Topic 2

Innovations in Indian Retail Industry

 INTRODUCTION

By 2020, Indian retail industry will improve drastically.

Demographics Annual Growth Challenges

Income- 70%
Urbanization 9%
Spend /capita 25-30%
Per sq/ft Sales India- 1500-2000
Overall Retail - 12%
Per sq/ft sales International– 8000-12,000
Organized Retail -20%
Gross Margin India vs International– 7-8%
E-commerce- 40-50%
Rental India vs International - 1.5 -3%

*Source: CII-BCG Study (Mint)

 POTENTIAL IMPACT OF FDI IN RETAIL
1100-1200 * Figures in $ billion

630 915-990

560 2015
60140-160 2020
8-12 45-50
Total Retail Market
Organised Retail
E-commerce
Unorganised Retail

 Huge FDI in next 5 years

 ~1.5 million direct and indirect employment opportunities
 Investments in back-end infrastructure
 Benefits to consumers through lower price points and better shopping experience
 Access to new technology and capital from international players for existing retailers.

*Source: CII-BCG Study (Mint)

 ORGANISED RETAIL IN 2015

Segments Total Growth rate

Value Between 2005-15 (in%)
(in $ bn)
12
Food and grocery 396
13
Clothing and accessories 56
20
Jewelry 37
Consumer durables and 36 13
mobile
12
Food services 35
13
Healthcare 18
Personal accessories 18 15
Home and interior 18 12

Beauty and personal care 12 15

*Source: CII-BCG Study (Mint)

 GROWTH IN E-COMMERCE

Category Online share by 2019 (in %)

Groceries <1

Home 8

Beauty 8

Clothes and shoes 10-12

Consumer durables 10-12

Books and media 13-15

Electronics 25-30

Travel >60

*Source: CII-BCG Study (Mint)

 KEY CHALLENGES FACED BY INDIA RETAILERS

Particular % Responses, RAI-Booz Retailer Survey 2013

Real estate rental 74%

Real estate quality 52%

Slowing consumerism 26%

MRP* constraints 25%

Poor consumer sentiments 25%
Strength of kiranas 24%
Low supplier fill rate 21%
Relative strength of supplier 16%

Competition frm foreign retailer

14%

*Source: RAI-Booz survey was conducted in January 2013: total no. of respondent was 41
EVOLUTION OF ORGANISED RETAIL IN INDIA
Early Entrants in Expansion mainly in Large Investments
Apparel & Footwear Fashion & Lifestyle in F&G led Retail

F&G Retail
Retail
F&G
Trends in Organized Retail
 Growth in organized retail

services
has been led by non-Food &
Food
Size of Organized

Services
Grocery segments in India

Food
e.g. apparel, footwear

Apparel
 Liberalization led to an
Apparel
Retail

exponential increase in
Apparel

organized retail across

Foot-
wear
categories
& Watches

 However, it is only in the

Jewellery Foot- wear
Footwear

past 6-7 years that Food &

Grocery has witnessed
the entry of large domestic
and foreign players
Growth Growth Growth
Wave I Wave II Wave III
(Pre- (1991- (2005-
1991) 2004) 2012) Fashion Lifestyle F&G

Note: List of players/categories is not exhaustive – a representative list of major players (with at least 4-5 retail outlets) in key retail categories has been depicted
Source: Secondary research, Booz & Company analysis
CRITERIA FOR
INNOVATION

Tangible benefit to
consumer in terms Helps meet challenges
of price, service and which are even
Identified
experience applicable today
Innovations

A
Consumer Relevance Key
Impact Learnings
B
D

C
E
Economic
Implications
F Impact Scalability
~40 for Retailers
.. ideas “ ”

Delivered Has been

results to implemented
the company across a sizable
business
 IMPACT OF
INNOVATION

Innovation Levers – The

“What?”

Price
Context – the “Why?” Impact

Business Challenge/
Opportunity Unique Consumer
Value
(Market share loss, low profits/
Proposition
growth, market
(Value, Experience, Trust …)
whitespace… )

Convenience

Culture and Capabilities

Enablers – the “How?”

PARADIGM SHIFT
INNOVATION
Paradigm Shift
Paradigm – What consumers
thought
“Air conditioning, big & clean
stores, English speaking
staff...modern retail is more
VALUE expensive and not for me”
“An international restaurant is
expensive and products are not for
my Indian tastes “
“I buy jewellery only from my
family jeweller because we know
EXPERIENCE him”
“Buying online is not for me; I like to
touch and feel the product and pay
cash after delivery”
“Ethnic and handloom apparel is not
trendy and inconsistent on quality
and fit/size”
TRUST “Shopping at a busy mithai shop is a
chaotic experience”
Paradigm Breaker – What innovation Examples
delivered
 Non-intimidating bazaar type format
drove penetration and acceptance in
mid-market consumers
Product innovation, pricing and
marketing drove high acceptance
across consumer segments
 The karat meter and differentiated retail
experience delivered trust and a strong
value proposition to jewellery buyers
 Cash on delivery offers options to see the
product and pay in cash on delivery
 Ethnic and handloom apparel is trendy
and consistent in quality and size,
through reliable supply base of artisans.
 A mithai shop can deliver streamlined /
smooth store experience through
technology
 RETAIL

