RETAILING IN INDIA

According

to Philip Kotler retailing includes all the activities involved in selling goods or Services directly to final consumers for personal , Non business use. Every sale of Goods and Services to final consumer Food products, apparel, movie tickets; services from hair cutting to e-ticketing.

 A retailer

or retail store is any business enterprise whose sale volume comes primarily from retailing. A retailer may be defined, as a dealer or trader who sells goods in small quantities. Any Organization Selling to final consumer is retailing , whether they are 1. A Manufacturer 2. A Wholesaler 3. A Retailer

 It

does not matter how they sell or serve ( By)

Person Mail Telephone Vending Machine or Internet

Or
these are sold

Where

A store A street Consumers House

 Retailing

may be understood as the final step in the distribution of merchandise, for consumption by the end consumers. attempt to satisfy consumer needs by having the right merchandise, at the right price, at the right place, when the consumer wants it. are the final business in a distribution channel that links manufacturers to consumers
retail industry is the second largest employer in the country with almost 12million retail stores in India.

Retailers

Retailers

Indian

 It

offers direct interaction Sale volume is comparatively large in quantities Customer service Sales promotions are offered at this point only Different forms Location and layout are critical factors More employment opportunities

Department stores Specialty stores Convenience store Discount store Off-price retailer Super store

Sorting Breaking Bulk Holding stock Communications Assist small suppliers Customer service

Evolution of Indian retail

Historic/Rural Reach Traditional/Pervasive Reach Government Supported Modern Formats/ International Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives

Convenience Stores Mom and Pop/Kiranas

Weekly Markets Village Fairs Melas

Source of Entertainment

Neighborhood Stores/Convenience

Availability/ Low Costs / Distribution

Shopping Experience/Efficiency

GRDI Position : 4rd Size : $ 435 billion Growth Rate : 13% GDP contribution : 22% Major sector : Food and Grocery Employment : 2nd largest industry (35.06 million) Types: Organized ( 7%) Unorganized ( 93%)

 Organized

retail accounts for 7 percent of Indias roughly $435 billion retail market and is expected to reach 20 percent by 2020 The countrys retail sector is the secondlargest employer after agriculture, with retail trade employing 35.06 million and wholesale trade generating additional employment for 5.48 million people. Food is the largest segment in terms of its contribution to the total value of the retail market, followed by fashion and fashion accessories.

Robust consumption in the rural economy is one of the key factors that has contributed to Indias consistent growth, even during the 200809 global economic slowdown. This can be attributed to the fact that rural India accounts for more than 70 per cent of all Indian households and close to two-fifths of the countrys total consumption pie. According to industry estimates, Indias rural economy constitutes 45 per cent of its GDP. A large number of organisations derive a significant proportion of their overall sales from small cities, which reflects the growing economic importance of India's rural consumer. Retail and fast-moving consumer goods (FMCG) players have begun devising exclusive marketing strategies to tap the rural consumer base.

 With

the emergence of concepts such as quick and easy loans, easy monthly installments (EMI), loan through credit cards and loan over phone, it has become easy for Indian consumers to afford expensive products.

 There

is high

brand consciousness among the youth 60 per cent of Indias population is below the age of 30.

 The

mindset of the Indian consumer is changing dramatically, with their focus shifting from low price to convenience, high value and a superior shopping experience.

The per capita income in India in 20092010 more than doubled to US$ 849 from US$ 348 in 200001.

 Real

estate development in the country, for example, the construction of mega malls and shopping malls, is augmenting the growth of the organised retail business. Organised retail penetration is on the rise and offers an attractive proposition for entry of new players as well as scope for expansion for existing players

Current Size & Future Projections for Indian Retail Market

900 800 700 600 500 400 300 200 100 0 800 530

US$ Billio n

342

373

408

445

486

200

12 2007 2008

18

26 2009 2010

39 2011

59 2012

87

2017

Total Retail

Organized Retail

And may reach a share of 25% by 2017

 Diverse

needs of the Indian consumer offers a spectrum of opportunities, spanning from rural retailing to luxury retailing India is home to the largest base of consumers, and a steadily rising rich and super rich population Impressive retail space availability and growing trend of consumerism in the emerging cities and small towns add to the market attractiveness

CONSUMER CLASS SHIFT

Indias

consumer class is estimated to grow nearly twelve-fold (from 50 million at present)to 583 million by 2025, with more than 23 million people likely to be listed among the worlds wealthiest citizens.

