Growth of Retail Marketing in India

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FINAL PROJECT REPORT

ON

GROWTH OF RETAIL MARKETING IN INDIA

Under the Guidance of

Gaurav Kamboj

Maharaja Institute of Management &Technology

For The Partial Fulfillment of

Post Graduate Diploma in Business Management (PGDBM)

Session (2009-11)

Submitted By:

Puneet vinaik
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CONTENTS

Introduction

Executive Summary

Research Methodology

Impact of BRIC in Retailing

Definition of Retailing

Demographics and consumer behavior

The Global Retail Industry - An Overview

Retail Scene in India - Touching meteoric height

Current Status of Retail Marketing in India

Origin of Modern Retailing in India

Different forms of retailing

Key Strategic factors

The current Scenario

Merchandising in retail

Importance of supply chain in retail

Changing face of banking in retail

Food retailing in India

Challenges before organized retailing

Future Perspective

Change Accelerator

Which Categories Will Grow

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Where is the growth going To Happen

Which Format will grow

Malls in India

Progressive retail properties in India

Realistic scenario in mall development: -a fact-finding

Retail as an Employment Generator

Retail Sector in the East

Significance of IT in organised Retail

Recipe for Success

An Emerging Middle-Class: Great prospects

Challenges of Retail Vision 2010

Questioner

Analysis

Conclusion How can it be done

Appendix

Bibliography

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Introduction

With organized retail in India pegged at Rs 25,000 crore (Rs 250 billion) -- out of a total

of Rs 800,000 crore and marketing companies are setting up shops to provide

differentiated services to clients. Till now sales people were the link between the retailer

and the producer. But sales personnel are busy selling a product and do not have a fair

idea of what retailing is about. The focus is to prioritize retail. That is, not only to sell a

product to a consumer but to get the consumer to interact with the product. Gone are the

days when retailing meant mere availability of a product. With competition becomingstiffer companies are looking at 'experiential'marketing. Also the lack of proper metrics

to measure marketing spends is a serious issue.

In today's swiftly changing business environment, there is no option but to be in the know

- to be constantly on the move, keeping tabs on the shifting trends in the market place and

maneuvering your strategy to stay on top. The retail arena today is very different - the

opportunities are incredible but exploiting them is extremely tough.

Super smart shoppers know all the rules of the game. They can instantly sense a good

buy and lap it up or sniff out a bad product and dismiss it. Their expectations are tough to

meet but for retailers aiming to make a big sale, there is not much of a choice but to find

ways to win customers over and keep them permanently happy.

In an environment, which is still restrictive in many ways and lacks adequate

infrastructure, this becomes a formidable task. So how are Indian retailers coping up and

how long will it be before organized retail becomes the primary way of selling.

This report also surveys the property market and reiterates the significance of IT in

organized retail before presenting a payback analysis to reveal the financial aspects

involved.

India's attempt to go the international way in retailing has met with some success though

not quite as expected. At about 2 per cent of the total retail market, we are still only

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scraping the surface. Easy to see why. Only a few large industry houses have invested in

this sector and even fewer have put in any significant sums of money in a business, which

is capital intensive in nature. The fragmented make-up of the consuming market, complex

geographical and cultural structure made more difficult by poor infrastructural linkages

do not allow economies of scale immediately.

But a tremendous opportunity exists in the Indian market and organized retail will prevail

as in other parts of the world. It is only a matter of time before that happens and it is

probably closer than we imagine. This is the right time to invest and continue investing in

the business. Profits may come in only after five or even seven years, but that's the way

this industry operates and unlike some of the other sectors, this is not a business where

revenues are imaginary and profits illusory. The market exists, the consumer is out there

spending that money somewhere - you just have to get him into your store.

In this review the state of business and potential and more importantly, study the best

practices being followed by various retailers in India. I also present in-depth analysis of

practices in the food and apparel sectors supported by case studies and insights into the

financial side of the business.

The size of the industry is estimated at Rs 16,000 crore and is growing at the rate of

about 18-20 per cent per annum. The two areas that have seen action in organized

retail are apparel and food retailing with sales of Rs 5,000 crore and Rs 1,800 crore,

respectively. Segments like consumer durables retailing and books and music have

grown but not as anticipated.

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Executive Summary

Retailing, considered a sunrise industry today after InfoTech, is the most happening

industry with almost all the big players vying for a share of the coveted pie. Buoyed by a

strong increase in private consumption (see graph), retailing is one industry that is

waiting to explode.

Today however, organized retailing is less than 2 per cent of the retailing industry in

India, that is, about Rs 5,000 crore.(see table) Therefore, there is no real retail revolution

in India; the industry is still in the stages of infancy.

Share of Organized Retail

1999 2002 2006

Total Retail (US $ Bn) 150 180 225

Organized Retail (US $ Bn) 1.1 3.3 7

% Share of Organized Retail 0.70% 1.80% 3.20%

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Organized retailing is bound to grow tremendously provided the right marketing

strategies are adopted. Retail businesses have broken rank and seem poised to surge

ahead with renewed vigor, optimism, confidence and capability.

There is an incredible amount of activity in terms of creation of retail-oriented space

across India. As per some estimates, there are over 200 retail mall projects under

construction or under active planning stage spanning over 25 cities. This may translate

into over 25 million sq. ft. of new retail space in the market within next 24 months.

Huge retail formats, with high quality ambience and very courteous and ambivalent sales

staff, are the regular features of retail formats in most Asian countries. However, in India

except for a few big towns where modern retailing formats abound, these features are

grossly missing. I expect organized retailing to slowly penetrate the second rung and

smaller towns, which will catapult the growth rate for the sector.

Even though the big retail chains are concentrating on the upper segment and selling

products at higher prices like Crossroads, Akbarally's and Shopper's Stop, retail stores are

sprouting that cater to the needs of middle class. With a huge middle class population, theretailers like RPG's Food world are tapping this market. The market is flooded with

products branded and unbranded.

The customers are in a dilemma as to pick which one. Simon Bell of AT Kearney says

"There is a close relation between the growth of brands and the growth of the organized

retailing. Companies selling branded products prefer to have big and organized retail

outlets such as supermarkets where they can be differentiated from unbranded products"

Though doubts have been cast on the future of Indian retailing it is our belief that the

retail boom is yet to happen. While the industry is in the introduction stage in most

geographies, it has just entered the growth region in the metro cities.

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Today, the right product mix, right sourcing strategy, and the right communications are

the mantras for success.

This paper begins by analyzing the retail formats in the present Indian scenario and

proceeds to outline the key strategic factors in retailing. In the last part the paper shows

the challenges facing retail and the recommendations for making organized retailing a

success.

RESEARCH METHODOLOGY

The research carried out is Exploratory in nature and sampling methods used are

Convenience and Judgment sampling.

INFORMATION SOURCES:

PRIMARY SOURCE

Consumers

SECONDARY SOURCE

www.hindubusinessline.com

www.shoppersstop.com

www.ksa.com

www.thomasnet.com

DATA COLLECTION TOOLS: Questionnaires

Personal Interviews

Magazines

Internet

SAMPLE SIZE: 60

LOCATION : SONIPAT/Delhi/NCR

LIMITATIONS:

Time constraint was a limiting factor in the project. Since time available was only8 weeks, elaborate study of each and every aspect of personal perspective hasthwarted to divulge in totality the latent perceptions of the individuals.

Personal bias of the consumer cant be avoided.

We were not able to interview people from the management of the malls.

