National Seminar : “Novus Idein”
Author : Syed Faisal Quadri
Marketing Management Faculty
Booming Indian Retail sector (2007)
Retail boom is sweeping India; private entities from the world region are making a beeline to invest in the sector but are wary of some challenges in the huge and diverse market. Every 100 miles, the food and language changes, which means that the communications has to be key.
By 2015 almost 72 per cent of the population would be under 35-years-old, which will contribute to the highest number of consumers in the world. India has registered a very impressive growth of its middle class -- At the start of 1999; the size of the middle class was estimated at 300 million people. The middle class comprises three sub-classes: the upper middle, middle middle and lower middle. The upper middle class comprises an estimated 40 million people. With the liberalization and direct FDI in various Banking and Insurance sector the per capita income has increased. The income at disposable of a consumer has increase many folds since the last decade. The growth of large scale retail is fuelled by the rapid spread of mass production to more and more product categories, technological applications in long distance transportation vehicle for transport, motivated to expand their operations and set up chains of stores. Though there are many outlets in India; the share of organized retail is estimated to be just 2 percent. Entry of corporate like Rahejas, Tatas,and RPG group has brought a professional approach to this sector. Driven by discount led formats and forecasted boom in towns &mini metroes, share of organized sector in retailing is expected to reach 20 % in coming 5 Years. India Retail has got potential and the concept of organized retailing and better distribution and logistics has set in. The Indian urban consumer is also now getting hooked to this new method of home purchases that also combine into family outings and entertainment. The mall infrastructure across cities and supply chain mechanisms across the country are getting into place. India Retail seems set to grow exponentially in the next few years and the global giants are waiting forentry. Global brands have however come in and set themselves up well. The Indian retail story of transformation began a few years ago and is rapidly Spreading across the more densely populated cities and towns but still a small fraction of the total retail potential that exists. Indian organized retail is presently being tested and built upon by a new entrepreneurs and companies and these include Pantaloon Retail, Food World, Spencer’s, Shoppers Stop, Lifestyle, Subiksha and several other smaller players. India’s retail revolution has been driven by large expectations, a flurry of interest by Indian and international Companies and a large activity in the development and operation of retail malls.
These malls anchored by large stores have become home to several large International and Indian brands that are using this channel to spread themselves out across Indian cities in high-profile exclusive brand formats. Analysts expects the Indian retail growth process to take a decade since there is a large population of one billion that needs to be slowly reached and this population is spread across six hundred thousand villages. The large urban population of India is about three hundred million and spread across about a couple of hundred large cities and smaller towns. Organized retail is expected to home in on this proportion first in the next five to ten years. At present most of the large retail activity and brand building is focused on about twenty Indian cities, each of which has a population of one million. Indian retail will slowly expand from the small dots that it represents across the Indian map and become large spots and areas over the next several years. Indian government regulations are going through a long and meandering debate on whether or not India should allow foreign retail chains to come in and if yes, then how they need to be regulated and controlled. Most see retail as a bastion that will fully liberalize and globalize India and threaten large employment that is presently provided by the small unorganized retail network that is present all across Indian districts including the small towns and villages. The new organized format will mean a lot of change for the network, the consumers and the product vendors and this is being analyzed and considered carefully by the government. The opening up the retail sector will create a lot of changes in cultural and employment patterns as well as sound the death knell for several hundreds of thousands of small and tiny enterprises that are involved in retailing and manufacturing of products for local markets. This large change is owever unlikely to be possible to stem in the long run. India will slowly open up and moderate the change but the new retailing experience that has ready been sampled with great success is expected to expand slowly but surely till it covers the entire geography of the country. India looks at retail as a large area of interest for its Indian and international audience. India opens this section with a detailed analysis of the retail sector.
Indian retailing industry has seen phenomenal growth in the last five years (2001-2006). Organized retailing has finally emerged from the shadows of unorganized retailing and is contributing significantly to the growth of Indian retail sector.’ “India Retail Sector Analysis (2006-2007)” report helps analyzes the opportunities and factors critical to the success of retail industry in India.
Key Findings: - Organized retail will form 10% of total retailing by the end of this decade (2010).
