CHAPTER I
INTRODUCTION
INTRODUCTION TO IMPLICATION OF ORGANIZED RETAIL
SECTOR IN INDIA
The India Retail Industry is the largest among all the industries, accounting for over 10 %of the country’s GDP and around 8 %of the employment. The Retail Industry in India has come forth as one of the most dynamic and fast paced industries with several players entering the market. But all of them have not yet tasted success because of the heavy initial investments that are required to break even with other companies and compete with them. The India Retail Industry is gradually inching its way towards becoming the boom industry.
The total concept and idea of shopping has undergone an attention drawing change in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retailing has entered into the Retail market in India as is observed in the form of bustling shopping centers, multi-storied malls and the huge complexes that offer shopping, entertainment and food all under one roof.
A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be the key factors in the growth of the organized Retail sector in India. The growth pattern in organized retailing and in the consumption made by the Indian population will follow a rising graph helping the newer businessmen to enter the Indian retain industry.
In India the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in
turn will help the India Retail Industry to grow faster. Indian retail is expected to grow 25 %annually. Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20%per year. The future of the India Retail Industry looks promising with the growing of the market, with the government policies becoming more favorable and the emerging technologies facilitating operations.
Many Indian companies have entered the retail industry in India and this is also a factor in the growth of Indian organized retail sector. Reliance Industries Limited is planning to invest US$ 6 billion in the organized retail sector in India by opening 1500 supermarkets and 1000 hypermarkets. Bharti Telecoms is planning a joint venture worth £ 750 million with Tesco a global retail giant. Pantaloons are planning to invest US$ 1 billion in order to increase its retail space to 30 million square feet. Such huge investments are also a factor in the growth of the organized retail sector in India.
Global retail giants are also entering the retail industry in India and this is also one of the factors in the growth of the organized retail sector in India. The global retail giants who are entering the organized retail sector in India are:
Wal- Mart
Tesco
Carrefour SA
The factors for growth in Indian organized retail sector are many and that the reason behind its massive growth. But for this to continue both the Indian retailers and the govt. will have to work together.
India may or may not be the largest democracy in the world but it can safely be described as the leading ‘retail democracy’. At 6 %, it has the highest retail density with 12 million small shops catering to 209 million households EY (Ernst and Young 2006). Unlike in developed countries and in many of India’s developing counterparts, the Indian retail trade is largely unorganized and highly fragmented in nature, operating in a ‘low cost and small size’ format – including as it does the local ‘kirana store’1 as well as street vendors – and has traditionally been an occupation carried out mainly by these small entrepreneurs spread across the length and breadth of the country.
As per the Economic Census 2005, the number of enterprises engaged in retail trade that year was estimated at 14.95 million, of which rural and urban India accounted for 7.79 million and 7.16 million entities respectively (CSO 2005). Given the labour-intensive nature of the Indian economy in general and the informal economy in particular, the latter employing around 93 % of the total labour force of the country, more than half of which (52.5%) comprises self-employed people, the retail industry is the second largest employer (agriculture being the first) and is the source of livelihood for some 27.6 million people who constitute 7.3 % of the total labour force (NSSO 2005-06). Although Indian retail is dominated by small unorganised entities that are perceived to have inadequate financial and infrastructural capacities, it accounts for roughly 10 % of the gross domestic product (GDP) of the country.
The Indian retail industry has been thrown open to foreign majors and is packed with players who strive to offer great products and value-for-money to Indian consumers.
The country holds vast promise for retailers with its burgeoning spending power and rising middle class.
The US$ 500 billion market, growing at an annual rate of about 20 per cent, is largely dominated by small shops and stores as of now. The organised segment is in its nascent stage and has huge potential to harness in the sub-continent. Foreign giants like Wal- mart and IKEA have recently received the Government’s nod to enter the Indian market, after making all the necessary compliances.
Market Size
India’s retail market is majorly dominated by the unorganised sector. Organised segment accounts for 8 %of the total retail landscape, according to a study by Booz & Co and RAI.
The Indian retail industry has expanded by 10.6 %between 2010 and 2012 and is expected to increase to US$ 750-850 billion by 2015, according to another report by Deloitte. Food and Grocery is the largest category within the retail sector with 60 %share followed by Apparel and Mobile segment.
The foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to December 2012 stood at US$ 95.36 million, as per the data released by Department of Industrial Policy and Promotion (DIPP).
Theories of Retailer Strategies and Related Hypothesis.
Very few examples for the strategic behavior of the organizations within the retailing industry have been discussed from the perspective of structural contingency in the literature review. Most of these studies have focused on a particular sector (e.g., grocery shops) while determining the generic strategic types post hoc with the use of inductive methodologies (e.g., clustering).
In the US, there has been a study on strategic behavior of the grocery store sectors using inductive approach; later, Lewis and Thomas have performed the same with UK grocery stores. In the first study, generic product marketing was assessed with the use of retail/marketing dimensions. Furthermore, this study by Hawes and Crittenden didn‘t focus much on actual strategic direction of the firms. in the second study the link between strategy and performance has been assessed based on dimensions of retailer structure such as size and number of stores and dimensions of resource allotment such as expenses with respect to store promotion. it was identified from this study that in the UK grocery industry, there are different types of strategic behavior. However, these types are not homogenous within groups.