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http://www.hindubusinessline.com/http://www.shoppersstop.com/http://www.ksa.com/http://www.thomasnet.com/http://www.hindubusinessline.com/http://www.shoppersstop.com/http://www.ksa.com/http://www.thomasnet.com/


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We were not able to collect information regarding the financial terms due to non-disclosure of the same as restricted by company policies.

IMPACT OF BRIC IN RETAIL INDUSTRY

Modern Retail Business Will Create up to 2 million Jobs in Next 2 Years

Our Bureau

Bright future!

Courtesy: The Hindu

Consuming class with $100-4800 annual income around 75million households this year.Positive Govt attitude to open, privatize various sectors. Retail biz to create 2 million

jobs in next 2years of which more than 50% to be women.

MR GIBSON G. Vedamani, CEO, Retailers Association of India, at the BL Clubinaugural function at Jansons School of Business, Coimbatore. S. Siva Saravanan.Coimbatore, Oct. 13

Growing consumerism and availability of manpower are powering the growth oforganized retail business in India and no marketer can afford to ignore India's growth potential, according to Mr. Gibson G. Vedamani, Chief Executive Officer, Retailers

Association of India, and Mumbai.

Inaugurating the Business Line Club at Jansons School of Business (JSB) atKarumathampatti near Coimbatore, he said as perGoldman Sachs BRIC'sreport, Indiawould be among the top five economies in the world by 2050 along with China andBrazil.

Demographic profile

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The total number of consuming class with an annual income level of between $1,000 and$4,800 would be around 75 million households by 2006 compared to 29 millionhouseholds a decade ago. The demographic profile of India is also a great marketingasset. While, as per 2004 data, people in the 0-14 years age group constituted 31.7 percent of the population, the 15-64 years age group forms 63.5 per cent and the peopleabove 65 years constitute the balance. This is a constituency that no marketer can ignore.

He also noted the positive attitude of the Government that has been keen to open varioussectors and privatize some such as telecom, aviation and insurance. Mr. Vedamani saidthe modern retail business would be creating up to two million jobs in the next two years.The benefit of this growth is that it would create employment at the local level and asignificant percentage of them would be first time taxpayers in the country. An importantfeature of this employment boom would be that more than 50 per cent of these employeeswould be women.

He estimated that nearly 40 million sq ft retail space would be created over the next fiveyears by existing retailers and the massive investment in infrastructure developmentwould have a cascading impact. Allied activities such as warehousing and distribution

would provide growth opportunities and supply-chain development would take place insecondary cities. The country's technological prowess could also help it become thebackbone and back-end management of global retail supply chain.

Prof M. Ravichandran, Director, JSB, and Mr. D. Rajkumar, Senior Regional Manager-Circulation, The Hindu, Coimbatore, were among those present.

BRIC Report: Many Ifs and Buts Qualify Forecast

Veena Venugopal

Mumbai, Jan. 20

THE BRIC report is now constantly quoted as a validation of India's emerging economicprowess.

The Goldman Sachs report on Brazil, Russia, India and China (BRIC) states that Indiawill be the third largest economy, after the US and China by 2050. The study assumesstrong and stable macro economic policies, stable political institutions, and high levels ofeducation and openness as the fundamentals to the model used.

The report states, "There is a good chance that our projections are not met, either throughbad policy or bad luck."

Ms Roopa Purushothaman, co-author of the BRIC report, while presenting the same here,raised concerns over the levels of secondary education in India. This is an importantvariable in the model and in comparison to others in the report, it is an area where Indiastands weak

Unless there is a marked improvement in the quality and reach of secondary education,the predictions of the report are unlikely to be valid.

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Also important to note in the report, is the validity of application of the model in Asianeconomies. On applying the model to various economies as they stood in 1960 andcomparing the current levels of these economies as against what the model would haveprojected, none of the Asian economies have shown parity. The actual GDPs are higherthan that projected in Hong Kong and Korea and much lower in countries such as India.

The report categorically states that while India will be among the three largest economies

of the world, its per capita income will still be low. In fact, this phenomenon is expectedto be true for all BRIC economies, except Russia. Individuals in Brazil, China and Indiawill continue to be poorer on an average than those in the G6 economies.

Despite these spoilers, why are Indians excited about the report?

In a country-wise conclusion, the report states, "While growth in the G6, Brazil, Russiaand China is expected to slowdown significantly over the next 50 years, India's growthrate remains above five per cent throughout the period. With the only population out ofthe BRIC that continues to grow throughout the next 50 years, India has the potential toraise its $ income per capita in 2050 to 35 times current levels. Still, India's income percapita will be significantly lower than any of the countries we look at."

Strength and stability of macro economic policies and political institutions over a 50-yearperiod are not assumptions that can be shrugged away as a definite possibility. Withchanges in Government, there will be changes in macro economic policies and opennessto global trade. Whether these changes will lead to favorable trade and macro economicconditions is a moot point.

In the event that all the assumptions of the model fall into place for India, the report doeshelp in validating optimistic assumptions about the country's growth trajectory.

Whether the excitement the report generated among business and political circles is

because it is added fodder to the "India is shining" propaganda is worth a thought. MsPurushothaman, shocked at the attention the report has generated in India, calls thetiming "co-incidental."

Definition of retailing

Retailing is all the activities involved in selling goods and services directly to final

consumers for their personal, non-business use.

Although most retailing is done in retail stores, in recent years non-store retailing -selling

by mail, telephone (telemarketing), door-to-door contact, vending machines, and

numerous electronic means -- has grown tremendously.

Store retailing: retail stores come in a variety of shapes and sizes, and new retail types

keep emerging. They can be classified by one or more of several characteristics:

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Retailers can be classified by one or more of several characteristics:-

Amount of service

Product line

Relative prices

Control of outlets

Type of store cluster

Amount of service: different products require different amounts of service, and customer

service preferences vary:

(1) Self-service retailers increased rapidly in the US during the Great Depression in the

1930's. Customers were willing to perform their own "locate-compare-select" process to

save money. Today, self-service is the basis of all discount operations, and typically is

used by sellers of convenience goods (such as supermarkets) and nationally branded, fast

moving shopping goods (such as catalog showrooms).

(2) Limited service retailers, such as Sears and J C Penney, provide more sales

assistance because they carry more shopping goods about which consumers need

information. Their increased operating costs result in higher prices.

(3) Full service retailers, such as specialty stores and first-class department stores, have

salespeople to assist customers in every phase of the shopping process. Full service

stores usually carry more specialty goods for which customers like to be waited on. They

provide more liberal return policies, various credit plans, free delivery, home servicing,

and extras such as lounges and restaurants.

Product line: retailers can also be classified by the depth and breadth of their product

assortments:

(1) Specialty stores carry a narrow product line with a deep assortment within that line.

Examples include stores selling sporting goods, books, furniture, electronics, flowers, or

toys. Today, specialty stores are flourishing, due to the increasing use of market

segmentation, market targeting, and product specialization.

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(2) A department store carries a wide variety of product lines. Each line is operated as a

separate department managed by specialist buyers and merchandisers.Department Stores,

are large retail stores with a fashion orientation that sell many types of merchandise

organized in separate departments. Found in virtually every major city in the world, most

department stores today are part of larger retail organizations that operate a flagship (or

main) store, as well as branch stores in shopping centers and malls. The biggest single

segment of their business is apparel and accessories, accounting on average for more than

two-thirds of sales. Most department stores also offer a range of customer services such

as personal shopping assistance, fashion shows, and charge accounts.

The organization of a modern department store is complex because of the large number

of goods and services provided.

