Project On Organized Retail in India by Rishikesh (RBS)

Organized Retail in India, Challenges and Prospects
Acknowledgment
A task or project cannot be completed alone. It requires the effort
of many individuals. I take this opportunity to thank all those who helped me
complete this project.
I express my sincere gratitude to Ms. Aditi Dhool for giving us the
Opportunity to undergo this project. I further thank his for lending a helping
hand when it came to solving my problems related to the project. This project
would not have been possible without his valuable time and support.
I also thank Rai business school for an opportunity to undertake Soft skills
project at the start of our MBA course which helped us to understand deeply
for those topics which are untouched.
This project is an attempt to talk about the Scenario of Retailing and its
Operations in India.
Any suggestions to improve are always welcome.
Rishikesh Kuamr, Rai Business School, New Delhi 1

Introduction
India today is the second fastest growing economy of the world after
China. Indian economy will grow larger than Britain’s by 2022, Japan by 2032
and by 2050 will become the second largest economy of the world after
China. Indian market has become the most lucrative market for retail
investment in the world.
Some of the factors which have contributed to the growth of organized
retail in India are: increase in the purchasing power of Indians, rapid
urbanization, increase in the number of working women, large number of
working young population. Today people look for better quality product at
cheap rate, better service, better ambience for shopping and better shopping
experience.
The Retail industry in India is emerging as one of the most promising
industries both in terms of contribution to the GDP as well as in creation of the
job opportunities. Starting with the local Kirana and mom and pop stores to
the big hypermarkets and supermarkets, The Indian retail is all poised to go to
a higher level. An IMAGES-KSA Technopak study released at the KSA Retail
Summit 2005 by Mr. Kishore Biyani, managing director of Pantaloon Retail,
India’s largest retailer. “The size of the organized retailing market stood at Rs
280 billion in 2004, thereby, making up a mere 3% of the total retailing market.
Moving forward, organized retailing is projected to grow at the rate of 25%-
30% p.a. and is estimated to reach astounding Rs 1000 billion by 2010.

Further, its contribution to total retailing sales is likely to rise to 9% by the end
of the decade,” said Mr. Arvind Singhal, chairman, KSA Technopak.
Driven by the changing lifestyle, augmented disposable income, the
need for convenience and the awakened rural market, the future of Retail
looks dazzling. In addition, India has been ranked as the most attractive
market by the AT Kearney’s Global Retail development index .The index
conducts the study on 30 emerging countries on the basis of 25 macro
economic and retail specific variable to measure the attractiveness of these
markets. Leading global retailers such as Wal-Mart, Tesco and others are
keen to enter the Indian retailing industry. The Chicago-based Sara Lee
Corporation is planning to enter the Indian apparel market. Dior, the well
known watch brand from the Louis Vuitton Moet Hennessy (LVMH) group, is
planning to include India among its top 12 world markets.
The Rosy Blue Group, the world's largest diamond manufacturer, is planning
to invest Rs 900 million in setting up 40 exclusive Orra diamond jewelry
showrooms in India over the next three years. Since foreign direct investment
(FDI) in the retailing sector was not permitted as of mid 2005, most global
players were opting for the franchisee route.
According to the Global Retail Development Index4 of 2005 conducted by AT
Kearney, India was ranked #1 among 30 'most attractive' retailing destinations
across the globe. Kamal Nath, Union Minister for Commerce and Industry in
India, expressed optimism with regard to the retail sector in India.

In a seminar conducted by the Federation of Indian Chambers of
Commerce and Industry (FICCI)5 in February 2005, he said, "The importance
of the retail sector in the national economy is not in dispute. All economists
have agreed that giving the retail sector a thrust will not only result in boosting
the economy, but also that the retail sector has the potential to be leveraged
in order to rejuvenate specific targeted sectors, including the rural economy."6

What is Retail?
The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a
piece off' or 'to break bulk'. In simple terms it involves activities whereby
product or services are sold to final consumers in small quantities. Although
retailing in its various formats has been around our country for many decades,
it has been confined for along time to family owned corner shops.
Englishmen are great soccer enthusiasts, and they strongly think that one
should never give Indians a corner. It stems from the belief that, if you give an
Indian a corner he would end up setting a shop. That is how great Indians
retail management skill is considered.
What is Organised Retail?

