Study & Analysis of Present Status (2011) of Service Industry in India with Special Reference to Retail

Mahendra Kumar Dodke PRN 10030241015 Div A MBA ITBM

Contents
Abstract ................................................................................................................................................... 3 Introduction ............................................................................................................................................ 4 Service Sector...................................................................................................................................... 4 Importance of the Service Sector for India ..................................................................................... 4 Services GDP ................................................................................................................................... 4 Services Employment in India ......................................................................................................... 4 FDI in Services in India .................................................................................................................... 5 Retail sector ............................................................................................................................................ 6 Growth of Indian Retail ....................................................................................................................... 6 Challenges facing Indian retail industry .......................................................................................... 6 Indian Organized Retail Market .......................................................................................................... 6 Growth Factors in Indian Organized Retail Sector .......................................................................... 7 Opportunities in Indian Organized Retail Sector ............................................................................ 7 The challenges facing the Indian organized retail sector................................................................ 7 The role of supply chain in Indian organized retail ......................................................................... 8 The emerging trends in the Indian organized retail sector............................................................. 8 Growth of Retail Companies in India: Overview ................................................................................. 9 Reasons for Fast Growth of Retail Companies in India ................................................................... 9 Traditional Family Run Convenience Stores ................................................................................... 9 Formats in Indian Organized Retail Sector ....................................................................................... 10 High Street Shops .......................................................................................................................... 10 Speciality Stores ............................................................................................................................ 10 Supermarkets ................................................................................................................................ 10 Franchisee outlets ......................................................................................................................... 11 Convenience Stores....................................................................................................................... 11 Hypermarkets................................................................................................................................ 11 Shopping Malls .............................................................................................................................. 11 The Trends to Follow in The Future ...................................................................................................... 12 Bibliography .......................................................................................................................................... 13

Abstract
This report provides detailed information about the growth of retailing industry in India. It examines the growing awareness and brand consciousness among people across different socio-economic classes in India and how the urban and semi-urban retail markets are witnessing significant growth. 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. The report also includes growth of retail sector in India, strategies, strength and opportunities of retail stores, retail format in India, recent trends, and opportunities and challenges. This paper concludes with the likely impact of the entry of global players into the Indian retailing industry. It also highlights the challenges faced by the industry in near future.

Introduction
Service Sector
India stands out for the size and dynamism of its services sector. The contribution of the services sector to the Indian economy has been manifold: a 55.2 per cent share in gross domestic product (GDP), growing by 10 per cent annually, contributing to about a quarter of total employment, accounting for a high share in foreign direct investment (FDI) inflows and over one-third of total exports, and recording very fast (27.4 per cent) export growth through the first half of 2010-11.

Importance of the Service Sector for India

The importance of the services sector can be gauged by looking at its contributions to different aspects of the economy and more prominently on the Services GDP.

Services GDP
The share of services in Indias GDP at factor cost (at current prices) increased rapidly: from 30.5 per cent in 1950-51 to 55.2 per cent in 2009-10. If construction is also included, then the share increases to 63.4 per cent in 2009-10. The ratchet up of the overall growth rate (compound annual growth rate [CAGR]) of the Indian economy from 5.7 per cent in the 1990s to 8.6 per cent during the period 200405 to 2009-10 was to a large measure due to the acceleration of the growth rate (CAGR) in the services sector from 7.5 per cent in the 1990s to 10.3 per cent in 2004-05 to 2009-10. The services sector growth was significantly faster than the 6.6 per cent for the combined agriculture and industry sectors annual output growth during the same period. In 2009-10, services growth was 10.1 per cent and in 2010-11 (advance estimatesAE) it was 9.6 per cent. Indias services GDP growth has been continuously above overall GDP growth, pulling up the latter since 1997-98. It has also been more stable (Figure 1).

