FDI In FDI In Multi-Brand RetailMulti-Brand Retail& &

Its Impact onIts Impact on Indian Market Indian Market

Indian Government

The waThe wa lk,lk, The taThe ta lk,lk,

The playThe play ers,ers, The playThe play groundground

Retail is the sale of goods to the public for use & consumption rather than Resale.

Retai l Can be divided in two parts:

- Organised retail- Unorganised retail

Organised is further divided into:- Single brand retail- Multi – brand retail

Urorganised is further divided into:- Wholesalers- Retailers

WHAT IS RETAIL ??

RETAIL SECTOR

ORGANISED RETAIL

( involves trading act ivit iesundertaken by

l icensed retai lers, e.g., those registered

for sales tax, income tax, etc)

UNORGANISEDRETAIL

( local kirana stores,Single owner,

general merchant stores,Paan shops, conveniencestores, pavement vendors

& hand carts)

ORGANISED RETAIL

SINGLE BRANDRETAIL

(would cover products which are branded during manufacturing)

MULTI BRAND RETAIL (process of market ing two or more widely similar & competing Products by same f irm under different brands)

UNORGANISED RETAIL

WHOLESALERS (f irst source of supply direct from manufacturers/ marketers)

RETAILERS

( l ike local area kirana shops, pavementvendors, paanshops, etc)

ORGANISED ORGANISED RETAILRETAIL

UNORGANISEUNORGANISED RETAILD RETAIL

Tera kya hoga ‘kirana’Tera kya hoga ‘kirana’

Against FDI

ProFDI KEY PLAYERS

Fears that allowing foreign direct investmentFears that allowing foreign direct investment(FDI) in the multi-brand retail sector will force(FDI) in the multi-brand retail sector will forcelocal retailers out of business and hurt farmers’local retailers out of business and hurt farmers’interests, may be exaggerated if not totallyinterests, may be exaggerated if not totallyunfounded. unfounded.

The authors of the paper titled, The authors of the paper titled, FDI in Retail: AFDI in Retail: AGlobal PerspectiveGlobal Perspective, have come to this , have come to this

conclusionconclusionafter analyzing transnational retailers’ (TNR)after analyzing transnational retailers’ (TNR)limited success in emerging economies,limited success in emerging economies,bottlenecks in India, diverse customerbottlenecks in India, diverse customerdemographics, and India’s fragmented industry.demographics, and India’s fragmented industry.

Retail wil l stay local, even

after FDI: I IMA

FARMERS’ CONCERNS.

Recent Developments:Wholesale markets remain closed, kirana stores ignore bandh call

The nat ionwide “Bharat Vyapar Bandh” called by the Confederation of All India Traders (CAIT) and supported by the BJP and other Opposit ion part ies, evoked a mixed response.While a number of wholesale markets observed a total shutdown, the neighbourhood and small ‘kirana' (provision) stores — for whom the trade bandh had been called — kept their shutters open remaining indif ferent to the call by the CAIT.

• US secretary of state Hil lary Clinton wil l hold talks with West Bengal chief minister Mamata Banerjee in Kolkata on Monday before leaving for New Delhi in the afternoon.

• Clinton is expected to urge Banerjee to support opening India's retail sector to foreign giants such as Walmart, after the West Bengal chief minister opposed the move in Parl iament last year.

Hillary Clinton to meet Mamata for support ing FDI in Retail.

THE FIGHTbetween

Policy makers &Anti-foreign goods’lobbyists in India:

CATCH ME IF YOU CAN

Retail Study in Contrast

GLOBAL SCENE & MAJOR PLAYERS

Major PlayersMajor Players

WalmartWalmart

CarrefourCarrefour

TescoTesco

MetroMetro

TargetTarget

CoopCoop

IkeaIkea

Global Global ScenarioScenarioWorldwide organized retail is more Worldwide organized retail is more than 50% of total retail.than 50% of total retail.

More than 80% of total retail More than 80% of total retail in Developing countries.in Developing countries.Brazil, Russia & China are having Brazil, Russia & China are having 20-40% of organized retai l share.20-40% of organized retai l share.

FDI started coming into China since FDI started coming into China since 1992 with 49% equity. 1992 with 49% equity. Equity restr ictions removed in 2004.Equity restr ictions removed in 2004.

India’s share of organized India’s share of organized retail is 5-6% only.retail is 5-6% only.