For updated information, please visit www.ibef.org July 2017

Table of Content

Executive Summary 3

Advantage India… 5

Market Overview and Trends 7

Porters Five Forces Framework 17

Strategies adopted… 18

Growth Drivers and Opportunities

21 Opportunities 27

Case Studies 31

Key Industry Organisations 35

Useful Information 37
 EXECUTIVE SUMMARY

 Rising income and demand for quality products to boost consumer Consumer expenditure in India (US$ billion)
expenditure
4,000
 Consumer expenditure estimated to be US$ 3.6 trillion by 2020 vis-à-
vis US$ 0.627 trillion in 2016 3,000
2,000
3,600
1,000
628
0
FY16 FY20
F
 Indian retail one of the fastest growing markets in the world due to Retail market in India (US$ billion)
economic growth
1,500
 By 2020, retail market in India is projected to reach US$ 1.3 trillion
from US$ 672 billion in 2016 1,000
1,300
500
672
0
FY16 FY20
F
 India’s modern retail to be three times in next 5 years Modern retail market in India (US$ billion)
 The modern retail market is expected to grow from US$ 60 billion to
200
US$ 180 billion during FY15-FY20

150
180
100
60
50
FY15 FY20 F
0
Notes: CAGR - Compound Annual Growth Rate, F- Forecast
Source: Ernst and Young, Price Waterhouse Cooper, Economic Times

3 Retail For updated information, please visit www.ibef.org

 EXECUTIVE SUMMARY

 Robust consumption, rural markets to augment FMCG market FMCG market in India (US$ billion)
 FMCG market expected to increase to US$ 103.7 billion by 2020
150
from US$ 49 billion in 2016
100

50 104
49
0
2016 2020 F

 Increasing participation from foreign and private players to boost Revenue from online retail in India (US$ billion)
retail infrastructure
80
 Revenue generated from online retail is projected to grow to US$ 60
billion by 2020. 60
40
60
20
0 13 15
2
0
 Rising number of tier-2 and tier-3 cities to enhance supermarket 1
Number of supermarkets in India
5
space in the country
9,000 2
 Supermarkets to total 8,500 by 2016 from 500 in 2006
0
6,000 1
6 8500
3,000
2 500
0 0
2 2006 2016
Notes: CAGR - Compound Annual Growth Rate, E – Estimate, F - forecast 0
Source: indiaretailing.com
E

4 Retail For updated information, please visit www.ibef.org

 Retail

ADVANTAGE INDIA
 ADVANTAGE INDIA

 Healthy economic growth, changing  Collective efforts of financial houses and

demographic profile, increasing banks with retailers are enabling
disposable incomes, changing consumer consumers to go for durable products with
tastes and preferences are driving growth easy credit
in the organised retail market in India  In January 2016, Bank of India announced
 Rapid urbanisation with increasing reduction in rate of interest on retail loans
purchasing power has led to growing offered by the bank.
demand

ADVANTAGE
INDIA
 About 51 per cent FDI in multi-brand retail
 Foreign retailers are continuously entering
 FDI of up to 100 per cent in single-brand
the Indian market retail and for cash and carry (wholesale)
 Cumulative FDI inflow in retail for March trading and exports
2017 stood at US$ 988.56 million;  Introduction of Goods and Service Tax
 100 per cent cash and carry operations (GST) as a single unified tax system from
are gaining significance in India with next fiscal year
Thailand’s Siam Makro being the latest  To provide a level-playing field to
entrant in this space, following Metro, stakeholders, the government is planning
Walmart and Booker to synchronise policies of retail, FMCG
and e-commerce within a single policy
framework

Note: FY – Indian Financial Year (April–March), NMDP – National Maritime Development Programme, FDI – Foreign Direct Investment, US$ – US Dollar,
E – Estimated, MMT – Million Metric Tonnes, CAGR – Compound Annual Growth Rate
Source: Report of the Task force on Financing Plan for Ports, Government of India

6 Retail For updated information, please visit www.ibef.org

 Retail

MARKET
OVERVIEW AND
TRENDS
 EVOLUTION OF RETAIL IN INDIA

Pre 1990s 1990-2005 2005-2010 2010 onwards

 Pure-play retailers realised the
 Manufacturers opened their
potential of the market
own outlets
 Most of them in apparel
segment
Source: Technopak Advisors Pvt Ltd, BCG
 Substantial investment
commitments by large Indian
corporate
 Entry in food and general
merchandise category
 Pan-India expansion to top
100 cities
 Repositioning by existing
players
 Cumulative FDI inflow from
April 2000 to March 2017, in
the retail sector, reached US$
988.56 million
 Retail 2020: Retrospect,
Reinvent, Rewrite.
 Movement to smaller cities and
rural areas
 More than 5–6 players with
revenues over US$ 1 trillion by
2020
 Large-scale entry of
international
brands
 FDI in single-brand retail up to
100 per cent from 51 per cent
 Approval of FDI limit in multi-
brand retail up to 51 per cent
 Rise in private label brands by
retail players
 Sourcing and investment rules
for supermarkets were relaxed
 E commerce has emerged as
one of the major segments

