FDI In Multi-Brand Retail&

Its Impact on Indian Market

Indian Government

The walk,The talk,

The players,The playground

Retail is the sale of goods to the public for

use & consumption rather than Resale.

Retail 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 activitiesundertaken by

licensed retailers, 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 coverproductswhich arebranded duringmanufacturing)

MULTI BRANDRETAIL(process ofmarketing twoor morewidely similar& competingProducts by samefirm underdifferent brands)

UNORGANISED RETAIL

WHOLESALERS

(first sourceof supplydirect frommanufacturers/marketers)

RETAILERS

(like localarea kiranashops, pavementvendors,paanshops,etc)

ORGANISED RETAIL

UNORGANISED RETAIL

Tera kya hoga ‘kirana’

Against FDI

ProFDI KEY PLAYERS

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

The authors of the paper titled, FDI in Retail: AGlobal Perspective, have come to this conclusionafter analyzing transnational retailers’ (TNR)limited success in emerging economies,bottlenecks in India, diverse customerdemographics, and India’s fragmented industry.

Retail will stay local, even

after FDI: IIMA

FARMERS’ CONCERNS.

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

The nationwide “Bharat Vyapar Bandh” called by the Confederation of All India Traders (CAIT) and supported by the BJP and other Opposition parties, 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 indifferent to the call by the CAIT.

• US secretary of state Hillary Clinton will 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 Parliament last year.

Hillary Clinton to meet Mamata for supporting 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 Players

Walmart

Carrefour

Tesco

Metro

Target

Coop

Ikea

Global Scenario

Worldwide organized retail is morethan 50% of total retail.

More than 80% of total retailin Developing countries.Brazil, Russia & China are having20-40% of organized retail share.

FDI started coming into China since1992 with 49% equity.Equity restrictions removed in 2004.

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

THE

GIANTS

Global position –

Impact of Opening up

FDI in Organized

Retail

There has been a positive impact oforganized retailing in USA, UK, Mexicoand also in China.

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

Countries like Argentina, China, Brazil,Chile, Indonesia, Malaysia, Russia,Singapore and Thailand have allowed 100%FDI in multi brand retail & benefitedimmensely from it.

China permitted FDI in retail in 1992 andhas seen huge investment flowing intothe sector. It has not affected the smallor domestic retail chains.On the contrary small retailers haveincreased since 2004 from 1.9 millionto over 2.5 million.

In Indonesia 90% of the business stillremains in the hands of small traders.

US-based General Atlantic LLC, which manages approximately $17 billion in capitalglobally, invested in bulk logistics solutions provider Fourcee Infrastructure EquipmentPvt Ltd.

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

IEP had earlier picked a significant minority stake in Gwalior-based Swastik Road lines PvtLtd, a food cargo supply chain service provider.

Warburg Pincus had struck one of the biggest PE deal in the domestic logistics space with$100 million investment in Chennai-based logistics firm Continental WarehousingCorporation (Nhava Seva) Ltd, a subsidiary of the NDR Group.

Other high-profile deals in the recent past include an investment of $10 million byAshmore Alchemy Investment Advisors in Siesta Logistics Corp Ltd and Blackstone’sinvestment in All cargo Logistics.

As per a recent Cushman & Wakefield report, the Indian logistics industry is expected togrow at 15-20 per cent annually, touching revenues of $385 billion 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

Retailers

Consumers

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

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

Buys it from the Mandi.After adding their profit margin, sell it to the retaileror the sub-wholesaler.

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

Consumer has little or no choice but to buy theproduct at the price stated by the retailer.Ultimately ends up paying 3 or 4 times theactual price of the product.

