RETAILING IN INDIA: The Impact of Hypermarket

INDIAN RETAIL-BRIEF OVERVIEWThe Indian retail sector is highly fragmented with more

than 90 per cent of its business being carried out by traditional family run small stores.

This provides immense opportunity for large scale retailers to set-up their operations – a slew of organized retail formats like departmental stores, hypermarkets, supermarkets and specialty stores are swiftly replacing the traditional formats dramatically altering the retailing landscape in India.

India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearney’s report published in June 2010

RETAIL-MARKET SIZEThe total retail sales in India will grow from

US$ 353 billion in 2010 to US$ 543 billion by 2014 of which modern retailing accounts for 27 percent.

Indian retail sector accounts for 22 per cent of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment.

Weekly MarketsVillage Fairs

Melas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super MarketsDepartment Stores

Shopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Evolution of Indian retail

Source of Entertainmen

t

Neighborhood Stores/Convenie

nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie

ncy

REASONS FOR THE GROWTHRobust economic growthHigh disposable income with the end-consumerRapid construction of organized retail infrastructure

are key factors behind the forecast growth. Expansion in middle and upper class consumer baseGrowth potential in India’s tier-II and tier-III cities as

well. The greater availability of personal credit and a

growing vehicle population providing improved mobility also contribute to a trend towards annual retail sales growth of 12.2 per cent.

Indian Retail – Buoyed by high GDP growth 8.90%

9.0%

6.8%6.0%6.0%

5.6%5.2%

6.4%6.6%

5.4%

9.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian

Retail…

Real G

row

th R

ate

Source :Central Statistical Organization (CS0)

Driven from Consumption Throughout the 1.1 Billion Population

5-7 million

Super Rich

70 – 80 million

Afford Cars, Private Healthcare & Foreign travel

250 - 300 million

Afford goods like Refrigerators , Scooters & Colour TVs

600-700 million (Generally Rural)Afford simple industrial products

e.g. bicycles , radios , textilesPoverty Line = income less than $ 1/day

Source: McKinsey,

50 % of India’s population are under 25 years

ORGANISED v/s UNORGANISEDThe total retail sales in India will grow from

US$ 353 billion in 2010 to US$ 543 billion by 2014 of which modern retailing accounts for 27 percent.

The Indian retail market, over the last decade, has been increasingly leaning towards organized retailing formats.

The pattern in domestic retailing is altering in the favor of organized modern retailing, a big change from the traditional plethora of unorganized family-owned businesses.

Cont..Rapid urbanization, changes in shopping

pattern, demographic dividend and pro-active measures by the Government are abetting the growth of the retail sector in India.

There are over 300 hypermarkets and 6,800 supermarkets in India

Hypermarket sales are expected to increase fivefold from 2009 to 2013, and supermarket sales are expected to increase 150 percent during the same period.

Each new store opening may draw customers from 20 to 25 kiranas and fruit and vegetable stands, affecting over 100,000 vendors.

Global Heavyweights in Indian RetailingJoint Ventures Product Range Retail Formats

Bharti-Walmart (with $2.5 Billion investment by Bharti)

Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.

Hypermarkets, Supermarkets and Convenience

Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets

Home Retail Group plc - Shopper's Stop Ltd and Hypercity Retail India Private Ltd

Franchising the Argos concept under the terms of the arrangement, Argos will be providing its brand, catalogue and multi-channel expertise and IT support

Multi Channel propositions

Tata-Woolworths Sourcing agreement for Consumer durables and Foods under brand name CROMA

Multi brand retail chain

Staples Inc – Pantaloon Retail

Global Sourcing of Office equipments across various businesses

Cash and carry

Reliance Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.

Multi format and Multi Category

Birla Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.

Convenience and Supermarket

Retail - Government InitiativesIndia announced new rules for foreign

investment in retail by April 2012, paving the way for companies such as Wal-Mart Stores and Carrefour to open stores. A government panel has issued a report that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets. Allowing foreign investment in multi-brand retail may help moderate food prices,

Cont.India currently allows 100 per cent FDI in

single-brand retail and 100 per cent in wholesale cash-and-carry operations.

