Indian Retail - in a Nutshell

After information technology & outsourcing, retail is going to be the next big thing in India. Experts are predicting a gigantic shift from unorganized to organized retail. So, Indian retail is sitting at the threshold of a total makeover. At this critical juncture – this article gives a brief overview about past and present of Indian retail and then tries to find out what the future has in store.

The Past

The history of Indian retail dates back to ancient days when small scale retailers used to carry their offerings to the village fairs and weekly markets. These fairs used to be more of a community gathering for enjoyment than for buying and selling. Still, fair amount of sales used to generate good revenue for those small scale retailers who used to sell their products in those early-day markets.

With changing times, society became more organized and sophisticated. Business and trade started growing. As an integrated part of this, retailing also came into picture in the form of small neighborhood stores. They sell all daily necessary commodities from grocery to all other house-hold needs. With time, they have grown not only in numbers but also in product portfolios. They are still the heart and soul of Indian retail business.

Only in recent years Indian consumers got the taste of shopping malls and super markets. The basic differences of these shopping malls & super markets from traditional mom & pop stores are that –

• They are much bigger in terms of size & product assortment and

• They are far more organized in terms of both infrastructure as well as operations.

Supermarkets, hyper markets, departmental stores, specialty stores, discount stores and convenience stores are all basically modern day retail stores.

The Present

v Current Scenario:-

• Till date, Indian retail industry is very much fragmented. Most of Indian retail stores are small (floor space less than 500 square feet) mom & pop stores and they are located near residential areas.
• According to Indian Retail Report 2007 – in the calendar year 2006 organized retail business was worth $12.4 billion which was 4.6 % of $270 billion Indian retail industry.
• Food & grocery sector forms the largest block of Indian retail market. Clothing & apparel sector comes next. But surprisingly, “time-wear” segment is the most organized segment with nearly 46% of the segment being organized.

v Major Indian Players:-

· Biggest player in organized retail in India is Future Group, headed by ‘King of Indian Retail’ Kishore Biyani. Major retail ventures by Future Group have been – apparel stores Pantaloons, hypermarket Central, discount stores Big Bazaar, exclusive food market Food Bazaar etc. Futurebazaar.com is the latest Internet Retail venture from Future Group. Recently US based office supplies retail chain Staples has tied up with Pantaloon Retail for a joint-venture in India.

· The TATA Group is also having ambitious plans in retail. Under their retail arm Trent Limited, they already have a strong retail presence through apparel stores West Side, hypermarket Star India Bazaar and “time-wear” chain TITAN. In late 2006 they announced the formation of – Infiniti Retail to spearhead their operations in consumer electronics and durables sector. For this, Infiniti has tied up with Australian retail giant Woolworths who will help in all back-end operations in their consumer electronics retail shops named Croma.

· Raheja Group is another major player with apparel stores Shoppers’ stop, hypermarket HyperCity and bookstores Crossword. Recently UK’s leading home & general merchandise retailer Home Retail Group has tied up with Raheja Group to launch its Argos retail format stores in India.

· Other prominent organized retail players in India include – RPG Group’s Spencer’s, Giant & Music World, no-frills discount chain Subhiksha, footwear major Bata among others.

· India’s largest private sector enterprise - Reliance Industries Limited has started its maiden retail venture in 2006 in the form of Reliance Retail Limited. They have already rolled out several food retail outlets under the brands ‘Fresh’ & ‘Select’ and focusing primarily on the lucrative agro-retail sector. With huge investment plans and the aim to expand rapidly to gain a pan-India presence, Reliance surely has the ability to revolutionize Indian retail.