Increase in consumer class.

Consumer class will grow

from 50 million at present to 583 million by 2025. With more than 23 million people taking their place

Upper class Middle class Lower class

among the worlds

wealthiest citizens.

Over 37 million students were enrolled in about 150,000 pre-college institutes and over 11.7 million in 14,000 higher education institutions in 2005-06. Retail management is a sought after education stream amongst students, with over 15 premier institutes offering specialised courses in Retail Management. Indian Institute of Retail, New Delhi; RPG Institute of Retail Management, Mumbai; and The Retail Academy, Ahmedabad are some of the institutes focusing on the education needs of the retail sector.

Existing players are increasingly turning to Tier II and Tier III cities for retail establishments and manpower sourcing These cities offer significant cost advantage in the form of low-cost skilled resources and attractive lease rentals/real estate prices. With well-educated small town graduates turning to the urban cities for employment, these graduates are ideal candidates for sales and marketing executive roles in modern organized retail formats.

Technology Better use of resources and goods. Wastage and Storage problems will be resolved. Efficient logistics, production, and distribution channels.

Digital records.

Rural market.
Robust Consumption. 70% Indian households. 2/5 of the countrys total consumption pie. Accounts to 45% of GDP.

Excerpts from study conducted by INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS

The unorganized retail sector is expected to grow at about 10 per cent per annum with sales rising from US$ 309 billion in 2006-07 to US$ 496 billion in 2011-12. Given the relatively weak financial state of unorganized retailers, and the physical space constraints on their expansion prospects, this sector alone will not be able to meet the growing demand for retail. Hence, organized retail which now constitutes a small four per cent of total retail sector is likely to grow at a much faster pace of 45-50 per cent per annum and quadruple its share in total retail trade to 16 per cent by 2011-12.

 This

represents a positive sum game in which both unorganized and organized retail not only coexist but also grow substantially in size. The majority of unorganized retailers surveyed in this study, indicated their preference to continue in the business and compete rather than exit.

Unorganized retailers in the vicinity of organized retailers experienced a decline in their volume of business and profit in the initial years after the entry of large organized retailers. The adverse impact on sales and profit weakens over time. There was no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers. There is some decline in employment in the North and West regions which, however, also weakens over time. The rate of closure of unorganized retail shops in gross terms is found to be 4.2 per cent per annum which is much lower than the international rate of closure of small businesses.

The rate of closure on account of competition from organized retail is lower still at 1.7 per cent per annum. There is competitive response from traditional retailers through improved business practices and technology up gradation. A majority of unorganized retailers is keen to stay in the business and compete, while also wanting the next generation to continue likewise. Small retailers have been extending more credit to attract and retain customers. However, only 12 per cent of unorganized retailers have access to institutional credit and 37 per cent felt the need for better access to commercial bank credit. Most unorganized retailers are committed to remaining independent and barely 10 per cent preferred to become franchisees of organized retailers.

Consumers have definitely gained from organized retail on multiple counts. Overall consumer spending has increased with the entry of the organized retail. While all income groups saved through organized retail purchases, the survey revealed that lower income consumers saved more. Thus, organized retail is relatively more beneficial to the less well-off consumers. Proximity is a major comparative advantage of unorganized outlets. Unorganized retailers have significant competitive strengths that include consumer goodwill, credit sales, amenability to bargaining, ability to sell loose items, convenient timings, and home delivery.

 The

study did not find any evidence so far of adverse impact of organized retail on intermediaries. There is, however, some adverse impact on turnover and profit of intermediaries dealing in products such as, fruit, vegetables, and apparel.