Marketing strategies of small and independent retailers in the United States have been assessed. It was concluded that the marketing strategic behavior of the firm could extremely influence the performance of the firms. Among these studies, only Lewis and Thomas focused on the corporate strategy-oriented factors and their influence on the performance of retailing firms.
Based on the typologies given by Miles, snow and Mintzberg the retail strategies have been compared by Segev. It was identified from this study that the typology given by
Miles and Snow is more suitable for studies than Mintzberg typology that generates data in a simulated retail environment. In this study the author gathered data from computer simulated retail firms. This study proved the efficiency of Miles and Snow typology in describing retail strategy in a controlled environment. However, it‘s ability to explain the same in an original retail context remains unknown. The theories of retailing are commonly recognized as the primary retail evolution theories. The basic premise of these theories is that a force (e.g., environment, conflict) causes a retail institution type to change and evolve into a new institution type or a new institution type will emerge as a result of need, conflict or other forces.
Following are the retail theories:
A. Wheel of Retailing Theory
Figure 3.2 the Wheel of Retailing theory is an example of retail evolution determined through the price aspect. It is marketing process whereby original low-price discounters upgrade their services and gradually increase prices. As they evolve into full-line department stores, a competitive opportunity develops for new low-price discounters to develop, and the process continues with the next generation.
Wal-Mart is a classic example of this theory. K-Mart deserves credit for having created the category that has challenged traditional department stores. Wal-Mart took it to new heights. It is clear that Wal-Mart is even now setting itself up for the 75 entrance of an entirely new form of retailing: an innovative, more cost-effective, new entrant. Many retailing innovations are partially explained by the Wheel of Retailing concept. The Wheel of Retailing concept states that new types of retailers usually begin as low margin, low-price, low-status operations, but later evolve into
higher-they replaced. According to this concept, new types of retailing forms challenge established retailers that have become ‘fat’ by letting their costs and margins increase. The new ‘retailers’ success leads them to upgrade their facilities and offer more services, increasing their costs and forcing them to raise prices. Eventually the new retailers become like the conventional ones they replaced, and the cycle begins again when still newer types of retail forms evolve with lower costs and prices. The Wheel of Retailing concept seems to explain the initial success and later troubles of department stores, supermarkets, and discount stores and the recent success of off-price retailers. To be successful, retailers of the future will have to choose target segments carefully and position themselves strongly. Essentially, retailers can no longer sit back with a successful formula. To remain successful, they must keep adapting to the changing scenario.
Criticisms
1. Not all retail institutions start with low margins and low prices. (E.g: boutiques
2. Lack of universality of the theory. (Example, In Turkey, supermarkets were imported and positioned as a retailer providing high price and high margin products at the entry phase).
3. The consecutive cycles support evolution of retail formats in a particular order.
B. Retail Accordion Theory
This is a theory of retail institutional change that suggests that retail institutions go from outlets with wide assortments to specialized narrow line store merchants and
then back again to the more general wide assortment institution. It is an example of retail institutions‘ evolution in terms of product assortment.
Criticisms
1. Small specialty retail institutions tend to resist expansion of their merchandise lines
2. Only retailers, who can withstand competition and have the financial resources to respond and react, evolve through this theory.
3. When a retailer has business partners and is bound to them with contracts and regulations, retail evolution is limited.
4. The theory focuses on merchandise assortment, which is only one aspect of retail evolution.
5. Lack of experimental or causal research to support the theory.
C. Dialectic Theory
Gist (1968) replaced the ―situation from Karl Marxs‘ Theory of Evolution with a‖ “retail institution” in the Dialectic theory. He proposed that an existing retail institution is challenged by its competitor because it has competitive advantages over the existing retail institution. As time passes, the first retail institution imitates the characteristics of competitor to upgrade its existing characteristics and creates a new retail institution. According to him, the discount store is a synthesis of department stores and wholesale stores. Discount, stores offer a variety of products in one place by dividing the store into many departments and selling directly to the final consumer
reduced prices and limited services (i.e., characteristics of wholesalers). According to the theory, when introduced into retailing in the 1950s, discount stores were considered a new institution type created by blending these two retail institution types.
Criticisms
1. Original retail institution types may not change.
2. What retail operations and how these operations interact between two retail institutions and how anew operation is finally created are difficult to explain in a discrete step-by-step process.
D. Environmental Theories
The common concept is that the retail environment is the key influence to retail changes, and to survive change and competition, retail institutions need to evolve by adapting or adjusting to the environmental changes (Blizzard, 1976; Brown, 1987; Gist, 1968; Oren, 1989).This theory proposes that only a retail institution, which is most effectively adapted to environmental changes could survive. Variables such as consumers, economy, technology, and competitors and social, cultural, and legal conditions exist in every environment and a retailer must be able to adapt to the dynamic changes occurring within the environment. Across countries, environment variables affect retailers at various levels and thus have significant bearing on retail change and evolution.
Criticisms
1. Environmental changes are not synonymous with required retail evolution. Retail institutions are not legally required to be evolved, even when their environments change.
