Presentation

On

Retailing: Present & Future

Part 1 -Analyze till 2008

Presenter:Presenter:

Baldeep MannBaldeep MannMonte Carlo Fashions Ltd.Monte Carlo Fashions Ltd.

Indian EconomyIndian EconomyIndia is the fourth largest economy in terms of Purchasing Power Parity.India is the second country having more than 1 billion population and population growth rate is 1.6 %Indian GDP growth is 8.90 % in the current year and projected 8 % constant growth for next fifteen years.Indian Textile Sector accounts for over 14% of the Industrial Production. Textiles industry contributes 14 per cent to industrial production, around 17 per cent to the total export earnings.Currently India has a 3.5-4 per cent share in world export of textiles and 3 per cent in clothing exports. Textile exports increased from around US$ 14 billion to US$ 22 billion in 2007-08 which will be around US$ 40 billion in 2010.Readymade garments exports from India are expected to touch US$ 14.5 billion by 2009-10.The total investment in the textiles and clothing industry during 2007-08 amounted to US$ 16.32 billion and touch US$ 32.14 by 2012.Textile industry provides direct employment to over 35 million

8.90%9.0%

6.8%6.0%6.0%

5.6%5.2%

6.4%6.6%

5.4%

9.2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Indian GDP Growth…Indian GDP Growth…

Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail…

Re

al G

row

th R

ate

India Experiencing Rapid India Experiencing Rapid Economic GrowthEconomic Growth

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

GD

P (

US

$ b

n)

Real

Gro

wth

Rate

Growth in Per Capita IncomeGrowth in Per Capita Income

With the increase in inflation rate PCI is also increased.

With High Private ConsumptionWith High Private Consumption

GDP US$ 935 billion

Private ConsumptionUS$ 580 Billion

(62%)

Public Spending and Capital Formation

US$ 355 Billion (38%)

Retail US$ 342 Billion

(59%)

Non RetailUS$ 238 Billion

(41%)

Urban (5,100 towns) US$ 154 Billion

(45%)

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

(55%)

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

Modern retail Negligible

Food

Apparel

Beverages

Footwear

Consumer durables

Appliances

Stationery

Kitchen utensils

Furniture

Furnishings

Sports goods

Health & Beauty

Personal Care

Jewellery

Timing

Transport

Communication

Recreation

Cultural Services

Education

Rent

Utilities

Other Services

What is Retail…Retail Philosophy — “By The People, For The People and Of The

People”Retailing involves selling products and services to consumers for their individual or family use. As the final link between consumers and manufacturers, retailers are a vital part of the business world. Retailers add value to products by making it easier for manufactures to sell and consumers to buy.The Indian Retail Sector can be broadly classified into—

Indian Retail Sector

Food Retailers

Health & Beauty Products

Home Furniture & Household

Goods

Clothing & Footwear

Durable Goods

Leisure & Personal

Goods

Growth Of Indian Retail Growth Of Indian Retail ……

Indian Retail expected to grow by over 9% p.a. in the next 10 years

Retail in IndiaRetail in India

Over 12 million outlets in India

95% of outlets are smaller than 500 sq ft

Indian retail space per capita at 2 sq ft/ person is lowest in the world

Indian retail density of 6% is highest in the world

Highest number of outlets per person (7 per thousand)

Most of the fragmented markets in the world.

The share of organized retail is very small approximately 3% of the total retail market

The size of modern retail is about US$ 12 Billion and has grown by 35% in last five years

85% 81%

55%40% 36% 30%

20% 20% 3%

0%

20%

40%

60%

80%

100%

US Taiwan Malaysia Thailand Brazil Indonesia Poland China India

Traditional Channel Modern Channel

Current Channels : Organized Current Channels : Organized Retail Retail

Retailing Formats in IndiaRetailing Formats in India

Malls:The largest form of organized retailing today. Located mainly in metro cities, in proximity to urban outskirts. Ranges from 60,000 sq ft to 7,00,000 sq ft and above. They lend an ideal shopping experience with an amalgamation of product, service and entertainment, all under a common roof. Examples include Shoppers Stop, Pantaloon.

Discount Stores:As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in bulk reaching economies of scale or excess stock left over at the season. The product category can range from a variety of perishable/ non perishable goods EBO’s:Chains such as the Ludhiana based Monte Carlo, the Mumbai books retailer Crossword, RPG's Music World and the Times Group's music chain Planet M, are focusing on specific market segments and have established themselves strongly in their sectors.

Department Stores:Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs. Further classified into localized departments such as clothing, toys, home, groceries, etc.

Hypermarkets/Supermarkets:Large self service outlets, catering to varied shopper needs are termed as Supermarkets. These are located in or near residential high streets. These stores today contribute to 30% of all food & grocery organized retail sales. Super Markets can further be classified in to mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.