Typically, the operation of a store is conducted through four principal divisions:-

(a) The merchandising division, responsible for the planning, buying, and direct selling of

merchandise;

(b) The publicity division, which handles advertising, display, public relations, and other

sales promotion functions;

(c) The control division, which deals with credit, accounting, and other financial matters;

(d) And the store management division, which covers personnel, service, store security,

maintenance, and operational duties.

Within these four divisions are many subdivisions. The heads, or managers, of the four

principal divisions report to the general management of the store. Many variations of this

organization plan exist;

(3) Supermarkets are large, low-cost, low-margin, high-volume, self-service stores that

carry a wide variety of food, laundry, and household products. Most US supermarket

stores are owned by large chains such as Safeway, Kroger, Publix, Winn-Dixie, Jewel,

and Tops. Chains account for almost 70% of all supermarket sales. Supermarkets

departmentalized self-service stores that are the predominant type of retail outlet for food

products. An average supermarket handles thousands of edible items including meat,

fresh fruits and vegetables, dairy products, canned groceries, bakery items, delicatessen,

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and frozen foods. Some also carry items such as seafood and liquor. Nonedibles found in

supermarkets include household cleaners, paper products, health and beauty aids, and

housewares. The markets are located in shopping centers, neighborhood areas, business

and centers, and along highways.

(4) Convenience stores are small stores that carry a limited line of high-turnover

convenience goods. These stores located near residential areas and remain open long

hours, seven days a week. Convenience stores must charge high prices to make up for

higher operating costs and lower sales volume, but they satisfy an important consumer

need.

(5) Superstores, combination stores, and hypermarkets are all larger than the

conventional supermarket. Many leading chains are moving toward superstores because

their wider assortment allows prices to be 5-6% higher than conventional supermarkets'.

Combination stores are combined food and drug stores. Examples are A&P's Family

Marts and Wal-Mart's Supercenters. Hypermarkets combine discount, supermarket, and

warehouse retailing, and operate like a warehouse -- products in wire baskets are stacked

high on metal racks, and forklifts move through aisles during selling hours to restock

shelves. They usually give discounts to customers who carry their own heavy appliances

and furniture out of the store.

Relative prices: retailers can also be classified by the prices they charge. Most retailers

charge regular prices and offer normal quality goods and customer service. Some offer

higher quality goods and service at higher prices. Retailers that feature low prices

include:

(1) Discount stores sell standard merchandise at lower prices by accepting lower margins

and selling higher volume. Occasional discounts or specials does not make a store a

discount store. A true discount store regularly sells its merchandise at lower prices,

offering mostly national brands, not inferior goods.

In recent years, facing intense competition from other discounters and department stores,

many discount retailers have "traded up" by improving their decor, adding new lines and

services, and opening suburban branches. This, of course, has led to higher costs and

prices. With the discounters trading up, off-price retailers have moved in to fill the low-

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price, high-volume gap. They obtain a changing and unstable collection of higher-quality

merchandise, often leftover

goods, overruns, and irregulars at reduced prices from manufacturers or other retailers.

The three main types of off-price retailers are factory outlets, independents, and

warehouse clubs.

Control of outlets: about 80% of all retail stores are independents, accounting for 2/3 of

retail sales. Other forms of ownership include the corporate chain,the voluntary chain

and retailer cooperative, the franchise organization, and the merchandising

conglomerate.

The chain store is one of the most important retail developments of this century.

Corporate chains appear in all types of retailing, but they are strongest in department,

variety, food, drug, shoe, and women's clothing stores. The size of corporate chains

allows them to buy in large quantities at lower prices, and chains gain promotional

economies because their advertising costs are spread out over many stores and over a

large sales volume. Chain stores, aretwo or more retail stores dealing in the same general

kind of merchandise and operated by the same firm. The outlet is also known as a

multiunit and is generally operated by an employee-manager rather than an individualowner. The manager of a chain store, unlike the independent retailer, does not make

policy decisions and is responsible to the individual or company that owns the store.

Chain stores deal mainly in general merchandise, food, drugs, and shoes; many variety

and discount stores are chains

The great success of corporate chains caused many independents to band together under

contractual associations. The voluntary chain is a wholesaler-sponsored group of

independent retailers that engages in-group buying and common merchandising. Theretailer cooperative is a group of independent retailers that set up a jointly- owned central

wholesale operations and conduct joint merchandising and promotion efforts.

A franchise is a contractual association between a manufacturer, wholesaler, or service

organization (the franchiser) and independent businesspeople (the franchisees) who buy

the right to own and operate one or more units in the

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franchise system. Franchising has been prominent in fast-food companies, motels, gas

stations, video stores, auto rentals, hair cutting salons, real estate, and dozen of other

goods and services. The compensation received by the franchiser may include an initial

fee, a royalty on sales, lease fees for equipment, and a share of the profits.

Merchandising conglomerates are corporations that combine several different retailing

forms under central ownership and share some distribution and management functions.

Examples include Dayton-Hudson and JCPenney.

Type of store cluster: Most stores today cluster together to increase their customer

pulling power and to give consumers the convenience of one-stop shopping:

Central business districts were the main form of retail cluster until the 1950's. Every

large city and town had a central business district with banks, department stores, specialty

stores, and movie theatres. When people began to move to the suburbs, however, these

central business districts (with their traffic, parking, and crime problems) began to lose

business.

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A shopping center is a group of retail businesses planned, developed, owned, and

managed as a unit. All shopping centers combined account for about 1/3 of all retail

sales.

Non-Store Retailing: although most goods and services are sold through stores, non-store retailing has been growing much faster than store retailing.

Traditional store retailers are facing increasing sales competition from catalogs, direct

mail, telephone, home TV shopping shows, on-line computer shopping services, home

and office parties, and other direct retailing approaches.

Non-store retailing includes direct marketing, direct selling, and automatic vending:

Direct Marketing vehicles are used to obtain immediate orders directly from targeted

consumers. Although direct marketing initially consisted mostly of direct mail and mail-

order catalogs, it has taken on several additional forms, including telemarketing, direct

radio and TV, and on-line computer shopping. Its growing use in consumer marketing is

largely a response to the "demassification" of mass markets, which has resulted in an

increasing number of fragmented market segments with highly individualized needs.

Trends that have increased the use of direct marketing include:-

(1) number of women in the workforce;

(2) higher costs of driving, including traffic congestion and parking problems;

(3) shortage of retail help;

(4) longer checkout lines;

(5) toll-free telephone numbers;

(6) availability of credit through proliferation of credit cards;

(7) growth of computer power & communication technology; and

(8) increasing time pressures on consumers.

Direct Selling, or door-to-door retailing, started centuries ago with roving peddlers.

Today, it has grown into a huge industry, with more than 600 companies selling their

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products door-to-door, office-to-office, or at home-sales parties. Although some direct

selling companies are thriving, door-to-door selling has a somewhat uncertain future.

Trends working against this form of selling include:-

(1) increase in single-person and working-couple households decreases the

chances of finding someone at home;

(2) home-party companies are having difficulty finding non-working women who

want to sell product part-time;

(3) increases in crimes against individuals has made consumers reluctant to invite

strangers into their homes; and

(4) recent advances in interactive direct-marketing technology mean that the

door-to-door salesperson may be replaced by the telephone, the television, and the

home computer.

Automatic Vending is not new. In 215 B.C., Egyptians could buy sacrificial water from

coin-operated dispensers. But this method of selling soared after World War II. There are

now about 4.5 million vending machines in the US -- one for every 55 people. Vending

machines are found everywhere; compared to store retailing, vending machines offer

consumers greater convenience 24 hours a day, and have replaced many services

formally requiring a human interface. For example, when was the last time you went to

the bank and actually talked with a "live person?