2. Researchers could not confirm that all retail evolutions followed the pattern that the Environmental theory proposed. Some environmental influences, which significantly influenced on some retail evolutions, could be a non-significant influence to other retail evolutions.
OBJECTIVE OF STUDY
To study the growth rate of Indian retail industry.
To study various opportunities and threats in Indian retail sector.
To study various impacts of F.D.I policy of Indian government in retail industry.
SCOPE OF STUDY
Table 1: Scope of study
India is witnessing an unprecedented consumption boom. The economy is growing between 7 and 8 % and the resulting improvement in income dynamics along with factors like favorable demographics and growth in aspirational consumption are the drivers. Retailing in India is currently estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 or US$ 6.4 billion. Organized retail is expected to grow at 25-30 p.a., and is projected to attain US$ 23 billion by 2010. At these levels, organized retail would constitute up to 9 of overall retail sales.
Segment Market Size (Rs. Crore)
Textiles and clothings 300
Jewellery 400
Consumer Durables 350
Footwear 600
Food and personal care 450
Non-Store retail 375
Luggage, watches and tyre 500
The following key aspects manifest and characterize India's
resurgence
Indian technology industry has grown by over 30% per annum for almost 2 decades starting in early 1990s.
55th round of the National Sample Survey states that the Indian middle class (23% of total population) accounts for about 42% of the total consumption expenditure of the country.
These, and several other factors, have created a burgeoning middle class which are leading to a broad based demand for life-style products and services.
The retail landscape of the country is changing at a rapid pace with malls and multiplexes mushrooming in all major cities1. In fact, having reached a substantial capacity at Tier-I locations, the organized retail revolution is now percolating to Tier II and III cities2. Retail has clearly been witnessing a transformation from neighborhood-shopping to the concept of malls and family entertainment centers. Entertainment and experience are becoming integral parts of shopping.
Global industry analysts have often confirmed the country's potential as one of the most attractive emerging retail destinations in the world. It remains to be seen whether this promise is translated to add further depth to the Indian economy.
METHODOLOGY
The methodology used in this study is based on primary as well as secondary data. The primary data was collected from the study conducted through telephonic
interactions and personal interviews. The study examines major aspects concerned with the Organised retail sector in India. Specially structured questionnaires and interviews with students of our college and general public have been used for survey purpose.
Methods of data collection (1) Primary data
(2) Secondary data
1. Primary Data are those, which are collected fresh and for the first time and thus happen to be original in character.
2. Secondary Data are those which are being already collected by someone else & which have already been passed through the statistical process
SAMPLE SIZE: 100 DATA COLLECTION:
Sources of Primary data:
QUESTIONAIRE
Sources of Secondary data: Internet.
The retail landscape is a rapidly changing one. New entrants, new retail formats, globalization, e-commerce and rise of consumerism have had a deep impact on retailers. The retailer needs to find new and innovative ways to differentiate his
offering to the target customers. The need for strategy formulation is more pressing than ever before.
The process of strategy formulation in retail is the same as that for any other industry. It starts with the retailer defining or stating the mission for the organization. The mission is at the core of the existence of the retailer. The other aspects of the strategy may change over a period of time or may vary for different markets.
After defining the mission of the organization, an analysis of the internal strengths and weaknesses and external threats and opportunities is then undertaken to help the management decide on the best way to carry out the organization’s mission. The options which can be pursued are then examined.
Next, the management identifies the major strategic alternatives it could pursue. Markets in which the retail organization chooses to compete are then determined. Once this is determined, then the objectives. To be achieved are determined, the resources are obtained and allocated to help achieve the objectives. The strategy must then be implemented. Finally, results must be measured and evaluated to ensure that the strategy is working and any changes necessary must be effected.
It describes what the retailer wishes to accomplish in the markets in which it chooses to compete. A retailer’s mission statement would normally highlight the following elements:
The products and services that will be offered.
The customers who will be served.
The geographic areas that the organization chooses to operate in.
The manner in which the firm intends to compete in its chosen markets.
STEP 2: ANALYZE SITUATION
Once the mission has been defined, the retail organization needs to look inwards and understand what its strengths and weaknesses are and at the same time, look outwards and analyze the opportunities and threats, which may arise in the environment. For this experts use SWOT analysis, BCG matrix and PEST analysis.
STEP 3: IDENTIFY ALTERNATIVES
For tapping a particular market the retailer needs to consider the various alternatives available to him.
STEP 4: SET OBJECTIVES
The objectives are a translation of the mission statement into operational terms. The management normally sets both long-term and short term objectives. Two areas, which are important for retailers, are market performance and financial performance. Examples include:
Market Share Targets
Retail Expansion Targets
Profitability Targets
Liquidity Targets
STEP 5: OBTAIN AND ALLOCATE THE RESOURCES
The resources that a retailer needs are human as well as financial. Financial resources take care of the monetary aspects of the business, like shop rent, salaries and payments for merchandise. Human resources are just as vital to the success of a retail operation as are financial resources and physical facilities.
STEP 6: DEVELOP THE STRATEGIC PLAN
At this stage, the retailer determines the strategy by which he will achieve the objectives set forth. The target market is defined and the retail mix that will serve the audience is finalized.