8 Retail For updated information, please visit www.ibef.org

 RETAIL FORMATS IN INDIA

Mono/exclusive  Exclusive showrooms owned or franchised  Complete range available for a given
branded retail shops out by a manufacturer brand, certified product quality

Multi-branded  Focus on particular product categories and  Customers have more choices as many
retail shops carry most of the brands available brands are on display

 Display most of convergence as well as

Convergence retail  One-stop shop for customers; many
consumer/electronic products,
outlets product lines of different brands on display
including communication and IT group

 It is an online shopping facility for buying

 Highly convenient as it provides 24X7
and selling products and services; the
E-retailers access, saves time and ensures secure
facility is widely used for electronics, health
transaction
and wellness

Note: IT - Information Technology

Source: Aranca Research

9 Retail For updated information, please visit www.ibef.org

 COMPETITIVE LANDSCAPE IN INDIAN RETAIL
SECTOR

Retail

Supermarkets/ Cash and carry

Departmental stores
 Pantaloon has 104  Pantaloon Retail is
stores
 Westside operates
86 stores
 Shoppers Stop has
 Aditya Birla Retail
81 stores in India,
as of 2016
 As of 2016, Reliance
Retail launched
 HyperCITY (16
‘Trends’ in this
format and
currently has nearly
3383 stores across
India
Hypermarkets convenience stores Specialty stores stores
 Aditya Birla Retail-  Titan Industries is a  Metro started the
the leader in this More large player, with cash and carry
format, with 512 Big Supermarket (499 430 World of Titan, model in India; the
Bazaar stores and stores) 174 Tanishq and company
online franchisees 336 Titan Eye+ operates 16
 Spencer’s Daily
shops stores across
(134 stores)
Mumbai, Kolkata,
(More  Vijay Sales, Croma
 Reliance Fresh (700 Delhi, Punjab,
Hypermarket)- 20 and E-Zone are into
stores) Hyderabad and
stores consumer
 REI 6Ten (350 Bengaluru
electronics
stores)  As of 2016, Reliance
stores), Trent,  Landmark and
Retail has opened
Spencer’s (Spencer  Big Bazaar (512 Crossword focus on
45 cash and carry
Hyper), and franchisees stores) books and gifts
stores and is
Reliance are other
planning to setup
players
300 more till 2019.

Source: Company websites, Press Release

10 Retail For updated information, please visit www.ibef.org

 STRONG GROWTH IN THE INDIAN RETAIL INDUSTRY

 The retail sector in India is emerging as one of the largest sectors in Market
Visakhapatnam
size over the
port
past
traffic
few (million
years (US$
tonnes)
billion)
the economy
 The total market size was estimated to be around US$ 672 billion in 1,400
CAGR 7.74%
2016, thereby registering a CAGR of 7.74 per cent since 2000.

1,300
 Retail industry is expected to grow to US$ 1.3 trillion by 2020. 1,200

1,000

800

672
600

600
534
518

490
400

424
368
321
278
200

238
204
0

2002

2004

2008

2013
2000

2006

2010

2012

2014

2015

2016

2020 E
Note: CAGR - Compound Annual Growth Rate, E - Estimated
Source: BCG Retail 2020, Ernst and Young, Deloitte, indiaretailing.com, Economist Intelligence Unit, Euro monitor,

11 Retail For updated information, please visit www.ibef.org

 FOOD AND GROCERY ACCOUNT FOR LARGEST
SHARE IN REVENUES IN INDIA

 By 2020, food and grocery segment is expected to account for 66 per Visakhapatnam
Revenue share
port traffic
of India(million
(FY20 tonnes)
E)
cent of the total revenues in the retail sector, followed by apparel
segment Footwear,
1.2%
 Demand for Western outfits and readymade garments has been Pharmacy,
growing at 40–45 per cent annually. 2.7%
Furniture and
furnishing,
3.6% Others,
5.4%
Consumer
durables and
IT, 5.2%

Jewellery,
8.0%

Apparel,
8.7%
Food and
grocery,
66.3%

Note: E – estimate
Source: Technopak, Indian Retail Market January 2013, Deloitte, A Report on ‘Changing trends: gems and jewellery industry’ by Onicra

12 Retail For updated information, please visit www.ibef.org

 ORGANISED RETAIL IN NASCENT STAGE

 Organised Retail Penetration (ORP) in India is low (8 per cent) in Significant scope for expansion
2015 compared with that in other countries, such as the US (85 per
cent). This indicates strong growth potential for organised retail in
100%
India
 The Indian retail market is in its nascent stage; unorganised players 90%
accounted for 92 per cent of the market during 2015
80%
 There are over 15 million mom-and-pop stores
70%
 Between FY15-20, organised retail in India is expected to witness a
76%
CAGR of 24.57 per cent 60%
92%
 In 2019, it is estimated that organised retail penetration share would 50%
reach 13 per cent and unorganised retail penetration would hold a
major share of 87 per cent. 40%