TH E

GIANTS

Global posit ion –

Impact of Opening up

FDI in Organized

Retail

There has been a posit ive impact of organized retail ing in USA, UK, Mexico and also in China.

Retail is the second largest industry in US.It is also one of the largest employment generators.

Countries l ike Argentina, China, Brazil , Chile, Indonesia, Malaysia, Russia, Singapore and Thailand have allowed 100% FDI in mult i brand retail & benefited immensely from it.

China permitted FDI in retail in 1992 and has seen huge investment flowing into the sector. It has not affected the small or domestic retail chains.On the contrary small retai lers have increased since 2004 from 1.9 mil l ion to over 2.5 mil l ion.

In Indonesia 90% of the business sti l l remains in the hands of small traders.

US-based General At lant ic LLC, which manages approximately $17 bil l ion in capital global ly, invested in bulk logist ics solut ions provider Fourcee Infrastructure Equipment Pvt Ltd.

In December 2011, New York-based private equity fund, India Equity Partners (IEP),had acquired the road operat ions of Dutch freight major TNT Express in India.

IEP had earl ier picked a signif icant minority stake in Gwalior-based Swastik Road l ines Pvt Ltd, a food cargo supply chain service provider.

Warburg Pincus had struck one of the biggest PE deal in the domestic logistics space with $100 mil l ion investment in Chennai-based logist ics f i rm Continental Warehousing Corporation (Nhava Seva) Ltd, a subsidiary of the NDR Group.

Other high-prof i le deals in the recent past include an investment of $10 mil l ion by Ashmore Alchemy Investment Advisors in Siesta Logist ics Corp Ltd and Blackstone’sinvestment in Al l cargo Logistics.

As per a recent Cushman & Wakefield report, the Indian logist ics industry is expected to grow at 15-20 per cent annually, touching revenues of $385 bil l ion by 2015.

PE funds/ investors stepping up the gas on Logistics sector, a key gainer if the policy gets through.

Some impressions from a Cartoonist ’s perspective of an Aam Aadmi

Farmers

Intermediaries

Wholesalers

Retai lers

Consumers

Sells his produce to the f irst intermediary (middleman).Receives only 1/3 rd or 1/4 th of the price paid by the consumers.

Buys out produce at throwaway prices from farmers.Then add up his prof it margins and sell i t to the next middlemanor at the Mandi.

Buys it f rom the Mandi.After adding their prof it margin, sel l i t to the retailer or the sub-wholesaler.

Buys from the wholesaler.After adding their margin, sells i t to the consumeror sub-retailer.

Consumer has l i t t le or no choice but to buy the product at the price stated by the retailer.Ult imately ends up paying 3 or 4 t imes the actual price of the product.

At loss At profitSupply Chain Mechanism involved in RetailSupply Chain Mechanism involved in Retail

PANTALOONSPENCERSMORERELIANCE FRESHEASY DAYSPARSTAR BAZAARLILLIPUT KIDSWEARCHROMAKOUTONSPROVOGUESHOPPERS STOP

SOME

KEY

FACTS

and

FIGURES

Classif ication Classif ication The Indian retai l sector The Indian retai l sector can be can be broadly classif ied into:broadly classif ied into:

1. Food Retailers1. Food Retailers2. Health and beauty 2. Health and beauty ProductsProducts3. Clothing and Footwear3. Clothing and Footwear4. Home Furniture & 4. Home Furniture & Household goodsHousehold goods5. Durable goods5. Durable goods6. Leisure & Personal 6. Leisure & Personal GoodsGoods

Of these above Of these above segments, food & segments, food & beverages and clothing beverages and clothing segment is expected to segment is expected to grow exponential ly.grow exponential ly.

Indian Retail Market Scenario

Indian Retail Sector

In 1997, Indian Retail Sector was openedwith 100 % FDI permitted in Cash & Carry Wholesale trading.

FDI Limit in Single brand retai l has been opened upwith 51% in 2006. (Mult i - Brand Retail st i l l prohibited).

In July 2010 Department of Industrial Policy and Promotion had put discussion paper.

In July 2011, Committee of Secretaries had cleared the proposal to allow upto 51% FDI in mult i-brand retai l.

The Union Cabinet has approved increasing the FDI l imitin single brand retail to 100% . (Vide Notification dated 11/01/2012).

51% FDI in Mult i-Brand retail sti l l not passed.