STEP 7: IMPLEMENTATION OF STRATEGY
The key to the success of any strategy lies in its implementation. To implement a firm’s desired positioning effectively, every aspect of the store must be focused on the target market. Merchandizing must be single-minded; displays must appeal to the target market; advertising must talk to it; personal must have empathy for it; and customer services must be designed with the target customer in mind.
CONCEPTUAL FRAMEWORK
DATA ANALYSIS
The Growth Factors of the Retail Sector of Indian Economy
Increase in per capita income which in turn increases the household consumption
Demographical changes and improvements in the standard of living
Change in patterns of consumption and availability of low-cost consumer credit
Improvements in infrastructure and enhanced availability of retail space
Entry to various sources of financing
The infrastructure of the retail sector will evolve radically. The emergence of shopping malls is going steady in the metros and there are further plans of expansion which would lead to 150 new ones coming up by the year 2008. As the count of super markets is going up much faster than rate of growth in retail sector, it is taking the lions share in food trade. The non-food sector, segments comprising apparel, accessories, fashion, and lifestyle felt the significant change with the emergence of new stores formats like convenience stores, mini marts, mini supermarkets, large supermarkets, and hyper marts. Even food retailing has became an important retail business in the national arena, with large format retail stores, establishing stores all over India. With the entry of packaged foods like MTR, ITC Ashirbad, fast foods chains like McDonald's, KFC, beverage parlors like Nescafe, Tata Tea, Café Coffee and Barista, the Indian food habits has been altered.
of the Transnational Companies (TNC), the Indian retail sector will confront the following round of alterations. At present the Foreign Direct Investments (FDI) is not encouraged in the Indian organized retail sector but once the TNC'S get in they would try to muscle out their Indian counterparts. This would be challenging to the retail sector in India. Retail and real estate are the two booming sectors of India in the present times. And if industry experts are to be believed, the prospects of both the sectors are mutually dependent on each other. Retail, one of India largest industries, has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market. Accounting for over 10 %of the country GDP and around eight %of the employment retailing in India is gradually inching its way toward becoming the next boom industry. As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex- malls and huge complexes offer shopping, entertainment and food all under one roof, the concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. This has also contributed to large-scale investments in the real estate sector with major national and global players investing in developing the infrastructure and construction of the retailing business. The trends that are driving the growth of the retail sector in India are
Falling real estate prices
Increase in disposable income and customer aspiration
30% 27% 7% 5% 5% 26%
Mall Distribution space in India Delhi & NCR Mumbai Hyderabad Pune Bangalore Tier II cties
Figure1: Retail sector spread in india
Another credible factor in the prospects of the retail sector in India is the increase in the young working population. In India, hefty pay packets, nuclear families in urban areas, along with increasing working-women population and emerging opportunities in the services sector. These key factors have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the preferences of life -Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more. With this the retail sector in India is witnessing rejuvenation as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. The retailing configuration in India is fast developing as shopping malls are increasingly becoming familiar in large cities. When it comes to development of retail space specially the malls, the Tier II cities are no longer behind in the race. If development plans till 2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities. The government of states like Delhi and National Capital Region (NCR) are very upbeat about permitting the use of land for commercial development thus increasing the availability of land fo
retail space; thus making NCR render to 50% of the malls in India. 10%13% 2% 11% 21% 43%
Retail space distribution in Delhi,NCR
Delhi Noida Greater nodia
Faridabad Ghaziabad Gurgaon
Figure2: Retail space distribution in Delhi,NCR
2008-09 2009-10 2010-11 2011-12 1. Food & grocery 66.4 62.5 61.7 59.6
2. Beverages 2.0 2.7 3.1 3.6
3. Clothing & footwear 7.3 8.8 8.6 9.3
4. Furniture, furnishing, appliances & services
4.8 5.8 6.2 6.8
5.Non-institutional healthcare 9.0 8.6 8.5 8.0
6.Sports goods, entertainment, equipment & books
2.0 2.4 2.6 2.7
7. Personal care 3.5 3.8 3.9 4.2
8.Jewellery,watches, etc. 5.0 5.4 5.4 5.9
Total Retail 100.00 100.00 100.00 100.00
Table 2: India Retail - Share of Categories (per cent)
India is being seen as a potential goldmine for retail investors from over the world and latest research has rated India as the top destination for retailers for an attractive emerging retail market. India vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Even though India has well over 5 million retail outlets, the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by
changing lifestyles, burgeoning income and favorable demographic outline.
DATA COLLECTION AND ANALYSIS
0 5 10 15 20 25 30 35
A distinctive feature of organized retailing in India is that it is largely an urban phenomenon so far. Organized retail has been more successful in cities, more so in the south and west of India. The reasons for this regional variation range from differences in consumer buying behavior to cost of real estate and taxation laws.
More than 80% of our survey respondents indicated that the largest opportunity for modern retail is in the urban centers, specifically metros.
While several respondents agreed that from a potential retailing perspective, all regions had significant latent demand. However, the adverse cost equation in serving rural markets is a key issue preventing rapid retail growth in non-urban centers.
RETAIL MARKET OPPORTUNITY IN INDIA
Since the retail market in india is highly unorganised therefore there is large opportuity of getting retail business from the metro city because of the living standard of people has been upgraded due to increase in real income. This has increase the purchasing power of people.