 Organised retail is expected to account for 24 per cent of the overall 30%
retail market by 2020
20%

10%

0%
2015 2020 E

Organised trade Unorganised trade

24%

Note: E – estimate
Source: BCG , KPMG- indiaretailing.com, Deloitte Report, Winning in India’s Retail Sector

13 Retail For updated information, please visit www.ibef.org

 SIGNIFICANT GLOBAL POSITIONING OF INDIAN
RETAIL SECTOR

 India is among the highest in the world in terms of per capita retail store availability. India’s strong growth fundamentals, along with increased
urbanisation and consumerism, offer immense scope for retail expansion for foreign players
 With the allowance of 100 per cent FDI in single brand retail investor sentiment will get further push

 In June 2016, Amazon Inc. has announced to invest an additional US$ 3 billion in India operations, thereby reaching investment to over US$ 5
billion. Moreover, in 2016, Amazon witnessed growth of 160 per cent in the seller base, over 2015 and attracted 1,40,000 sellers in India
 In May 2016, Aditya Birla Fashion and Retail Ltd (ABFRL) announced to acquire exclusive online and offline rights of Forever 21, an American fast
fashion brand, in the Indian market.
 In October 2016, CapitaLand, a listed company in Singapore, announced plans to open 2 more malls in India by the end of 2019.

 World's largest private equity manager, Blackstone Group, entered India's retailing sector by setting up a fully owned subsidiary, Nexus Malls. The
new entity will own and manage shopping centres in the country.
 Diageo, world’s largest spirits maker plans to open a new business services centre in Bengaluru and give employment to 1,000 people, by end of
2017
 British brand ‘Marks and Spencer’ plans to open 10 new stores annually, under its joint venture business with Reliance Retail by 2017.

 With an investment of US$148.74 million, Amway India plans to open 50 retail stores in the country by 2018, for enhancing direct and online sales
of its products.
 Various established brands have started their expansion in East India, namely in cities of Bihar, Orissa, Assam and Jharkhand, thereby increasing
the retail space supply from 3 million in 2014 to 5.5 million square feet in 2016.
 Bang and Olufsen, a Danish-based stereo system speaker maker, plans to set up its 1st flagship store in Delhi and is planning to open 8-10
standalone stores in Chandigarh, Hyderabad, Ahmedabad, Ludhiana and Kolkata in this fiscal year.
 Ikea Group to open its 1st domestic outlet in 2018 in Hyderabad, followed by more stores in New Delhi, Mumbai and Bangalore. The company
would double its sourcing from India to US$667 million.

Source: Dun and Bradsheet, AT Kearney, Indian Retail Market September 2011, Times of India

14 Retail For updated information, please visit www.ibef.org

 SECTOR’S HIGH GROWTH POTENTIAL IS
ATTRACTING INVESTORS

 India has occupied a remarkable position in global retail FDI Confidence Index 2017
rankings; the country has high market potential, low economic
risk and moderate political risk
2.5
 In FDI Confidence Index, India ranks 8th (after U.S., Germany,
China, UK, Canada, Japan, and France)
 According to the Global Retail Development Index 2016, India’s 2

2.03
net retail sales are quite significant among emerging and

1.86

1.83

1.8

1.78
developed nations; the country is ranked second (after China).

1.72

1.71

1.68

1.67
1.5

1.61
 Overall, given its high growth potential, India compares
favourably with global peers among foreign investors
1
 With investment of around US$ 511.76 billion, the first half of
2016 witnessed the highest annual private equity (PE) in the
retail sector, since 2008.
0.5

United Kingdom
United States

France

Australia
Japan

India
China

Canada

Singapore
Germany

Note: FDI - Foreign Direct Investment

Source: AT Kearney 2017 FDI Confidence Index

15 Retail For updated information, please visit www.ibef.org

 RISING PROMINENCE OF ONLINE RETAIL

 Online retail business is the next generation format which has Revenues of the Indian E-commerce industry (US$ billion)
high potential for growth in the near future. After conquering
physical stores, retailers are now foraying into the domain of e- 140
retailing
120
 With growth in the e-commerce industry, online retail is
100
estimated to reach US$ 60 billion by 2020.
80 120
 The government plans to allow 100 per cent FDI in e-
60
commerce, under the arrangement that the products sold must
40 30
be manufactured in India to gain from the liberalised regime 22
20
 In 2016, online retail industry of the country registered a growth

1
2016
2015

2020 F
0
of 12 per cent, over the previous year, with the revenue reaching
US$ 14.5 billion.
 The key drivers of online retail are a young population aided by
easier access to credit and payment options, increasing internet Online retail in India (US$ billion)
penetration and speed, 24-hour accessibility and convenient and
secured transactions
70
 Online retailers continue promotional prices in the market, 60
offering a significant boost to e-retailing in consumer durable 50
sector 40
 Options like cash-on-delivery and manufacturers’ warranty add 30 60
fuel to this rage. Cash-on-delivery is the most preferred payment 20
option with over 30 per cent of buyers opting for it in India 10
13 15
 The computer peripherals, cameras, mobiles and lifestyle 0

