1 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
Deep Dive: International Grocery
Retailers in India, Where 1.3 Billion
Consumers are Shopping for Dinner
Thisreportisthesecondinabriefseriesthatlooksatglobalretailers’operationsinIndia.Itfocusesoninternationalgroceryretailers’andwholesalers’entriesintothecountryandconsiderstheirdomesticcounterparts.
1) WeestimatethatIndianconsumersspentover$400billononfood,beveragesandtobaccointheyearendedMarch2017.
2) Inthe2014fiscalyear(latestconfirmed),Indiansallottedaround33%oftheirtotalconsumerexpendituretofood,beveragesandtobacco.
3) TheIndiangovernmentallowedforeigndirectinvestment(FDI)inthewholesaleofgroceryproductsbeginningin1997,whichpavedthewayforMetroGroupandWalmarttoopenwholesalestoresinIndia.
4) From2012onward,thegovernmentallowedFDIofupto51%inmultibrandretail,enablingretailerssuchasTescotooperateinthecountrythroughjointventures.
5) Inthisreport,wealsoshareimagesandobservationsfromouron-the-groundresearchatvariousinternationalanddomesticgrocerywholesaleandretailstoresinBangalore.
Deborah Weinswig
Managing Director
Fung Global Retail & Technology
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
2 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
TableofContents
ExecutiveSummary.........................................................................................................................................3
Introduction:India’sGroceryRetailLandscape................................................................................................4
SizingtheIndianGroceryMarket....................................................................................................................4IndianGrocery:A$400+BillionMarket....................................................................................................................4
MainCharacteristicsofIndianGroceryConsumersandGrocers......................................................................5
EconomicReformsinGroceryWholesaleandRetail........................................................................................8EntryRoutesforForeignBrandsandRetailersinIndia............................................................................................9
KeyInternationalPlayersinIndianGroceryRetail..........................................................................................10StoreTours:InternationalWholesalers/Retailers..................................................................................................11StoreTours:DomesticRetailers.............................................................................................................................16
OpportunitiesinIndianGroceryRetailandBarrierstoEntry..........................................................................20
Outlook:WhatWeThink................................................................................................................................22
3 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
ExecutiveSummaryInthisreport,weexamineWesterngroceryretailers’andwholesalers’pushintotheIndiaandlookatthefeaturesoftheIndiangrocerymarket.Wealsoshareobservationsandimagesfromouron-the-groundresearchinIndia,wherewevisitedthestoresofseverallocalandinternationalretailersandwholesalers.Finally,wediscussthebarrierstoentryandtheopportunitiesthatarepresentintheIndiangrocerysector.
ThelatestdatafromtheMinistryofStatisticsandProgrammeImplementation(MOSPI)showthatIndianconsumerspendingonfood,beveragesandtobaccojumpedby17.6%yearoveryearto$336billioninthefiscalyearendedMarch2014.Weestimatethatspendingonthesecategoriesrosetoover$400billionintheyearendedMarch2017.(Thesedataareatconstant2016exchangeratestoremovetheeffectsofcurrencyfluctuations.)
AccordingtoMOSPI,Indiansallottedfully33%oftheirtotalconsumerexpendituretofood,beveragesandtobaccoinfiscalyear2014.
SeveralfactorshavehistoricallylimitedtheentryofinternationalgroceryretailersandwholesalersintoIndia.ThegovernmentallowedFDIinthewholesaletradefrom1997onward,whichpavedthewayforMetroGroupandWalmarttoopencash-and-carrybusinessesinIndia.FDIwaspermittedinthemultibrandretailsectorbeginningin2012,whichallowedinternationalretailerstoinvestindirectoperationsinIndia,albeitonlyupto51%.Sofar,onlyTescohasusedthisroutetoenterIndia,whichithasdonethrougha50/50jointventurewithTrentHypermarkets.DutchretailerSparhasapresenceinIndiathroughafranchisemodelwithMaxHypermarkets.In2017,theIndiangovernmentbeganallowingFDIinfood-onlyretailat100%,butthecapfornonfoodgroceryisstill51%.
InordertoincreaseIndia’sattractivenessasaninvestmentdestination,wethinkthegovernmentneedstofurtherliberalizeforeigninvestmentpolicy.Inourview,italsoneedstoworkonimprovinginfrastructureconsiderably,includingbysubsidizingbothhigh-qualitystoragefacilitiesclosertofarms—whichwouldhelpfarmersstoretheirproducesafelyandreducewastage—andretailspacesthatwouldencourageretailerstosetupoperationsinthecountry.
SparHypermarketatMantriMall,Bangalore.Source:FungGlobalRetail&Technology
WeestimatethatIndianconsumersspentover$400billononfood,beveragesandtobaccointheyearendedMarch2017.
4 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
Introduction:India’sGroceryRetailLandscapeGroceryshoppingintropical,agrarianIndiaisverydifferentfromgroceryshoppingintheWest.Ruralandurbancommunitiesaredottedwithvegetableandfruitvendorspeddlingfreshproduceonpushcartsandtinystores,informalmarketsandstallsthatselltheprovisionsanaveragehouseholdneeds.Thesevendorsareusuallyfoundalongsidemoderngroceryretailers’outletsthatselllocalproduce,importedfoodandotherproducts.