 Farmers

benefit significantly from the option of direct sales to organized retailers. Average price realization for cauliflower farmers selling directly to organized retail is about 25 per cent higher than their proceeds from sale to regulated government organizations Profit realization for farmers selling directly to organized retailers is about 60 per cent higher than that received from selling in the market

Large manufacturers have started feeling the competitive impact of organized retail through price and payment pressures. Manufacturers have responded through building and reinforcing their brand strength, increasing their own retail presence, adopting small retailers, and setting up dedicated teams to deal with modern retailers. Entry of organized retail is transforming the logistics industry. This will create significant positive externalities across the economy. Small manufacturers did not report any significant impact of organized retail.

FOREIGN DIRECT INVESTMENT IN RETAILING

THE RETAIL SECTOR AT GLOBAL LEVEL

One of the world's largest industries exceeding
US$ 9 trillion. Dominated by developed countries. 47 global fortune companies & 25 of Asia's top 200 companies are retailers. US, EU & Japan constitute 80% of world retail sales.

WHY GLOBAL RETAILERS LOOK UP TO INDIA?

India is fourth-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearneys report published in June 2011

 According

to Business Monitor International, retail sales in India may jump from $396 billion in 2011 to $785 billion in 2015, representing a growth of around 100 per cent.

FDI Policy in Indian Retail Sector

At present, the government allows 51% foreign direct investment in a single-brand retail venture while 100% is permitted in wholesale cash-and-carry.

Single Brand Retailing Cash and Carry Model

51%

100%

 Under

single-brand retailing a store can stock goods that have the same brand. the wholesale cash-and-carry route, which most foreign retailers use, there is restriction on sale to individuals. These stores are only permitted to sell to outfits such as restaurants and kirana stores.

In

Foreign direct investment (FDI) inflows between April 2000 and December 2010, in single-brand retail trading, stood at US$ 66.69 million, according to the Department of Industrial Policy and Promotion (DIPP).

 India's

multi-brand retail sector, is estimated to be worth $28 billion (Rs 125,000 crore) according to a Boston Consulting Group (BCG) study. The government is likely to permit foreign direct investment (FDI) in the multi-brand retail sector from April 2012.

 The

government prepared a draft in July 2011, which says 49 per cent FDI in multi-brand retail will be allowed in a phased manner which will be effective from the next financial year i.e. April 2012. The Committee of Secretaries (CoS) headed by Cabinet secretary Ajit Kumar Seth met on July 22 to finalise the blueprint of the proposal for political clearance. One of the major outcome of the discussion is raising 49% to 51%.

 According

to the the economic advisor to the Prime Minister, Kaushik Basu , the government will allow FDI in three phases. In the first phase, foreign multi-brand retail chains will be allowed in the metros Delhi, Mumbai, Kolkata and Chennai. In the second phase other metros like Bangalore, Hyderabad and Pune will be included.
draft has laid out strict norms such as earmarking 40 per cent investment for backend infrastructure, such as cold storage, soil testing labs and seed farming, for prospective entrants.

The

Retailing in IndiaChallenges and Opportunities

The lifestyle patterns of Indias middle class are getting redefined with exposure to western values and growing brand consciousness From a saving to a spending mindset, the outlook for Indian consumerism is buoyant Marked increase in the number of new entrants and player revenues across all the verticals. Due to increased consumer exposure to the latest trends and brands driven by the mass media, retail revenues are soaring

Robust Consumption. 70% Indian households. 2/5 of the countrys total consumption pie. Accounts to 45% of GDP.

ITC Choupal Saagar: Currently there are 14 outlets in operation, and ITC plans to increase the number to 700 over the next 7-10 years. Choupal Saagar retails products and also acts as a procurement hub for ITCs e-choupals where farmers are offered better rates for their produce, as compared with the prevalent mandi rates for the same. DSCLs Hariyali Kisan Bazaar: Over 70 outlets and proposed to touch 200 over the next 12 months.