The Indian Retail industry is divided into the organized and the unorganized
sector. The unorganized sector mainly includes the local Kirana store and the
mom and pop stores. The organised sector includes the big companies like
the RPG, Pantaloons and the foreign players like addidas, Reebok,
McDonalds and Pizza hut. Most of the Indian Retail industry is characterized
by an unorganized market but the growth of the organised sector in the past
few years has been incredible. Noting that organised retail market is growing
at the rate of 40%, Northbridge Capital said that faster growth rate would be
maintained in the next three years, especially with the entry of major global
players and Indian corporate houses. The organized retail in India has been
divided into various categories like Jewellery and Watches, Catering and
services, Furniture & furnishing, Footwear, Consumer durables, food &
grocery, Clothing & Textile, Mobile handsets, Books, music & gifts etc. The
market share categorization is Although there are abundant factors that drives
retailing in India but the challenges for the retailers are also numerous
The Facts

Retailing in more developed countries is big business and better organized
that what it is in India. Report published by McKinsey & Co. in partnership with
Confederation of Indian Industry (CII) states that the global retail business is
worth a staggering US $ 7 trillion. The ratio of organized retailing to
unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it
comes to around 20 to 80.
In India the scenario is quiet unique, organized retailing accounts for a
mere 5% of the total retail sector. Although there are around 5 million retail
stores in India, 90% of these have a floor space area of 500 sq.ft. or less. The
emergence of organised retailing in India is a recent phenomenon and is
concentrated in the top 20 urban towns and cities.
The Reason
This emergence of organized retailing has been due to the demographic
and psychographic changes taking place in the life of urban consumers.
Growing number of nuclear families, working women, greater work pressure,
changing values and Lifestyles, increased commuting time, influence of
western way of life etc. have meant that the needs and wants of consumers
have shifted from just being Cost and Relationship drive to Brand and
Experience driven, while the Value element still dominating the buying
decisions.

Global Scenario of organized retail

Retail stores constitute 20% of US GDP & are the 3 rd largest employer
segment in USA. China on the other hand has attracted several global
retailers in recent times. Retail sector employs 7% of the population in
China. Major retailers like Wal-Mart & Carrefour have already entered the
Chinese market. In the year 2003, Wal-Mart & Carrefour had sales of US $
70.4 Crore & US $ 160 Crore respectively.
The global retail industry has traveled a long way from a small beginning to an
industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The
top 200 retailers alone accounts for 30 % of the worldwide demand. Retail
turnover in the EU is approximately Euros 2,00,000 Crore and the sector
average growth is showing an upward pattern. The Asian economies
(excluding Japan) are expected to grow at 6% consistently till 2005-06.
On the global Retail stage, little has remained same over the
last decade. One of the few similarities with today is that Wal-Mart was
ranked the top retailer in the world then & it still holds that distinction.
Other than Wal-Mart's dominance, there's a little about today's
environment that looks like the mid-1990s. The global economy has changed,
consumer demand has shifted & retailers' operating systems today are
infused with far more technology than was the case six years ago.
Organized retail in India

The Indian organized retail industry is valued at about $300 billion and is
expected to grow to $427 billion in 2010 and $637 billion in 2015. Retail
Market India today is the second fastest growing economy of the world after
China. Indian economy will grow larger than Britain's by 2022, Japan by 2032
and by 2050 will become the second largest economy of the world after
China. Indian market has become the most lucrative market for retail
investment in the world. Some of the factors which have contributed to the
growth of organized retail in India are: increase in the purchasing power of
Indians, rapid urbanization, increase in the number of working women, large
number of working young population.
Today people look for better quality product at cheap rate, better service,
better ambience for shopping and better shopping experience. Organized
retail promises to provide all these. The Industry The various formats of
organized retail are: Hypermarkets: They store products of multiple brands
comprising food items and non-food items. Supermarkets: These are self
service stores selling food and personal care products. E.g.: Subhiksha.
Departmental stores: Retails branded goods in non-food categories. E.g.:
Shoppers Stop. Specialty Chains : These stores focuses on a branded
product or a product category. E.g.: Bata Convenience stores: These are
small self service outlet located in crowded urban area. Malls: A huge
enclosures which has different retail formats. e.g.: Nucleus Key players in
organised retail are: Pantaloon Retail: It was started by Kishore Biyani- India's
largest retailer. The various formats of pantaloon retail are: Pantaloons, Big
Bazaar, Food Bazaar, Central etc. RPG Retail: Its various formats are: Food