Figure 1 (Growth Rate of GDP and Services Sector GDP)

Services Employment in India

Although the primary sector (agriculture mainly) is the dominant employer followed by the services sector, the share of services has been increasing over the years while that of primary sector has been decreasing. In between 1993-94 to 2004-05, there was a sharp fall in the share of the primary sector in employment. The consequent rise in share of employment of the other two sectors was almost equally divided between the secondary and tertiary sectors. In 2007-08 compared to 2004-05, though
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the trend was similar, the fall in employment in primary sector was less (at -1.1 per cent) with a small commensurate rise in employment in the other two sectors, which was again almost equally divided between the other two sectors

FDI in Services in India

The measurement of the share of services in FDI inflows encounters problems as it is difficult to clearly differentiate activities between services and goods in sectors such as computer hardware and software, telecommunications, and construction. Nevertheless, the share of the four sectors combined (services [financial and nonfinancial], computer hardware and software, telecommunications, and housing and real estate), predominantly consisting of services, in FDI equity inflows in April 2000 December 2010 is around 44 per cent. If construction is included then the share rises to 51 per cent. The financial and non-financial services sector which falls purely in the services category is the largest recipient of FDI equity inflows with a 21 per cent share. This is followed by the other two sectors, namely computer software and hardware, and telecommunications each with 8 per cent share. Housing and real estate, and construction with 7 per cent share each were next in importance. The year 2009-10 has seen a drying up of FDI inflows to India due to the global crisis with a fall of 5.5 per cent. Mirroring this trend, FDI inflows in the services sector also fell by 29.1 per cent (in US dollar terms). The first nine months of 2010-11 have also not shown any improvement on the FDI front, overall and in services sectors.

Retail sector
The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry is expected to grow from ` 35,000 crore in 2004-05 to ` 109,000 crore by the year 2010. Retail sector is expected to record healthy sales in 2010-11 and grow by 10.2 per cent in 2011-12. The sectors PAT margin is expected to expand over the next three years on account of a faster rise in income vis-a-vis expense. For the year ending March 2011, projects worth Rs.8,281 crore are expected to be completed adding retail space of 115.1 lakh square feet. During 2011-12, projects worth Rs.24,143 crore are expected to be completed adding a capacity of 168.6 lakh square feet.

Growth of Indian Retail

According to the 8th Annual Global Retail Development Index (GRDI) of AT Kearney, India retail industry is the most promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%. It is also expected to reach 22% by 2010. According to a report by Northbride Capita, the India retail industry is expected to grow to US$ 700 billion by 2010. By the same time, the organized sector will be 20% of the total market share. It can be mentioned here that, the share of organized sector in 2007 was 7.5% of the total retail market. Major Retailers in India Pantaloon Tata Group RPG Group Reliance AV Birla Group

Challenges facing Indian retail industry

The tax structure in India favours small retail business Lack of adequate infrastructure facilities High cost of real estate Dissimilarity in consumer groups Restrictions in Foreign Direct Investment Shortage of retail study options Shortage of trained manpower Low retail management skill

Indian Organized Retail Market

Indian organized retail market is growing at a fast pace due to the boom in the India retail industry. In 2005, the retail industry in India amounted to Rs 10,000 billion accounting for about 10% to the country's GDP. The organized retail market in India out of this total market accounted for Rs 350 billion which is about 3.5% of the total revenues. Retail market in the Indian organized sector is expected to cross Rs 1000 billion by 2010. Traditionally the retail industry in India was largely unorganized, comprising of drug stores, medium, and small grocery stores. Most of the organized
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retailing in India have started recently and is concentrating mainly in metropolitan cities. The growth in the Indian organized retail market is mainly due to the change in the consumers behaviour. This change has come in the consumer due to increased income, changing lifestyles, and patterns of demography which are favourable. Now the consumer wants to shop at a place where he can get food, entertainment, and shopping all less than one roof. This has given Indian organized retail market a major boost. Many Indian companies are entering the Indian retail market which is giving Indian organized retail market a boost. One such company is the Reliance Industries Limited. It plans to invest US$ 6 billion in the Indian retail market by opening 1000 hypermarkets and 1500 supermarkets. Pantaloon is another Indian company which plans to increase its retail space to 30 million square feet with an investment of US$ 1 billion. Bharti Telecoms an Indian company is in talks with Tesco a global giant for a 750 million joint venture. A number of global retail giants such as Wal-Mart, Carrefour, and Metro AG are also planning to set up shop in India. Indian organized retail market will definitely grow as a result of all this investments.

