Changing Retail Landscape in India

April 10, 2023

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…

Re

al G

row

th R

ate

Source :Central Statistical Organization (CS0)

April 10, 2023

India Experiencing Rapid Economic Growth

9.4% growth rate makes India the second fastest growing economy in the world

GD

P (

US

$ b

n)

Re

al G

row

th R

ate

April 10, 2023

Led by Growth in Services Sector

13% 14%

55%

21%

7%6%

21%

37%41%

107%

0%

20%

40%

60%

80%

100%

120%

Tourist Arrivals Passenger CarsSales

CommercialVehicle Sales

Domestic AirPassengers

New Cell PhoneConnections

2005-06

2006-07

% Increase in growth over the previous year

Services sector adding to GDP in a significant manner

April 10, 2023

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,

60 % of India’s population are under 24 years

April 10, 2023

With High Private Consumption

GDP US$ 935 billion

Private ConsumptionUS$ 580 Billion

(62%)

Public Spending and Capital Formation

US$ 355 Billion (38%)

Retail US$ 342 Billion

(59%)

Non RetailUS$ 238 Billion

(41%)

Urban (5,100 towns) US$ 154 Billion

(45%)

Rural (6,27,000 villages)US$ 188 Billion

(55%)

Modern retail – US$ 12 billion 8% of urban retail spends

Modern retail Negligible

Food

Apparel

Beverages

Footwear

Consumer durables

Appliances

Stationery

Kitchen utensils

Furniture

Furnishings

Sports goods

Health & Beauty

Personal Care

Jewellery

Timing

Transport

Communication

Recreation

Cultural Services

Education

Rent

Utilities

Other Services

Source: Central Statistical Organization (CS0) and Technopak Analysis Conversion rate: 1 US$ = 40.86 Rs.

April 10, 2023

About US $530 Billion Retail Market by 2012

GDP* US$ 1,450 billion

Private ConsumptionUS$ 870 Billion

(60%)

Public Spending and Capital Formation

US$ 580 Billion (40%)

RetailUS$ 530 Billion

(61%)

Non RetailUS$ 340 Billion

(39%)

UrbanUS$ 252 Billion

(47.5%)

RuralUS$ 278 Billion

(52.5%)

Modern retail – US$ 78 billion 31% of urban retail spends

Modern retail – US$ 9 billion 3% of rural retail spends

Source: Technopak Analysis *All figures are in nominal terms after taking into account inflation

April 10, 2023

Which Makes Indian Retail an Attractive Market

India tops the Global Retail Development Index

April 10, 2023

Modern Retail – Organized Channels

• The share of organized retail is less than 3% of the total retail market • The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last

five years

85% 81%

55%40% 36% 30%

20% 20% 3%

0%

20%

40%

60%

80%

100%

US Taiwan Malaysia Thailand Brazil Indonesia Poland China India

Traditional Channel Modern Channel

April 10, 2023

.. but Rapid Transformation is Anticipated

Current Size & Future Projections for Indian Retail Market

342 373 408 445 486530

800

12 18 26 39 59 87

200

0100200

300400500600

700800900

2007 2008 2009 2010 2011 2012 2017

US

$ B

illion

Total Retail Organized Retail

And may reach a share of 25% by 2017

April 10, 2023

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

April 10, 2023

Price, concern and typical Indian features are some examples

Adaptation to Local Market – Road for Success

Source: McKinsey Quaterly, winning the Indian consumer, 2005

Chicken hamburger to reach segments that do not eat beef

McDonalds Maharaja Mac

Nokia 1100

Anti dust keypad for dirty roads, anti slip grip for the heat and flash-light in case of electricity shortage

Indian menus with singe touch

Samsung microwaves

Memory backup to compensate for frequent power shortage

Samsung laundry machine

10 milli lt. sachet for less than 5 cents increased the shampoo buying population dramatically

Head & Shoulders

April 10, 2023

Recent Trends

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.

Store design : Biggest challenge for organized retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design.

Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.

Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.

Store design : Biggest challenge for organized retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design.

Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.

Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

Recent changes:Recent changes:

Unorganized : Vast majority of the twelve million stores are small "father and son" outlets

Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest.

Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Unorganized : Vast majority of the twelve million stores are small "father and son" outlets

Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest.

Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Traditionally three factors have plagued the retail industry:

Traditionally three factors have plagued the retail industry:

April 10, 2023

Recent Trends …..