2016

2020 E
segments account for a majority of total purchases 2015
Notes: APMEA - Asia/ Pacific, Middle East and Africa, E- Estimated, F- Forecast

Source: MasterCard Worldwide Insights 4Q 2010, PWC e commerce in India report, ASSOCHAM, UN Report 'The power of 1.8 billion'

16 Retail For updated information, please visit www.ibef.org

 Porter’s Five Force Framework Analysis

Threat of Substitutes

 Low – Threat of substitute products is

low. However, customers may purchase
products from a local store instead of
purchasing from a retailer

Bargaining Power of Suppliers Competitive Rivalry Bargaining Power of Buyers

 Low – Retailers have low switching costs,
which make the supplier power low.
Larger retailers can easily switch to
different suppliers.
 High – Entry of foreign players in the  High – The consumers are price sensitive
market and e-retailers have intensified and have information about the product
competition and its price
 Customers’ low switching cost increases
 Low switching cost gives customers high
competition
bargaining power
 The Indian retail sector is highly
fragmented, which increases competition

Threat of New Entrants

 Medium – Entry as a retailer is quite

simple. However, players need to
Positive Impact
establish strong distribution channels and
Neutral Impact achieve economies of scale to compete
Negative Impact

Source: PricewaterhouseCoopers, Techopak

17 Retail For updated information, please visit www.ibef.org

 Retail

STRATEGIES
ADOPTED
 STRATEGIES ADOPTED

Strong  It is imperative for a retailer to have a strong distribution and logistic network to succeed in this sector. Players follow a
distribution and distribution network that suits them the best. For example, Shoppers Stop follows a “hub and spoke” model for its
logistic distribution network to increase efficiency and productivity
network
 In March 2017, PepsiCo Inc. announced the launch of ready to cook breakfast items like khichdi, dosa, idli etc., which
Marketing would be sold under the brand namely Quaker Nutri Foods
innovation  In March 2017, Parle launched Frooti its iconic drink in a fizzy version, it’s the first innovation in the brand since its launch
32 years ago.

 As of February 2017, Tanishq is focusing on expanding its large format-retailing concept, with re-launching their
showrooms in Velachery.
 The Future Group will set up 4000 “neighbourhood” retail stores in the next 3-5 years as a part of its focus on small stores.
Focus
The brand will increase the number of stores from 538 in March 2017 to 1000 by September 2018.
 In May 2017, Myntra voiced intentions to increase their market penetration by spending on technology and buying more
brands instead of spending on discounts and marketing.

 Retailers are opting for many channel to maximise sales, Omni-channel retailing is being adopted by many retailers in
India. For example, Shoppers Stop is making efforts to be an omni-channel retailer. Ezone has launched an online
Omni-channel platform, which has led to increase in sales
retailing
 In February 2017, Myntra became the 1st e-commerce brand to manage the fashion brand -- Mango’s omni channel
presence, globally. .

 Retailers benefit if consumers perceive their store brands to have consistent and comparable quality and availability in
Changing the relation to branded products. For this, retailers are providing more assortments for private level brands to compete with
perception supplier's brand. New product development, aggressive retail mix and everyday low pricing strategy help to get edge over
supplier's brand

Source: Company website

19 Retail For updated information, please visit www.ibef.org

 STRATEGIES ADOPTED BY INDIAN RETAILERS FOR
SALES MAXIMISATION

 Most retailers have advanced off-season sales from 15 days to a month with discounts of 20-70 per cent on certain
Offering products
discounts
 Higher discounts and other value-added services for members

 Certain retailers adopt ‘first price right’ approach. Retailers do not offer discounts under this strategy: they directly
Lowering prices
compete on the selling price by offering a best price without any markdowns

 Companies offer innovative value-added services, such as customer loyalty programmes and happy hours on shopping
Offering value- deals
added services
 Offers for senior citizens, contests for students and lottery gains are now very common

Leveraging  To keep customers on shop floors for a longer time and increase conversions, retailers are now pitching to partner with
partnerships manufacturers, service providers, financial companies, etc. to create a buzz around certain product categories

 Critical components of supply chain planning applications help retailers to maintain profit margins

Strong supply  Retailers develop innovative solutions for managing the supply chain problems
chain  Innovative solutions like performance management, frequent sales operation management, demand planning, inventory
planning, production planning and lean systems can help retailers to get advantage over competitors

 To diversify the product offerings and tab the growing luxury retail segment, retailers are forming joint ventures with foreign
Joint Ventures luxury brands. Reliance Brands Ltd. formed a joint venture with Bally, a Swiss luxury brand, to exclusively market its
products in India