Growth Factors in Indian Organized Retail Sector

The growth factors in Indian organized sector are various but it is mainly due to the fact that India's economy is booming. Also, the rise in the working population which is young, pay- packets which are hefty, more nuclear families in urban areas, rise in the number of women working, more disposable income and customer aspiration, western influences and growth in expenditure for luxury items. All these are the factors for the growth in Indian organized retail sector. In fact, India retail industry is the fastest growing industry in India and it accounts for 10% of the country's GDP. In 2006, the retail industry in India amounted to US$ 200 billion and out of this, the organized retail sector in India amounted to US$ 6.4 billion. By 2010, the Indian organized retail sector is expected to rise to US$ 23 billion.

Opportunities in Indian Organized Retail Sector

The opportunities in Indian organized retail sector are many for this sector is witnessing a boom. The retail industry in India amounted to US$ 200 billion in 2006, and out of this amount the Indian organized retail sector amounted to US$ 6.4 billion. The opportunities in India organized retail sector can be judged from the fact that by 2010 it is expected to rise to US$ 23 billion. The various opportunities in the organized retail sector in India are mainly there for the Indian consumers behaviour pattern has changed. Now the Indian consumer gets more hefty pay- packages, is younger, a large number of women are working, western influences, and more disposable income have opened a lot of opportunities in Indian organized retail sector. The Indian consumer wants to shop, eat and get entertainment in one place and it has also given Indian organized retail sector an opportunity to grow.

The challenges facing the Indian organized retail sector

The challenges facing the Indian organized retail sector are various and these are stopping the Indian retail industry from reaching its full potential. The behaviour patterns of the Indian consumer have undergone a major change. All these have lead the Indian organized retail sector to give more in order to satisfy the Indian customer. The biggest challenge facing the Indian organized retail sector is the lack of retail space. With real estate prices escalating due to increase in demand from the Indian organized retail sector, it is posing a challenge to its growth. With Indian retailers having to shell out more for retail space it is affecting
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their overall profitability in retail. Trained manpower shortage is a challenge facing the organized retail sector in India. The Indian retailers have difficulty in finding trained person and also have to pay more in order to retain them. This again brings down the Indian retailers profit levels.

The role of supply chain in Indian organized retail

The role of supply chain in Indian organized retail is very significant because the growth of this sector depends on it. The Indian Supply Chain Council have been formed to explore the challenges that a retailer faces and to find possible solutions for India. The role of supply chain in the organized retail sector in India should be a shelf- centric partnership between the retailer and the manufacture for this will create supply chains that are loss free. This will also give rise to top and bottom line growth. In the organized retail sector in India the presence of fresh produce (vegetables and fruits) is very small. This is so for the nature of supply chain is very fragmented. This shows the important role of supply chain in the organized retail sector in India. In the organized retail market in India the role of supply chain is very important for the Indian customer demands at affordable prices a variety of product mix. It is the supply chain that ensures to the customer in all the various offerings that a company decide for its customers, be it cost, service, or the quickness in responding to ever changing tastes of the customer. The infrastructure in India in terms of road, rail, and air links are not sufficient. And so warehousing plays a major role as an aspect of supply chain operations. To overcome these problems, the Indian retailer is trying to reduce transportation costs and is investing in logistics through partnership or directly. The Indian organized retail sector is growing so the role of supply chain becomes all the more important. It should become all the more responsive and adaptive to customers demand. There is also need for the supply chain to be more cost efficient and collaborative to win the immense competition in this sector.

The emerging trends in the Indian organized retail sector

The emerging trends in the Indian organized retail sector would help the economic growth in India. There is a fantastic rise in the Indian organized retail sector in a very short period of time between 2001 and 2006. Eventually, out of the shadows of the unorganized retail sector, India has a chance of tremendous economic growth, both in India and abroad. The emerging trends in the Indian organized retail sector are also adding up to the development of the Indian organized retail sector. The relaxation by the government on regulatory controls on foreign direct investments has added to the process of the growth of the Indian organized retail sector. The infrastructure of the retail sector will evolve radically in the recent future. There has been emergence of shopping malls at a steady pace in the metros and there are further plans of expansion which would lead to 150 new ones coming up in India by 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 growth of the Indian organized retail sector is anticipated to be heavier than the growth of the gross domestic product. Alterations in people's lifestyle, growth in income levels, and encouraging conventions of demography are proving favourable for the new emerging trends in the Indian organized retail sector. The success of this retail sector would also lie in the degree of penetration into the lower income strata to tap the possible customers in the lowest levels of society. The demands of the buyers would also be enhanced by more access to credit facilities. With the arrival of the Transnational Companies (TNC), the Indian retail sector will undergo a transformation. At present the Foreign Direct Investments (FDI) is not encouraged in the Indian organized retail sector but once the TNC'S get in they inevitably try to oust their Indian counterparts. This would be challenging to the retail sector in India.
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Growth of Retail Companies in India: Overview

