RETAIL & DISTRIBUTION

MANAGEMENT PROJECT

INDIAN RETAIL
INDUSTRY & RISING
INDIAN
CONSUMERISM

ANUPAM UPPAL
ROLL NO. 08 K
MBA (IB) 2008-2010
Introduction
The Indian retail market is being eyed by major retailers of the world given the fact the developed
markets are more or less saturated. The potential which the Indian markets offer in form a large young
population with increasing disposable income and ever increasing demands for various category products,
makes the Indian retail backdrop extremely attractive. India is one of the ten largest retail markets in the
world. (Annexure 1) India has been ranked one in the AT Kearney Global Retail Development index (GRDI)
for 2007. (Source: Growth Opportunities for Global Retailers, AT Kearney 2007 Global Retail Development
Index)

Facts and figures

Retailing in India is currently estimated to be US$ 200 billion, of which organized retailing (i.e. modern
trade) makes up 3 percent or US$ 6.4 billion. Organized retail is expected to grow at 25-30 percent p.a.,
and is projected to attain US$ 23 billion by 2010. At these levels, organized retail would constitute up to 9
percent of overall retail sales. Organized retail is expected to grow rapidly to reach $100 billion by 2015
and likely to account for 12- 15% of total retail sales by 2015. Wholesale and retail trade sector currently
contributes to about 13% of GDP and employs about 40 million people. (Source: KSA-Technopak
‘Consumption Outlook 2005’)
Industry Structure
The Indian Retail sector is highly fragmented that is mostly owner-run ‘Mom and Pop’ outlets. There are
over 12 million retail outlets of such kinds, with the average outlet size being approximately less than
500sq.ft. There are a few medium sized Indian retail chains like Pantaloon, Shoppers’ Stop, Food World
(RPG Group) and Westside (Tata Group) – all growing rapidly mainly in the apparel and food & grocery
segments.
Foreign retailers have a marginal presence through either franchisee or wholesale formats. To date,
franchising has been the preferred route through which foreign retailers have entered India. Pizza Hut,
Lacoste, Mango, Chanel, Louis Vuitton, Nike and Marks & Spencer have all entered via franchise
agreements. The big multinational supermarket chains have been chomping at the bit to enter India, and
the only ones to have done so are Metro Cash & Carry GmbH, Shoprite Checkers of South Africa and Wal-
Mart. Metro was the first company to bring in 100% FDI through this route and has taken tentative steps
so far.
Composition of Retail market
India Vs World
Indian has 12 million retail outlets compared to only 0.9 million outlets in USA (more than 13 times of the
total retail market size). India has highest number of outlets per capita in the world, lowest per capita
retail space (@ 2 sq. ft. per person). In comparison Wal-Mart is 4,800 stores (47 million square meters).
One-day record sales at Wal-Mart (23rd Nov 01) was recorded as USD 1.25 billion. 60% of Indian retailers
have multiple formats, US 34 of top 50 retailers have 1 format. Inventory turn ratio for US retailers is 18
compared to Indian retailers between 4-10. SKU Available- Globally retailers have greater than 95 %
availability; Indian retailers range from 5 to 15 %.
India’s Total Retail Market
The Total Retail market size in India at the end of 2007 was Rs 12,781 bn. Food and Beverage constituted
a whopping 74% of the market followed by clothing and textiles at 9.31%. (Source: India Retail Forum
News, 2007)

India’s Organised Retail market

The food and grocery sector accounts for around 18% of total organised retail business after clothing and
textiles (37%) and watches and Gems and jewellery (6%). Comparing the absolute numbers in both retail
and organised retail market, the penetration of organized retail in Food and Grocery is a miniscule 0.5%.
Thus food and grocery alone present a big growth opportunity.
Window of opportunity analysis

(Source: Growth Opportunities for Global Retailers, AT Kearney 2007 Global Retail Development Index)

As per the AT Kearney window of opportunity analysis Indian Retail is in the peaking stage where there is
ample opportunity to be explored. The foreign retailers are eyeing to use this chance to set up full scale
operations in India. The suggested formats for their entry would be through cash and carry or
convenience formats, just like what Wal-Mart is doing in a joint venture with Bharti retail.