Also with the facilities available in the metro city attracts people from smaller towns or areas with the aim of getting settle here and earning a good income. This has increased the pressure on metro city which has increased the retail opportunities in metro city.
METRO CITY; 70% SECOND TIER TOWNS; 20%
RURAL AREAS; 10%
Chart Title
OPPORTUNITIES FOR THE ORGANIZED RETAIL SECTOR IN
INDIA
1. India’s booming economy is a major source of opportunity. It is the third largest in the world in terms of purchasing power. India is the second fastest growing major economy in the world.
2. India's huge population has a per capita income of Rs 44,345.
3. The proportionate increase in spending with earnings is another source of opportunity
4. With the Indian economy now expected to grow at over 8% and with average salary hikes of about 15%, manufacturers and retailers of consumer goods and services can expect a major boost in consumption.
5. The Demography Dynamics are also favourable as approximately 60 %of Indian population is below the age of 30.
6. Increasing instances of Double Incomes in most families coupled with the rise in spending power.
7. Increasing use of plastic money for categories relating to Apparel, Consumer Durable Goods, Food and Grocery etc.
8. Increased urbanization has led to higher customer density areas thus enabling retailers to use lesser number of stores to target the same number of customers. Aggregation of demand that occurs due to urbanization helps a retailer in reaping the economies of scale.
9. With increased automobile penetration and an overall improvement in the transportation infrastructure, covering distances has become easier than before. Now a
customer can travel miles to reach a particular shop, if he or she sees value in shopping from a particular location.
Analysis of Retail Industry of India
Strengths:
Weaknesses:
1) Organized retailing at US$ 3.31 billion, growing at 8%.
2) 2nd largest contributor to GDP after agriculture at 20%.
3) Pattern of consumption changing along with shopping trends.
4) Consumer spending increasing at 11% annually.
5) Almost 25 million sq. ft. retail space available.
6) Paradigm shift in shopping experience for consumers pulling in more people.
1) Shortage of quality retail spaces at affordable rates.
2) Government regulations on development of real estate(Urban Land Ceiling Act)
3) Need to provide Value for Money-squeezing margins
4) Lack of industry status.
5) Retail revolution restricted to 250 million people due to monolithic urban-rural divide. 6) Lack of huge investments for expansion
Opportunities:
Threats:
1) Increasing urban population-moreparticipants in retail revolution. 2) Increase in consuming middle class population.
3) Social factors, like dual household income has enhanced spending power. 4) Spends moving towards lifestyle products and esteem enhancing products. 5) Average grocery spends at 42% of monthly spends-presents a huge
opportunity.
6) Increase in use of credit cards.
1) Rising lease/rental costs affecting project viability.
2) Poor monsoons and low GDP Growth could affect consumer spending drastically.
3) Archaic labor laws are a hindrance to providing 24/7 shopping experience.
4) Personalized service offered by Kirana stores.
5) Unavailability of qualified personnel to support exponential growth in retail.
6) Differentiate taxation laws hindering expansion
22 12 9 8 5 3 2 4 2
Chart Title
Figure5:Organised retail penentration across categories(%)
The consumer durables market can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners (A/Cs). The existing size of this sector stands at an estimated USD 4.5 Billion with organized retailing being at 4.2%.
The organized retail penetration (ORP) is the highest in footwear with 22% followed by clothing. Though food and grocery account for largest share of retail spend by the consumer at about 76%, only 4% of this market is in the organized sector. However, it has been estimated that this segment would multiply five times taking the share of the organized market to 30% in the coming years.
GROWTH IN WORLD RETAIL MARKET
A look at the graph above shows that the Asian markets are considered attractive for retail. India is being placed on the radar by the USA and UK. Global giants like Tesco and Walmart are experimenting with various options to enter India. One possibility for Walmart would be to open Sam's club wholesale business through a joint venture and sell strictly to other retailers. This strategy skirts the issue of not being able to sell directly to customers and establish a strong presence in the local market. On the other hand, Tesco is planning to get into a partnership with Home Care Retail Mart Pvt. Ltd expecting to open 50 stores by 2010. The government is taking gradual steps in allowing the FDI into Indian retail, when it takes the final steps the peak time will quickly pass giving the existing players a distinct edge.
Asia Europe Mediterrian America Africa
0 10 20 30 40 50 60 2004 2005 2006 2007
RETAIL SALES IN INDIA
Organized retailing was worth Rs 23,000 crore in 2003 and is growing at a rate of 25-30 %annually. By 2010, organized retailing will be valued at Rs 70,000 crore and will engage 10 %of the total retail market.
Like in the case of clothing category, which holds 36 %share of the organized retail basket, key players are widening their distribution outlets besides using current retail outlets as a B2B avenue.
Arvind Brands plans to push the retail presence of Newport jeans, the once top-selling mass-market denim brand priced at Rs 399, from 1,200 outlets across 480 towns to 3,000 outlets covering 800 towns by the end of this financial year. Similarly, Ruf 'n Tuf, Arvind's entry-level jeans will ride piggyback on the retail boom spearheaded by Big Bazaar. Ruf 'n Tuf has an exclusive distribution arrangement with Big Bazaar. Besides having a B2C arrangement in Big Bazaars, Ruf 'n Tuf will also use this premise for B2B business where small retailers in small towns can come and buy our apparel in bulk.
