail arm of Tata) to help Star Bazaar. . It is a marriage of the retailing experience of Trent and the backend knowhow of Tesco.

 In Star Bazaar. Tesco helps in terms of sourcing and developing its own private brands in many categories such as noodles and ketchups Private labels help retailers earn higher margins as they save on overheads. which draws three to four per cent of its revenues from private brands. the wholesaling arm of Tesco in India.   . taps the Hong Kong office for the needs of Star Bazaar stores. The 300 staff-strong Tesco Hindustan Wholesale.

 Tesco manages three distribution centres. The company will roll out the 'Healthy Choices' formats at all its 15 stores. which manage high availability and constantly churn out supplies to the Star Bazaar stores. is also helping Star Bazaar with customer research inputs. which is renowned for its data research and analytics. Tesco gets over 80 per cent fill rate to the stores of Star Bazaar.   Armed with its advanced demand forecast systems. auto ordering mechanisms and advanced warehouse systems. Tesco.  .

IKEA .

. chairs.A BOUT IKEA   The company is the world’s largest furniture retailer Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad  The company designs and sells ready-to-assemble furniture such as beds. appliances and home accessories. desks.

IKEA & INDIA  In one of the biggest Foreign Direct Investment (FDI) initiatives.5 billion) investment to set up 25 stores under the single brand retail category. 10. It proposes to invest in single brand retail trading in India through a 100 per cent subsidiary  . IKEA has proposed a whopping Rs.500 crore (€1.

) ..IKEA & INDIA(C ONTD .

cosmetics. bathroom fittings. nursing home and publications under its brand name. food mart. kitchen utensils. tableware.)  The company would be selling products like furniture..  Has also proposed to set up restaurants. cooking range. consumer electronics etc.IKEA & INDIA(C ONTD . IKEA's foray into India could help transform India's largely unorganized $500 billion retail sector  . toys. leather articles.

etc. The company will have competition when it arrives. vastly improving availability of highquality. low-price products.  .. as India already has at least two big-box housewares retailers.lifestyle.IKEA & INDIA(C ONTD . home town.)  It could have a significant impact on the country's retail sector. for example .

raising the prospect of a delay in the world's largest furniture maker entering the Indian retail market. the Swedish company sought a 10-year window to comply with the sourcing rules It is opposed to the mandatory norm of sourcing at least 30 per cent of the value of products sold from small enterprises in the country   .R ECENT DEVELOPMENTS  India has rebuffed a request by IKEA to relax rules on buying goods locally.

.FDI  IN AVIATION Foreign airlines can buy stakes of up to 49% in Indian Air Carriers Indirect Investment Route   Includes both foreign direct investment and foreign institutional investment.

R IDERS A SSOCIATED   Chairman & two thirds of Directors need to be Indian Citizens Clearance from Home Ministry Investment Promotion Board and Foreign   Substantial ownership and effective control of the airline being vested in Indian nationals All foreign nationals associated with the Indian company will have to undergo security clearance  Technical equipment imported into India following the investment will require civil aviation ministry clearance .

A DVANTAGES  Create access to capital. cheaper airfares and more power to the passenger Healthy re-capitalization of airline companies will promote vital connectivity and bring benefits to all stakeholders including banks. technology and best practices Lead to the establishment of new airlines in India   Increased competition would lead to better offerings.  . global connectivity. greater efficiency.

Long-term growth potential has been squeezed by high costs and fierce price competition.P ROBLEMS  Most domestic carriers looking for money are financially strained and might not be attractive targets for investors. The financial situation of international carriers is also bad   .

T HANK Y OU .