The India Retail Opportunity

Group 5
Atisha Banjare
Ramesh Narayanaswamy
Rashie Ratan
Sandeep Divakar
Thamaraiselvi A
Agenda
• Backdrop
– Then and Now; India and Retail
• A changing India…
– Macro: Economic, social, regulatory
– Micro: Psychographic
• … and a changing retail scenario
• Current scenario
• Perspectives
Backdrop
Backdrop: then and now
Then
• Self reliant mindset; closed
economy
• High import tariff; high excise
duty; low per capita incomes
• International brands unheard of;
not much variety available
• Shopping: a task
• Savings oriented; high interest
rates on small savings schemes
Now
• Liberal, open economy; entry of
MNCs; high entrepreneurial spirit
• Reduced excise duty; low tax;
high disposable income;
affordable price
• Availability of variety
• Shopping: an experience;
• Policy direction: more
consumption oriented
A changing India
Changes in India
• India second fastest growing economy in the world
• One of the youngest countries
– Median age is 24; 70% of population below 35; like the US baby
boomers
– Younger population growing fast
– The Liberals form a large part of this segment (9.8% of population)
• Current consumer base is 217m people, 27% of population,
equivalent to US population
– By 2013, 200m more people to join productive age bracket
– Net addition–5x Australian population
 Demographic shift
55+

45-54

35-44

2013
Age

25-34 2001
1991

15-24

5-14

0-4

0 50 100 150 200 250 300

Population in million
Demographic changes—youth
• Cultural habits changing
– Acquiring Western look
• High mobile usage and high subscriber base Æ development of an entire
new retail format
– Changing attitudes like
• “having a good time” attitude driving growth of pubs, clubs, coffee bars,
fast food joints etc.
– Increasing awareness and spending on grooming and lifestyle
Socio-economic changes
• High disposable incomes
– Lower tax rates
– Entry of foreign firms and private competition; competitive salaries
• Middle class dwelling revamped
– Modern conveniences natural and normal
– Hectic lifestyles and increasing disposable incomes leading to
increasing convenience sought
– Price affordability due to
• Reduction in import tariffs, excise duty
• More competition leading to fall in prices
Spending changes
• Role of banking
– Decreasing interest rates, easy availability of loans leading to more
investments Æ increased affordability
• Tax adjusted EMIs halved
– Increased usage of credit cards (20% CAGR 2001-03)
• Net job creation positive
– Young workforce; average age of employees often below 30;
– IT and BPO; higher propensity to spend in youth
Market changes
• Before liberalization
– Many consumer durables not available
– Government disallowed imports of most products
– Luxury items banned/had high import tariffs
• Post liberalization
– Enhanced availability of superior quality goods at affordable prices
• Two incidental factors
– Spread of cable and satellite television influencing consumer behavior,
– Emergence of Maruti, the small car—first foreign product available at
affordable price; whetted consumer appetite
Mindset changes
• One-stop shopping, speed and efficiency of purchases
• Consumerist attitude
– Guilt-free spending
– Savings not very high priority
– Spending money for feel-good factor: affordable indulgence
– Rising income levels; new kinds of high profile jobs (VJs, TV anchors
etc. )Æ rise of young, ambitious population
Other changes
• Policy direction favors consumption over savings
– Interest rates on small savings schemes have fallen
• Infrastructure
– Golden Quadrilateral (2% of total road length but 40% of total traffic)
– North-South and East-West corridors adding to connectivity
• Largest recipient of remittances; addition to incomes
Private transfer of funds to India

14

12.8
12.4 12.3
12.1
11.8
12

10.3

10

8.5
8.1
8
US $ bn

6
5.3

3.9
4

0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

year
Cracks in the system
• Fiscal consolidation; Threat: High fiscal deficit can reverse
low interest rate trend, unless government takes significant
steps to cut expenditure or increase reforms
– Public debt is 80% of GDP, interest payments are 48% of revenues
• Power sector reforms: 7b USD losses in state electricity
boards
• Water resource management: impacts agricultural earnings,
impact private consumption
 Changing retail scenario

Economic development Æ growing affluence Æ retail boom

Changing retail scenario
• USD 230b total; 3% organized modern formats
– Organized retailing, then: garments, footwear and watches
– Organized retailing now: expanding to food, grocery, jewelry,
entertainment, cosmetics, home furnishing etc.
• Booming consumerism
– Socio-economic factors (USA 1960s, China 1990s) fuelling consumer
spending
– USA: Baby boomers attained spending age; strong economic growth (9-
10%); shift in employment from primary to manufacturing; mass
migration from rural areas to cities; “ready to splurge”
– China: Strong economic growth (10+%); significant upticks in
investments and foreign fund inflows
Changing retail scenario
• Shift to organized formats (from kirana shops to
hypermarkets)
• Capital no longer a constraint – easy loans
• Availability of quality real estate
– Easing land regulations and releasing more land for retail; investment
in real estate by organized players is on the up
– 100% FDI under automatic route for real estate development -
townships over 25 acres of land or commercial/retail development on
floor space of over 500,000 sq. ft.
Easing regulations
• Regulatory framework falling into
(mm. sq. feet) FY05 FY07E
place
– Implementation of VAT (no tax NCR 3.7 22.5
evasion by traditional players) Mumbai 4.95 20.25
– Increasing availability of quality Bangalore 1.8 3.75
real estate
Hyderabad 3.5 5.25
• Retail—ripe for consolidation
Pune 2 3.75
– India: 1 retail outlet for 280
people Rest of India 9.05 19.75