At loss At profitSupply Chain Mechanism involved in Retail

PANTALOONSPENCERSMORERELIANCE FRESHEASY DAYSPARSTAR BAZAARLILLIPUT KIDSWEARCHROMAKOUTONSPROVOGUESHOPPERS STOP

SOME

KEY

FACTS

and

FIGURES

Classification

The Indian retail sector can be broadly classified into:

1. Food Retailers2. Health and beauty

Products3. Clothing and Footwear4. Home Furniture &

Household goods5. Durable goods6. Leisure & Personal Goods

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

Indian Retail Market Scenario

Indian Retail Sector

In 1997, Indian Retail Sector was opened

with 100 % FDI permitted in Cash & CarryWholesale trading.

FDI Limit in Single brand retail has been opened upwith 51% in 2006. (Multi - Brand Retail still prohibited).

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

In July 2011, Committee of Secretaries had cleared theproposal to allow upto 51% FDI in multi-brand retail.

The Union Cabinet has approved increasing the FDI limitin single brand retail to 100% . (Vide Notificationdated 11/01/2012).

51% FDI in Multi-Brand retail still not passed.

CURRENT FDI POLICY & FRAMEWORK IN RETAIL

GROWTH DRIVERS OF INDIAN

RETAIL SECTOR

Rising Income and increase inconvergence of consumer tastesand preferences.

Dual family Income.

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

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

Emergence of new retailing format.

Bottom-Heavy Age Pyramid of the Indian Population

47 % of Indianpopulation isunder the age of30 which isdriving theconsumptionstory.

Personal Disposable Income: Actual and Projected (1989-2011)in USD Billion

From USD 200 billionto USD 1370 billion

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 signifies a jump of

more than 780 %in private

consumption per head.

Impact on

Indian markets

Real EstateDevelopment

(more FDI

in the formof

investmentsfor setting

up high-end retail malls)

Improved Technology

(use of

improvedtechnology

in processing,grading,

packaging &handling)

Farmer(better prices;

supply chaininfrastructureimprovement;

Cold chain& storage

facilityimprovement)

Government (foreign

CurrencyInflow &

increase inRevenue from

Shift inUnorganisedTo organised

Sector)

Customers(better quality

of products at lowerprices)

Impact on

Indian markets

FDI in multi brand will stimulatefurther investment in the sector.There are companies in the retail sectorthat are reeling under heavy debt burden.These companies might get fresh leaseof life.

Company Debt (in Crores) Market cap (in Crores)

Pantaloon 4200 3867

Lilliput Kidswear 750 Not available (company

is up for sale after exit of the promoters and PE funds)

Provogue 400 275

Impact on

Indian markets

STRENGTHS WEAKNESSES OPPORTUNITY THREATS

High growth rate of 46 %.

Huge diversity in buying pattern & customer attitude in India.

Growth in employment generation.

Profits going to foreign shores.

More choices of global sourcing.

Shortage of skilled professionals.

Healthy competition will reduce inflation.

Unemployment and monopoly.

10 million jobs in next 3 years.

No industry status.

Transparency in the system.

Farmers will be exploited.

Better negotiations for funds with FIs.

Supply chain related complexities.

Quality & wastage control & FDI inflow.

No consensus within Government.

Riders for Multi-Brand Retail FDIin 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 million.

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

Minimum investments of USD 100 million. 50 % of this investmentsshall be in backend infrastructure such as cold chains,Refrizeration, transportation & processing, etc.

Opening up of FDI will be within the parametersof state laws & regulations.

Main Objective is to Modernize Indian Retail.

Government has to proactively assist traditional Retailersin modernizing themselves.

FDI would lead to more comprehensive of integration of Indiainto World market.

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

It will be a boon for the overall economic development &social welfare, if done in right manner.

Conclusionandway

forward

THANK YOU

Submitted by:

Adarsh Saxena, CAMBF, Batch 3,

Centre: New Delhi

Date of presentation:

13/05/2012.

Please Contact:

Founder Adarsh Saxena, CA

@

KONNECTORS

RMT

Solutionskonnectorsrmts.2012@gmail.com

+91-9873016166.

New Delhi - 110018.

India.