The expensive equipment and labour required to stock and service vending machines

makes this a costly channel of distribution, and prices of vended goods are often 15-20%

higher than those in retail stores. So, the adage "there's no free lunch" still holds -we

have to pay for the convenience that vending machines provide.

The Wheel of Retailingconcept states that new types of retailers usually begin as low-

margin, low-price, low-status operations, but later evolve into higher-priced, higher-

service operations, eventually becoming like the conventional retailers they replaced.

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Demographics and Consumer Behavior

Courtesy: KSA AnalysisIndia is estimated to have a population of 1.04 billion as of 2003. Population growth is

expected to stabilize at approximately one and a half percent in the next few years. In

recent years, there has been a trend in the movement of population from rural areas to

urban areas, largely as a result of increased employment opportunities in the cities as well

as a preference of the younger generation to move away from agriculture.

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The percentage of population moving to Class I towns, which are basically large cities

with a population of over 1 million, has seen significant growth in recent years. As a

result of this trend, the percentage of population living in urban areas, has seen dramatic

growth in the past two decades. One of the important demographic trends in recent times

is the change in the age profile of the population. The percentage of the population in the

15 to 59 year age group, which is largely the countrys workforce, is expected to increase

in coming years.

POPULATION POPULATION- BREAK

UP BY TOWN CLASS URBAN & RURAL

Total Population: 846 million Population: 217million

Census '91. Only one fourth of India's population is urban.Source Census '91Top 8 metros constitute more than one fourth of Indias population

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The Global Retail Industry-An Overview

Retail has played a major role world over in increasing productivity across a wide range

of consumer goods and services .The impact can be best seen in countries like U.S.A.,

U.K., Mexico, Thailand and more recently China. Economies of countries like Singapore,

Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.

Retail is the second-largest industry in the United States both in number of

establishments and number of employees. It is also one of the largest worldwide. The

retail industry employs more than 22 million Americans and generates more than $3

trillion in retail sale annually. Retailing is a U.S. $7 trillion sector.

Wal-Mart is the worlds largest retailer. Already the worlds largest employer with over

1million associates, Wal-Mart displaced oil giant Exxon Mobil as the worlds largest

company when it posted $219 billion in sales for fiscal 2001. Wal-Mart has become the

most successful retail brand in the world due its ability to leverage size, market clout, and

efficiency to create market dominance. Wal-Mart heads Fortune magazine list of top 500

companies in the world. Forbes Annual List of Billionaires has the largest number

(45/497) from the retail business.

GLOBAL RETAIL

1999 2002 2006

Total Retail (US$ Billion) 150 180 225

Organized Retail (US$Billion 1.1 3.3 7

% Share of Organized retail 0.7 1.8 3.2

(Source: CSO, MGI Study)

Top Retailers Worldwide

Rank Retailer Home Country

1 Wal-Mart Stores, Inc. U.S.A.

2 Carrefour Group France

3 The Kroger Co. U.S.A.

4 The Home Depot, Inc. U.S.A.

5 Metro Germany

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(Source: STORES / Deloitte Touche Tomahatsu)

Retail Scene in India - Touching Meteoric Height

As the corporates the Piramals, the Tatas, the Rahejas, ITC, S.Kumars, RPG

Enterprises, and mega retailers- Crosswords, Shoppers Stop, and Pantaloons race to

develop the retailing sector, retail as an industry in India is coming alive. Retail sales in

India amounted to about Rs.7400 billion in 2002, expanded at an average annual rate of

7% during 1999-2002. With the upturn in economic growth during 2003, retail sales are

also expected to expand at a higher pace of nearly 10%. Across the country, retail sales in

real terms are predicted to rise more rapidly than consumer expenditure during 2003-08.

The forecast growth in real retail sales during 2003- 2008 is 8.3% per year, compared

with 7.1% for consumer expenditure. Modernization of the Indian retail sector will be

reflected in rapid growth in sales of supermarkets, departmental stores and hyper marts.

Sales from these large-format stores are to expand at growth rates ranging from 24% to

49% per year during 2003-2008, according to a latest report by Euro monitor

International, a leading provider of global consumer-market intelligence.

A.T.Kearney Inc. places India 6th on a global retail development index. The country has

the highest per capita outlets in the world - 5.5 outlets per 1000 population. Around 7%

of the population in India is engaged in retailing, as compared to 20% in the USA.

In a developing country like India, a large chunk of consumer expenditure is on basic

necessities, especially food-related items. Hence, it is not surprising that food, beverages

and tobacco accounted for as much as 71% of retail sales in 2002. The share of foodrelated items had, however, declined over the review period, down from 73% in 1999.

This is not unexpected, because with income growth, Indians, like consumers elsewhere,

have started spending more on non-food items compared with food products. Sales

through supermarkets and department stores are small compared with overall retail sales.

Nevertheless, their sales have grown much more rapidly, at almost a triple rate (about

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30% per year during the review period). This high acceleration in sales through modern

retail formats is expected to continue during the next few years, with the rapid growth in

numbers of such outlets due to consumer demand and business potential.

The factors responsible for the development of the retail sector in India can be broadly

summarized as follows:-

Rising incomes and improvements in infrastructure are enlarging consumer markets

and accelerating the convergence of consumer tastes.

Looking at income classification, the National Council of Applied Economic

Research (NCAER) classified approximately 50% of the Indian population as low

income in 1994-95; this is expected to decline to 17.8% by 2006-07.

Liberalization of the Indian economy which has led to the opening up of the market

for consumer goods has helped the MNC brands like Kelloggs, Unilever, Nestle, etc.

to make significant inroads into the vast consumer market by offering a wide range of

choices to the Indian consumers.

Shift in consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc.

The Internet revolution is making the Indian consumer more accessible to the growing

influences of domestic and foreign retail chains. Reach of satellite T.V. channels is

helping in creating awareness about global products for local markets. About 47% of

Indias population is under the age of 20; and this will increase to 55% by 2015. This

young population, which is technology-savvy, watch more than 50 TV satellite channels,

and display the highest propensity to spend, will immensely contribute to the growth of

the retail sector in the country. As India continues to get strongly integrated with the

world economy riding the waves of globalization, the retail sector is bound to take big

leaps in the years to come.

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The Indian retail sector is estimated to have a market size of about $ 180 billion; but the

organized sector represents only 2% share of this market. Most of the organized retailing

in the country has just started recently, and has been concentrated mainly in the metro

cities. India is the last large Asian economy to liberalize its retail sector. In Thailand,

more than 40% of all consumer goods are sold through the super markets and

departmental stores. A similar phenomenon has swept through all other Asian countries.

Organized retailing in India has a huge scope because of the vast market and the growing

consciousness of the Consumer about product quality and services.

A study conducted by Fitch, expects the organized retail industry to continue to grow

rapidly, especially through increased levels of penetration in larger towns and metros and

also as it begins to spread to smaller cities and B class towns. Fuelling this growth is the

growth in development of the retail-specific properties and malls. According to the

estimates available with Fitch, close to 25mn sq. ft. of retail space is being developed and

will be available for occupation over the next 36-48 months. Fitch expects organized

retail to capture 15%-20% market share by 2010.

A McKinsey report on India says organized retailing would increase the efficiency andproductivity of entire gamut of economic activities, and would help in achieving higher

GDP growth. At 6%, the share of employment of retail in India is low, even when

compared to Brazil (14%), and Poland (12%).