April 10, 2023

Retail Market not limited to metros but widely across India

• The classic ”skimming” strategy in the metros is not longer sufficient

– 100 cities strategy• Over 250 large size shopping malls

are currently under construction• Leading cities 2030 are

forecasted to be– Mumbai– New Delhi– Chandigarh

New Delhi

Bangalore

Mumbai

Chennai

Kolkata

Ahamabad

HyderabadPune

Above 10 Mn inhabitants

Above 4 Mn inhabitants

Above 2 Mn inhabitants

Above 1 Mn inhabitants

Kanpur

Lucknow

Jaipur

Nagpur

Coimbatore

Bhopal

Madurai

Kochin

Varanasi

Visakhapatnam

Patna

Indore

Surat

Vadodara

Ludhiana

April 10, 2023

Drivers for Indian Retail

High Income OpportunitiesHigh Income Opportunities

Changing AttitudeChanging Attitude International Exposure

International Exposure

Necessities to Lifestyle

Necessities to Lifestyle

•Service Sector: creating

new jobs.

•Working Population in

2010 will 70%

•IT Industry: increasing

professional

opportunities

•Rising Salary levels

•MNCs entering India

and homegrown

companies going global

•Service Sector: creating

new jobs.

•Working Population in

2010 will 70%

•IT Industry: increasing

professional

opportunities

•Rising Salary levels

•MNCs entering India

and homegrown

companies going global

•From Save to Spend

•High disposable

income family

structures on a rise

•Nuclear Families

•DINKS (Double

Income No Kids)

•Multi income families

•From Save to Spend

•High disposable

income family

structures on a rise

•Nuclear Families

•DINKS (Double

Income No Kids)

•Multi income families

•International travel

•Exposure to global

trends

•Highest Growth in

outbound tourists in

the world

•International travel

•Exposure to global

trends

•Highest Growth in

outbound tourists in

the world

•Shift of expense

basket from basics

to lifestyle products

•Increased spend on

Apparel, personal

care, entertainment

•Easy Bank credit

boosts retail

•Shift of expense

basket from basics

to lifestyle products

•Increased spend on

Apparel, personal

care, entertainment

•Easy Bank credit

boosts retail

Customer value drivers are continuing to fragment as a result of changing demographics & value systems

Consumption expenditure is 60 % of India’s GDP

Market & Government

Market & Government

•Easing out on

Import barriers,

Government

sponsorship taking

shape (FDI Policy,

Tax and Duty

structure, Subsidies)

•Fluid retail

Segments

•M-Commerce & e-

Commerce boosts

retail

•Easing out on

Import barriers,

Government

sponsorship taking

shape (FDI Policy,

Tax and Duty

structure, Subsidies)

•Fluid retail

Segments

•M-Commerce & e-

Commerce boosts

retail

April 10, 2023

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

April 10, 2023

Format Definition

Formats Description Key categories retailed

Typical size Sq.ft.

Example

Hyper marketsHyper markets

A large superstore, combining a supermarket and departmental store, offering full lines of grocery and general merchandise all under one roof

Food, groceries, apparel, furnishings, consumer durables

15,000-100,000 Big Bazaar, Hypercity, Spencer, Star India Bazaar, Vishal Megamart

Super marketsSuper markets

A large self service outlet offering food and household goods

Food, groceries, medicines 3,000-15,000 FoodWorld, Trinethra, Subshiksha, Food baazar

Departmental storesDepartmental stores

A large self service outlet offering a variety of merchandise

Apparel, Jewellery, watches, fashion accessories, footwear, furniture, furnishings

10,000-50,000 Shopper’s Stop, Lifestyle, Pantaloon, Westside

Category killersCategory killers

Large speciality stores focussed on one or a few categories of merchandise, offering a wide selection at low prices

Electronics, office supplies, apparel

20,000-100,000 Best Buy – Circuit City, Staples

Convenience storesConvenience stores

Small size, easily accessible stores offering a quick shopping, fast check out experience and extended working hours

Food, groceries, medicines 500-2,000 In&Out, Trinethra, Subhiksha, traditional stores

April 10, 2023

Format Definition (Contd.)

Formats DescriptionTypical size Sq.ft.

Example

Single brand outletsSingle brand outlets

Retail outlet offering products of a single brand

Apparel, footwear, tyres, food services, furniture

•1,000-5,000 Nike, Adidas, Colourplus, McDonalds, Gautier, Gucci, TBZ

Multibrand speciality stores

Multibrand speciality stores

Retail outlet offering multiple branded products belonging to a single category class

Footwear, apparel, electronics, books

•1,000-20,000 Planet Sports, Planet Fashion, Crosswords

Warehouse clubsWarehouse clubs

Warehouse style large stores, offering goods in bulk at discount prices to members

Food, groceries •100,000 + Metro cash and carry, Costco, Sam’s Club

Key categories retailed

April 10, 2023

Retail Challenges

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

April 10, 2023

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

At ground level ….

April 10, 2023

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

Thank You