Moreover, premium apparel brands are playing by the ear. Even Pierce Brosman's own apparel brand is planning a retail foray to woo metropolitan India. Reid & Taylor Retail Pvt Ltd currently has 40 exclusive stores and plans to set up 70 such stores by 2008 end. Nevertheless, like most industry-related seminars, India Retail Summit also wound up with a positive outlook. The next two-three years will see $200 million investment for retail expansion nationwide, which will result in 15-20 hypermarkets, 25-30 large department stores, 25-30 large supermarkets, 750 small- and medium-sized supermarkets, and 1,500 brand chains.
FDI IN RETAIL
A look at the rural retailing
More than half of retail market in India is in the rural areas (55%); although share of urban market is increasing by almost 5% every 8-10 years . Accommodating almost two-third of the country's consumers and generating almost half of the national income, the rural India offers tremendous opportunities for organized retailers which many companies have failed to access. According to the study conducted by NCEAR, the number of `lower middle income' group in rural areas is almost double as compared to the urban areas, having a large consuming class with 41% of the Indian middle class and 58% of the total disposable income.
IMPORTANCE OF RURAL MARKETS
The rural market accounts dose to 70% of toilet-shop users.
38% of all two-wheelers are purchased by the rural consumers.
The rural market accounts for half the total market for TV sets, fans, pressure cookers, bicycles, washing shops, blades, tea, salt and toothpowder,
The market for GMCG products is growing much faster than urban counterpart.
A look at the demographics reveals that the highest income levels households in the rural areas are 1.6 million as compared to 2.3 million in urban areas. It has also been forecasted that the middle and the higher income households are expected to grow to 111 million by 2008 from the current levels of 80 million. Thus, it can be said that
with 128 million households, the rural population is nearly three times the urban. This vast demand base and size offers a huge opportunity that MNCs cannot afford to ignore.In order to meet with this rapid growth in demand the government has shown its concern by providing an induction of Rs.140 billion and Rs. 300 billion in the rural sector through its development schemes in the Seventh and the Eight plan respectively. The large players like ITC, HLL, BPCL are realizing the potential of this sector and are seen experimenting with new ways to tap this segment. ITC spent 3 years and Rs. 80 crore on r&d to come up with the concept of E-choupal and Choupal Sagar-rural hypermarkets 18. Through this, the farmers can access latest local and
global information on weather and market prices, scientific farming techniques at the village itself through a web-portal - all in Hindi. E-Choupal also facilitates supply of high quality inputs as well as purchase of commodities at their doorstep. The hypermarket (Choupal Sagar) provides them with another platform to sell their produce and purchase necessary farm and household goods under one roof.
Next in line, HLL came up with Project Shakti in late 2000 to sell its products through women self-help groups who operate like a direct-to-home team of sales women in inaccessible areas where HLL's conventional sales system does not reach. Another step to tap the rural market was `Operation Bharat' wherein low-priced sample packets of toothpastes, fairness creams, Clinic Plus shampoos and Ponds face creams to 20mn households.
As a part of their rural strategy, BPCL introduced Rural Marketing Vehicles (RMVs) that move from village and village and filling cylinders on the spot for rural consumers keeping in mind the low-income of the rural population. The Company
also introduced a smaller size cylinder to reduce both the initial deposit cost as well as the recurring refill cost.
BENEFITS OF FDI
Improve competition Develop the market Greater level of exports due to increased sourcing by major players
Sourcing by Wal-Mart from China improved multifold after FDI permitted in China
Similar increase in sourcing observed for Metro in India Provides access to global markets for Indian producers
Investment in technology
Cold storage chains solve the perennial problem of wastage Greater investment in the food processing sector technology Better operations in production cycle and distribution Better lifestyle
Greater level of wages paid by international players usually More product variety
Newer product categories
Economies of scale to help lower consumer price Increased purchasing capacity of consumers Manpower and skill development
Greater managerial talent inflow from other countries Tourism Development
A strong retailing sector boosts tourism as seen from the experience of Singapore and Dubai
Investment in whole supply chain
Improved product basket from India for exports Long term benefits
Up-gradation of agriculture
Development of efficient small and medium size industries Increase employment levels
FDI would result in market growth and expansion Employment generated at various levels
Increased consumer demand implies employment generation across the value chain
Does not need very high skill sets
Needs high school graduates and other similar skill levels Currently this is a major unemployed demographic group Boom in employment
Similar to job generation in ITES industry On a much larger scale
But new jobs comparatively lower down the value chain
presence of global retailers will further enhance exports from India as they would also source Indian goods for their international outlets in a big way leading to a remarkable increase in Indian export
Challenges & Answers
The most important issue facing the Indian retail industry is that it has not been recognized as an industry by the government. The main implications of this are: Absence of a single nodal agency:
Retail does not fall under the purview of any specified government ministry.
Operational Hurdles:
The industry players often need to comply with several requirements of government agencies.
Dearth of established funding norms:
Small operators often access private money markets at substantially higher rates. Even established developers need to access funds via tenuous process and routes from financial institutions.