Current Status of Retail Marketing in India

Winds of Change Sweeping Through Retail Industry.

What is it that has made the Piramls, the Tatas, the Rahejas, ITCand scores of others

take a plunge into mega retailing? Why is market research, space management, ERP,

promotions etc now a necessary tool in this industry?

Retail Economics in India.

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Traditionally retailing has not been a structurally organized industry in India. Organized

retail network was seen only in fabrics, with large mills building their own exclusive

stores e.g. Raymonds, Bombay Dyeing etc.

Currently there are about 5130000 retail outlets selling about Rs4790bn worth of

products. Retail universe in India comprises large, medium general stores, chemists and

pan-bidi (apart from accessories stores). Of these thanks to unemployment, the number

of pan-bidi outlets are steadily rising. On account of the fragmented nature of Indian

retail industry the inhabitants to stores ratio in India is about 150:1, i.e. there is a store

catering to every 150 people. This ratio varies from country to country. In china the ratio

is similar to that of India where as incase of more developed countries the ratio would be

higher. For instance in Europe the inhabitant to stores ratio is 2000:1.As markets mature,

consumer expectations rise it would be a necessity for small retailers to come together

and form innovative and strong supply chain that will cut through distribution and

increase margins.

Turnaround TimesIn last couple of years this industry has made responsive move from its hopeful stages.

Organized retailing started picking up in Southern India. Availability of land at prime

locations coupled with cheaper real estate prices (compared to Mumbai & Delhi) made it

possible to have multi stored shopping complexes here. It took two years of recession to

get this concept of shopping to major cities like Mumbai & Delhi. Recession brought

property prices down in these cities. It was during this period of industry slump that big

business houses took notice of the potential in retailing. A classic example being- Lakme

Ltd. The company after selling off its cosmetic division to HLL, made an aggressive

foray into retailing. Its retail chain brandedWestside already comprises 4 stores- one

each in Bangalore, Hyderabad, Chennai and Mumbai. A cash hoard of Rs107bn will

enable Lakme to roll out stores aggressively.

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Consumerism Cycle

Consumer cycle starts with Industry Dictating the market. Eventually with time the

distributor gains controlover the market. At this stage distributor becomes an important

link between manufacturer and customer. When markets start developing further

expanding its horizons, suddenly retailers turn out to be vital point in this supply chain.

In India we are entering into this third stage where retailers control the market. With

shopping attitudes of people changing, Indian markets today desires for value added

products and services with good ambience and brands, which only a retailer can provide.

Whereas developed countries have reached the final stage where customer dictates. US,

UK and other developed markets have now reached a stage wherein consumers are

willing to save on price by going to discount stores where ambience and services are low

and goods are unbranded.

Its a vicious cycle, but for the new aspect - Omnipresent net. Though it would be

sometime before e-commerce gears up in India. But all the same a merger of Internet,

catalogues, telephone and television is inevitable.

What Makes it Attractive

Today the number of smaller retailers ($500pa) has shot up from 40% in 1990 to 54% in

1996, whereas the number of large stores (turnover of $3000pa) increased from 2.8% to

6.5%. Thus though large retailers are growing the smaller outlets are growing even faster.

However changing shopping attitudes of an average customer will make future growth

increasingly difficult for unorganized retail sector.

Currently in India, organized retailing accounts for 6% of the industry turnover,

comprising value-added foods (Rs770bn), music & entertainment (Rs40bn), colour

cosmetics (Rs12bn) etc. By 2005 organized retailing will account for 20% the total

retailing industry turnover (Rs8300bn).

Big business houses today are in a position to provide Indian masses with shopping

satisfaction, entertainment, quality product, polite salesperson, product information and

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discounts. Though margins currently are low due to high property cost and poor

infrastructure. This is the only business where one buys in credit and sells for cash.

Further the number of households earning more than Rs150000 per annum amounts to

30mn today and is expected to grow to 80mn by 2007.Additionally financial institutions

are encouraging such ventures. ICICI has recently sanctioned term loans to Vivek & co, a

mega-retailer, in Chennai to meet their expansion plans. Very shortly the market will also

witness IPOs for some of theseRetail Ventures.

Proven success

In early 90s, K. Raheja Group started a mega Apparels stores in Mumbai- Shoppers

Stop. Initially, the group was averse to start outlets at South Mumbai

for various reasons like low walk-ins, space constraints, narrowed target audience etc.

However the success of Crossroads, an ardent rival, has prompted them to start one at

South Mumbai in near future. The group has more of such stores, one each at Bangalore,

Hyderabad and Jaipur. Within seven years of operations it has a yearly turnover of

Rs1.30bn. The group has plans of opening about 20 mega apparel stores in next 2 years.

For this the company plans to sell 25.1% stake for Rs559mn to Singapore based investor

Warburg Pincus. The success story of Shoppers Stop has convinced other businesshouses to take a leap.

Origin of Modern Retailing in India

Retailing, which is one of the largest sectors in the global economy, is going through a

transition phase in India. However the Indian retail sector is still in a nascent stage.

Organized retailing still contributes to only about 2% of the total retailing in the country.

Now a question that would arise is what constitutes Organized Retailing. Mr. Raghu

Pillai, the Managing Director of Food World, which is one of the leading organized food

retailing chain in India says that, Organized Retailing presupposes a retailers ability to

manage or more importantly influence a set of supply chain variables in a commercially

viable and sustainable way. Efficient management of the supply chain to ensure the

profitability of the entire chain, large outlets with modern ambiance and facilities, a wide

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product profile, self service facilities etc are generally the features of a modern retail

store. Organized retailing aims at providing an ideal shopping experience for the

consumer based on the advantages of large-scale purchases, consumer preference

analysis, excellent ambience and choice of merchandise. However, there are no single

formats, designs, facilities or product portfolios that can be identified as the success

formula and as a general rule differentiation between chains is necessary to increase

viability. For a long time, the corner grocery store was the only choice available to the

consumer, especially in the urban areas. This is slowly giving way to international

formats of retailing. The traditional food and grocery segment has seen the emergence of

supermarkets/

Grocery chains. The Indian food retail market is still in stage-1, which represents the

First Steps in the Stages of Maturity of Modern Retail Food Market.

The stages of this progression and the position of the other major countries are given

below:

Stages of Maturity of Modern Food Retail Markets

Largely in the post independence period, Indian retailing has been unorganized, to the

most part untouched by corporate business principles. When the economy started to be

opened in the 1980s the situation began to change slowly. Emergence of retail chains was

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at first witnessed in the textiles sector, with companies like Bombay Dyeing, Raymond,

S. Kumars and Grasim, opening their own outlets. Titan then successfully created a

retailing concept, by establishing its series of elegant showrooms. The later half of the

nineties has been a witness to a fresh wave of entrants in the retailing business. The new

chains have not been restricted to textiles and garment sellers but there have been entrants

from various fields of commerce. FoodWorld and Subhiksha in food and Fast-Moving

Consumer Goods; Musicworld and Musiccafe in music; Viveks and Vijay sales in the

consumer durables etc were the beginners. Now

the number of players and the variety of formats and product categories reflect variety.

Different Forms of Retailing

Popular Formats

Hyper marts

Large supermarkets, typically (3,500 - 5,000 sq. ft)

Mini supermarkets, typically (1,000 - 2,000 sq. ft)

Convenience store, typically (7,50 - 1,000 sq. ft)

Discount/shopping list grocer

Traditional retailers trying to reinvent by introducing self-service formats as well as

Value-added services such as credit free home delivery etc.