Inthisreport,weexaminethepushofWesterngroceryretailersandwholesalersintoIndia’sgrocerylandscape,lookatthefeaturesoftheIndiangrocerymarket,shareobservationsandimagesfromouron-the-groundresearchonlocalandinternationalretailersandwholesalersinthecountry,andanalyzethebarrierstoentryandopportunitiesinthesector.OurcompanionreportoninternationalapparelretailersinIndiacanbefoundatFungGlobalRetailTech.com.
SizingtheIndianGroceryMarketWebeginbyexaminingsomekeydetailsoftheIndianretailsector,foodandbeverages’shareofthatsector,andsomeofthecharacteristicsthatareuniquetotheIndiangrocerymarket.
ThescaleoftheconsumermarketandthegrowthmomentuminIndiamakeitanattractivedestinationforinvestment.Thecountryhasthesecond-largestpopulationintheworld,with1.3billionpeople,andistheworld’sfourth-fastest-growingeconomy.AccordingtothelatestestimatesfromtheInternationalMonetaryFund,India’seconomywillincreaseby7.2%in2017.
IndianGrocery:A$400+BillionMarketIn2016,Indianconsumersspentapproximately$645billionatretail,accordingtotheIndiaBrandEquityFoundation(IBEF).ThatorganizationexpectstheretailsectortogrowataCAGRofabout12%through2020,whenitwillreachalmost$1trillion.TheaverageIndianconsumerspendssubstantiallymoreonfoodthanondiscretionaryitemssuchasclothingandentertainment,whichistypicalforadevelopingeconomy.
ThelatestMOSPIdatashowthatIndianconsumerspendingonfood,beveragesandtobaccojumpedby17.6%yearoveryearto$336billioninthefiscalyearendedMarch2014.WeestimatethatIndianconsumersspentover$400billiononfood,beverages,andtobaccointhefiscalyearendedMarch2017.Thesefiguresareatconstant2016exchangeratestoremovetheeffectsofcurrencyfluctuations.
Foodisastapleexpenditure,andasageneralrule,consumersinlesseconomicallydevelopedcountriesdirectagreatershareoftheirspendingtobasicretailcategoriesthandoconsumersinmoreeconomicallydevelopedcountries.Asweshowinthetablebelow,food,beveragesandtobaccoaccountforamuchhigherproportionoftotalspendinginIndiathaninWesternmarketssuchastheUKandtheUS.
Inthisreport,weexamineIndia’sgroceryretailandwholesalemarketandthecharacteristicsthatdefineit.
5 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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Figure1.Food,BeveragesandTobaccoasShareofTotalConsumerSpending(%)
IndiadataareFY14;USandUKdataarecalendar2016Source:MOSPI/UKOfficeforNationalStatistics/USBureauofEconomicAnalysis/FungGlobalRetail&Technology
MainCharacteristicsofIndianGroceryConsumersandGrocersTherearemanycharacteristicsuniquetodiverseandpopulousIndiathatdefineitsgrocerylandscape,including:
1. Lowmodernretailpenetration:ManyIndiansstilltransactthroughtraditionalretailchannelsratherthanthroughmodernretailchannels.AswediscussedinourpreviousreportsintheIndiaRisingseries,variousestimatessuggestthatmodernretailpenetrationisonlyabout6%–8%inIndia.Itisevenlowerinfoodretail,atabout2%–3%,accordingtoconsultancyWazirAdvisors.
2. Highlyfragmentedmarket:GroceryvendorsinIndiarangefromafewlarge,modernhypermarketsandsupermarketstomanysmallerconveniencestorestonumerousfarmer’smarkets,roadsidesellersandvendorsthatsellproduceonpushcartsnearpeople’shomes.
3. Smallbasketsizes:DespiteIndia’shighgrowthtrajectoryandsize,itsconsumersarelessaffluentthantheirpeersinmanyotherlargeeconomiesandintheotherBRICnations.TheaverageIndiangrocerybasketsizeislessthanINR1,000($16),accordingtotheBusinessStandard,anIndiannewspaper.OuranalysisbasedondatafromnationalstatisticsbodiesindicatesthattheIndiandailyaveragespendperpersononfood,beveragesandtobaccowasafractionofthatseenintheUSortheUK.
Food,beveragesandtobaccoaccountedfor33%ofIndians’totalconsumerspendingin2014.
33.1
11.3
8.0
India UK US
6 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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Figure2.DailyAverageSpendperPersononFood,BeveragesandTobaccointheUS,theUKandIndia(USD)
InUSDat2016exchangerates.IndiadataareFY14;USandUKdataarecalendar2016.Dataareforat-homefoodandbeverages,excludingfoodservice.Source:USBureauofLaborStatistics/USCensusBureau/UKOfficeforNationalStatistics/Eurostat/MOSPI/FungGlobalRetail&Technology
4. Regionalcultureandweatherdefinefoodhabits:India’scultureandweathervarygreatlyacrossregions,andheavilyinfluencethefoodanddietofitspeopleindifferentareas.Forexample,riceisastaplegrainintheSouthofIndia,whilewheatispredominantinotherpartsofthecountry.
5. Indiaisheavilyvegetarian:AccordingtotheRegistrarGeneralandCensusCommissionerofIndia,some30%ofIndiansarevegetarians.Incomparison,some10%–12%ofUKandUSconsumersarevegetarians,accordingtoa2013HarrisPoll.DatafromtheOrganisationforEconomicCo-operationandDevelopment(OECD)indicatethat,in2016,Indiahadoneofthelowestmeatconsumptionratesintheworld,atthreekilogramspercapita.Whilereligiousobservanceisaprimaryreasonforthis,lowmeatconsumptionalsotendstobeassociatedwithlowerdisposableincomes.