Most of the entry models described above poses problems like information leakage, brand image concerns, non-adherence to standards etc.
Thus, international retailers like Walmart, Carrefour, et al continue to await the final approval to FDI in the sector to enter the Indian market on their own.
ANALYZE VARIOUS STRATEGIES ADOPTED BY RETAIL GIANTS TO LURE INDIAN CUSTOMERS.
According to Assocham, the overall retail market would grow by 36 %with the organised sector expected to register three-fold growth to Rs 15,000 crore by 2008. The total size of the market is also expected to increase to Rs 14,79,000 crore from the current level of Rs 5,88,000 crore.
FACTORS WHICH ATTRACTS PEOPLE TOWARDS SHOPPING MALLS. Shopping malls are the place which offers lots of things to people which attracts them. Most important is the discount offered. Company outlets offers huge discounts on items to attract customer, for example KOUTONS. Also outlets in shopping malls are spacious enough to give good display for the products, for example RELIANCE DIGITAL. Parking is always an important issue for the customers. People who are not alone or with kids prefer to go for shopping to those place where they find easy availability of foods and playing arena for children so that they can enjoy their shopping better, for example EDM.
3% 5%
10%
70% 12%
once in two months once in a month
twice or more in a month once a week
own pattern
Figure 7: Frequency of visiting a shopping Mall.
FREQUENCY OF VISITING A SHOPPING MALL.
Frequent visit malls In Delhi and NCR region it is very hard to find free time for people to visit a mall. Therefore mostly people visit malls in weekends. Some people have their own pattern for visiting a mall, they visit any time they want as per their work schedule. There are people who like to make their shopping once in months to save time and money as bulk purchasing is done by them. Some people just for spending the time.
THE STRATEGIES The distribution
Modern trade operates to a completely different set of rules. Given its superior bargaining power, it can negotiate better margins, wider product ranges and more frequent, speedier deliveries.
For manufacturers, then, it makes sense to have a separate team servicing these outlets, working full-time to ensure both parties profit equally from the transactions.
One way of doing that is by persuading retailers to route their purchases through suppliers' existing distribution networks. That's because for the supplier, selling directly to the retailer works only if the order size is large enough.
To their credit, most large retailers are willing to accept such an arrangement. Their only condition: orders must be filled on time. Modern stores maintain lower inventories than traditional retail - nine days for Hyper city and less than two weeks for Food Bazaar, compared to over three weeks for most kiranas -and losses due to a stock out are far more significant, for both the manufacturer and the retailer.
Retail analysts say on-time order replenishments will become even more critical once the Wal-Mart/ Bharti combine begins operations - the American retailer works almost entirely on cross-docking and is likely to demand higher service levels, including potential levies for delays in shipment.
Meanwhile, manufacturers have to also keep their traditional distributors satisfied - a tough task, considering they offer modern trade more concessions and better promotions than their general trade partners.
Hindustan Lever is working around that by involving family grocers, chemists and wholesalers in custom-made programmes that offer them targeted promotions, value deals and also build relationships through training sessions, newsletters and meetings. "General trade will continue to be the focus of all FMCG companies that want to grow.
For its part, Cadbury India has changed the rules for all its customers (retailers). It has created a menu-based approach - issues covered include prompt payment, efficiency and business building initiatives - that is common to all retailers, big and small.
A couple of years ago, it also started the Purple Star programme for traditional retailers, where it tailors promotions and schemes for selected stores. "There is no differential treatment between retailers.
RELIANCE FRESH
The much awaited entry of Reliance Industries into retail has finally happened-with the opening of the first set of its pilot reliance fresh stores ,11 in Hyderabad and 5 in Delhi-NCR region. This is the first step tin their attempt to build strong relation with millions of farmers and transform their relationship with consumers.
Strategies:- Providing fresh vegetables and fruits in very competitive price.
The main strategy that has been followed by Reliance is to open Reliance fresh outlets with in a radius of three to four Kms. In order to serve larger section of the population.
Aggressive pricing is one of the major strategies followed by Reliance in order to compete effectively against traditional mom-n-pop outfits.
Reliance retail is planning to provide parking space with car servicing facility in the mall itself.
SHOPPERS STOP
The main strategy that the shoppers stop is been following is that to gain customer Delight is that they are offering Citizen card to the customers who purchases above Rs 1000 and the points are been added to that card which can be reimbursed in the further purchases.
All in one roof experience with hassle free experience.
THE TATA GROUP
The TATA group with interest in various consumer product categories has different companies to retail its brands. While in automobiles it operates through its distributor and dealer network, fashion and lifestyle, it operates
Through its retail arm TRENT which operates 23 WESTSIDE store in 14 cities. With its positioning being lifestyle apparel and home products.
Its strategy lies in differentiation means different companies for different brands.
For lifestyle apparel it has opened Westside to provide the service.
For consumer durables it has opened and it’s been operating by the name CROMA. It strategy is to provide all the consumer durable brands in the same roof at the most competitive manner.
SUBHIKSHA
Subhiksha a leading Chennai based supermarket and pharmacy discount chain operates on a low cost, low capital investment model.