The high growth projected in domestic retail demand in India will be fuelled by:
migration of population to higher income segments with increasing per capita incomes
An increase in urbanization
Changing consumer attitudes especially the increasing use of credit cards
The growth of the population in the 20 to 49 years age band

The overall retail market is expected to grow three-fold in the next 10 years from $206 billion in 2004 to
about $660 billion by 2015. India is a consumption led economy: Private Final Consumption Expenditure
(PFCE) is 60% of the economy (as against 42% of China and 55% of Japan)

India Demography

35 % of population is under 14 years of age. Greater than 60 % population is in working age group of 15-
60 years till 2050. 2/3rd of it is less than 35.India’s median age is 23 years (World median age is 33 years)
India at the moment is home to 20 % of the global population under 25 years of age.
The spending pattern of the emerging middle class is

Category (2008) % Of Total

Food, Beverage and Tobacco 43%

Clothing and Footwear 5%

Gross Rent, Fuel and Power 12%

Furniture, Fixture and Appliances 4%

Medical and Healthcare Services 8%

Transport and Communication 15%

Recreation, Education and Cultural 3%

Miscellaneous 10%

TWO FACED INDIAN CONSUMERS

Seeking up- gradation in some categories & value in the others

Key issue for retailers is to identify the “upgrades” and “value-focused” product categories to rationalize
the product mix and maintain healthy margins
Share of Market Comsupmtion: Rural Vs Urban

Key Trends impacting the Indian market

• Urbanization
– How rapid is it going to be?
– What is the likely impact on consumption and its growth/trends?
• Changing family structures
– Future family structure
– Impact on shopping behavior
– Impact on Spending power & consumption
• Demographic Changes
– Demographic structure in next 5, 10, 15 years?
– Impact on shopping behavior
– Impact on Spending power & consumption
• Saving/ spending culture
• Consumption Boom:
– Favorable demographics
– Women power
– Aspirations
– Food & apparel retailing key drivers of growth
– Experimental cities- Southern & Western India
• Rural market- a huge opportunity for retailers
– ITC’s e-Choupal & Choupal Sagar- rural hypermarkets
– HLL’s Project Shakti initiative- Women empowerment
– Mahamaza.com- Case in the making
• IT to shift buying behavior across
 • ‘E-tailing’- In the making
• Web portals, tie ups (Indiatimes.com; rediff.com)

CHANGING DYNAMICS

Growth from Unorganized to Organized retail

Retailing in India has primarily been unorganized and on a small scale, with 96% of the 12 million outlets
in the country having less than 500 square feet of space. Rurally, retail historically has been insulated to
weekly markets, village fairs etc, that also served entertainment purposes. It was traditionally limited to
the corner kirana store for most urban neighbourhoods, which provided convenience in reach through
their high penetration. Post independence the government started taking proactive steps into retailing
with its Public Distribution Systems (PDS) outlets, ratio shops, khadi stores and very many cooperatives to
make available to consumers low cost supplies, especially where distribution was a problem.
Two decades ago, the thought of visiting a large retail chain store to buy ready-to-wear fashion apparel
would’ve been an unheard of prospect for most consumers in India. Till the late 1980s, middle-class
Indian would typically purchase fabric from a small local shop and take it to the neighborhood tailor, who
sewed it into a custom-made garment by hand. But towards the end of the 20th century, a deregulated
India’s accelerated economic growth had brought with it a retail revolution. An easy spending and
increasingly affluent middle class had developed a taste for high quality, affordable, ready-to-wear
clothing.
With the Indian Government taking major initiatives to aid growth in the retail sector, investment in
world-class infrastructure is expected to be close to USD 150 bn. The governmental support can be seen
in the opening up of Foreign Direct Investment in 2005 in the formerly restricted retail real estate sector.
As a result, malls of international scale and quality have come up; from almost no malls existing in the
country over a decade ago, there were 220 operational malls in August 2006.
This phenomenon is not restricted to major cities of the country alone. It has percolated to the “Tier II”
and “Tier III’ cities as well. The contribution of Tier II cities in organized retail sales is expected to be about
20 – 25%. The rural portion of the country has also been cited as one of great retail promise, with ITC
opening up its ‘Choupal Sagar’, DCM Sriram’s ‘Hariyali Bazaar’ and Tata’s ‘Tata Kisan Sansar’. Hence,
organized retailing in India can be said to be in the developmental phase of evolution.
Upbeat consumerism driving demand, increasing affordability due to rising disposable income (due to the
growth of double income families, result of ever increasing women work force) and change in the
traditional mind set of saving rather than spending are significant highlights of this phase. With core
models in place, favorable government regulations limiting the entry of foreign players to aid the growth
of the domestic players, organized retail is seeing an ever increasing experimentation with the retail
formats by these players to scale operations.
Famous Retail Concepts of Indian Retailers