World, Music World, Health & Glow, Spencer's Tata Retail (known as TRENT):
Its various formats are: CromaWestsideStar India Bazaar K Raheja Corp.
Group: Shoppers' Stop, Hypercity, Crossword, InOrbit Mall Reliance Retail
Job Opportunities: Retail accounts for 8% employment in the country. In the
next 2 years the sector is set to provide 2.5 lakh job opportunities.
The types of jobs available in retail are: Retail sales, Store management,
Stock management, Supply chain management, warehousing and operations.
In organised retail the frontliners like shop floor executives, sales executives
etc are in great demand. The frontliners have to directly communicate with the
customers. The other jobs are for store managers, store planners, cashiers,
stockists, logistics, operations, distribution, marketing, finance, HR, IT etc.
Good communication skill, high interpersonal skills, convincing power, positive
attitude and ability to handle stress is a prerequisite for these jobs. Fresh
graduates who want to make career in retail can easily fill these jobs. Stock
planners, Operations, logistics, cashiers have to deal with the numbers daily.
Besides having good communication skills they also require numerical and
analytical ability.
Bharati retail is planning to invest $2.5bn by 2015 which will create
employment opportunity for 60,000 people. Bharti Resources, a learning and
development solutions subsidiary of Bharti Group, has tied-up with Global
Retail School (GRS) to groom graduates and undergraduates in retail
management and other sectors. They will provide 3-month and 6-month
certificate courses for Rs 30,000 and Rs 15,000 respectively in Retail Sales

and Marketing, Retail Visual Merchandising and Space Planning, Retail
Supply Chain Management, for creating frontend manpower professionals.
Indeed it is a fact that organised retail in India is all set to grow at an
stupendous pace
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 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 behavior. This change has come in the consumer due to
increased income, changing lifestyles, and patterns of demography which are
favorable. Now the consumer wants to shop at a place where he can get food,
entertainment, and shopping all under one roof. This has given Indian
organized retail market a major boost.

Retail market in the organized sector in India is growing can be seen from the
fact that 1500 supermarkets, 325 departmental stores, and 300 new malls are
being built. 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.
Pantaloons 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 Walmart, 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.
Indian organized retail market is increasing and for this growth to continue the
Indian retailers as well as government must make a combined effort.

North India:30-
35% of total
market retail
South India: 15-20%
of total market size
organized retail
East India: 10-

15% of total
West India: 25-30% market size
of total market organized retail
organized retail



Executive Summary
The real GDP is expected to grow at 8-10 per cent per annum in the next five
years. As a result, the consuming class with annual household incomes above
Rs. 90,000 is expected to rise from about 370 million in 2006-07 to 620 million
in 2011-12. Consequently, the retail business in India is estimated to grow at

13 per cent annually from US$ 322 billion in 2006-07 to US$ 590 billion in
2011-12. The study shows:
• 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.

