The Changing Face of Organized Retail

&

It's Potential Impact on

Packaging Industry

Harminder Sahni
Technopak Advisors
September 1st, 2006

technopak
Size of the retail opportunity in India…

GDP US 804 Bn

Private
Public Spending and
Consumption
Gross Capital Formation US $322 Bn
US $482 Bn
(40%)
(60%)

Retail Non-Retail
US $300 Bn US $182 Bn
(62%) (38%)

The Retail opportunity in India is estimated as US $ 300 Bn.;

ranked amongst the top 10 globally

Estimate Figures
technopak
…Never the less, contribution of organized sector is
miniscule…

ƒ Only 3% of the total market

2006 Organized
Organised Retail
(USRetail
$ 9 Bn.)
3%

Unorganised
Retail

Technopak Analysis

Hence size of the untapped opportunity is huge

technopak
However, growth in this sector likely to happen at a rapid
pace…

700

600
Total Retailing Market

Organised Retailing
500
(USD billion)

(USD billion)
50
400
40
300
30
200
20

100 10
5
0
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Technopak Analysis
Total Retailing Market Organized Retail

Organised retailing in India at the point of inflection

technopak
All drivers in place to propel growth in the retail segment …

Goldman Sachs BRIC Report dated Oct. 2003

Increased demand for better shopping experience

9 Growing incomes
9 Younger Profile
9 Increasing exposure and awareness levels
9 Changing role of women and children in decision making process

Demand-side factors
technopak
All drivers in place to propel growth in the retail segment …

Increased interest among corporates

9 Large Indian business houses bullish on activity in the retail sector
9 International players keen on India entry

Improved Sourcing Options

9 Quality product from Indian producers who are already supplying to world-class retailers
9 Global sourcing increasingly viable due to liberalisation of tariffs
9 Product proliferation driven by manufacturers

Increased supply of Retail Real Estate

9 Over 600 malls being planned across the country by 2010

Supply-side factors
technopak
 As a result, various categories are likely to shape up in the
future as follows…
Market Size % Growth Market %
$billion -2006* Share Rate b/w Size Share -
2006 2010-05 $billion - 2010
Food & 2010*
Grocery Food, Beverages and 195 65% 7.0% 256 60%
led Tobacco
format
Personal Care 15 5% 11% 23 5%
Apparel 21 7% 11% 33 8%
Footwear 5 2% 11% 7 2%
Furnishings 4 1% 15% 7 2%
Consumer Durables & IT 14 5% 15% 24 6%
Furniture 9 3% 15% 16 4%

Jewellery & Watches 15 5% 12% 24 6%

Medical Care and Health 8 3% 12% 12 3%
Services
Recreation 2 0.6% 17% 3 1%
Others 12 4% 18% 23 5%
300 100% 9.0% 427 100%

Food & Grocery likely to emerge as huge opportunity

* Estimate Figures
technopak
 Hypermarkets now and ahead …

Retailer Cities Format Number of Expansion Plans*

Stores*
Big Bazaar 21 Hypermarket 30+ 80 stores by 2008; 225 stores by 2010
Spencer’s All India Hypermarkets 54 20 hypermarkets by end-2006
Star India Ahmedabad Hypermarket 2 Two more stores planned- in Mumbai
Bazaar and Bangalore
Shoppers Stop- Mumbai Hypermarket 1 to establish a network of 55
Hypercity hypermarkets across India, by 2015
Vishal Hypermarket 35 220 stores by 2010
Megamart
Reliance Retail Hyper/ None 1,000 hypermarkets
Supermarket/
All
Shoprite Mumbai Hypermarket 1 3 stores by 2008; enter cash ‘n carry
format
Metro Cash ‘n Bangalore Cash ‘n Carry 2 Set up distribution centers in Delhi,
Carry Mumbai, Hyderabad, Kolkata,
Chennai
Home Care Mumbai Hypermarket 1 Store in Bangalore by end 2006, 50
Retail India – stores over next 5 years
Magnet