8.69
7.63
0.71
US UK India
Indiahadoneofthelowestmeatconsumptionratesintheworldin2016.
7 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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Figure3.Per-CapitaMeatConsumptionbyTopandBottomFiveCountriesandbySelectedRegions,2016(Kilograms)
Source:OECD.org
6. Dryfoodconstitutesthelargestpartofthegrocerymarket:Dryfoodcomprises35%ofthegrocerymarketinIndia,whereconsumersrelyheavilyoncereals,grainsandgrams(driedlegumes)toformtheirstaplediet.Freshproduceanddairyarealsokeyconstituents,accountingfor33%oftheIndiandiet.
Ouron-the-groundresearchinIndiasuggeststhatmostconsumerswhoshopthroughmodernretailstorestendtobuythemajorityoftheirdryfoodandnonfreshproduceatlargershopsandsupermarkets,whiletheytendtobuytheirfreshproduceatneighborhoodconveniencestoresandvegetablecartvendors.
Figure4.IndianGroceryMarketCompositionbyTypeofFoodandDryFoodGroceryMarketSplitOutbyType
Source:MOSPI/IndiaFoodForum
97 9387
82 8169 68
34 32
7 6 4 3 3
Spices6%
Beverages8%
OtherProcessedFoods9%
Perishables9%
Dairy16%
FreshProduce17%
Cereals,GrainsandRelatedProducts
19%
EdibleOils6%
Pulses5%
Sugar3%
DryFruits1%
Grams1%
DryFoods35%
Dryfoodcomprises35%ofthegrocerymarketinIndia,whereconsumersrelyheavilyoncereals,grainsandgrams(driedlegumes)toformtheirstaplediet.
8 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
7. Theconceptofmaximumretailprice(MRP):InIndia,federallaws
stipulatethatconsumerproductmanufacturersdeterminethemaximumpriceatwhichtheirproductsaresold,andthattheyprintthatpriceontheproductpackaging.Thegovernmentinstitutedthisregulationtoprotectconsumersandrestrictretailersfromsellinggoodsatartificiallyinflatedordeflatedprices.
TheatmosphereatIndiangroceryretailandwholesalestoresistypicallyhighlypromotional,soafixedceilingpriceprotectsconsumersfrombeingovercharged,whileafloorpriceprotectssmallerretailersfromthelargerretailersthatchargelessinordertoattractcustomers.
InourreportDeepDive:InternationalApparelRetailersinIndia—JumpingtheHurdlesinPursuitofGrowth,wediscussedhowtheIndiangovernment’seffortstoopenuptheeconomyhelpedeaseinternationalretailers’entryintothecountry.WebrieflyrecapthisliberalizationbelowandhighlightforeigninvestmentregulationsregardingfoodretailinIndia.
EconomicReformsinGroceryWholesaleandRetailThefigurebelowillustratessomeofthemajormilestonesintheliberalizationofIndia’seconomy,whichwethendiscussinmoredetail.
Figure5.TimeLineofFDILiberalizationinIndia
Source:TechSciResearch/IBEF/MinistryofCommerceandIndustry,GovernmentofIndia/FungGlobalRetail&Technology
InIndia,federallawsstipulatethatconsumerproductmanufacturersdeterminethemaximumpriceatwhichtheirproductsaresold,andthattheyprintthatpriceontheproductpackaging.
2017
• GovernmentallowsFDIofupto100%infood-onlyretail,includingthroughe-commerce,subjecttoapproval.• Akeycondiion:thefoodsoldmustbeproducedandmanufacturedinIndia.
2015
• MakeinIndiaandStartupIndiacampaignsareintroduced.• ThegovernmentalignstheFDIpolicywiththeNaionalIndustrialClassificaioncode,afederalstaisicalstandardtodevelopandmaintaindatabasesofeconomicaciviies.
2012
• GovernmentallowsFDIofupto51%inmulibrandretail.• ThecaponFDIinsingle-brandretailisremoved,increasingthelimitto100%.
2008
• RulingpartyproposesintroducingFDIinmulibrandretail,butfailstogainparliamentaryapproval.
2006
• GovernmentcapsFDIinsingle-brandretailat51%,subjecttoapproval.
1997
• GovernmentpermitsFDIofupto100%inwholesale,undertheautomaicroute.
1991
• Selectedsectorsareopenedtoforeigninvestmentofupto51%,undertheautomaicroute.
9 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
ForeigninvestorswereallowedtoinvestinandoperatedirectwholesalestoresinIndiabeginningin1997.Thispavedthewayforcash-and-carrybusinesses,suchasMetroCash&Carry,toopenstoresinIndiamuchearlierthaninternationalretailers.Inordertotakeadvantageofthisopportunity,WalmartandCarrefoursetupcash-and-carryformatstocatertowholesaleconsumers,astheretailsector—inwhichtheytypicallyoperateintheirhomeandglobalmarkets—wasnotyetopentoforeigninvestment.