Source: KPMG International

20 Retail For updated information, please visit www.ibef.org

 Retail

GROWTH DRIVERS
 GROWTH DRIVERS FOR RETAIL IN INDIA

Easy consumer Favourable

credit and increase in demographics
quality products

Growth Drivers
Brand Rise in income
consciousness and purchasing
power

Change in
consumer mindset

32 Retail For updated information, please visit www.ibef.org

 INDIAN RETAIL IS SET TO BENEFIT FROM FDI POLICY

Benefits of FDI
in Indian
retail

Technological Infrastructure
Increase in employment Removing middlemen
investment
advancement

Benefiting Indian
Sector Entry route FDI limit
manufacturers

Wholesale cash
Automatic 100%
and carry
trading

Single brand Foreign Investment

100%
product retailing and Promotion
Board

Multi-brand, Foreign Investment

51%
front-end retail and Promotion
Board

33 Retail For updated information, please visit www.ibef.org

 FDI POLICY DETAILS ON SINGLE AND MULTI-BRAND
RETAIL IN INDIA

 Minimum investment cap is US$ 100 million

 30 per cent procurement of manufactured or processed products must be from SMEs
 Minimum 50 per cent of total FDI must be invested in backend infrastructure (logistics, cold storage,
soil testing labs, seed farming and agro-processing units)
 Removes middlemen and provides better price to farmers

51 per cent FDI in  Development in retail supply chain system

multi -brand retail  50 per cent of jobs in retail outlet could be reserved for rural youth and a certain amount of farm
produce could be required to be procured from poor farmers
Status: Policy passed
 To ensure the Public Distribution System (PDS) and Food Security System (FSS), the government
reserves the right to procure a certain amount of food grains
 Multi-brand retail would keep food and commodity prices under control
 Will cut agricultural waste as mega retailers would develop backend infrastructure
 Consumers will receive higher quality products at lower prices and with better service

 Products to be sold under the same brand internationally

 Sale of multi-brand goods is not allowed, even if produced by the same manufacturer
100 per cent FDI in
 For FDI above 51 per cent, 30 per cent sourcing must be from SMEs
single brand retail
 Consumerism of retail market
Status: Policy passed
 Any additional product categories to be sold under single brand retail must first receive government
approval

34 Retail For updated information, please visit www.ibef.org

 NEW GOODS AND SERVICE TAX (GST) WOULD
SIMPLIFY TAX STRUCTURE
 Introduction of Goods and Service Tax
(GST) as a unified tax regime would
lead to a re-evaluation of procurement
and distribution arrangements
 Removal of excise duty on products
would result in cash flow improvements
Goods and
Service Tax
(GST)
 Tax refunds on goods purchased for
resale implies a significant reduction in
the inventory cost of distribution
 Distributors are also expected to
experience cash flow from collection of
GST in their sales, before remitting it to
the government at the end of the tax-
filing period
Source: Aranca Research
35 Retail
 Elimination of tax cascading is expected
to lower input costs and improve
profitability
 Application of tax at all points of supply
chain is likely to require adjustments to
profit margins, especially for distributors
and retailers
 Changes need to be made to
accounting and IT systems in order to
record transactions in line with GST
requirements
 Appropriate measures need to be taken
to ensure smooth transition to the GST
regime through employee training,
compliance under GST, customer
education and inventory credit tracking
For updated information, please visit www.ibef.org
 INCOME GROWTH TO DRIVE DEMAND FOR
ORGANISED RETAIL

 Multiple drivers are leading to strong growth in Indian retail through a consumption boom

 Significant growth in discretionary income and changing lifestyles are among the major growth drivers of Indian retail

 Easy availability of credit and use of ‘plastic money’ have contributed to a strong and growing consumer culture in India

 Acceptance and usage of e-retailers by consumers are increasing due to convenience and secured financial transactions

 Expansion in the size of the upper middle class and advertisement has led to greater spending on luxury products and high brand consciousness

Visakhapatnam
GDP at constant
port prices
traffic (million
(US$ billion)
tonnes) Visakhapatnam
GDP per capita
port traffic
at current
(million
prices
tonnes)