The Indian retail sector can be broadly classified into:-

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector. Traditional

types of retailers, who operate small single-outlet businesses mainly using family labour,

dominate this sector .In comparison, super markets account for a small proportion of food

sales in India. However the growth rate of super market sales has being significant in

recent years because greater numbers of higher income Indians prefer to shop at super

markets due to higher standards of hygiene and attractive ambience.

b) HEALTH & BEAUTY PRODUCTS

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With growth in income levels, Indians have started spending more on health and beauty

products. Here also small, single-outlet retailers dominate the market. However in recent

years, a few retail chains specializing in these products have come into the market.

Although these retail chains account for only a small share of the total market, their

business is expected to grow significantly in the future due to the growing quality

consciousness of buyers for these products.

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centers and markets operate all over

India. Traditional outlets stock a limited range of cheap and popular items; in contrast,

modern clothing and footwear stores have modern products and attractive displays to lure

customers. However, with rapid urbanization, and changing patterns of consumer tastes

and preferences, it is unlikely that the traditional outlets will survive the test of time.

.

d) HOME FURNITURE & HOUSEHOLD GOODS

Small retailers again dominate this sector. Despite the large size of this market, very few

large and modern retailers have established specialized stores for these products.

However there is considerable potential for the entry or expansion of specialized retail

chains in the country.

e) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign

companies during the post liberalization period. A greater variety of consumer electronic

items and household appliances became available to the Indian customer. Intense

competition among companies to sell their brands provided a strong impetus to the

growth for retailers doing business in this sector.

f) LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities have encouraged

consumer expenditure on leisure and personal goods in the country. There are specialized

retailers for each category of products (books, music products, etc.) in this sector.

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Another prominent feature of this sector is popularity of franchising agreements between

established manufacturers and retailers.

Each of the retail stars has identified and settled into a feasible and sustainable business

model of its own:-

Shoppers' Stop - department store format

Westside - emulated the Marks & Spencer model of100 per cent private label, very

good value for money merchandise for the entire family

Giant and Big Bazaar - hypermarket/cash & carry store

Food World and Nilgiris supermarket format

Pantaloons and The Home Store - speciality retailing

Tanishq has very successfully pioneered a very high quality organized retail business

in fine jewellery

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Structure of the retailing industry according to ownership patterns:-

An unaffiliated or independent retailer

A chain retailer or corporate retail chain

A franchise system

A Leased Department (LD)

Vertical Marketing System (VMS)

Consumer Co-operatives

A new entrant in the retail environment is the 'discounter' format. It is also is known as

cashand- carry or hypermarket. These formats usually work on bulk buying and bulk

selling.

Shopping experience in terms of ambience or the service is not the mainstay here. RPGgroup has set up the first 'discounter' in Hyderabad called the Giant. Now Pantaloon is

following suit.

Two categories of customers visit these retail outlets.

1. The small retailer. For example, a customer of Giant could be a dhabawala who needs

to buy edible oil in bulk.

2. The regular consumer who spends on big volumes (large pack sizes) because of a

price advantage per unit.

Key Strategic factors

The changes in the nations social structure like, improvement of the Indian economy,

consumerism, urbanization, profusion of brands have been the main causal factor for the

development of these modern formats. Indian food buying behavior is gradually changing

in response to the changing social structure .The increasing number of nuclear families,

double income households and working women, greater work pressure and increased

commuting time have put the consumers under constant time pressure. The other equally

important factors in the changing Indian landscape are the increasing influence of

children, gradual acceptance of frozen, semi-processed and processed foods by the Indian

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consumer, the growing influence of television in decision making and improvement in

literacy rates. As the modern housewife starts shopping for herself she appreciates and

welcomes:-

a pleasant shopping environment;

convenience of one-stop shopping with wider product portfolio at a single location;

Speed and efficiency in processing.

more information;

better quality and hygiene; and

Discount too if possible.

The improved income and the increased purchasing power of a larger section of theIndian population makes the opening of outlets, which provide the whole bunch of these

improved services a viable opportunity.

The key to success is identifying a superior value-promise and who is in a better position

to do it than retailers? Retailers are the closest to the point of purchase and have access to

a wealth of information on consumer shopping behaviour. Retailers have some unique

advantages for managing brands such as continuous and actionable dialogue with

consumers, control over brand presentation at point-of-sale, control over shopping

environment, display location/adjacencies, and signage. And they have used this

advantage with tremendous success.

As seen, the role of the intermediary is being diminished gradually, which has obvious

implication of backlash of the trade channel upwards towards the suppliers. This is more

severe in countries such as India, where the channel economics in favour of the

middlemen is still strong enough given the fragmentation of the retail sector. Therefore

when FoodWorld, the largest grocer in India has a direct supply contract with over

20% of its key suppliers, it gives rise to conflict of interest with the distribution

infrastructure that suppliers have painstakingly built over the years. Thus companies like

HLL have evolved a distinct distribution channel altogether (called Modern Trade) to

service the needs of such large grocers. Even the mom and pop stores (known as kirana

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Shops) are affected due to this unfair back-end advantage extended by the supplier to

its leading accounts (the emerging supermarket chains).

The strategies adopted by the retailer to compete with branded goods are illustrated by

the following diagram. Branding the store and following a private label strategy is the

key strategy which helps the retailer to compete with branded products.

The current Scenario

The change in the social formats has led to the development of modern retail outlets,

mainly in the southern parts of the country. Chennai, Bangalore and Hyderabad are

developing as the hub of organised retail in India. The culture is spreading to the

otherparts of the country too, with the western and northern parts of the country too

providing good opportunities currently.

Different players are trying out different formats. A successful fully Indian or swadeshi

model in Indian retailing is yet to be developed. The models, which are highly successful

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in certain areas of the country, are able to achieve only moderate success in certain other

areas.

Retail Realities:

Unorganized market: Rs. 583,000 crores

Organized market: Rs.5,000 crores

5X growth in organised retailing between 2000-2005

Over 4,000 new modern retail outlets in the last 3 years

Over 5,000,000 sq. ft. of mall space under development

The top 3 modern retailers control over 750,000 sq. ft. of retail space

Over 400,000 shoppers walk through their doors every week

Growth in organized retail on par with expectations and projections of the last5Years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06

Major players:

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Major players with yearly turnover

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Key Categories:

Source: KSA Technopack

Merchandising in retail

The modern consumer is posing a challenging task for Indian retail. More aware, more

confident and much more demanding, today's consumer wants the best product at the best

price. And that's not all. The manner in which the product is presented to him has to be

perfect too. Retailers have, therefore, been busy trying to keep pace with all these

requirements at the same time striving to remain profitable. A tough job indeed. Not

surprisingly, most of them are paying serious attention to their products and focusing on

the various aspects of merchandise and supply chain management to give customers what

they desire - good quality at an affordable price. However, there are plenty of areas that

will need the express attention of the retailers if they want to derive the most out of their

systems and processes on merchandising and sourcing practices of large retailers in India.

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What does a carmaker have to do to succeed in his business? The most important thing

obviously is to make good cars - cars that customers want to buy. This holds true for any

business really. Companies spend enormous amounts of time, money and effort in

understanding the consumer to ensure that their offering is just right - the right product

attributes at the right price and targeting the right need with the right message.

Similarly, if you are a retailer, the first thing you want to get right is yourmerchandise.