TheIndiangovernmentenforceditshighlyprotectionistregulationoftheretailsectoruntilabout2006,whenitfirstallowedFDIofupto51%insingle-brandretail,subjecttoapproval.So,retailerssuchasGapandZara,whichsoldonlytheirown-brandproducts,wereallowedtoopenstoresinIndiainpartnershipwithalocalcompany,withamaximumownershipstakeof51%.Themoveappliedtoothercategoriesofretail,too,butingrocery,itisimpracticalformostretailerstosellonlyown-brandproducts.
In2012,thegovernmentremovedthecaponsingle-brandretailinvestment,andalsoallowedFDIofupto51%inmultibrandretail(whichincludesdepartmentstoresandsupermarketsthatstockandsellproductsofvariousbrands),subjecttogovernmentapproval.
BeginninginFebruary2017,thegovernmentallowed100%FDIinthesale(includingthroughe-commerce)offoodproductsthataremanufacturedorproducedinIndia.Thegovernmentstipulatesthatretailersclearlyseparatetheirfood-onlybusinessfromtheirnonfoodbusinessforregulatorypurposes.
Duetothesemeasures,variousinternationalretailershaveemployeddifferentroutestodoingbusinessinIndia.
EntryRoutesforForeignBrandsandRetailersinIndia ThegovernmenthasestablishedseveralroutesthroughwhichinternationalfirmscantradeinIndia.Underthenon-FDIroute,therearetwomethods:licensingandfranchising.
Licensing:Underthismethod,theownerofthebrand(thelicensor)leasestherightstousethebrandnametotheretailer(thelicensee),allowingtheretailertostockandsellthebrandedmerchandise.
Franchising:Similartolicensing,franchisingallowsaretailer(thefranchisee)touseabrand’s(franchisor’s)intellectualproperty,aswellasitsbusinessmodel,marketingstrategyanddistributionmodel,inordertosellthebrand’sgoods.InIndia,MaxHypermarketsownstherightstooperatestoresundertheSparbrandname.
UndertheFDIroute,therefourmethodsthroughwhichinternationalretailerscansellgoodsinIndia:jointventure(JV),whollyownedsubsidiary,limitedliabilitypartnership,andextensionoftheforeignentityviaaliaisonoffice,branchofficeorprojectoffice.
JV:AJVisanenterpriseinwhichtwoormorefirmshavepooledtheircapitalandotherresources.The50/50JVbetweenBritishgrocerTescoandTrentHypermarketisthemostfamousexampleofthismethodbeingemployedingroceryretailinIndia.ThroughtheJV,thecompaniesoperatestoresundertheStarBazaarandStarDailybanners.
DuetorestrictionsonincorporatingforeigncompaniesinIndia,thegovernmenthasestablishedseveralroutesthroughwhichinternationalfirmscantradeinthecountry.
Asoneofitsfirstmovestoopenuptheeconomy,theIndiangovernmentimplementedapolicyin2006thatallowedFDIofupto51%insingle-brandretail,subjecttogovernmentapproval.
10 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
Whollyownedsubsidiary:Withthismethod,anorganization(theparentorholdingcompany)setsupanewcompanythatisincorporatedasadomesticbusinessinIndia.Theentireequitystakeofthesubsidiaryisownedbytheparentcompany.MetroCash&CarryandWalmart’sBestPricestoresoperateaswhollyownedsubsidiaries.CarrefouralsooperatedunderthismethodintheyearsitdidbusinessinIndia.
Limitedliabilitypartnership:Withthismodel,thepartnersinafirmhavelimitedliabilities,i.e.,onepartnercannotbeheldresponsibleforanotherpartner’smismanagementofthecompany.
Extensionoftheforeignentityviaaliaisonoffice,branchofficeorprojectoffice:InternationalcompaniescanalsosetupanofficeinIndiathatrepresentstheirinterestsunderoneoftheabovestructures.Theestablishmentofaliaisonoffice,branchofficeorprojectofficeissubjecttofurtherruleslaidoutbytheIndiangovernmentandcentralbank.
KeyInternationalPlayersinIndianGroceryRetailInthissection,wediscusssomeofthemajorinternationalnamesoperatinggroceryretailandwholesalestoresinIndiaandthosethattheyhavepartneredwith,andsharephotosandobservationsfromourstorechecksinvariouslocationsinBangalore.
Currently,therearefourkeyinternationalplayersinIndiangroceryretailandwholesale:Spar,MetroCash&Carry,Walmart(throughitsBestPricestores)andTesco.FrenchretailersCarrefourandAuchaneachoperatedinthecountryforafewyears,butexitedduetoalackofclarityaboutforeigninvestmentinfoodretail.
Figure6.KeyInternationalPlayersinIndianGroceryRetail
InternationalCompany
IndianPartnerandRoute YearofEntry Revenue No.ofStores
AverageStoreSize(Sq.Ft.)
MetroCash&Carry
N/A–whollyownedsubsidiary
2003 INR40billion/$616million
23 50,000–80,000
Spar FranchisewithMaxHypermarkets
2008 $118.9million 18 50,000
BestPrice(cash-and-carrystoresrunbyWalmartIndia)
WasBhartiEnterprises;nowawhollyownedsubsidiary
2007 $586.2million 21 50,000
Tesco WholesaleagreementtosupplytoTrentHypermarket’sStarBazaarandStarDailystores,thenJVof50%withTrent(suppliertoStarBazaar)
2008(wholesaleagreement)and2012(JV)
N/A 11 40,000–80,000
Auchan* FranchisewithMaxHypermarkets
2012(exitedin2014)
N/A 13(convertedtoSparonexit)
50,000
CarrefourWholesaleCash&Carry*
N/A–whollyownedsubsidiary
2010(exitedin2014)
N/A 5 5,200
*NolongeroperatinginIndiaSource:Companyreports/S&PCapitalIQ
Inalimitedliabilitypartnership,thepartnersinafirmhavelimitedliabilities,i.e.,onepartnercannotbeheldresponsibleforanotherpartner’smismanagementofthecompany.