3,500.00 2,000.0
1,800.0

1,874.9
3,000.00

1,750.6
1,600.0

2,906.49

1,617.3
1,600.9
1,552.5
2,500.00 1,400.0

1,514.8

1,504.5
2,628.93

1,430.2
2,384.47

1,200.0
2,000.00
2,163.54

1,000.0
1,961.66
1,779.28

1,500.00
1,676.14

800.0
1,597.95

1,000.00 600.0
1,253.98
1,251.37
1,152.81

400.0
2005 808.67

2006 908.47

500.00
200.0
- -
2016 E
2009

2012

2015 E

2017 F
2007

2008

2010

2013

2014

FY16 E

FY17 E
FY12
FY10

FY13

FY14

FY15
2011

FY11
GDP per capita

Notes: E- Estimate, F - Forecasts

Source: IMF

36 Retail For updated information, please visit www.ibef.org

 Retail

OPPORTUNITIES
 GROWTH VALUE PROPOSITION

Higher brand consciousness Rising incomes and purchasing power

Demand Factors

Growing aspiration levels and

Credit availability
appetite to experiment

Growing young population Changing consumer preferences

and working women and growing urbanisation

Indian retail opportunity

Rapid real estate and

Easy availability of credit
infrastructure development
Supply Factors

Emergence of new categories Expansion plans of existing players

Development of supply chain R&D, innovation and

improving efficiency new product development

Source: KPMG International 2011

28 Retail For updated information, please visit www.ibef.org

 AMPLE GROWTH OPPORTUNITIES IN INDIAN RETAIL
INDUSTRY

 India is the fifth largest preferred retail destination globally

Large number of
 The sector is experiencing exponential growth, with retail development taking place not just in major cities and metros, but
retail outlets
also in Tier-II and Tier-III cities

Rural markets  FMCG players are focusing on rural market as it accounted for over 40 per cent of FMCG consumer base in India in 2016.
offer significant With increasing investment in infrastructure, retailers would be able to increase their access to high-growth potential rural
growth potential markets

 The organised Indian retail industry has begun experiencing an increased level of activity in the private label space
Private label  The share of private label strategy in the US and the UK markets is 19 per cent and 39 per cent, respectively, while its
opportunities share in India is just 6 per cent. Stores like Shopper Stop, Lifestyle generates 15 to 25 per cent revenues from private
label brands.

 India‘s price competitiveness attracts large retail players to use it as a sourcing base
Sourcing base  Global retailers such as Walmart, GAP, Tesco and JC Penney are increasing their sourcing from India and are moving
from third-party buying offices to establishing their own wholly-owned/wholly-managed sourcing and buying offices

 Luxury retailing is gaining importance in India. This includes fragrances, gourmet retailing, accessories and jewellery
among many others.
Luxury retailing
 The Indian luxury market stood at around US$ 18.6 billion in 2016 from US$ 14.7 billion in 2015 , thereby registering a
growth of 26.5 per cent.

Notes: FMCG - Fast Moving Consumer Goods

Source: Aranca Research

29 Retail For updated information, please visit www.ibef.org

 RECENT MandA DEALS IN THE INDIAN RETAIL
SECTOR

Acquirer name Target name Year Deal type

Berger Paints Chugoku Marine Paints April 2017 Collaboration

Myntra InLogg April 2017 Acquisition
Flipkart owned Myntra HRX August 2016 Acquisition
Myntra MotoGP August 2016 Collaboration
Aditya Birla Fashion and Retail Forever 21 (India Business) May 2016 Acquisition
Idein Ventures. Infurnia Jan 2016 Joint Venture
Paytm Near.in Dec 2015 Acquisition
Morgan Stanley Flipkart June 2015 Private Equity
InnoVen Capital Sportsbiz Private Limited July 2015 Private Equity
Snapdeal Exclusively.in Feb 2015 Acquisition
Kalyan Jewellers India Pvt Ltd Warburg Pincus Oct 2014 Private Equity
Celio Future Lifestyle Fashions Limited Oct 2014 Private Equity
Flipkart Myntra.com May 2014 Acquisition
Soft Bank Snapdeal Oct 2014 Private Equity
Warburg Pincus Biba Apparels Dec 2013 Private Equity
Hassan Food Co Bush Foods Overseas Pvt Ltd Apr 2013 Acquisition
Trent Ltd Landmark Ltd Feb 2013 Acquisition
Future Venture India Ltd Big Apple (convenience store) Sep 2012 Acquisition
Peter England Ltd Pantaloons Retail India Ltd Sep 2012 Acquisition
Pantaloons Retail India Ltd R&R salons May 2012 Private Equity

Source: Bloomberg and Thomson ONE Banker

30 Retail For updated information, please visit www.ibef.org

 Retail

CASE STUDIES
 FUTURE RETAIL: INDIA’S LEADING RETAILER IN
MULTIPLE RETAIL FORMATS

 Future Retail has seven key retail brands namely: Big Bazaar, Future Retail sales growth (US$ billion)
Easyday, E-zone, FBB, Food Bazaar, Foodhall and Home Town.
 It has a total of 738 stores across 221 cities with an annual customer 3.0
footfall of 295 million and 32,012 employees.
 Big Bazaar ranked the 3rd most trusted brand and the most trusted
2.5
retailer for providing quality services during 2016

2.5

2.4
 As of November 2016, the company has agreed to buy retail
business of Hyderabad-based ‘Heritage Foods Ltd.’ As a part of the 2.0
deal, Heritage Foods will get a 3.65 per cent stake or freshly issued

2.0

1.9
shares worth US$ 44.06 million in ‘Future Retail’

1.7
1.5
 In November 2016, Future Consumer Ltd. entered into an equal joint

1.5
venture with UK’s largest wholesaler, Booker Group, to develop the

1.4
company’s cash-and-carry business in India. Future Consumer is
1.0

1.1
investing US$ 7.47 million in the company.
 In January 2017, Future Lifestyle Fashions raised US$ 37.19 million
in a subsidiary that houses Lee Cooper brand of clothing. 0.5

 In February 2017, Future Retail has entered into an agreement to sell

the UK based -- Laura Ashley’s home furnishing merchandise,
0.0
through their own operating stores and websites in India.