Growth of Retail Companies in India is still not yet in a matured stage with great potentials within this sector still to be explored. Apart from the retail company like Nilgiri's of Bangalore, most of the retail companies are sections of other industries that have stepped in the retail sector for a better business. The Growth of Retail Companies in India is most pronounced in the metro cities of India; however the smaller towns are also not lagging behind in this. The retail companies are not only targeting the four metros in India but also is considering the second graded upcoming cities like Ahmadabad, Baroda, Chandigarh, Coimbatore, Cochin, Ludhiana, Pune, Trivandrum, Shimla, Gurgaon, and others. The South Indian zone have adopted the process of shopping in the supermarkets for their daily requirements and this has also been influencing other cities as well where many hypermarkets are coming up day to day.

Reasons for Fast Growth of Retail Companies in India

The Growth of Retail Companies in India is facilitated by certain factors like existing Indian middle classes with an increased purchasing power rise of upcoming business sectors like the IT and engineering firms change in the taste and attitude of the Indians effect of globalization heavy influx of FDI in the retail sectors in India

Traditional Family Run Convenience Stores

Traditional family run convenience stores are too well established in India than to be wiped out and besides there is uniqueness in the traditional items that represent the sub-continent. The retail stores in India are essentially dominated by the unorganized sector or traditional stores. Infact the traditional stores have taken up 98 percent of the Indian retail market. Now stores run by families are primarily food based and the set up is as Kirana or the 'corner grocer' stores. Basically they provide high service with low prices. If the stores are not food based then the type of retail items available are local in nature. The traditional family run convenience stores can take pride in the fact that the Kirana is the most common outlet forms for the consumers. The tough competition for convenience stores is coming from organized retail stores dealing in food items, like: Apna Bazaar Canteen stores Food World Subhiksha Food Bazaar

Convenience Stores are open for long hours and is one of the formats of the Indian retail stores that cater to basic needs of the consumer. A good example of such would be Convenio. These stores are found in both residential as well as commercial markets. The food products of traditional family run convenience stores are comprised of branded as well as non-branded items. Non-food based stock comprises of multiple and varieties of local brands. The future of such stores as they face competition from organized sector would depend on the following particulars: Place and capacity
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Diligent area coverage Disciplined work schedule Managing turnover Revenue from assets Customer service and satisfaction

The traditional family run convenience stores serves the purpose of the housewives who definitely wants to avoid travelling long distances to purchase daily needs. The convenience factor in terms of items, among people in general can be highlighted as below: Groceries Fruits Drug Store Necessary stationery

As such traditional family run convenience stores are here to stay and cannot be oversized by the organized retail sector besides, it represents the variety of India.

Formats in Indian Organized Retail Sector

High Street Shops
High Street Shops of India are predominantly unorganized. Indian high street shops are varied and scattered. High Street Shops of India generally occurs in small tufts and sells products that are very relevant to economic needs of that particular area. For example, the High Street Shops in villages offer groceries and daily use commodities that are generally unbranded and cheaper in price and quality. High Street Shops in towns and cities are more organized and sells daily use commodities along with luxury items. Generally, these High Street Shops of India sells branded products from Indian and foreign manufacturers respectively.

Speciality Stores
Specialty Stores of India and its subsequent successful operation is credited to India Economic System reform earnest in July 1991. Specialty Stores of India is at its nascent stage and heading for a stupendous growth in the near future. The Central Government has ultimately realized the need to remove the insulation out of the Indian retail sector. Sceptics opine that opening up of the Indian retail industry would jeopardize the way of income for the poor small retailers. In fact, the actual story is quite heartening for the small time retailer and its vendors. Both, Indian and international market leaders are pouring into the Indian market to encash on the specialty stores retail boom. In fact, some industry leaders operating in other sectors are also diversifying into specialty stores sector. Some of the Specialty Stores of India are Pantaloons, Steel junction, Metal junction, Food bazaar, Haldiram bhujiwala, Music world, Khadims, Raymonds, Ganguram, KC Das, Apollo pharmacy, Sifyiway.