11 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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MembersoftheFungGlobalRetail&Technologyteamvisitedsomeofthestoresoftheaboveretailersaswellassomeoftheirdomesticcompetitors’locations.Wediscussourkeyobservationsbelow,andreaderscanfindmoreimagesinourFacebookgallery.
StoreTours:InternationalWholesalers/Retailers
MetroCash&CarryWevisitedthefirststorethatMetroCash&CarryopenedinIndia,locatedintheYeshwantpursuburb,inBangalore.ThecompanyalsooperatestwootherstoresinBangalore.
MetroCash&Carryprimarilysellstosmallbusinesses,traders,resellers,hotels,restaurants,canteens,caterersandself-employedprofessionals.Shoppersmustregisterasmemberstobuyfromthewholesaler.Registrationisfreeandapplicantsneedtoprovidebasicinformationaboutthemselves,aswellasproofofIDandabusinesslicense.
Registeredmembersareprovidedwithacardthattheymustshowattheentranceofastoreinordertoenter.Membersmaybeaccompaniedbyonenonmember.
Layout:Thelayoutofthestorewevisitedresemblesthatofwarehouseclubstore,withproductsinlargercontainersandboxesstackedhighonshelvesandontheflooraroundthestore.Theaisleswereclearlylabeledwithlargesignsindicatingthemaincategoryandsubcategoriesofproductslocatedwithin.Therewereseveralkiosksaroundthestorewhereshopperscouldtastenewproductsthatwerebeingtrialed.
MetroCash&CarryinBangaloreSource:FungGlobalRetail&Technology
MembersoftheFungGlobalRetail&TechnologyteamvisitedthestoresofforeignretailersMetroCash&CarryandSparanddomesticretailersBigBazaarandHyperCityinBangalore.
MetroCash&Carryprimarilysellstosmallbusinesses,traders,resellers,hotels,restaurants,canteens,caterersandself-employedprofessionals.
12 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
Storetraffic:Wevisitedthestoreataround4p.m.andfoottrafficwasheavy(despitethequietappearanceinsomeofourphotographs),whichisnotunusual.Thestorehaswideaisles,butitwaschallengingattimestopushacartaroundduetothehighnumberofshoppersinthestore,andnearlyallregisterswerebusy,withlonglinesofcustomerswaitingtocheckout.
MetroCash&CarryinBangaloreSource:FungGlobalRetail&Technology
Assortment:Thestorehadagoodmixofconventionalfoodsandasmallselectionoforganicfoods.WenoticedastrongpresenceofMetro’sownbrand,Aro,acrossthedryandpackaged-groceryandhouseholdcarecategories.Indianbrandsdominatedotherpackaged-foodcategories,whiletherewasamorepronouncedpresenceofinternationalbrands,suchasDove,NiveaandL’Oréal,inthebeautyandpersonalcareaisles.
Inclothingandfootwear,wenoticedafewprivatelabelsandseveralbrandsfromwell-knownclothingcompaniesinIndia.Intheelectricalssection,wesawmanypopularglobalbrandssuchasSamsungandLG.
Price:Metro’sownbrandwas,ofcourse,pricedlowerthanorganicandpremiumbrands,buthigherthanlow-endbrands.WecomparedthepricesofBengalgramflour—astapleingredientinIndiancuisine—fromMetro’sownbrand,Aro,andthe24MantraOrganicandSriBhagyalakshmibrands,andfoundthattheAroflourwaspricedbetweentheothertwobrands.ShelflabelsindicatedtheMRPoftheproductdisplayed,thepriceatwhichMetrowassellingtheproductandthesavingsforthecustomer.
Otherfacilities:Thestorehadanon-sitecafé,customerrestrooms,acustomerservicecounterforstampingthewarrantycardsofpurchasedproducts,andaboardwherecustomerscouldwritetheirsuggestionsorlistproductstheycouldnotfindatthestore.Metroalsooffersdeliveryofproductsboughtatthestore.
TheMetroCash&Carrystorehadagoodmixofconventionalfoodsandasmallselectionoforganicfoods.
13 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
DeliverysignageatMetroCash&CarryinBangaloreSource:FungGlobalRetail&Technology
SparSparisaDutchretailchainwithmorethan12,000storesin42countries.Alargepartofitschainisrunthroughfranchisepartners.InIndia,Sparispositionedinthepremiumvaluesegment—theproducts,customerexperienceandstoresareofbetterqualitythanthoseofmostdomesticgrocers,butitcannotbecategorizedaswhollypremiumorhigh-end.
WevisitedtheSparstorelocatedinMantriSquareMall,inBangalore.Sparalsooperatesfourotherstoresinthecity.
Layout:SparoperatesaspacioussupermarketonthelowergroundfloorofMantriSquareMall.Signagewasvisiblethroughoutthestore,andeachaislehadasignindicatingtheproductsthatcouldbefoundwithin.Thealcoholsectionwasoutsidethestore,separatefromthemainshoppingarea.