Players taking the first-mover advantage

More than 72 per cent of Indias population resides in small towns and rural areas with agri-produce retailing forming the lions share of total retail pie in these areas, offering immense potential for food and grocery verticals and value retailing Players like Reliance Retail, Aditya Birla Nuvo Groups Trinethra Supermarket, etc. have aggressive plans to tap these emerging cities. Players which have established their presence in the top metros are planning their establishments in these emerging cities to gain the first-mover advantage over other entrants

Formats like Wedding Malls, which are unheard of in the far west are making their presence in the Indian market. These stores stock the complete range of wedding needs from apparel to jewellery. Khadi & Village Industries Commission (KVIC) is set to roll out a string of swanky Khadi Plazas, which would showcase the handloom textiles in a new form.Over 7,000 existing outlets are to be beefed up to cater to the changing tastes of the young consumer. A latest addition to the diverse formats are the Village Malls, with the fair price shops being revamped to cater to larger needs of the local populations. Gujarat Government has spearheaded this initiative with 512 malls launched and another 508 on the anvil.

With tourists inflow increasing impressively with each passing year, tourism holds the key to a large retailing opportunity Retailing of regional handicrafts and artifacts has the potential to capture the interest of foreign tourists,given the rich and diverse cultural heritage of India The Indian Tourism Boards Dilli Haat (a crafts bazaar located in Delhi) retails the regional crafts of various states, attracting a large number of tourists. The concept is fast gaining traction in other destinations in India such as Jaipur, Mumbai and Hyderabad

 Entertainment retail is redefining Indian lifestyles withmultiplexes, gaming zones, etc. mushrooming as much as the malls. Huge entertainment and leisure opportunity owing to the fact that that there exist 10 screens per million population in India compared to 40 screens in the European market and 117 in the US. Reliance Infotechs Adlabs and Shoppers Stops Timezone have aggressive expansion plans in the pipeline, with retailers exploring the JV option with international giants

Challenges

LACK OF SKILLED WORKERS INFLATION COMPETITION

TAXATION POLICIES

REAL ESTATE PROBLEM

PROBLEM IN RAISING FUNDS SUPPLY CHAIN MANAGEMENT

MARKET POWER

The retail sector doesnt have a

Industry status Lack of professionalism Govt restriction on FDI leading to absence of foreign players in the market. Differential tax rates

Market power is in hands of unorganized retail.

Unorganized

95% 5%

Organized

Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%.

CRM practice Known about the customers families Credit and home delivery Consumer familiarity runs from generation to generation Open longer hours and stock most of the goods Consequently, a large number of customers are not willing to pay a premium for the shopping experience promised by large format retailers.

India is still in developing stage in installing and managing an effective IT system especially in rural areas which hampers the overall growth of organized retail sector.

Banks are reluctant to finance retailers because of

falling demand of organized retailers in India as it has witnessed failure of many stores like Spencer's, Subhiksha, etc.

Taxation laws in India favors only small retail businesses.

Implementation of non-uniform VAT across states. Octroi and entry tax in some states.

No Automatic Approval for FDI- Only 51% FDI is allowed to one brand shops in Indian retail sector.

Procedural bottlenecks like a hypermarket in Mumbai

must apply for 29 unique licenses & then when it has to

come up with second store it has to apply for same 29 licenses all over again.

Disturbed economic status.

Challenge to get more customers at low cost. Liquidity pressure

Shrinkage

Lack of logistic Infra.

Corruption

Additional Intermediaries

Technology Hurdles

In India every year there is pilferage of US$ 65 billion whereas in USA it is just 1-2%.

Due to lack of proper storage infrastructure postharvest losses of farm produce is Rs. 1 trillion cr.

annually.

In terms of corruption India stands at 85th position. Because of paper work, corruption is present along the entire supply chain.

In India, there are additional 2-3 intermediaries as

compared to USA. i. ii. They dominate the value chain. They flout mandi norms & their pricing lacks transparency.

Poor roads , lack of a cold chain infrastructure, etc , hamper the development of food and fresh grocery retail in India. Under developed Supply chain The existing supermarkets and food retailers have to invest a substantial amount of money and time in building a cold chain network.