Company/ Owner Famous Concepts Format

Pantaloon Retail Big Bazaar Hypermarket
India Pantaloons Departmental Store
Central Mall
Food Bazaar Supermarket
Landmark Group Shoemart Speciality Store
Lifestyle Departmental Store
Max Hypermarket
K. Raheja Shopper’s Stop Departmental Store
Home Stop Speciality Store
Hypercity Hypermarket
Reliance Retail Fresh Supermarket
Reliance Mart Hypermarket
Reliance Health Speciality Store

Aditya Birla Retail More Hypermarket; Supermarket

RPG Retail Spencer’s Hypermarket
Food World Supermarket
Books and Beyond Speciality Store
RPG Cellucom Speciality Store
Trent (Tata’s Retail Westside Department Store
Division) Star India Bazaar Hypermarket
Croma Mega Store
Landmark Branded Store
Bharti Easy Day Convenience store
(Source: indiaretailforum.bogspot.com)

Indian Consumers want Maximum value shopping experience

Indian consumers look for maximum value propositions in their shopping. To cater to the needs of the
ever expanding Indian middle class segment with increasing disposable income, has lead to the evolution
of retail formats like Big Bazaar, Mega Mart. These formats offer rich shopping experience while offering
the best bargains to satisfy the price sensitivity of the consumers. Another factor is the proximity of these
large retail formats. Given the time crunch that the working class feels it is important to ensure that the
retail locations are strategically placed in densely populated areas, making them accessible to a large
section easily.

Whatever the choice of the format may be, the key focus of the retailer in every case remains the same –
delivering maximum value to the customer through the shopping experience.
Retailer’s Format choices

(Source: KPMG Indian Retail Survey)

The respondents of the KPMG retail survey in India felt that the specialty and supermarket formats have
the most potential for growth in India, followed by hypermarkets. With poor internet infrastructure (in
terms of PC penetration and internet connectivity), e-tailing was identified as a channel with the least
potential by most respondents. However, it cannot be denied that e-tailing has emerged as one of the
most innovative formats to target niche customer segments. Similarly, with traditional kirana stores
offering an undisputed convenience proposition, it is felt that convenience stores may not grow as fast in
the Indian context. Another key format to look out for is the Discount store formats. With the success of
discount retail chain like Subhiksha, future of this format looks bright.

While many retailers agree that hypermarkets have potential, their estimate for the number of successful
hypermarkets in India was conservative. The buying behaviour of Indian consumers and the infrastructure
issues are the key impediments to the rapid growth of hypermarkets in India. India remains largely a small
stock-keeping unit (SKU) purchase market today. Many homes still lack refrigerators and in homes that
have one, it is typically available in small sizes (penetration of refrigerators in India is 15 percent, 75
percent of these are in urban areas). Availability of transportation to drive long distances for purchases is
also an issue. All these are expected to make the adoption of hypermarkets a little slow after the initial
burst that captures the latent urban demand for this format.

Focused malls – an emerging opportunity

Currently there is lack of differentiation among the malls that are up coming. One area where India is
witnessing destination malls is in the form of specialty gold malls, which largely have jewellery retailers.
Most retailers feel there is a scope for focused malls in India. India might take some time before focused
malls become successful. Since customers often visit shops with an intention to purchase a specific
product, they would prefer focused malls. These malls essentially replicate traditional high streets and
provide benefits of cluster advantage.
Multiple Retail formats: key to the Indian market

The retailers in India on an average have more than three formats. On the other hand, in the North
American market, 34 of the fastest-growing 50 retailers have just one format.

The opinion among the retailers is tilted towards multiple formats. Almost 40 percent state that a single
format is sufficient for success while 60 percent opined that multiple formats would be needed in India. A
key reason why multiple formats may be needed is the diversity of the country.

One such factor could be the rural-urban difference. Hence, ITC is experimenting with a rural hypermarket
through its Choupal Sagar format, which combines the grain procurement and storage center with the
mall.

“No single format will be suitable pan-India — finding the relevant format would be a key to success." -
CEO, large Indian retailer