* Estimate Figures of key players

technopak
 Supermarkets likely to increase…

Retailer Cities Format Number of Expansion Plans*

Stores*
Subhiksha Tamil Nadu Supermarket 164 Across Delhi, Bangalore, Andhra
Pradesh & Mumbai. 600 stores by
year end
Food Bazaar 14 Supermarket 35 Entering B-markets. 250 stores by
2009
Nilgiri’s 15 Supermarket 30 Expansion in North & West India by
end-2006
Trinethra 8 Supermarket 80 100 new stores over next 2 years

Adani Group Gujarat Supermarkets 40 65 new outlets in the next three

years
Reliance Retail Hyper/ N/A 2300 supermarkets in 3 years
Supermarket/
All
Food World South India Supermarket 44 -
Sabka Bazaar Delhi Supermarket 25 70 stores in north India, 30 in NCR

Tru Mart 5 Supermarket 11 128 stores across India;

concentration on western region

* Estimate Figures of key players

technopak
Such changes in the retail environment in India are likely to drive
growth of several ancillary & support industries in the coming
years; one such Industry would be the packaging Industry

technopak
Contribution of packaging in the F&G Sector…

ƒ Depiction of a typical cost split

ng
si
rti
os e

n
C Adv
t

os i o
os

os

rh g

C rtat
ds
ve tin
C

ts
&

ea
O era
n

os
g
tio

in

sp
tin

C
ag

s
p
uc

an

xe
O
t

ke

er
en
ck
od

Tr

Ta
ar

th
R
Pa
Pr

O
M
30 10 6 12 20 6 4 12

Indexed Numbers (Estimates)

technopak
 Impact on the packaging industry as a result of growth of
organized retailing…

ƒ Example of Milk – evolution across retail formats

Modern Format
with aseptic
packs
Traditional
Convenience Store
with plastic
packaging
Loose milk at
Milk Booth

Loose milk at traditional

Milk Dairy

technopak
Factors driving growth in the packaging Industry in India…

Milk Type Used for Home Preparation (Metros)

100%
90%
80% Others
Condensed milk
70%
UHT milk
60% Milk powder
50% Bottled Milk

40% Packet Milk

Cow Milk
30%
Buffalo Milk
20% Toned milk
10%
0%

a
es
m

e
er

e
r
r
e

i
d

a
ss

ee
tte

av
es
fe
he
ur

ea

Te
ne

ak
La

of
Kh

m
Bu

he
C

cr
Pa

sh
C

a/
C
e

ilk

oy
Ic

Kh
Technopak Analysis

High consumer acceptance & usage of packaged milk

technopak
Factors driving growth in the packaging Industry in India…

ƒ With changing lifestyles, RTE category has been evolving

ƒ 16% penetration in Nuclear families

60

50
% of the population

40 North
East
West
30
South

20

10

0
Everyday Once a 2-3 times Once a Once a < once a Less Never
month Fortnight
week Month Month frequently
Technopak Analysis

Growing acceptance of processed & convenient food

technopak
Factors driving growth in the packaging Industry in India…

ƒ Consumer expectations have increased

ƒ Lifestyle changes, i.e. presentation and

aesthetics is important

“Package graphics and presentation quality

figure as the most powerful influences in
purchasing decision”

[Source : Point of Purchase Advertising Industry in the US (POPAI )]

Hence packaging can play a greater role in facilitating

impulse purchase of such items

technopak
Factors driving growth in the packaging Industry in India…

ƒ Carrying and Storage Ease

ƒ easy-pour in the juices
ƒ oil refill pack segments
ƒ shampoo sachets with zip locks

ƒ Health consciousness, hence consumer

wants to see the nutritional benefits on
the packaging; ISO certifications etc.
ƒ packaging reflects upon the quality
of the product