FY09

FY10

FY15

FY16
FY08

FY12

FY14
FY11
Source: Company website, Annual Report, Media sources

42 Retail For updated information, please visit www.ibef.org

 SHOPPERS STOP: THE LEADER IN DIVERSIFIED
MARKET STRATEGY … (1/2)

 The brands and joint ventures under Shoppers Stop are: Shoppers Shoppers Stop’s sales growth (US$ million)
Stop (apparel, accessories, footwear, décor), Homestop (home
furnishing), Crossword (books and entertainment) Mothercare (infant
and toddler care), Estee Lauder, Mac and Clinique (beauty), Nuance 700 CAGR 11.5%
Group (airport retailers).
 The company owns 156 stores in 25 cities with 4.81 million square 600

604.85
584
582
feet space across 8 store formats

 Successfully introduced a number of international brands 500

511.71
507
491
 Improved product mix and brand profiles to attract new customers

452
400
 Over 4.7 million customers are a part of the First Citizen Loyalty
Programme
300
 In 2016, the company has been selected as “The Most Respected

308
285
Company in Retail” by Business World Magazine for the fifth year in
a row. 200

227
100

FY08

FY10

FY12

FY14

FY16
FY09

FY13

FY15

FY17
FY11
Note: First Citizen Loyalty Programme is a membership scheme for its members to avail discounts and promotional offers
Source: Company website, Annual Report

43 Retail For updated information, please visit www.ibef.org

 SHOPPERS STOP: LEADER IN DIVERSIFIED MARKET
STRATEGY … (1/2)

Visakhapatnam port traffic

Footfalls (million tonnes)
(in million) Average selling price (INR)

50 1200

1174
1136
47
46

46

1118
1087
45
40

1062
977
40
800

913
37

856
30

821
759
31

20
25

23

23

400
10

0 0
FY08

FY09

FY10

FY12

FY13

FY14

FY17
FY15

FY16
FY11

FY08

FY09

FY10

FY12

FY17
FY13

FY14

FY15

FY16
FY11
Visakhapatnam port traffic
Members (million tonnes)
(in million) Visakhapatnam port traffic size
Average transaction (million tonnes)
(INR)
5.0 3000
4.7

2878
2791
2754
4.0

2667
2481
2000

2311
2207
3.0

2029
1843
2.9

1720
2.5

2.0
1000
2.0
1.6

1.0
1.3
1.0

0.0 0

FY12

FY13

FY14

FY15

FY16
FY08

FY09

FY10

FY17
FY12

FY13

FY17
FY08

FY09

FY10

FY11
FY11

Source: Company website, Annual Report

44 Retail For updated information, please visit www.ibef.org

 Retail

KEY INDUSTRY
ORGANISATIONS
 INDUSTRY ORGANISATIONS

Retailers Visakhapatnam
Association ofport
India
traffic (million tonnes) The Franchising Association of India
Address: 111/112, Ascot Centre,
Address: A-13, Kailash Colony
Next to Hotel Le Royal Meridien, Sahar Road, Sahar,
New Delhi – 110048
Andheri (E),
Tel: 91- 11- 2923 5332
Mumbai – 400099.
Fax: 91- 11- 2923 3145
Tel: 91- 22 - 28269527 - 28
Website: www.fai.co.in
Fax: 91- 22- 28269536
E-mail: info@rai.net.in
Website: www.rai.net.in

36 Retail For updated information, please visit www.ibef.org

 Retail

USEFUL
INFORMATION
 GLOSSARY

 FDI: Foreign Direct Investment

 FMCG: Fast Moving Consumer Goods

 FY: Indian Financial Year (April to March)

 So FY10 implies April 2009 to June2010

 IT: Information Technology

 MoU: Memorandum of Understanding

 MT: Million Tonnes

 MTPA: Million Tonnes Per Annum

 SEZ: Special Economic Zone

 US$: US Dollar

 Wherever applicable, numbers have been rounded off to the nearest whole number

48 Retail For updated information, please visit www.ibef.org

 EXCHANGE RATES

Exchange Rates (Fiscal Year) Exchange Rates (Calendar Year)

Year INR equivalent of one US$ Year INR equivalent of one US$

2004–05 44.81 2005 43.98

2005–06 44.14 2006 45.18

2006–07 45.14 2007 41.34
2007–08 40.27
2008 43.62
2008–09 46.14
2009 48.42
2009–10 47.42
2010 45.72
2010–11 45.62
2011 46.85
2011–12 46.88
2012 53.46
2012–13 54.31
2013 58.44
2013–14 60.28
2014 61.03
2014-15 61.06

2015-16 65.46 2015 64.15

2016-17 (E) 67.23 2016 (Expected) 67.22

Source: Reserve bank of India, Average for the year

49 Retail For updated information, please visit www.ibef.org