v Major Global Players:-

• In single-brand retailing, up to 51% FDI (foreign direct investment) is allowed in India. Today, Indian consumers have access to a gamut of international brands, like – Adidas, Nike, Reebok, Levis, Pepe, Tommy Hilfiger, Marks and Spencer, Pizza Hut, KFC, McDonald’s et al. and the number is increasing everyday.
• As per regulations, multi-brand retail chain owned and controlled by foreign companies is not permitted in India. This is why foreign retailers entering India are doing so through indirect routes like local franchise partner and wholesale distribution.
• Germany’s Metro AG & Australia’s Woolworths are already operating in India through whole-sale “cash & carry” model.
• In November 2006, Bharti Group (of Airtel fame) has tied up with Wal-Mart (world’s largest retailer) for their joint retail venture in India. As per the FDI norms Wal-Mart will be able to participate only in back-end operations like Supply Chain Management, Logistics etc and Bharti will take care of the front-end retailing.
• Carrefour, Tesco, Costco and many other leading international retailers are also in talks to enter India.

The Future

v Opportunities:

• Organized retailing in India is projected to grow at the rate of about 37 per cent in 2007 and 42 per cent in 2008 and by 2010 it would be around $45 billion.

• Indian GDP is growing at the rate of around 9% next only to China. This translates to more disposable income at the hand of the consumers. They are also willing to spend for quality products. Traditional mindset of “Save Now, Enjoy Later” is changing to “Right Here, Right Now”. Burgeoning middle-class with increasing income and spending is surely going to bring smiles in the face of retailers who can serve to consumers’ palates.

v Challenges:

• In India, most people do their day-to-day shopping in neighborhood stores and this habit is not going to change overnight. But almost all major Indian cities are already very much congested. Moreover, real estate costs are also sky-rocketing. Hence, establishing large retail stores in a proper location is going to be a major headache for the big daddies of retail.
• India is a vast country with huge cultural and socio-economic differences between different regions. So, a company cannot apply ‘one size fits all’ kind of game plan to the whole country. Many global retail Big-Wigs are lately entering Indian market. For them, understanding of the local market & behavior of Indian consumers and then synchronizing their business model is not going to be an easy task.
• India scores very poorly in terms of trained professionals for retail industry. With increasing demand, the situation will become more deplorable if serious initiative is not taken immediately for developing quality skilled man-power.
• Infrastructure will become a major impediment to growth of any emerging industry in India if not taken care of immediately.

v Focus Areas:

• The 4 P’s of Marketing – product, price, placement and promotion plays a significant role in any business worldwide and Indian retail industry is going to be no exception.
• Global business paradigm is shifting from products to consumers and retail being a consumer centric business – importance of Customer Relationship Management will only increase with time.
• Along with the products, Indian consumers are also becoming concerned with service. The success story of Multiplexes and Malls speaks for this. So, “in-store ambience and experience”, “customer delight”, “loyalty programs”, “value-added services” et al. will become key differentiators between “market leaders” and “also ran” companies.

• Till date, most of the global brands in India have catered to only high and middle-high income groups. But most of Indian consumers are having incomes much lesser. This bottom of pyramid layer is what retailer should target to enhance their bottom line as well as top line. “Discount Stores” model, adopted by most of the leading global retailers, shows that in retail “volume growth” is much more important than “higher margins. The success story of Subhiksha & Big Bazaar clearly indicates that Indian retail story is going to be nothing different.
• Indian retail industry is still in puerile state in terms of - Supply chain management, logistics & distribution and usage of technology. With the advent of global retail giants, this situation should change rapidly.
• Private brands and Internet Retailing has the potential to become winning weapons for retailers.

v The Road Ahead:

All major national as well as international players are heading towards the booming Indian retail industry. All are eager to get the largest pie and hence competition is growing by leaps and bounds. Experts are unanimous that - in this ever-increasing competition – Consumers (famously called God in retail) will ultimately decide the destiny of belligerent retailers. This implies, retailers, who will be able to analyze customer trends better and satisfy them better by providing value added products and services is going to have the winning smile in the long run. All said and done, it is for sure that - whoever becomes the winner in this war of retail titans – Indian consumers are the ones who are definitely going to be benefited with better and better offerings.

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