All other aspects like ambience and customer service are definitely important but are still

secondary to the kind of merchandise offered. The decisions involved here can be quite

complex. A retail chain not only deals with thousands of customers, it also offers a wide

variety of SKUs, often more than the product range of even the largest companies. So

matching products to customer needs is not an easy task at the best of times for a retailer

and certainly the most important for long-term survival.

In an ideal world, a retailer would have the right quantity of the right merchandise in the

right place at the right time, while meeting the company's financial goals. In the lexicon

of retail, this process is termed merchandise management. There are many variables and

decision points involving goods within a retailing operation .This is where the importance

of two tools of management

Merchandise management and

Supply chain management comes into play.

Simply put, merchandise management is the act of managing the product(s) whereas

supply chain management is the act of managing the suppliers of the product(s).

Importantly, both these tools help the retailer to earn profits, which keeps his business

running.

Merchandise Management

There are two key flows here. One is the goods flow, wherein the merchandise goods

move from the manufacturer to the retail store and from there to the consumer. There are

normally a few aggregation and distribution points in between. Goods can also flow

backward if rejected. The other is the information flow. These are interlinked. The goods

flow occurs because of purchases made from the retailer by the customer on the one

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hand, and orders placed on the manufacturer by the retailer on the other. Movement of

goods creates information in the form of changes in stocks and payment.

So what is the retailer's priority in this current and counter-current of merchandise and

information? As in any other business, a retailer aims to satisfy the consumer and to

maximise financial gains at the same time. Two key elements of this are supply chain

management, which deals with the sourcing and flow of goods; and merchandise

management, which is the actual managing of goods. Managing goods implies decisions

like what to sell, how much, when, of what type and so on. Both these areas of business

optimisation encompass many activities and functions. In traditional business terms,

merchandise management includes roles of planning, purchase, sales and marketing.

Logistics includes transportation and warehousing.

While traditionally, these two areas have been treated separately, in the 1990s,

boundaries between these have increasingly blurred as retail organisations have tried to

generate end-to-end efficiencies. In fact, in most retail organisations, the supply chain

and merchandise teams have blended to bring out the best results. Let us look at the chief

areas within these two functions.

The Merchandising Function

Merchandising is, perhaps, the most important function for any retail organisation, as it

decides what finally goes on the shelf of the store. It starts with the planning function and

ends with the review function. There are several questions that the retailer needs to

answer while undertaking merchandise planning:

Which planning procedure do I need to adopt - how do I organise my merchandise to

facilitate planning?

What pricing strategy to adopt?

Which brands to stock - do I need to go in for private label or should I stock external

labels?

How do I know whether my planning has been successful or not?

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How do I dispose off slow moving goods?

The robustness of the retailer's merchandising process is dependent on how well he can

determine each of the above parameters. We take a brief look at each of these aspects.

Importance of Supply chain in retail

The modern retailing in India is booming and India can position itself as a lead player in

Asia, if the retail sector here attains the competitive strengths by responding to the

Changing Markets. Spelling out the strategy for efficient management of Supply Chain,

by 2010 the supply chain must be highly focused and differentiated. "In today's highly

competitive environment, as companies are under intense pressure to reduce costs,

expand into new markets and develop new products, every manufacturer's supply chain is

expanding and becoming increasingly complex. However, complexity is not the enemy to

the supply chain effectively managing complexity can be a manufacturer's greatest

asset," Experts from the retail business affirmed that the current retail boom in India can

only sustain its momentum if supply chain Management is given the top priority by the

retail players.

The supply chain has a key role to play in the expansion and profitability of many

companies, but it has rarely been adapted to meet the new demands placed upon it. The

critical differentiating factors that synchronize across the entire global supply chain

are Collaborating with customers, rather than only with suppliers. Also, Undertaking

customer profiling, customer loyalty and customer segmentation initiatives and

increasing performance through managing products and introducing new products are

vital in the changed scenario.

In India the retail sector is the second largest employer after agriculture and is highlyfragmented. It predominantly consists of small independent, owner managed shops.

There are some 12 million retail outlets in India. InterestinglyA. T Kearney Global Retail

Development Index 2004 places India as the second amongst the emerging markets in the

world. Studies indicate that organized retail will grow from a 2% of the total retail

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industry to a significant 20% by the end of the decade the retail sector currently growing

at a rate of 8.5%.

It has been seen internationally that development of modern retail formats is directly

linked to the level of development of local economies. In India this is beginning to

happen, but has a long way to go. There are certain bottlenecks in the supply chain in

Indian retail segment that fragment the whole market are structure of organization,

Infrastructure lacuna and absence of effective use of Information Technology. These core

issues are currently impeding the growth of retail sector in India from reaching at par

with the world-class operations.

The Indian retail sector potential is too vast to be ignored for long. The major challenges

for retail sector in India are manifold. To meet these growing challenges the Terms and

definitions related to trading such as retailing, wholesaling, direct selling, multilevel

marketing etc should be aligned, with internationally accepted norms.

Changing face of banking in retail

With a jump in the Indian economy from a manufacturing sector, that never really took

off, to a nascent service sector, Banking as a whole is undergoing a change. A larger

option for the consumer is getting translated into a larger demand for financial products

and customisation of services is fast becoming the norm than a competitive advantage.

With the Retail banking sector expected to grow at a rate of 30% players are focusing

more and more on the Retail and are waking up to the potential of this sector of banking.

At the same time, the banking sector as a whole is seeing structural changes in regulatory

frameworks and securitisation and stringent NPA norms expected to be in place by 2004means the faster one adapts to these changing dynamics, the faster is one expected to gain

the advantage. In this I try to study the reasons behind the euphemism regarding the

Retail-focus of the Indian banks and try to assess how much of it is worth the attention

that it is attracting.

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Potential for Retail in India:

The Indian players are bullish on the Retail business and this is not totally unfounded.

There are two main reasons behind this:-

Firstly, it is now undeniable that the face of the Indian consumer is changing. This is

reflected in a change in the urban household income pattern. The direct fallout of such a

change will be the consumption patterns and hence the banking habits of Indians, which

will now be skewed towards Retail products. At the same time, India compares pretty

poorly with the other economies of the world that are now becoming comparable in terms

of spending patterns with the opening up of our economy. For instance, while the total

outstanding Retail loans in Taiwan is around 41% of GDP, the figure in India stands at

less than 5%. The comparison with the West is even more staggering.

Another comparison that is natural when comparing Retail sectors is the use of credit

cards. Here also, the potential lies in the fact that of all the consumer expenditure in India

in 2001, less than 1% was through plastic, the corresponding US figure standing at 18%.

But how competitive are the players

The fact that the statistics reveal a huge potential also brings with it a threat that is truefor any sector of a country that is opening up. Just how competitive are our banks? Is the

threat of getting drubbed by foreign competition real? To analyze this, one needs to get

into the shoes of the foreign banks. In other words, how do they see us? Are we good

takeover targets?

Going by international standards, a large portion of the Indian population is simply not

bankable taking profitability into consideration. On the other hand, the financial

services market is highly over-leveraged in India. Competition is fierce, particularly from

local private banks such as HDFC and ICICI, in the business of home, car and consumer

loans. There, precisely lie the pitfalls of such explosive growth. All banks are targeting

the fluffiest segment i.e. the upwardly mobile urban salaried class. Although the players

are spreading their operations into segments like self- employed and the semi-urban rich,

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it is an open secret that the big city Indian yuppies form the most profitable segment.

Over-dependence on this segment is bound to bring in inflexibility in the business.