Whilemostofthesignagewasaccurate,wewerepuzzledtoseealargesignthatsaid“BabyCare”directlyaboveastockofpersonalcareandhouseholdcleaningproducts.(Thebabyproductswere,however,locatednearby.)
SparinBangaloreSource:FungGlobalRetail&Technology
InIndia,Sparispositionedinthepremiumvaluesegment—theproducts,customerexperienceandstoresareofbetterqualitythanthoseofmostdomesticgrocers,butitcannotbecategorizedaswhollypremiumorhigh-end.
14 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
Storetraffic:Whenwevisitedaround11:30a.m.,trafficwasthinatthestore.
Assortment:WenoticedthepresenceofSpar’sownbrandacrossthefoodandhouseholdmaintenancecategories,butitwasnotdominantovertheotherlabels.Amongthepersonalcarecategories,wenoticedastrongpresenceofinternationalbrands,suchasNivea,Neutrogena,OlayandGarnier.TherewasawideselectionofclothingfromSpar’spartner,MaxHypermarkets,forsaleatthestore.
SparinBangaloreSource:FungGlobalRetail&Technology
Price:Sparpridesitselfonoperatingundertheconceptof“EverythingBelowMRP,”andthiswasevidentatthestorewevisited.MostproductswerepricedbelowtheMRP,evenifonlyslightly,andthosethatwereheavilydiscountedhadalabelthatsaid“Promotion”highlightedinredoronethatsaid“BestDeal.”
Sparpridesitselfonoperatingundertheconceptof“EverythingBelowMRP,”andthiswasevidentatthestorewevisited—mostproductswerepricedbelowtheMRP.
15 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
SparinBangaloreSource:FungGlobalRetail&Technology
Otherfacilities:Thestorehadanon-siteconcessionforrefreshments,butitwasminimallystocked.Wedidnotseeanyrestrooms,butdidnoticeacustomerservicecounterandaloyaltyclubcounter.WealsonoticedasigninsidethestoreindicatingthatcustomerscouldshoponlineatSparIndia.com.
E-commercesitesignageatSparinBangaloreSource:FungGlobalRetail&Technology
CustomersinIndiacanshopatSparonline,throughSparIndia.com.
16 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
StoreTours:DomesticRetailers
BigBazaarBigBazaar,operatedbyFutureGroup,isoneofIndia’soldestmoderngroceryretailchains,havingbeenestablishedin2001.Itisalsooneofthecountry’slargestchains,with218storesacrossIndiaspanningatotalof10millionsquarefeet.WevisitedtheMalleswaramstore,inBangalore,acityinwhichthecompanyoperate16stores.
Layout:TheBigBazaarstorewevisitedishousedinafive-storybuilding.Freshproduceandpackagedgroceriesareonthegroundfloor,processedfoodandpersonalcareareonthefirstfloor,andclothingandelectronicsareontheupperthreefloors.
Aislesareslightlynarrow,andwenoticedseveralshoppingcartsloadedwithproducts,presumablywaitingtobestocked.Intermsofdécor,thestorewasquitebare,andmanyareaslookedrun-down.
BigBazaarinBangaloreSource:FungGlobalRetail&Technology
Storetraffic:Wevisitedalittleafter5p.m.Storetrafficwashighandthefreshproduceareaswerethebusiest.
Assortment:BigBazaarsellsconventionalfoodandselectedorganics.WenoticedareasonableassortmentofBigBazaar’sprivatelabel,TastyTreat,alongsideotherbrands.Personalcareproductsweremainlyfromthelarge,internationalbrands.
BigBazaar,operatedbyFutureGroup,isoneofIndia’soldestmoderngroceryretailchains,havingbeenestablishedin2001.Itisalsooneofthecountry’slargestchains,with218storesacrossIndiaspanningatotalof10millionsquarefeet.
17 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
BigBazaarinBangaloreSource:FungGlobalRetail&Technology
Price:Mostproductsfromthird-partybrandsatBigBazaarwereofferedatadiscounttotheMRP,butwedidnotnoticemanymultibuyoffers,suchasthree-for-twoorbuyone,getonefree.
Otherfacilities:Therewerecheckoutregistersonnearlyeveryfloorinthestore.Therewassignageindicatingproductcategoriesandfacilities,butsomesignswerepartiallyhiddenbyproductsthatwerestackedupinfrontofthem.Restroomsandseatingwereavailableforcustomers.WealsonoticedthatthestorehadaBangaloreOneCentre—whichisanofficesetupbythelocalgovernmentwherepeoplecanpayutilitybills,renewpublictransportationpassesandmakeotherpaymentstocivicbodies.
ABangaloreOneCentreofficeinBigBazaarinBangaloreSource:FungGlobalRetail&Technology
Mostproductsfromthird-partybrandsatBigBazaarwereofferedatadiscounttotheMRP,butwedidnotnoticemanymultibuyoffers.
18 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
HyperCityHyperCityisownedbyK.RahejaCorp.andoperates14moderngroceryretailstoresacrossIndia.IthasanexclusivesupplyagreementwithpremiumBritishgroceryretailerWaitrose.WevisitedoneofthesmallerHyperCitystores,locatedatOrionMall,inBangalore.TherearefourHyperCitystoresinthecity.