CURRENT FDI POLICY & FRAMEWORK IN RETAIL

GROWTH DRIVERS OF INDIAN

RETAIL SECTOR

Rising Income and increase in convergence of consumer tastesand preferences.

Dual family Income.

Knowledge about different productsthrough different electronic and printmedia like Internet, Television etc. Also knowledge about the latest trends and fashion statements.

47% of the India’s population isunder the age of 30. This category is driving the consumption story.

Emergence of new retail ing format.

Bottom-Heavy Age Pyramid of the Indian Population

47 % of Indianpopulation is under the age of 30 which is driving theconsumptionstory.

Personal Disposable Income: Actual and Projected (1989-2011) in USD Bil l ion

From USD 200 bil l ionto USD 1370 bil l ion

in 22 years signifies a jump of

more than 670 %in personal

disposable income

Private Consumption Per Head: Actual and Projected (1980-2020) in USD

From USD 250to USD 1950

in 40 years signif ies a jump of

more than 780 %in private

consumption per head.

Impact on

Indian markets

Real EstateDevelopment

(more FDIin the form

of investmentsfor sett ing

up high-end retail malls)

Improved Technology

(use ofimproved

technologyin processing,

grading,packaging &

handling)

Farmer(better prices;supply chaininfrastructureimprovement;

Cold chain& storage

facil i tyimprovement)

Government ( foreign

CurrencyInflow &

increase inRevenue from

Shift inUnorganisedTo organised

Sector)

Customers(better quali ty

of products at lowerprices)

Impact on

Indian markets

FDI in mult i brand wil l st imulate further investment in the sector. There are companies in the retail sector that are reeling under heavy debt burden.These companies might get fresh lease of l i fe.

CompanyCompany Debt (in Crores)Debt (in Crores) Market cap (in Crores)Market cap (in Crores)

PantaloonPantaloon 42004200 38673867

Lilliput KidswearLilliput Kidswear 750750 Not available Not available (company is up for sale (company is up for sale after exit of the after exit of the promoters and PE promoters and PE funds)funds)

ProvogueProvogue 400400 275275

Impact on

Indian markets

STRENGTHSSTRENGTHS WEAKNESSESWEAKNESSES OPPORTUNITYOPPORTUNITY THREATSTHREATS

High growth rate High growth rate of 46 %.of 46 %.

Huge diversity in Huge diversity in buying pattern & buying pattern & customer att i tude customer att i tude in India.in India.

Growth in Growth in employment employment generation.generation.

Profi ts going to Profi ts going to foreign shores.foreign shores.

More choices of More choices of global sourcing.global sourcing.

Shortage of Shortage of skil led skil led professionals.professionals.

Healthy Healthy competition wil l competition wil l reduce inflation.reduce inflation.

Unemployment Unemployment and monopoly.and monopoly.

10 mil l ion jobs in 10 mil l ion jobs in next 3 years.next 3 years.

No industry No industry status.status.

Transparency in Transparency in the system.the system.

Farmers wil l be Farmers wil l be exploited.exploited.

Better Better negotiations for negotiations for funds with FIs.funds with FIs.

Supply chain Supply chain related related complexit ies.complexit ies.

Quality & wastage Quality & wastage control & FDI control & FDI inflow.inflow.

No consensus No consensus within within Government.Government.

Riders for Multi-Brand Retail FDI in India

Retailers to source at least 30 % of their goods from small & medium sized Indian suppliers.

Retail stores to be opened in cities having population ofOver one mil l ion.

Products to be sold should be of “single brand” only and soldunder the same brand internationally.

Minimum investments of USD 100 mil l ion. 50 % of this investments shall be in backend infrastructure such as cold chains,Refrizeration, transportation & processing, etc.

Opening up of FDI wil l be within the parameters of state laws & regulations.

Main Objective is to Modernize Indian Retail.

Government has to proactively assist traditional Retai lers in modernizing themselves.

FDI would lead to more comprehensive of integration of India into World market.

Allow Foreign entry into Retail in a phased manner & withproper controls.

It wil l be a boon for the overall economic development & social welfare, i f done in right manner.

Conclusionandway

forward

THANK YOUTHANK YOU

Submitted by:Submitted by:

Adarsh SaxenaAdarsh SaxenaMBF, Batch 3, MBF, Batch 3, Centre: New DelhiCentre: New DelhiDate of presentation - 13/05/2012.Date of presentation - 13/05/2012.