What about the foreign giants

The foreign banks have identified this problem but there are certain systematic risks

involved in operating in the Retail market for them. These include regulatory restrictions

that prevent them from expanding their branch network. So these banks often take the

Direct Selling Agent (DSA) route whereby low-end jobs like sourcing or transaction

processing are outsourced to small regional layers. So now on, when you see a loan mela

or a road show showcasing the retail bouquet of an elite MNC giant, you know that a

significant commission earned out of any such booking gets ploughed back to our own

economy. Perhaps, one of the biggest impediments in foreign players leveraging the

Indian markets is the absence of positive credit bureaus. In the west the risk profile can

be easily mapped to things like SSNs and this information can be publicly traded. PAN is

a step in this direction but lot more work need to be done. What has been a positive step

towards this is a negative file sharing started by a consortium of 11 banks. However, as a

McKinsey study points out actual write-offs on NPAs show a strong negative correlation

with sharing of positive information. On top of this, the spend-now-pay-later credit

culture in India is just not picking up. A swift legal procedure against consumers

creating bad debt is virtually non-existent. Finally, the vast geographical and cultural

diversity of the country makes credit policy formulation a tough job and it simply cannot

be dictated from a Wall Street or a Singapore boardroom! All these add up to the

unattractiveness of the Indian retail market to the foreign players.

So over the past few years, in spite of the entry of MNCs in many industries, Retail

Banking has seen a flurry of panicky exits. Fewer than 40 remain in India and their share

of total bank assets currently 7.2% is falling. Those that remain might be thought to be

likely buyers of Indian banks. Yet Citibank, HSBC and Standard Charteredall in India

for more than a century, and with relatively large retail networksseem to have no

pressing need to acquire a local bank. Established foreign banks have preferred to take

over customers or businesses from other foreign banks that want to leave. Thus HSBC, in

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recent years, has acquired customers from France's BNP, Germany's Deutsche Bank and

Japan's Bank of Tokyo-Mitsubishi. ABN Amro took over Bank of America's retail

business.

So all for the keeping thenThis will perhaps be the most wrongful inference that can be drawn from the above. One

just cannot afford to look inwards and repeat the mistakes that were the side effects of the

Nationalization of the Banking System. A growing market can never be an alibi for lack

of innovation. Indian banks have shown little or no interest in innovative tailor-made

products. They have often tried to copy process designs that have been tested, albeit

successfully, in the West. Each economic culture has its own traits and one who

successfully adapts those to the business is the eventual winner. A case in point is the

successful implementation of micro-credit networks in Bangladesh. Positioning a bank as

a tech-savvy financial vendor in a country where Internet penetration is an abysmal

1.65% can only add to the over-leveraging as pointed out earlier. The focus of the sector

should remain in macroeconomic wealth creation and not increasing the per capita

indebtedness that will do little but add to the NPA burden. Retail Banking in India has to

be developed in the Indian way, notwithstanding the long queues in front of the teller

counters in the Public sector banks!

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Food retailing in India

In a country where there are grocery shops at every street corner and a vegetable & fruit

vendor near each bus stop, how can organised retail of food become feasible? To counter

the unbeatable advantages of convenience of a hop, skip and a jump access and home

delivery, organised retailers seem to have just one option - offer attractive prices to the

consumer.

A successful retailer's winning edge will therefore come from sourcing - how best it can

leverage its scale to drive merchandise costs down, increase stock turns and get bettercredit terms from its vendors. There are obvious and hidden areas where costs can pruned

and the benefits of this lower cost of retailing can be passed on to customers as lower

prices, which in turn should fuel demand. One way of trimming costs is if the pressure

points in the long, often unnecessary, supply chain for produce and staples can be

identified and suitably dealt with. This is easier said than done. The food supply chain in

India is full of inefficiencies - a result of inadequate infrastructure, too many middlemen,

complicated laws and an indifferent attitude. In this chapter, we take a look at some of

these issues.

Digest this. India is one of the largest producers of milk, fruits and vegetables in the

world. Yet, the organised food retail business in the country is among the least

developed. The irony is not so difficult to comprehend if one looks at the Indian food

chain. From the farm to the store, the links are too many and full of problems.

A large chunk of fresh fruits and vegetables is lost due to lack of post-harvest

handling, storage and processing facilities.

Tonnes of grains are wasted due to improper handling and storage, pest infestation

and poor logistics management.

Intermediaries or 'middlemen' gobble up a large portion of the earnings which should

go to the farmer.

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Not only that, these middlemen cause delays which in a business of perishable goods

can be lethal. The result is a chain stuffed with inefficiencies.

For organised retail of food to be successful, it is important to get rid of these

inadequacies so that costs are pruned and, more important, the benefits of the gains are

passed on to the consumer.

India has seen rapid developments in several areas, most notably in incomes,

demographic shifts to younger populations and reach and exposure to media and different

cultures. Indians shell out up to 53 per cent of their incomes on food. Food consumption

has been rising at an average annual rate of about 10 per cent in nominal terms.

However, the retailing of food and staples has remained largely unchanged. Over 90 per

cent of all produce is sold via the wet markets with organised business accounting for just

2 per cent of food and staples retailing.

Although the organised players, which emerged in the late 1990s, have established

themselves quite firmly in the local markets, they have yet to make an impact on a

national level. Subhiksha is large in Chennai and has just started working its way through

Tamil Nadu whereas Margin Free operates in Kerala. FoodWorld has been the more

adventurous of the three - having ventured into more than one state - but is concentrated

in the south.

While most observers have accepted the role of large format organised retail in clothing

and lifestyle markets, there are still some lingering doubts on how organised retail will

perform in the foods and grocery segment in India. The underlying issue is - can

organised retail in food and grocery compete with the 'mom-and-pop'stores, which offer

the unbeatable advantages of convenience of access - you are sure to find one less than

half a km from your house - and home delivery.

Subhiksha, for example, works on a formula of one store every 1.5 km (although it

started off with one store every 2 km). So these stores expect the customer to travel a bit

or plan their shopping in advance. What will make the customer do that?

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Organized retail essentially can look to offer one or more of the following - better range

of merchandise, better ambience or lower prices working on economies of scale. Of

these, the last is what the large chains have focused on since it is something that a one-

store operation cannot match. Subhiksha started off as a discounter - even its stores are

designed to keep overheads low. FoodWorld and Nilgiris seem to be treading a middle

path - some amount of discounting combined with some effort at ambience.

Looking at the trends in the last 2-3 years, discounting appears to be the direction where

food retail seems to be heading and we believe that a successful national chain will be a

discounter. While a discounter needs to keep store overheads low, its winning edge

comes from sourcing - how best it can leverage its scale to drive merchandise costs down,

increase stock turns and get better credit terms from its vendors.

There are obvious and hidden areas where costs can pruned and the benefits of this

lower cost of retailing can be passed on to customers as lower prices, which in turn

should fuel demand. One way of trimming costs is if the pressure points in the long,

often unnecessary, supply chain for produce and staples can be identified and

suitably dealt with. This chapter takes a look at some of these issues.

Challenges before organized retailing

Retailing as an industry in India has still a long way to go. To become a truly flourishing

industry, retailing needs to cross the following hurdles:-

Automatic approval is not allowed for foreign investment in retail.

Regulations restricting real estate purchases, and cumbersome local laws.

Taxation, which favours small retail businesses.

Absence of developed supply chain and integrated IT management.

Lack of trained work force.

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Low skill level for retailing management.

Intrinsic complexity of retailing rapid price changes, constant threat of

product Obsolescence and low margins

The retailers in India have to learn both the art and science of retailing by closely

following how retailers in oth

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Growth of Retail Marketing in India

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