Layout:Despiteitssmallsize,theHyperCitystorewevisitedwastidy,withdifferentareasdistinctlylabeledandaisleswideenoughtopushtwocartsthroughatthesametime.
HyperCityinBangaloreSource:FungGlobalRetail&Technology
Storetraffic:Therewerefewpeopleatthestorewhenwevisited,probablybecauseitwasearlyintheafternoonandmanypeoplewereatwork.
Assortment:HyperCity’sownbrands,suchasFreshBasket,hadaclearpresenceontheshelves,butnotmoresothanotherbrands.ThoughHyperCityhasanexclusivesupplyagreementwithWaitrose,wefoundfewproductsfromtheBritishbrandatthestore,perhapsbecauseitwasasmall-formatone.MembersofourteamhadpreviouslyobservedawholeaisleofWaitroseproductsinadifferent,large-format,HyperCitystore.Wedidseeseveralotherinternationalbrands,suchasJamieOliver,Hellman’sandAmericanGarden,atthestorewevisited.
HyperCity,ownedbyK.RahejaCorp,,hasanexclusivesupplyagreementwithpremiumBritishgroceryretailerWaitrose.
19 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
HyperCityinBangaloreSource:FungGlobalRetail&Technology
Price:Theatmosphereinthestorewashighlypromotional.Wenoticedspecialdiscountslabeled“HyperSavers”andbuy-one,get-one-freeoffers.
HyperCityinBangaloreSource:FungGlobalRetail&Technology
Otherfacilities:Therewasacustomerservicedesk,butwedidnotobserveanyotherspecialfacilitiesinthestore.
Overall,wefoundtheinternationalgrocerystoresweremorespacious,andhadclearersignageandwideraislesthanthedomesticgrocerystores.Theinternationalretailersalsoappearedtohavefewershopfloorstaff.
TheatmosphereintheHyperCitystorewashighlypromotional.Wenoticedspecialdiscountslabeled“HyperSavers”andbuy-one,get-one-freeoffers.
20 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
OpportunitiesinIndianGroceryRetailandBarrierstoEntryInIndia’sorganizedgroceryretailmarket,therearenumeroushomegrownmodernretailers,butonlyahandfulofinternationalretailers.Giventhecountry’sdiversityandcomplexity,thereappeartobemoresocial,commercialandpoliticalbarrierstoentryintothegrocerymarketthanthereareinotherretailsegments—buttherearemanyopportunitiesforgrowthinIndiangrocery,too.
WespokewithSuryaShastry,ManagingDirectorofPhaladaAgroResearchFoundations,tounderstandmoreabouttheunderlyingopportunitiesandhurdlesinIndiangroceryretail.Phaladaisanexporterofprivate-labelorganicspicesandpackagedfoodtoUSretailersandisalsothethird-largestorganicfoodbrandinIndia.WecombinedShastry’sobservationswithourownanalysistocreatethefollowinglistofopportunitiesintheIndiangrocerymarket:
1. Growingorganicgrocerysegmentandpreferenceforhealthierfood:ShastrytoldusthatsalesintheorganicgrocerysegmentinIndiahavebeengrowingataround30%annuallyoverthelastthreetofouryears,andthatthegovernmenthasimplementedpoliciestoincreasethefarmlanddevotedtoorganicagriculture.OrganicfoodcurrentlyconstitutesasmallbutrapidlygrowingcategoryacrossmostmoderngroceryretailersinIndia,whichcaterlargelytoyoung,urbanfamilies.
2. Asubstantialportionofthepopulationisemployedinfarmingandagriculture:TheagriculturalsectoremploysthegreatestproportionofpeopleinIndia.Fully51%oftotalemploymentinIndiain2010wasinagriculture,accordingtothelatestavailablefiguresfromtheWorldBank.Weestimatethattheproportionwasabout48%in2015.FarmershavestrongunionsinIndiaandareprovidedmanysubsidiesbythegovernment.Hence,theyhavestrongbargainingpower.Theentryoflargeinternationalplayerswillallowfordirectnegotiationswiththefarmersandcutoutintermediaries,whichwillresultinawin-winsituationforbothparties,aswellasmoretransparencyinthesupplychain.
3. ProximitytosourceandIndia’slandscapeforcultivation:FDInormsstipulatethatamajorportionofmerchandisesoldissourcedfromIndia,aslargepartsofthecountryareagriculturalareasandamajorityoftheworkingpopulationisemployedinagriculture.Locatingsourcingfactoriesandofficesclosetotheseagriculturalareaswillenableretailerstotransportfoodfromfarmtomarketefficiently.
4. Youthful,modernworkingpopulation:Indiahasoneoftheyoungestpopulationsintheworld.Some66%ofthecountry’s1.3billionpeoplearebetweentheagesof15and64.Manymembersoftheurbanworkingclassincreasinglyprefertoshopatorganizedfoodretailshopsduetothevarietyavailableatthosestores.
5. Government’splansandinitiativestoboostforeigninvestment:TheIndiangovernment’smovetoliftthecaponforeigninvestmentinfoodretailindicatesthatitisopentogrowingthesector.Thoughthegovernmenthasindicatedthatitdoesnotintendtoliftthe
Some66%ofthe1.3billionpeopleinIndiaarebetweentheagesof15and64.