Supermarkets
The concept of Supermarkets is not new to Indian consumers. Actually, the British colonial government introduced the idea of Supermarkets to facilitate its officers with access of all household goods under one roof. Supermarkets in India houses varied shops selling different types of essential commodities along with luxury items. These Supermarkets are mainly concentrated in urban areas or semi-urban areas. Supermarkets operating in India typically have a heterogeneous mixture of large and small individual retailers. Most of these Supermarkets sell branded products of both, domestic
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and international manufacturers. Supermarkets of India offer products with different price bands for each and every sections of urban society.

Franchisee outlets
Franchisee outlets in India are predominantly unorganized and considerably new in concept. For an international company with a famous product or service to sell, Franchisee outlets can provide huge opportunity for fast expansion and deep market penetration. Opening up of Franchisee Outlets saves initial capital investment. Franchisee outlets in India can effectively help in the distribution process of goods and services in lesser time but creating similar effects on balance sheet. The greatest advantage of opening Franchisee outlets in India is that it offers full commitment from franchisees. And as a matter of fact the franchisees are more committed than employers or staff since they own a share of the main business and are accountable for losses. Some well known franchisee outlets in India are - Macdonald's, Kentucky Fried Chicken, Subway, Monginis, Sugar and spice, Coca cola, Pepsi, Frito lays, Perfetti

Convenience Stores
The successful launch and operations of convenience stores in India is credited to the Indian economic reforms in July, 1991. Convenience stores in India are still at a nascent stage but are headed for stupendous growth in the near future. The central government has ultimately realized the need to open up the Indian retail sector. Types of convenience stores found in India are: Specialty Stores Supermarkets Franchisee Outlets Hypermarkets

Hypermarkets
Hypermarkets in India houses varied shops selling different types of essential commodities along with luxury items. These Hypermarkets are mainly concentrated in urban areas only. Hypermarkets operating in India typically have a heterogeneous mixture of large and small individual retailers. Most of these Hypermarkets sell branded products of both, domestic and international manufacturers. Hypermarkets of India offer products with different price bands for each and every sections of urban society. Hypermarkets in India - Reliance retail, Bharti-Wal-Mart retail

Shopping Malls
Shopping malls are an emerging trend in the global arena. The first thing that comes in our mind about the shopping malls is that it is a big enclosed building housing a variety of shops or products. According to historical evidences shopping malls came into existence in the Middle Ages, though it was not called so. The concept of departmental stores came up in the 19th century with the Industrial Revolution. Consumers wanted a better shopping experience and this demand gave rise to the emergence of shopping malls in India.

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The Trends to Follow in The Future

In the last 10 years, a huge growth has taken place in the consumer durables retail market. Taking the present situation into account, one can see that the demand for consumer durables has been increasing. The increase in demand for consumer durables retail is because of the increase in disposable income levels in families, since most families are based on a double income these days. The rise in the levels of family income has transformed the visage of the Indian lifestyle which means that most companies view India as a prime destination for consumer durables retail. Most of the consumer durables retail market comprises of television sets, audio systems, VCD players, washing machines, microwave ovens, air conditioners, toasters, juicer-mixer-grinders, and so on. Though Indian consumer durables have been increasing in demand within the domestic market, it has tough competition from international consumer durables companies such as Sony, Samsung, LG, and Philips. Among consumer durables retail goods, flat-screen television and frostfree refrigerators have been in huge demand in recent times. Among Indian companies, Pantaloons has started its consumer durables retail. The commodities constitute colour televisions, washing machines, refrigerators, and microwave ovens. The chain of goods will be available in Big Bazaar, which is owned by Pantaloons. It is quite a challenge to maintain the consumer durables retail market in India because of the unprecedented challenges that are attached with it. However, the consumer durables retail market in India is here to stay because of the new age tastes of the modern consumer in India. The retail industry in India is currently growing at a great pace and is expected to go up to US$ 833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a CAGR of 10%. As the country has got a high growth rates, the consumer spending has also gone up and is also expected to go up further in the future. In the last four year, the consumer spending in India climbed up to 75%. As a result, the India retail industry is expected to grow further in the future days. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

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