Convenience Stores:These are relatively small stores 400-2,000 sq. feet located near residential areas. They stock a limited range of high-turnover convenience products and are usually open for extended periods during the day, seven days a week. Prices are slightly higher due to the convenience premium.

MBO’s :Multi Brand outlets, also known as Category Killers, offer several brands across a single product category. These usually do well in busy market places and Metros. For examplef Monte Carlo

Consumption Will Shift Towards Consumption Will Shift Towards Lifestyle & Health Oriented Lifestyle & Health Oriented

CategoriesCategories

Share of basic categories like F&G will fall from 62% in 2007 to 54% in 2017

 

Market

Size US$ billio

n 2007

% Shar

e 2007

Growth

rate

(2007-12)

Market

size US$ billio

n 2012

% Shar

e 2012

Growth

Rate

(2012-17)

Market

Size US$ billio

n 2017

% Shar

e 2017

Food, Beverages & Tobacco 212.0 62% 8% 307.3 58% 7% 430.9 54%

Personal Care 15.4 5% 8% 22.6 4% 8% 33.2 4%

Apparel 26.4 8% 12% 45.5 9% 10% 73.2 9%

Footwear 3.4 1% 9% 5.3 1% 8% 7.7 1%

Furniture & Furnishings 10.3 3% 13% 18.5 3% 11% 31.2 4%

CDIT 15.4 5% 12% 26.5 5% 9% 40.8 5%

Jewellery & Watches 13.7 4% 12% 23.6 4% 10% 38.0 5%

Medical Care & Health Services 34.2 10% 13% 61.6 12% 12% 108.6 14%

Recreation 0.6 0.2% 15% 1.3 0.2% 24% 3.8 0.5%

Others 10.6 3% 11% 17.5 3% 13% 32.2 4%

TOTAL 342100.0

%11.9

% 530 100%11.4

% 800 100%

Retail Share Of Different Retail Share Of Different Categories Categories

Retail Market : Rural/Urban Retail Market : Rural/Urban SplitSplit

Almost half of retail market in 2007 is in rural India; although share of urban market is increasing by almost 5% every 8-10 years.

Market % SplitUrban 45%Rural 55%

Retail Market : Rural SplitRetail Market : Rural Split

Rural India consists of 720 Million consumers across 627,000 villages.

17% of these villages account for 50% of the rural population and 60% of the rural wealth implying reaching out to almost 100,000+ villages to address even 50% of this rural opportunity.

Leading Players : Turnover Leading Players : Turnover

 Name US $ Million

Future Group (Pantaloon) 600

Shoppers Stop 400

Landmark (Lifestyle) 150

Trent 75

Subhiksha 210

Vishal Mega Mart 220

The above analysis does not include the specialty retailers like Bata, Titan and Tanishq

Current Features: Scenario of Current Features: Scenario of Indian Retail IndustryIndian Retail Industry

Creation Of Large Retailer Creation Of Large Retailer Brands Brands

At the mass market, most Indian consumers are brand-blanked through aspiring for brands (that can denote quality, trust, value)

Most major new entrants will start with heavy proportion of Private Labels, and will probably use branded goods to demonstrate the price – value imbalance between such branded goods and their private labels.

Creation Of Large Retailer Creation Of Large Retailer BrandsBrands

National brands have following opportunities to collaborate with big retailers:

Category Captainshi

p

Collaboration

Co-Branding

Key Account

Management

The manufacturer

manages a product

category for the retailer. The retailer

benefits from the

manufacturer’s expertise in

their categories.

Developing a brand

exclusively for a retailer

enabling the retailer to offer

unique products /

offers to the customer and

saving marketing costs

to the manufacturer.

Develop a new product co-

branded with the retailer’s

brand and treated as a private label

by the manufacturer

saving marketing costs and building retailer equity.

Due to the importance of the retailers

(referred to as ‘accounts’),

the manufacturer

appoints a manager for

each account.

Modern - The Emergence of Vertical Silos

Consumers(Shop in one store)

Stores of FewChains(Supplied by chain RDC)

DistributionCentres

SuppliersBranded Suppliers supply some chains. P/L Suppliers supply to single chain

Big Bazaar Big Bazaar HypercityHypercity RelianceRelianceReliance Bharti - Wal-Mart

Monte Carlo

Consolidation of Retailer Base& Direct Sourcing

New Distribution Paradigm New Distribution Paradigm Logistics …

New Genre Of DistributionNew Genre Of Distribution Emergence of Wholesale Retailers:

A significant amount of retail investment is likely to be in wholesale formats (Cash & Carry)

Historically these (C&C) formats are known for efficient supply chains

In India the format has enhanced the reach – All Under One Roof, easy accessible format for upcountry retailers

Increasing the value of Point Of Sale, POS, remarkably.