The government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The changes are part of the third revision of the Consolidated FDI Policy.

The Indian government is expected to spend $500 billion (U.S.) over the next few years to develop a world-class infrastructure, which should spur growth in the retail sector.

KEY CHALLENGES

THE KIRANA CRM practice Known about the customer’s families Credit and home delivery Consumer familiarity runs from generation

to generation Open longer hours and stock most of the

goods Consequently, a large number of customers

are not willing to pay a premium for the shopping experience promised by large format retailers.

HIGH COSTS FOR THE ORGANIZED SECTOR

High expenses to organized sector .The lease cost up to 6-10 percent of sales Manpower cost is lower at 5-6 percent of

salesCapital costs are more in retail business due

to major renovations needed every 5-7 years.

Organizing Retail in India-Challenges

Heterogeneous market

Product offerings in different stores across the country will be very different

No standard mode of operation across formats

Market not mature (has to be validated)

Infrastructure will bring about logistical challenges

Though, improvements in road networks, power supply are underway

Trained employees with understanding of retail business are inadequate compared to the needs of organized retail

Barriers to Entry

High taxes, bureaucratic clearance process and labour laws

High cost of real estate

though over 600 malls are to come up all over the country by the next 4 years

Indian retailers are deeply entrenched, are expanding and building on logistics and technology initiatives

ProcessesProcesses

•Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment, Lean supply chain – JIT inventory, flow through warehouse

•Evolving processes in Supply chain & merchandising•Global Best Practices not adopted

ConsumerConsumer

InfrastructureInfrastructure

•High disposable income•Changing consumer preferences•28 states, 100+ religion, 250+ festivals

•Supply chain not reliable. Cold storage infrastructure evolving•Outsourced transportation•Low level automation in warehouses

Supplier/VendorSupplier/Vendor

Current ITCurrent IT

•Little or no collaboration between vendor & retailer•Low fill rates from vendors•Highly localized assortments leading to relationship with multiple

vendors •Complex trading contracts and off invoice discounts•Multiplicity of disparate Systems & Data Formats•No architecture roadmap•Base ERP and home grown POS solutions. Low investments in store

systems•No investments in planning & optimization technologies

Challenges contd..Weakness of Player Retail not being recognized as an industry in india. The lack of recognition as an industry hampers the availability of

finance to the existing and new players. This affects growth and expansion plans

The high cost of real estate: Real estate price in some cities in India are amongst the highest in

the world. The lease or rent of the property is one of the major areas of expenditure, high lease rentals eat into the profitability of a

project. Lack of adequate infrastructure Poor roads , lack of a cold chain infrastructure, etc , hamper the development of food and fresh grocery retail in india. The existing supermarkets and food retailers have to invest a

substantial amout of money and time in building a cold chain network.

The Way Ahead

India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats

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

Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers

The Shopping Mall formats are fast evolving.

Partnering among Brands, retailers, franchisees, investors and malls

Improved Infrastructure

In view of a compressed evolution cycle, retailers need to

simultaneously address issues of speed, Execution and efficiency

Key Opportunities

Supply Chain Investments

• Setting up logistics and supply chain infrastructure

• Import of know how and logistics techniques from developed retail countries

IT Infrastructure

• IT is the enabler behind communication, collaboration with suppliers, and an efficient supply chain

Manpower

• Potential tie-ups with universities and setting up dedicated retail institutes

• Utilize experience of international retailers to train local talent

Large Rural market

RETAIL – ROAD AHEAD

There is a huge untapped opportunity in the retail sector, thus having immense scope for new entrants, driving large investments into the country.

A good talent pool, huge markets and availability of raw materials at comparatively cheaper costs are expected to make India lead one of the world’s best retail economies by 2042.

The industry is also slated to be a major employment generator in future.

Thank You