– Global: 1 retail outlet for 1,800 Total 25 75

Government: meeting midway

Government regulatory changes

Regulatory changes awaited
made

VAT Industry status to retail sector

FDI entry through ownership

FDI in real estate
route

Foreign entry through franchisee

Real estate mutual fund / real
Route, single brand retailer or
Estate investment trust
B2B segment
Supply dynamics
• Changing supply dynamics
– Earlier:
• Limited funding options, lack of quality retail properties, complex taxation
system, manufacturers’ non-acceptance of modern retail channels
– Demand = Ability + willingness to spend; but Market = Demand +
supply
– Now:
• Investors giving value to retail—funding options opening up
Inflexion point
• Just before the cusp of growth revolution, industry is
fragmented and densely populated with players operating in
limited geographies—this has been the case for every industry
worldwide
• Economic development Æ growing affluence Æ retail boom
– India second fastest growing economy in the world
– Younger generation more adventurous; brought up in the post-
liberalization era
– Consuming class is burgeoning; rising disposable incomes; no guilt of
consumption
Retail life cycle
• Place in the retail life cycle: development phase
– Compressed evolution cycle: no grind of building models that succeed
and fail;
– Leapfrog effect
• India took only 10 years what US/UK took 40 years; global experiences at
disposal
– Multiple stages of evolution across India
• Speed of execution; enhanced business offering; operating efficiency and
SCM
• Industry ripe for foreign entrants;
– Successful retailers have stumbled in new markets
– FDI increases competition and competitiveness
– Leveraging best practices, supply chain efficiencies
Organized retail - development phase

Changing supply dynamics

Funds + Quality real estate

+ government regulations
Upbeat
India is here
consumerism
driving demand
•Core models are in place -
Affordability + Retailers adding newer
Willingness to formats and categories
spend • Retailers gearing up pace
of scale up
•Players extending beyond
large cities
•Newer players making an
Entry

Infancy Development Maturity Decline

A glimpse into future
• Massive expansion ahead
– More floor space, penetration into Tier II cities
– Experimentation with models:

Hypermarket Big Bazaar, Giant, Spencer

Malls Sahara, Ansal Plaza, Crossroads
Shopper's Stop, Pantaloon,
Department Stores Westside
Convenience
Stores Apna Bazaar, Foodworld, Nilgiris
Bata, Titan, Tanishq, Raymond,
Speciality stores Hallmark, Mc Donald, Pizza Hut
Entertainment PVR, Adlabs, Inox
Current changes
• Organized formats booming in the South
– Chennai, Bangalore, Hyderabad
– Lower real estate prices
• 12m retail outlets; most of them <500 sq. ft.
– Highly fragmented
• India: 6000 grocery outlets per million population
• Increasing sales through modern trade
Current changes
• 79% of shopping done by women
– Men still have strong influence on shopping decision (46% of cases)
• Top 5 (organized) retail categories—by value
– Clothing; food; consumer durables; footwear; furniture
• Food, jewelry and beauty & personal care represent only a
small percentage (1%, 2%, 2% respectively)
• Highest penetration
– Watches (40%), footwear (25%) and clothing (13.8%)
Future perspectives
Perspectives: food and grocery
• Drivers
– Busy lifestyle; pre-packaged, ready-to-eat preferred
– Changed mindset from “packaged is stale” to “packaged is quality and
hygienic”
– The Eating Out Effect
– Consumer spending is 40% on foods and grocery, but retail penetration
is only 0.5%
– Fastest growth prospect
– Malls also drive growth
• Future format: towards hypermarket
Perspectives: apparel
• Drivers
– Fashion consciousness
• 50% of Indian youth are fashion conscious of which 37% are highly
fashion conscious
– Untapped segments like maternity wear, lingerie and school wear will
be exploited
– Going out and outdoor wear; peer acceptance
• Future format: Specialty stores for the upper crest, private
labels and discount stores for lower end
Perspectives: consumer durables
• Drivers
– Nuclear families and increased housing
– Increased awareness leading to increased penetration for categories like
microwaves and washing machines
– Convenience factors (working women, time-saving products)
– Higher end products increasingly becoming status symbols
• Future format: Multi-brand outlets, specialty stores for high
end products/high-breadth
Perspectives: home furnishings
• Drivers
– Increased nuclear families and housing
– Customizability (DIY)
– Self-expression
– Convenience (one stop shop)
• Future format: Departmental store
Thank you

Q&A
Appendices
Promising categories
• Foods and grocery
– 40% of consumer spending pie
– Purchases still from kiranawallas;
– Low penetration due to requirement of setting up complex supply
chain; inadequate logistics facilities; street vendor competition; low
margins; high capital infusion
• Jewelry
– Only 2% in organized retail
• Home solutions
– Over 200m homes; nuclear families; growing affluence and housing
boom
Promising categories (contd.)
• Value retailing
– Hypermarket most sought after
– No player has currently sufficient scale to the extent of say, a Wal-Mart
– Top 15 global retailers operate in the value retail space
• Rural retailing
– 68% of population in rural
Understanding the Indian youth
Age Key Spending Consumption
group decisions Influencers power areas Brands
Early Education Parents and Rs. 1000- Clothing, Develops preferences
Youth and career peer group 2000 per accessories, food but brand consumption
month and is occasional and
13-21 (mostly entertainment aspirational, looking
from (incl. for value for money
parents) communication)
Middle Career and Peer groups Rs. 7000- Personal Can afford the brands
youth relationships and workmates 40,000 clothing and he/she aspired for; not
22-28 per month accessories, price conscious, but
food, quality conscious, seek
entertainment feel-good factor and
and consumer expression of identity
durables
Late Children and Peer group, Rs 40,000 Household, kids Prefers a mix of status
youth career workmates, and above products, and fun brands
29+ advancement spouse, personal
kids and “inner clothing and
voice” accessories, food
and
entertainment