- Cultural and regional differences in India are the biggest challenges in front of retailers. This factor deters the retailers in India from adopting a single retail format. - Hypermarket is emerging as the most favorable format for the time being in India. - The arrival of multinationals will further push the growth of hypermarket format, as it is the best way to compete with unorganized retailing in India.
Key Issues and Facts Analyzed, The research report also addresses the issues and
the facts that are critical to the success of Indian retail industry in general &
industry in particular. - Evaluation of current market trends.
- Profile discussion of key players in this sector. - Analysis of various challenges
- and opportunities before the industry. Key Highlights of the Report
- What is the market size and scope of the Organized Retail in India?
- what and where are the growth prospects and issues related to the
- What are the factors driving growth in this sector?
- - Size of organized market segment wise and its growth prospects.
- - Who are the major players in Indian Retail Industry, their presence and
- Strategies being used by them and their market positioning?
- What are the opportunities & challenges in front of the retailers in India
- and emerging trends there? Key Players Analyzed-This section covers the key
- players currently operating in the Indian retail industry including Future
- Group, Trent Ltd, RPG Enterprise, Vishal Retail Ltd, Shoppers Stop Ltd, Bata
- India Ltd, Provogue India Ltd, Videocon Appliances Ltd., I.T.C. Ltd, Godrej
- Agrovert Ltd, and DCM - Hariyali Kisaan Bazaar.
- There are no doubt huge potential the long term for India, with vast
- expectations for speeding up the growth of the organized formats, setting up
- of supply chains, investment in food processing industry . For the consumer,
- it should lead to better quality of products, lower prices and wider choice of
- products as the consumers are more price oriented rather than the brand, the
- price orientation in future may lead to a brand consciousness in future with
- numbers of new brand offered by the retailers
For the investor, it is all about the profits and a huge potential in retail sector.
The older market will probably be divided in different ways, and new categories
of goods and services will likely be developed to meet the needs ofconsumers.
Retailing sector will probably be segmented in more specific ways based on
lifestyle, value orientations, and demographic factors such as income and
educational level and cultural factor.
Across the country, retail sales in real terms are predicted to rise more rapidly
than consumer expenditure during 2006-08. The forecast growth in real retail
sales during 2006- 2008 is 8.3% per year, compared with 7.1% for consumer
expenditure. Modernization of the Indian retail sector will be reflected in rapid
growth in sales of supermarkets, departmental stores and hypermarts.
Sales from these large-format stores are to expand at growth rates ranging from
24% to 49% per year during 2006-2008, according to a latest report by
Euromonitor International, a leading provider of global consumer-market i
The Indian Retail sector
n 10th largest economy in the world based on GDP
n 7.5% GDP growth forecasted over 2005-2008
n Real estate sector growing at 30% per annum and one of the largest employer – a key contributor to GDP
n Residential market is 80% of the total real estate market
n Office space demand of 66 million sq.ft. for IT industry over next 5 years
n Real Estate in India projected to be USD 50 billion in 2008
n Organized retail space demand of 40 million sq. ft. over next 3-4 years
n India is ranked the 5th largest retail destination across the globe
n Consumerism – the order of the day, which is fueling the growth in both the commercial as well as the retail sector
n Globalization of Indian Economy
Indian Retail Scenario
n Total Private Consumption Expenditure in India – 375 Billion USD
n Retail Sale – 205 Billion USD (55%)
n Organized Retail – 6.2 Billion USD (3%)
n Retailing – 35% of GDP
n Outlet Estimates – Over 12 Million
n Format – Only 4% larger than 500 sq.ft.
n Second Largest Employer after Agriculture
Malls in India
n A decade ago - not a single mall
n A year ago - less than half a dozen
n Today more than 150 malls
n 2 years from now more than 500 malls
India is amongst the least saturated of all major global markets in terms of
penetration of modern retailing formats, there is huge potential in market
Many strong regional and national players emerging across formats and
product categories, Most of these players are now gearing up to expand
rapidly after having gone through their respective learning curves, The
Shopping Mall formats are fast evolving Partnering among Brands, retailers,
Franchisees , investors and malls
Gradually, with a boost in retailing continuing, the organised retail
sector in small towns beyond metros will increase at 50-60 per cent
as compared to less than 35 per cent in the large cities purely on
account of scarcity of space which is in plenty beyond metros with
reasonable land prices.