Strategy is to provide fresh vegetables at low prices.
RPG RETAIL
RPG group was the first to get into the organized retailing business in India and expand beyond the south. RPG retail was the first to venture in to different formats and categories.
Strategy is to dominate the market with the presence in every field food world and music world to attract the customers. Being present in both entertainment and services part.
Spencer entered to operate cash and carry and discount stores.
In Spencer a day is fixed for the discount purchases, Wednesday. On this day they offer fresh vegetables at heavy discounts.
CHAPTER III
SUMMARY
India is the fifth largest retail market globally, with a size of INR 16 trn ,and has been growing at 15% per annum. Organized retail accounts for just 5% of total retail sales and has been growing at 35% CAGR. Though the journey has so far been rather mixed , organized retail is being tipped as one of the biggest gainers from growing consumerism and rising income. India’s robust macro and microeconomic fundamentals, such as robust GDP growth, higher incomes, increasing personal consumption, favourable demographics and supportive government policies, will accelerate the growth of the retail sector.
The Indian Retail sector has caught the world’s imagination in the last few years. Topping the list of most attractive retail destination list for three years in a row, it Had retail giants like Wal-Mart, Carrefour and Tesco sizing up potential partners and waiting to enter the fray.
India’s retail growth was largely driven by increasing disposable incomes, favorable demographics, changing lifestyles, growth of the middle class segment and a high potential for penetration into urban and rural markets. However, with the onset of the global financial crisis, Indian retailers have been suffering from the effects of rapid credit squeeze, high operating costs and low customer confidence.
We have structured the report broadly In three parts (1) Learning from the past (2) Consolidation (3) View on future (4) Critical issues.
1) Learning from the Past: During 2005 2007, the sector was in a hyper growth phase. In pursuit to capture market, companies made strategic as well as operational errors which has been broadly classified as follows:
i. Race for increasing retail space resulting in haphazard growth
ii. Unviable formats
iii. High lease rentals
iv. Manpower cost sand productivity issues
v. Poor backend infrastructure
vi. Entry of too many new players
2) View on future: Post consolidation, the sector is now revitalized and is poised to fully benefit from India's Next Trillion Dollar opportunity:
i. Consumer sentiment improving
ii. Same store sales rising
iii. Store additions accelerating
iv. Policy resolutions are potential upside triggers- FDI,GST, APMC, etc.
3) Critical Issues in Indian Retail: During the globals low down phase of 2007-2009, the Indian retail players paused to realize their past mistakes and took time and effort to re-organize themselves:
i.Focus on profitable growth
ii. Exit from unprofitable stores/formats
iii. Rental renegotiation/revenues haring arrangements
iv. Reduction in salaries/higher manpower productivity
v. Significant investments in backend
Industry also witnessed failures like Subhiksha and VishalRetail with many other existing players still trying to fine tune their operations.
The industry is facing a severe shortage of talented professionals, especially at the middle-management level.
Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%.
Lack of adequate infrastructure with respect to roads, electricity, cold chains and ports has further led to the impediment of a pan-India network of suppliers. Due to these constraints, retail chains have to resort to multiple vendors for their requirements, thereby, raising costs and prices.
Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network.
Government restrictions on the FDI are leading to an absence of foreign players resulting into limited exposure to best practices.
SUGGESTION FOR RETAIL REFORMS
1. Accord Industry Status to Retail : Industry status should be given to improve retail development, to facilitate organised financing and to establish insurance norms. 2. Incentives for Investments : Tax holidays norms for cold storage chains, infrastructure and investments in supply chain should be enacted.
3. Comprehensive Legislation : Comprehensive legislation should be drafted and enacted with futuristic approach.
4. Eliminating Arachic Laws : Laws, Essential Commodities Act, APMC Acts, Licensing restriction, differential taxes, stamp duties, should be simplified and put in proper place so that it would not hinder growth of retail sector. This will help in creating "Commodities Futures Markets".
5. Allow Foregin Direct Investment (FDI) in phased manner : Allow foreign direct investment in the company according to financial planning.
6. Rationalise the tax structure : The current multipoint taxation should be rationalised. Government should introduce a uniform taxation system across the country to relax the law that hinder inter state flows of goods.
7. Streamline the process of clearance
8. Encourage PPP model for infrastructural development
9. Amend the existing cumbersome labour laws: The existing labour laws needs to be amended on an urgent basis in order to support the growth the growth of organised retailing and to develop India as a sourcing hub.
10. Announce a national policy for retail: The Government should announce a National Retail Policy that allows the coexistence of both organised and unorganised retail and address issues such as sourcing, contract farming, movement of goods
across India and also defines clear cut guidelines for the functioning of retail sector in India.
11. Establishment of National Commission on Retail: The national commission on retail must be established. The function of commission should be :
a) To set clear target for giant retailers for procurement.
b) To formulate rules on entry of foreign players and compliance with social safeguards.
c) To develop cooperative stores for eradicating the problems of limited marketing d) To facilitate the way of setting up Agricultural Perishable Produce Commission for ensuring the procurement prices for perishable commodities.
12. Reduce impediments to inter state movement of goods 13. Enforce uniform quality standards
14. Setup a regulatory body for the governing the operations of retail sector