KEY CHALLENGES:
1) Economic slowdown: –
With economic slowdown hitting most of the economies, the organized retail
sector in India is also witnessing a hold back. Most of the major retail giants
have either postponed their ideas of expansion and are afraid of undertaking
any new big projects. Although most of the companies have already taken an
initiative to make their way in the rural market and others are also planning to
do the same but due to the economic turmoil, this effort seems to have taken
a back seat.
1) LOCATION:

"Right Place, Right choice"
Location is the most important ingredient for any business that relies on
customers, and is typically the prime consideration in a customer’s store
choice. Locations decisions are harder to change because retailers have to
either make sustainable investments to buy and develop real estate or commit
to long term lease with developers. When formulating decision about where to
locate, the retailer must refer to the strategic plan:
* Investigate alternative trading areas.
* Determine the type of desirable store location
* Evaluate alternative specific store sites
2) MERCHANDISE:
The primary goal of the most retailers is to sell the right kind of merchandise
and nothing is more central to the strategic thrust of the retailing firm.
Merchandising consists of activities involved in acquiring particular goods and
services and making them available at a place, time and quantity that enable
the retailer to reach its goals. Merchandising is perhaps, the most important

function for any retail organization, as it decides what finally goes on shelf of
the store.
3) PRICING:
Pricing is a crucial strategic variable due to its direct relationship with a firm's
goal and its interaction with other retailing elements. The importance of pricing
decisions is growing because today's customers are looking for good value
when they buy merchandise and services. Price is the easiest and quickest
variable to change.
4) TARGET AUDIENCE:
"Consumer the prime mover"
"Consumer Pull", however, seems to be the most important driving factor
behind the sustenance of the industry. The purchasing power of the
customers has increased to a great extent, with the influencing the retail
industry to a great extent, a variety of other factors also seem to fuel the
retailing boom.
5) SCALE OF OPERATIONS:

Scale of operations includes all the supply chain activities, which are carried
out in the business. It is one of the challenges that the Indian retailers are
facing. The cost of business operations is very high in India.
6) The Retail Environment:-
The foreign retailers who considered India as a gold mine, till a few
years back, have now started rethinking about their plans for entering the
market. The ever increasing terrorist activities have added on to the economic
slowdown. First of all, the government regulations on the foreign entry in retail
(51 % in single brand retailing and 100 % in cash and carry format) along with
the economic slow downs and terrorist activities has forced most of the
companies to reconsider about their plans of entering Indian retail industry.
7) Disorganized supply chain network:–
Along with economic slow down, a disorganized supply chain is
also standing in the way of organised players to tap the rural markets and
expand their operations. An efficient supply chain network enables the

company to reduce the cost as well as manage the demand of its customer.
Without an efficient supply chain, it becomes almost impossible for these
companies to provide better product assortments across the country
effectively with minimum cost. Therefore, an under developed supply chain
network has also been hindering the scaling of the retail operations since a
long time.
8) Technology hurdles: -
.An effective IT system is very crucial for the success of the supply chain
which supports the retailing operations but as compared to the developed
countries, India is incompetent in installing and managing an effective IT
system especially in the rural areas which has been a trouble for the Indian
Retailers since a long time.
9) Lack of utilities:–
Most of the metro cities are equipped with all the facilities and requirements of
the modern businesses but the inadequate utilities like transport system,
power, telecommunication, water, internet facilities etc. in the other part of the
countries has also pushed the retailers one step back in sustaining the retail
operations in a widespread geographical location. Although relevant steps
have been taken over the past few years to make these facilities available in

all parts of the country but this endeavor needs an acceleration to match the
growth of the zooming industry.
10) Location planning: –
Location is considered as one of the most important ingredients for the
success of a retail business. But because of the fluctuating cost of the real
estate in the country, a higher stamp duty as compared to the other countries
and the zoning laws, a dilemma has been created over the land use for the
commercial purposes. The Retailers are finding it very difficult to first of all
select a location which is found to be the most appropriate for their operations
and then to cope up with the fluctuating costs of land and paying a high stamp
duty which adds on to their investment and reduces their margin.
11) Unproductive human resource: –
The retail industry has been creating a lot of employment and a major chunk
of the population has been engaged in the retail industry but looking at the
tough working conditions in retail i.e. long working hours, no weekends and
festival holidays, it becomes very difficult to hire people who can create a
bottleneck for the success. In the aura of optimizing the cost, the companies
are also neglecting the training needs of the newly hired people which is also
a major factor for reducing the efficiency of the human resource.

