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The Indian Consumer Sector

Industry Evolution Contd…

 Traditionally retailing in India can be traced to

– The emergence of the neighborhood „Kirana‟ stores catering to
the convenience of the consumers
– Era of government support for rural retail: Indigenous franchise
model of store chains run by Khadi & Village Industries
 1980s experienced slow change as India began to open up economy.
 Textiles sector with companies like Bombay Dyeing, Raymond's, S
Kumar's and Grasim first saw the emergence of retail chains
 Later Titan successfully created an organized retailing concept and
established a series of showrooms for its premium watches
 The latter half of the 1990s saw a fresh wave of entrants with a shift
from Manufactures to Pure Retailers.
 For e.g. Food World, Subhiksha and Nilgiris in food and FMCG;
Planet M and Music World in music; Crossword and Fountainhead in
Industry Evolution

 Post 1995 onwards saw an emergence of shopping centers,

– mainly in urban areas, with facilities like car parking
– targeted to provide a complete destination experience for all
segments of society
 Emergence of hyper and super markets trying to provide customer
with 3 V‟s - Value, Variety and Volume
 Expanding target consumer segment: The Sachet revolution -
example of reaching to the bottom of the pyramid.
 At year end of 2000 the size of the Indian organized retail industry is
estimated at Rs. 13,000 crore
Consumer formats in India

 Malls:  Department Stores:

The largest form of organized retailing today. Departmental Stores are expected to take over the
Located mainly in metro cities, in proximity to apparel business from exclusive brand showrooms.
urban outskirts. Ranges from 60,000 sq ft to Among these, the biggest success is K Raheja's
7,00,000 sq ft and above. They lend an ideal Shoppers Stop, which started in Mumbai and now
shopping experience with an amalgamation of has more than seven large stores (over 30,000 sq.
product, service and entertainment, all under a ft) across India and even has its own in store brand
common roof. Examples include Shoppers Stop. for clothes called Stop!.
 Hyper marts/Supermarkets:
 Specialty Stores:
Large self service outlets, catering to varied
Chains such as the Bangalore based Kids Kemp, shopper needs are termed as Supermarkets. These
the Mumbai books retailer Crossword, RPG's Music are located in or near residential high streets. These
World and the Times Group's music chain Planet M, stores today contribute to 30% of all food & grocery
organized retail sales.
are focusing on specific market segments and have
established themselves strongly in their sectors.
 Discount Stores:
 Convenience Stores:
As the name suggests, discount stores or factory These are relatively small stores 400-2,000 sq. feet
outlets, offer discounts on the MRP through selling located near residential areas. They stock a limited
in bulk reaching economies of scale or excess range of high-turnover convenience products and
stock left over at the season. The product category are usually open for extended periods during the
day, seven days a week. Prices are slightly higher
can range from a variety of perishable/ non due to the convenience premium.
perishable goods
 Department Stores:  MBO’s :
Large stores ranging from 20000-50000 sq. ft, Multi Brand outlets, also known as Category Killers,
catering to a variety of consumer needs. Further offer several brands across a single product
classified into localized departments such as category. These usually do well in busy market
clothing, toys, home, groceries, etc. places and Metros.
Consumer formats in India
India’s number of Domestic grocery chains and Early Foreign Entrants
Recent Trends Contd…
 Retailing in India is witnessing a Retail Sales in India
huge revamping exercise as can
be seen in the graph
 India is rated the fifth most
attractive emerging retail market:
a potential goldmine.
 Estimated to be US$ 200 billion,
of which organized retailing (i.e.
modern trade) makes up 3 percent
or US$ 6.4 billion
 As per a report by KPMG the
annual growth of department
stores is estimated at 24%
 Ranked second in a Global Retail
Development Index of 30
developing countries drawn up by
AT Kearney.
Recent Trends Contd…

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 Trends Contd…

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 organised 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 organised

retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big
Bazaar, Bombay Bazaar, RPGs.
Recent Trends Contd…

Recent changes:

Unorganized retailing is getting organized: To meet the challenges of organized

retailing such as large cineplexes, 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
Recent Trends contd.
 Multiple drivers leading to a consumption boom:
– Favorable demographics
– Growth in income
– Increasing population of women
– Raising aspirations : Value added goods sales
 Food and apparel retailing key drivers of growth
 Organized retailing in India has been largely an urban phenomenon with
affluent classes and growing number of double-income households.
 More successful in cities in the south and west of India. Reasons range from
differences in consumer buying behavior to cost of real estate and taxation
Recent Trends
 Rural markets emerging as a huge opportunity for retailers reflected in the
share of the rural market across most categories of consumption
– ITC is experimenting with retailing through its e-Choupal and Choupal
Sagar – rural hypermarkets.
– HLL is using its Project Shakti initiative – leveraging women self-help
groups – to explore the rural market.
– Mahamaza is leveraging technology and network marketing concepts to
act as an aggregator and serve the rural markets.
 IT is a tool that has been used by retailers ranging from to eBay
to radically change buying behavior across the globe.
 „e-tailing‟ slowly making its presence felt.
 Companies using their own web portal or tie-sups with horizontal players like and to offer products on the web.
Major Retailers
 India‟s top retailers are
largely lifestyle, clothing Leading Retailers
and apparel stores
 This is followed by
grocery stores
 Following the past trends
and business models in
the west retail giants such
as Pantaloon, Shoppers‟
Stop and Lifestyle are
likely to target metros and
small cities almost
doubling their current
number of stores
 These Walmart wannabes
have the economy of scale
to be low –medium cost
retailers pocketing narrow
India vs. World Contd…

 Indian retail is fragmented with over 12 million outlets operating in the

country. This is in comparison to 0.9 million outlets in USA, catering to more
than 13 times of the total retail market size as compared to India
 India has the highest number of outlets per capita in the world - widely spread
retail network but with the lowest per capita retail space (@ 2 sq. ft. per
 Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than
the size of Indian retail industry. Almost 100 times more than the turnover of
HLL (India's largest FMCG company).
 Wal-Mart - over 4,800 stores (over 47 million square meters) where as none
of India's large format store (Shoppers' Stop, Westside, Lifestyle) can
 The sales per hour of $22 million are incomparable to any retailer in the
world. Number of employees in Wal-Mart are about 1.3 million where as the
entire Indian retail industry employs about three million people.
India vs. World

 One-day sales record at Wal-Mart (11/23/01) $1.25 billion - roughly two

third of HLL's annual turnover.
 Developed economies like the U.S. employ between 10 and 11 percent of
their workforce in retailing (against 7 percent employed in India today).
 60% of retailers in India feel that the multiple format approach will be
successful here whereas in US 34 of the fastest-growing 50 retailers have just
one format
 Inventory turns ratio: measures efficiency of operations. The U.S. retail sector
has an average inventory turns ratio of about 18. Many Indian retailers
KPMG surveyed have inventory turns levels between 4 and 10.
 Global best-practice retailers can achieve more than 95 percent availability of
all SKUs on the retail shelves (translating into a stock-out level of less than 5
%).The stock-out levels among Indian retailers surveyed ranged from 5 to 15
Future direction: Positives Contd…

 AT Kearney has estimated India‟s total retail market at US$ 202.6 billion
which is expected to grow at a compounded 30 per cent over the next five
 With the organised retail segment growing at the rate of 25-30 per cent per
annum, revenues from the sector are expected to triple from the current
US$ 7.7 billion to US$ 24 billion by 2010.
 The share of modern retail is likely to grow from its current 2 per cent to
15-20 percent over the next decade
 Over next two years India will see several Indian retail businesses attaining
a critical mass as growth in the industry picks up momentum driven by two
key factors:
– Availability of quality real estate and mall management practices
– Consumer preference for shopping in new environments
Future direction: Positives

 Wal-Mart : huge plans for India. Moving a senior official from its
headquarters in Bentonville, Arkansas, to head its market research and
business development functions pertaining to its retail plans in India.
 New York-based high-end fashion retailer Saks Fifth Avenue has tied up
with realty major DLF Properties to set up shop in a mall in New Delhi.
 Tommy Hilfiger, retailer of apparels, expects to open one store each in
Delhi, Ahmedabad, Lucknow and Bangalore in the next four months.
Future direction: Concerns Contd…

 68 million square feet of mall space is expected to be available by end of

2007, which might lead to over-capacity of malls
 Lack of differentiation among the malls that are coming up. One option may
be to look at specialization.
 Poor inventory turns and stock availability measures - retailers clearly need to
augment their operations.
 Operations of retailers and suppliers are not integrated. Efficient
replenishment practices practiced in the Indian auto and auto-component
industry can be leveraged to implement efficient supply chain management
Future direction: Concerns

 Supplier maturity, in terms of adherence to delivery schedules and delivering

the quantity ordered, is an issue
 Sales tax laws - lead to retailers having state-level procurement and storage
leads to Indian retailers having higher inventories. VAT has helped alleviate
this a bit.
 Increased adoption of IT and shrinkage management will be a critical area.
 Supply chain and customer relations followed by merchandising, facilities
management and vendor development are areas which have significant gaps
and proactive training is a key imperative for overcoming these.

 AT Kearny
 Forrester Research 2006