Cooperative ownership has potential :

Farmers/producers owned such as Spar, GCMMF etc.

Consumer owned such as Sahakari Bhandar, Apna Bazar etc.

Diminishing Impact Of Mass Diminishing Impact Of Mass MediaMedia

The stagnating affect of the mass media Exposure of about 340 advertisements

a week Remarkable growth in number of new

programs & channels, the number of News Channels has grown 3 times in last 4 years.

Key Trends Impacting The Key Trends Impacting The Market….Market….

Urbanization? How rapid is it going to be? What is the likely impact on consumption

and its growth/trends?

Changing family structures? What is the future family structure? How is it going to impact shopping

behavior? How is it going to impact the spending

power and hence consumption?

Demographic Changes? What would be the demographic structure

of India in next 5, 10, 15 years? How is it going to impact shopping

behavior? How is it going to impact the spending

power and hence consumption?

1 Billion+ Population In The 1 Billion+ Population In The World’s Youngest Country World’s Youngest Country

At 24 years, India has the lowest median age of population in the world

50% of India’s population is less than 25 years & 70% is less than 35 years.

24

31

3639

30

3937

44

38

44

0

5

10

15

20

25

30

35

40

45

India USA China Russia UK

2000

2025

Median Age of Population (in years)

Proportion of Young Population

(< 25 years)**

India 53%

China 42%

Indonesia 30%

USA 30%

Brazil 29%

Japan 27%

Germany 26%

Increasing number of people in working population, increasing number in retail spending.

In View Of The Rapidly In View Of The Rapidly Expanding Spend Categories…Expanding Spend Categories…

1. Food and Grocery2. Clothing3. Footwear4. Consumer

durables 5. Home linen6. Movies and

theatre7. Eating out

19911991

1. Shopping as Hobby2. Food and Grocery3. Clothing4. Footwear5. Consumer durables 6. Expenditure on DVDs and VCDs7. Home linen8. Home accessories 9. Accessories10. Gifts11. Take-away/ Pre cooked / RTE

meals12. Movies and theatre13. Eating out14. Entertainment parks15. Mobile phones and service16. Household help17. Travel packages 18. Club membership19. Computer Peripheral & Internet

Usage

20082008 20172017

1. Shopping & Shopping2. Food and Grocery3. Clothing4. Footwear5. Consumer durables 6. Expenditure on DVDs and VCDs7. Home linen8. Home accessories 9. Accessories10. Gifts11. Take-away/ Pre cooked / RTE

meals12. Movies and theatre13. Eating out14. Entertainment parks15. Mobile phones and service16. Household help17. Travel packages 18. Club membership19. Computer Peripheral & Internet

Usage20. ???21. ???22. ???23. ???

The above categories account for 80% of consumer spending

Two-faced Indian Consumers…Two-faced Indian Consumers… Seeking upgradation in some categories & value in

the others! Key issue for any retailer is to identify the

“upgrades” and “value-focused” product categories to rationalize the product mix and maintain healthy margins

Consumer SpendsConsumer SpendsGroceryApparel

Eating Out

Upgrading Mobile phones

Housing Automobiles

DurablesEducation

Seeking cheaper options

Future Of India RetailFuture Of India Retail

About US$ 800 Billion Retail About US$ 800 Billion Retail Market By Market By 20172017

GDP* US$ 2,175 billion

Private ConsumptionUS$ 1,305 Billion

(58%)

Public Spending and Capital Formation

US$ 646 Billion (42%)

RetailUS$ 800 Billion

(61%)

Non RetailUS$ 505 Billion

(39%)

UrbanUS$ 400 Billion

(50%)

RuralUS$ 400 Billion

(50%)

Modern retail – US$ 165 billion 41% of urban retail spends

Modern retail – US$ 35 billion 9% of rural retail spends

*All figures are in nominal terms after taking into account inflation

Rapid Transformation Rapid Transformation AnticipatedAnticipated

Current Size & Future Projections for Indian Retail Market

342 373 408 445 486530

800

12 18 26 39 59 87

200

0100200300400500600700800900

2007 2008 2009 2010 2011 2012 2017

US$

Bill

ion

Total Retail Organized Retail

25% share

It may reach a share of 25% by 2017

16% share3.5% share

Retailer Brands Will Offer Retailer Brands Will Offer Formidable CompetitionFormidable Competition

*Numbers estimated based on available information and expected investments by top retailers.**FMCG & Personal Care for Own Label is across categories, whereas for brand leader is only for one category.