12) The presence of a grey market: –
In most of the cities, the dominance of the grey markets has been acting as a
threat to the big retailers. By selling the product at a cheaper rate, they are
shifting the consumer perception from the focus on quality to a focus on price.
Retailing in India: the present scenario
The present value of the Indian retail market is estimated by the India Retail
Report to be around Rs. 12,00,000 crore($270 billion) and the annual growth
rate is 5.7 percent. Retail market for food and grocery with a worth of Rs.
7,43,900 crore is the largest of the different types of retail industries present in
India. Furthermore around 15 million retail outlets help India win the crown of
having the highest retail outlet density in the world.
As can be clearly seen, retailing in India is superior than those of its
contenders. Retail sector is a sunrise industry in India and the prospect for
growth is simply huge. There are many factors that have stimulated the rise of

the shopping centers and multiplex-malls in a jiffy. Some of them can be listed
as follows:
1) Rise in the purchasing power of Indians- the rise in the per capita
income in the last few years has been magnificent. This has led to the
generation of insatiable wants of the upper and middle class. The demand of
new as well as second hand durables has risen throughout the country thus
providing the incentive for taking up retailing.
2. Favorable to farmers-
retailing has helped in removing the middlemen and has thus enhanced the
remuneration to farmers. This is a new revolution in the agricultural sector in
India and will go a long way in amending the condition of agriculture, a major
concern among policy makers.
3. Use of credit- a typical Indian is most conversant with using credit cards
than carrying money. This has led to a shift of the consumer base towards
supermarkets and make the payments in the form of credit.
4. Comfortable Atmosphere-

a visit to a retail store appears to be more soothing for the generation-Y.
People and kids prefer to shop in an air conditioned a tech savvy manner.
The retail industry is the second largest employer in India. It currently employs
about 7 percent of the total labor force in India. Finance Minister P.

Chidambaram's recent statement “salaries ought not be legislated” is a
welcome move as most of the organized retail is in private hands. However
only about 4.6% of the total retail trade is in organized sector. It generates
about Rs.55,000 crore ($12.4 billion). The major and minor players
desperately need to work hard in this direction so that next time the figures
look more decent. The government must also make an attempt to ameliorate
the situation as political instability and infrastructure namely power and roads
are the major roadblocks in the path of smooth functioning of the market.
Retail Vs Organized landscape in India
Retailing in India is emerging as one of the largest industries, with a total
market size of USD 320 billion in 2006 and growing at a healthy CAGR of 5
per cent till date. Rising incomes and increased con sumerism in urban areas
along with an upswing in rural consumption will further fuel this growth to
around 7-8 per cent. This driver is further illustrated in the statistic (Fig. 1.1)
that the percentage of people in urban areas in India has been growing
steadily to reach 29 per cent from just 17 per cent fifty years ago.
In addition, India has been ranked as the most attractive market for global
retailers to enter now, according to A.T. Kearney's Global Retail Development
Index

Fig. 1.1
(GRDI) for 2006 (Fig. 1.2). The GRDI is conducted annually to follow the
attractiveness of top emerging markets for retail. For the past five years, A.T.
Kearney has helped retailers prioritize their global development strategies by
publishing the GRDI. The Index ranks 30 emerging countries based on more
than 25 macroeconomic and retail-specific variables.
Many factors contribute to India being the most attractive retail target market.
A stable democracy provides an economic and social background that
comforts big
international organizations. On the economic front, the country has seen over
7% GDP growth for the last few years, driving increasing prosperity and
consumerism. A look at India's demographics further lends credibility to the
retail story. India's consumer market today encompasses over 400 million
people with rising disposable incomes. Population shifts towards urban areas
and income shifts towards higher
income classes are key factors driving consumerism. Also higher incomes are
now in the hands of a younger population with lesser dependencies. This
implies
Fig. 1.3

more income available for spending rather than for savings and investment.
Can any retailer now afford to miss this story?
Another important factor announcing India's signifcance for retailers is the
current optimal stage of readiness within India for retail and for the entry of
retailers.
Retail markets worldwide have been observed to progress through four
stages as they evolve from an emerging to a mature market, usually over the
course of 5 to 10 years (Fig. 1.3). These stages are defined as:
1. Opening: A market that is just beginning its modern retail story, in all
major cities.
2. Peaking: A market that is developing quickly and is ready for modern
retail.
3. Declining: A market that is still big and growing, but space for new
entrants is getting tighter.