The Indian Retail Sector can be broadly classified into
Food Retailers- there are large no of retailers in food retailing
sector, traditional types of retailers, who operates in a small single
unit dominated by a single family members. In comparison, super
markets accounts for a small proportion of food sales in India.
However the growth rate of super market sales has being significant
in recent years because of greater number of higher income Indian
prefer to shop at super market due to higher standard of hygiene
and attractive ambience
Health and Beauty Products- with more income at disposable
Indian consumers have started spending more and more on health
and beauty care products, which in turn has given a boost for
beauty retail ,few years back there used to be a single retail store
offering beauty products whereas the scenario has changed to
various retailers entering into the market ,catering the need of
health and beauty products to the consumers.
Clothing and Footware-with rapid urbanization and changing
pattern of consumer buying behavior ,clothing and footwear has
gone a long way from a single shop footwear and cloth store to
modern footware and clothing stores
Home Furniture and Household Goods- This sector is dominated
by small and traditional retailers, with the entry of few retailers like
House-full there may be paradigm shift of consumers from small
retailers to malls exclusively providing furniture and house hold
Durable Goods-The Indian durable goods has seen a drastic
change post liberalization with the entry of many foreign companies
and stiff competition among the companies to sell their brands has
provided a strong impetus to growth for retailers doing business in
Leisure and Personal Goods- Increse in household income due to
better economic growth have encouraged consumers expenditure
on Leisure and personal goods .There are specialized retailers in
category of books, music products etc, various Coffee Retailers has
entered in Indian market to cater to needs of consumers during
The retail sector in India further can be classified into three different tier cities, I
tier, I tier and III tier cities, So far, modern-format retail has scaled up its
presence in the metros and a few tier-II cities. However, the future will see tier-II
and, maybe, even tier-III cities attract more retail outlets. Consumer mindset and
behavior is changing in these cities. A growing base of affluent, upwardly mobile
consumers have similar needs and desires as their urban counterparts and they
are looking for instant gratification. With satellite television, internet and mobile
communication available in smaller cities, people are increasingly exposed to the
world. Tier-II and tier-III cities present an enormous growth potential over the
next five years and are the future of modern retail in India.
Small-town India is the next big thing in the retail business. Consider these
numbers: in 2005, the contribution of smaller cities to total organised retailing
sales was 15%. By the end of this year, that proportion is expected to grow to
25%. Organised retailing in small-town India is growing at a staggering 50-60% a
year compared to 35%-40% in the large cities. The striking point is that it is the
big names in the organised retail business that are eyeing these new
The Kishore Biyani-owned Future Group, India’s largest retailer, plans to invest
Rs 3,600 crore in 100 stores in 30 cities, increasing its retail space from 3.5
million square feet to 30 million sq feet. The RPG group plans to open malls in all
cities with a population of over 8 lakh.
Similarly, Wills Lifestyle, the garments and accessories retailing division of ITC
Ltd, plans to increase its footprint by doubling the number of stores from 50 to
around 100 in the next two to three years, mostly in smaller cities. Even Sunil
Mittal’s Bharti group has announced plans to get into food and farm products
retailing. All these plans, however, are dwarfed by Mukesh Ambani’s ambitions to
do a Wal-Mart in India by investing $5.60 billion (Rs 25,000 crore) and covering
1,500 cities and towns.
The small-town retail boom could be considered a show-case of India’s free-
market prosperity. It is being powered by healthy economic growth that is making
more Indians more prosperous. Organized retailers have understood this and are
hoping to ride the wave, exploit the first-mover advantage and establish strong
brand loyalties in these relatively under-served markets.