Turnover Comparison*: Leading Retailer Label vs. Brand Leader - 2012

12000

1800 1500

3500

650 9002000

3500

500

4000

1500

501000

6000

0

2000

4000

6000

8000

10000

12000

14000

ConsumerDurables

FMCG&Personal

Care

Apparel &Acc,

HomeFurnishing

Pharmacy Footwear Furniture

Brand Leader Leading Retailer

Demand Generation Through Demand Generation Through Supply Of SpaceSupply Of Space

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012

Mn S

qft

Additional Shelf Space Created Space Required

The retail space created will increase the secondary demand

Consolidation And Hyper Consolidation And Hyper CompetitionCompetition

Maximum action is going to be in top 50-60 urban markets.

There could be 4 categories of “survivors” emerging in 5-7 years:

Large players with deep pockets Intelligent niches / super-specialities Regional players who may merge or

partner with each other Only a few of the existing national

players may remain in business profitably.

Big Retailers will become bigger and will leverage the channel to their benefit

Future Market Share of 50 Big Future Market Share of 50 Big PlayersPlayers

Year 2013Market Share in Top 150

Cities*

Total Market 100%

Share of Top 7 Players

31%

Share of Next 43 8%

Share of Top 50 Players

39%

Urban / Rural Share Of Urban / Rural Share Of InvestmentsInvestments

Lion’s share of investments directed to urban, though it may change

Break-up of Expected Investments in Indian Retail in Next 6-7 Years

Urban93%

Rural7%

Rapid Transformation Rapid Transformation Anticipated In Next 5-7 YearsAnticipated In Next 5-7 Years……

Retailer Estimated* Investment(US$ Billion) by 2013

Estimated Turnover(US$ Billion) by

2014

R1 6.0 + 25 +

R2 4.0 + 15 +

R3 2.5 + 10 +

R4 2.0 + 10 +

R5 2.0 + 7 +

R6 2.0 + 6 +

R7 2.0 + 5 +

R8 1.5 + 2 +

R9 – R50 14.0 + 30 +

Total $ 36.0 + Billion $ 110 + Billion

City-wise Share Of InvestmentsCity-wise Share Of Investments

Top 24 cities (type A and above) expected to attract 62% of urban investments

Format-wise Share Of Format-wise Share Of Investments In Indian RetailInvestments In Indian Retail

Majority of investment slated for hypermarkets and supermarkets

Format-wise Break-up of Expected Investments in Indian Retail in Next 6-7 Years

Hypermarkets33%

Other Formats26%

Department Stores2%Warehouse /

Cash & Carry6%

Supermarkets33%

* Other formats include specialty stores in Apparel, Footwear, Watches, Furniture & Furnishing, Toys, Convenience formats etc.

60% of the decisions are made at Point of Sales – Moment of Truth

Implication:

Point ofSales

Point ofPurchase Decision

Point ofBrand Building

Point ofService

TODAY TOMORROW

Increasing Power Of POS Increasing Power Of POS Emergence of POS, Its now POS = Point Of

Everything

Large Retailers V/s Large Large Retailers V/s Large BrandsBrands

The top – 5 retailers by 2013 are likely to have private label scale by volume and value – for many consumer product categories – comparable with the total size of many consumer product companies

Limited chance for companies whose brands are not the top 1 or 2: they will be forced to “buy” shelf space at greatly increased margin for the retailer thereby eroding their own profitability

Consumer Durables, Electronics and Lifestyle brands likely to be the only ones remaining somewhat immune to the challenge from retailers’ brands

Implications….Implications….

Profile of the Indian consumer is changing and so are the aspirations and buying behavior.

Consumer understanding and consumer orientation will be one of the key drivers of future success.

Implications – Branded Goods Implications – Branded Goods CompaniesCompanies

Value growth going to be under pressure in 2008, and severely constrained from 2009 onwards barring a very select few.

Reduced pricing power for most companies other than top-branded consumer electronics / entertainment firms.

Increased pressure on margins.

Potential changes in sales & distribution organization structure & emerging conflict.

Implications – Suppliers.…Implications – Suppliers.…

Better market access and lower distribution cost.

Better environment for new product / packaging trials, understanding consumer behavior.

More efficient supply chain management; “farm to fridge” concept.

Opportunity for co-branding with retailers.

Overall increase in consumptions, which is win-win for all stakeholders in the long run.

To Conclude.….To Conclude.….

Better market access and lower distribution Better market access and lower distribution cost.cost.

Better environment for new product / packaging Better environment for new product / packaging trials, understanding consumer behavior.trials, understanding consumer behavior.

More efficient supply chain management; “farm More efficient supply chain management; “farm to fridge” concept.to fridge” concept.

Opportunity for co-branding with retailers.Opportunity for co-branding with retailers.

Overall increase in consumptions, which is win-Overall increase in consumptions, which is win-win for all stakeholders in the long run.win for all stakeholders in the long run.