Organized Retail and
FDIKnowledge Session 1
What is organized retail ?
Branded stores (Usually Part of a chain)
Modern Infrastructure and Technology
Self Service
Types of Organized retail Supermarkets & Convenience stores Department Stores Hypermarkets Cash and carry Specialty stores Single brand Exclusive stores Discount Stores/Factory outlets
Retail in India
Organized retail is 6% but growing fast
Global range: 2% in Pakistan 35% Brazil 55% Malaysia 85% USA
Small Unorganized family run retail stores
Organized Retail in India
Future group Pantaloon, Big Bazaar, food bazaar, eZone etc
Reliance Reliance Fresh, Trends, Jewels etc
RPG Spencer's
Aditya Birla More
Cash and Carry Metro AG, Bharti Wal-Mart
Retail and India
Food and Groceries – 60%
Clothing and Footwear – 9-10%
Furniture and Appliances – 5-6%
Indian Retail Key Issues
Low sales per outlet Rs 1000 – 1200 per day Rural Rs 7000 – Rs 8000 per day Urban
Low productivity of Labor 6% of USA levels
Long Supply chain 5 to 6 intermediaries Vs 2-3 in USA/Europe
Inefficient supply chain Poor infrastructure – Roads, Storage etc Low percentage of processed food
Indian Retail Key Issues
Over regulated industry Antiquated APMC restricts farmers choice
Multiple taxes State VAT, Central CST, Octroi etc
Archaic labor laws Regulate shift timings, holidays, contract
labor etc
High Real estate costs Cost of real estate in Cities is very high
Organized Retail in India
High potential Urbanization and growth of middle class Increase in % of working women Exposure to modern retail experience (Malls) Increased demand for branded/Processed
food High growth in turnover
Still on learning curve Supply chain, Technology, Mgt practices Real estate cost, Manpower quality, theft etc Mounting losses
FDI in retail
Current scenario
100% FDI in Cash and Carry
51% in Single brand stores
Proposal to allow 100% in Single brand and 51% in multi brand retail
Current Status: on Hold
Potential impact Infusion of cash for cash Intensive business
Infusion of technology and practices Boost to supply chain and logistics Cold storages and processing units Will require change in APMC
Partnership with Indian players Local knowledge and global expertise
Boost to Indian Suppliers 30% sourcing from Indian SME Sourcing from India for global operations
Potential impact
Impact on urban small retailers Loss of business and potential closure FDI allowed in 51 cities
Farm to fork Better prices for farmers, consumers Reduced losses in transport & Storage Contract farming Technology sharing with farmers
Is it a good thing? For Farmers
Should get better prices Impact may be limited to Medium/Large farms Better seeds, technology and farm practices Multiple options for farmers Loss of bio diversity
For Small retailers Loss of business, but most will survive Impact high in proximity to Modern stores Will have to adapt and might need support
Is it a good thing?
For consumers Better prices, larger variety, Better shopping
exp Convenience for Working families Would increase consumption expenditure
Purchase of processed food, impulse items
For Manufacturers 30% rule would benefit SME’s Large manufacturer’s margins squeezed
Is it a good thing?
Employment Loss of unorganized sector jobs at small retail Creation of organized sector jobs Net Growth in employment if Consumption Inc Additional jobs in supply chain/Food
processing
Government Higher tax revenues through organized retail May boost agri exports from India
Conditions Apply APMC act needs to be amended
GST would simplify taxation
Investment in Roads/infra required etc
It is long term game Don’t expect results in 2-3 years Wal-Mart and co will go slow at first
Politics may still derail the plan Opposition states and Some Allies oppose The JV’s would not operate in such states