The opportunities in Indian organized retail sector are many for this
sector is witnessing a boom. The various opportunities in the organized
retail sector in India are mainly there for the Indian consumers
behavior pattern has changed. Now the Indian consumer gets more
hefty pay- packages, is younger, a large number of women are
working, western influences, and more disposable income have opened
a lot of opportunities in Indian organized retail sector. The Indian
consumer wants to shop, eat and get entertainment in one place and
is have also given Indian organized retail sector an opportunity to
The Indian government in 2005 allowed foreign direct investment
(FDI) in single brand retail to 51%. This have opened up a lot of
opportunities in India organized retail sector. In fact 325 departmental
stores, 300 new malls, and 1500 supermarkets are being built which
shows the tremendous opportunities in the organized retail sector in
Many Indian companies seeing the various opportunities in organized
retail sector in India have entered it. Pantaloons have decided to
increase its retail space to 30 million square feet with an investment of
US$ 1 billion. Reliance Industries Limited is targeting for annual sales
of US$ 25 billion by 2011. It is planning to invest US$ 6 billion in order
to open 1,500 supermarkets and 1000 hypermarkets. Bharti Telecoms
is planning a joint venture with Telco a global retail giant worth £ 750
The opportunities in the organized retail sector in India have also
increased with the desire of many global retail giants to set up shop
The challenges facing the Indian organized retail sector are
various and these are stopping the Indian retail industry from
reaching its full potential. The behavior pattern of the Indian consumer
have undergone a major change. This have happened for the Indian
consumer is earning more now, western influences, women working
force is increasing, desire for luxury items and better quality. He now
wants to eat, shop, and get entertained under the same roof. All these
have lead the Indian organized retail sector to give more in order to
satisfy the Indian customer.
The biggest challenge facing the Indian organized retail sector is the
lack of retail space. With real estate prices escalating due to increase
in demand from the Indian organized retail sector, it is posing a
challenge to its growth. With Indian retailers having to shell out more
for retail space it is effecting there overall profitability in retail.
The major challenge faced by local retail shops.For decades now, consumer
goods companies have been used to delivering to India's proverbial "12 million
kiranas" more or less on terms of their own choosing.
They are now finding that modern format retail doesn't operate along quite the
same lines. In fact, it is so dramatically different, it is an entirely new business.
What opportunities and challenges do organized retail present for consumer
goods suppliers? And what strategic changes will help them do better business
with giants like Wal-Mart, Reliance Fresh,
The rise of organised retail does not mean the end of traditional retail.,
FMCG companies in India have had a fairly smooth run until now - given that the
average kirana is 150-200 sq ft and has space for less than 1,000 sqft, they didn't
need to create endless product variations and extensions of the same brands.
While organised retail provides brands much-needed visibility and platform for
customer-interaction (more on that later), manufacturers also need to make some
changes to packaging to bring their products in line with the requirements of
modern retail and its customers.
Modern trade operates to a completely different set of rules. Given its superior
bargaining power, it can negotiate better margins, wider product ranges and
more frequent, speedier deliveries.
For manufacturers, then, it makes sense to have a separate team servicing these
outlets, working full-time to ensure both parties profit equally from the
One way of doing that is by persuading retailers to route their purchases through
suppliers' existing distribution networks. That's because for the supplier, selling
directly to the retailer works only if the order size is large enough.
To their credit, most large retailers are willing to accept such an arrangement.
Their only condition: orders must be filled on time. Modern stores maintain lower
inventories than traditional retail - nine days for Hypercity and under two weeks
for Food Bazaar, compared to over three weeks for most kiranas - and losses
due to a stockout are far more significant, for both the manufacturer and the
Retail analysts say on-time order replenishments will become even more critical
once the Wal-Mart/ Bharti combine begins operations - the American retailer
works almost entirely on cross-docking and is likely to demand higher service
levels, including potential levies for delays in shipment.
Meanwhile, manufacturers have to also keep their traditional distributors satisfied
a tough task, considering they offer modern trade more concessions and better
promotions than their general trade partners.
Hindustan Lever is working around that by involving family grocers, chemists and
wholesalers in custom-made programmes that offer them targeted promotions,
value deals and also build relationships through training sessions, newsletters
and meetings. For its part, Cadbury India has changed the rules for all its
customers (retailers). It has created a menu-based approach - issues covered
include prompt payment, efficiency and business building initiatives - that is
common to all retailers, big and small.
A couple of years ago, it also started the Purple Star programme for traditional
retailers, where it tailors promotions and schemes for selected stores. The earlier
approach to marketing was simple enough: make sure the product is visible - on
store shelves .
In conclusion retailers has a huge market with huge potential in Indian
cities and towns for coming years with boom in economy