ƒ Environment Factors
ƒ Type of packaging will also undergo
a change, driven by eco-friendly
initiatives

technopak
Factors driving growth in the packaging Industry in India…

ƒ With larger retailers getting into supermarket and hypermarket formats,

private labels are likely to emerge in a big way. Hence, packaging can
help -

ƒ In providing an identity to the private label brand; act as a

communication tool with the consumer

ƒ Prove to be an important aspect of the marketing strategy

technopak
Projected size of the Industry as organized retail grows

Scenario
2011
Retail contribution of F&G 256 USD Bn

Ratio of Packing cost to MRP ~6%

Packaging spend on the F&G segment 15 USD Bn

Packaging spend on the F&G segment ~70,000 INR Cr

Share of organized retail in F&G 30.0 USD Bn

% share of private label in organized retail 20%

Share of private label in organized retail in F&G 6.0 USD Bn
Incremental Opportunity in Packaging arising from private labels
in India 0.4 USD Bn
Incremental Opportunity in Packaging arising from private labels
in India 1,600 INR Cr
Technopak Analysis

Signifying a huge opportunity

Estimate Figures
technopak
Importance of packaging in modern retail…

“The number of brands/variants on

display in a hypermarket format is
in excess of 1,700 on average”

[Source : Point of Purchase Advertising Industry in

the US (POPAI )]

…can help create a distinct visual impression on the

consumer that is instantly identifiable to the brand

technopak
Importance of packaging in modern retail…

“50% of the purchases inside

hypermarkets are impulse……
shoppers typically spend only a few
seconds to actively compare
different products”

Technopak Analysis

…will be an important means for product differentiation

technopak
Importance of packaging in modern retail…

ƒ “Shoppers typically spend 10-20 seconds making their purchase

decisions” –

ƒ Given this reality, the first challenge is clearly to be seen and

considered — hence consistently create an opportunity for sale

…with private label sharing the same shelf space as several

brands, its packing will have to be competitive so as to
drive customer attention and purchases

technopak
In addition, several inherent advantages can accrue to
retailers in the form of…

ƒ Shelf life of products can be increased as a result of new and innovative

packaging techniques
ƒ E.g. : in case of milk, aseptic packaging technology can increase
the shelf life of milk by 6 months

ƒ Will also help in unitising the commodity

ƒ For better and efficient costing

ƒ New packaging technology can prove to be an effective tool in hedging

the risk associated with uncertainties in demand & supply -
ƒ By having a longer holding period for perishable items

technopak
In addition, several inherent advantages can accrue to
retailers in the form of…

ƒ Especially in the rural sector in India, the distribution channel is typically

long; with the transit time being as high as 1-2 months

Company C&F Stockist Retailer

Wholesaler

Super Sub
Stockist Stockist

Technopak Analysis

Proper packaging can help avoid contamination, not only at

the front end, but at every stage of the value chain –
especially in case of perishables such as Milk, Oil, F&G –
hence reducing wastage across the supply chain

technopak
While there is likely to be big opportunity in packaging as a result of
organized retail growth, none-the-less there are several
challenges which need to be managed…

technopak
Current state of the Industry…

ƒ Largely dominated by the Small Scale Sector in India

ƒ limited scale
ƒ limited capabilities

technopak
Need-gap…

ƒ However over the next five years,

ƒ Packing requirements are likely to increase

ƒ Top few players in the F&G category likely to contribute to large part
of the market

technopak
Implications…

ƒ With the large size of retailers, these players will require large size
vendors to be able to cater to the collective packaging needs

ƒ Hence the packing players will have to invest in

ƒ upgrading technology
ƒ increasing scale

technopak
Implications…

ƒ Given this scenario, two options may emerge:

ƒ this industry is likely to witness consolidation. i.e. small number of

large players to be able to handle large capacities

ƒ in order to protect the smaller players, institutional support in favour

of supporting and forming clusters may also be useful, i.e. hosiery
cluster in Tirupur

technopak
Harminder Sahni

2nd Floor, Tower D

Global Business Park
MG Road
Gurgaon 122002
(National Capital Region)
India
Phone : +91 124 414 1111
Fax : +91 124 414 1112

801, 8th Floor

The Estate
121, Dickinson Road
Bangalore 560 042

Phone : +91 80 512 33388

Fax : +91 80 512 33399

3RD Floor, AP Cooperative Bank Building,

Masabtank, Hyderabad – 500004

Phone : +91 40 30602137

Fax : +91 40 30602150

www.technopak.com

technopak