21 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
restrictionontheretailingofnonfooditemsinthesamestoresinwhichfoodissold,manyinternationalretailershopethatitwillopenupthesectorfurtherinthenearfuture.
6. Wideningpalatesandpreferencesforinternationalcuisines:AsmoreIndianstravelaroundtheworld,theirdesiretotryoutinternationalcuisinesathomeisalsogrowing.Manyoftheingredientsandmuchoftheequipmentrequiredtoprepareinternationaldishesareavailableonlyatmodernretailers’stores,makingthempreferredshoppingdestinationsforthoseinterestedininternationalcuisines.
However,beforeinternationalretailersareabletotakeadvantageofalloftheseopportunitiesinIndia,thefollowingbarriersandthreatsneedtobeaddressed:
1. Lengthybureaucraticproceduresandloosefoodsafetyregulations:SettingupanysortofestablishmentinIndiainvolvesgoingthroughincrediblylengthybureaucraticprocedures,whichneedtobestreamlined.Also,foodsafetyregulationsinIndiaarenotasstringentasintheWest.Shastrytoldusthatfarmersdofollowstrictinternationalregulationsinorganicfoodcultivationandlabelingforproductsthatareexported,butthattheydonotfollowthemascarefullyforproductssoldtothedomesticmarket.Astheimageandreputationofretailersandbrandsdependonthequalityoftheproductssold,strictregulationisaburningissuethatthegovernmentneedstoaddressinordertoattractmoreinternationalretailers.
2. Inadequatelydevelopedinfrastructure:BecausethemajorityoffoodretailinIndiaisunorganized,therehasbeenlittlereasonandopportunitytodevelopinfrastructurerelatedtofoodretail.Warehouses,cold-storagefacilitiesandothernecessarylinksinthesupplychainareinadequate.Infact,agovernmentsurveyin2016foundthatIndiawastesapproximately67milliontonnesoffoodeachyear,worthaboutINR920billion($14billion),duetostoragefacilitiesthatinadequatelyaddresspests,weatherconditionsandglutsinsupply.
3. Riseofe-grocers:WelookedattheriseofhomegrowndisruptorBigbasketindetailinoursecondreportintheIndiaRisingseries.Bigbasketandanotherdomesticplayer,Grofers,havebeenslowlygainingmarketshareindryfoodretail,ashasinternationalgiantAmazon.
Shastrymentionedseveraladvantagesthatpackaged-foodsuppliershaveinworkingdirectlywithe-groceryplayers.Hesaidthatonlinemarketplacesallowretailerstodisplayawiderassortmentandrangethancouldbestockedataphysicalstore,andthatthebige-grocersalsohavelogisticsandotheroperationalfunctionsinplacethateasethedeliveryofproductsfromproducertoconsumer.AnynewentrantstotheIndiangrocerymarketwillcertainlyneedtoassessthethreatfromtherapidlygrowinge-groceryretailsector,Shastrysaid.
Indiawastesapproximately67milliontonnesoffoodeachyear,worthaboutINR920billion($14billion),duetostoragefacilitiesthatinadequatelyaddresspests,weatherconditionsandglutsinsupply.
22 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
4. Numerousintermediariesinthesupplychain:Foodproducerstend
toworkdirectlywithretailersinurbanareas,buttheyneedtoengagedistributorsorsuper-stockiststosupplyretailersinsmallercitiesandless-connectedneighborhoods,whichcouldreducetheproducers’margins.
5. Unplannedurbanization:UrbanareashavebeengrowingrapidlyinIndia,butinfrastructurehasnotevolvedatthesamepace.Insomeareas,roadsarenarrowandpoorlymaintained,makingthemunsuitableforlargevehiclesthatcarryproductstomarket.Furthermore,alackofmobileconnectivityinremoteareasmakesithardforcompaniestocommunicateeffectively.
Outlook:WhatWeThinkIndiaisahigh-growtheconomythatisrapidlymodernizing,andthereisscopeforinternationalretailerstogrowinthecountry,eitherbysettingupdirectoperationsinpartnershipwithlocalplayersorbyprovidingtheirexpertiseinrunninggrocerychainsthroughfranchisesorotherroutes.Whilethegovernmenthastakenstepstoopenthemarket,therecentallowanceof100%FDIinIndian-producedfood-onlyretail(excludingothergrocerycategories)remainsrestrictive,andislikelytomakelong-termgrowthamonglarge-scaleretailersunfeasible.
InternationalretailersalsoneedtoconsiderthegrowingroleofonlinegroceryinIndia,withBigbasketandAmazonbeingthefirstsignificantmoversinthesegment.ApartfromFDIrestrictionsandthethreatfrome-commerceplayers,internationalretailersmustalsothinkaboutthelackofquality,moderninfrastructureinIndiaandthefactthatbasketsizestendtobesmallerinthecountrycomparedwiththeglobalaverage.
Ifthegovernmentconsidersopeningthemarkettoforeigninvestmentinfoodandnonfoodgrocery,moreretailersmayfinditpracticaltoadvancetheiroperationsinlow-spendingyethigh-growthIndia.
UrbanareashavebeengrowingrapidlyinIndia,butinfrastructurehasnotevolvedatthesamepace.Insomeareas,roadsarenarrowandpoorlymaintained,makingthemunsuitableforlargevehiclesthatcarryproductstomarket.
23 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
May26,2017
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comSwaroopraniMuralidharResearchAssistant
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017
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