4. Closing: A market having small window of opportunity for new entrants;
such markets generally have a very high penetration of modern retail.
The above figure shows that key Asian economies, viz. India and Vietnam are
in the peaking phase, while China has just tipped into declining. This means
that the next one to three years are the best time for foreign retailers to enter
India. They cannot wait for the government to set things in order. While the
government has announced some benefits for foreign retailers by allowing
them to own up to 51 per cent of a single brand retail company, the relaxed
regulations do not extend to retailers that sell a variety of brands.
India's government seems to be on a gradual but definite path towards
allowing foreign retailers into the country. And when it takes the final steps,
the peak time to enter will quickly pass, giving retailers that enter now a
distinct edge. Different global retailers are
Fig. 1.4

in talks to identify the best mode of entry in India – we believe it is time for
them to enter, through means allowed by the Indian government.
Already domestic retailers and conglomerates are venturing into retail, e.g.
Reliance and Birla, to stake out ground in the emerging market prior to the
entry of international players. International retailers should adopt the strategy
undertaken by the likes of Metro and Tesco in starting to test the market
conditions and initializing the process for an imminent deep dive. Because if
they wait any longer, they may see a repetition of the China story where many
retailers missed
the bus, as the market saturated before they could get their acts together.
Given the attractiveness of the Indian market for retailit is no wonder that
retailing already accounts for 39 per cent of India's GDP, which is quite a
significant proportion if compared with other developed and devel-
oping economies. However the proportion of retailing which is in the
organized sector is still a very small portion, with penetration at 6 per cent
(Fig. 1.4).

Organized retail itself has been growing at a freneticpace and this growth is
expected to continue at a blistering rate of approximately 35 per cent per
annum till 2010.
Retail as a whole can be broken into categories,depending on the type of
products serviced. For India, food and groceries form the biggest category in
the retail pie (Fig. 1.5), accounting for close to 70%. However this category
has the lowest organized retail penetration of 1%, which is indicative of the
greater opportunity available for organized retail and also explains why so
many retailers have plans for this category in the pipeline. In comparison,

footwear and clothing segments boast the highest penetration of organized
retail, as international brands like Nike, Reebok and Levis had started setting
up shop almost a decade ago. This segment may see further activity,
Key issues in the way of retail growth in India:-
An analysis of the retail landscape across India highlights ten key issues that
hinder development of the sector. Since these issues can be pertinent for the
retail sector specifically or for the overall Indian industry, they were rated
based on their importance for the retail sector and the Indian industrial sector.
The origin of these issues and hence their ownership lies with different
stakeholders. Therefore, these issues were also rated based on the extent to
which government and industry could control them. A 2 x 2 matrix was subse-
quently created which used the two dimensions to segment the issues. The
issues were then classified into four categories:
Generic infrastructure issues - These are environmental challenges faced by
the Indian industry as a whole and some of the issues like underdeveloped
supply chain are critical for retail sector.
Fig. -


Generic policy issues - They are issues affecting the industrial sector that
are shaped by government policies. Some of these issues like real estate
hurdles can have significant impact on the growth of the retail sector Specific
infrastructure issues- Issues that are specific to the retail sector and are also
controlled by it comprise this category. Since the retail industry can affect
these issues, they are very critical from the industry perspective.
Specific policy issues - Retail sector specific policies like sector incentives fall
into this category.
The key issues are outlined below:
Underdeveloped Supply Chain - The country lacks quality logistics
infrastructure which hinders scaling up of retailing operations. Inadequate
Utilities - Lack of basic infrastructure like power, transport and communication

creates difficulty in sustaining retail operations across the large geographical
spread of country.
IT Infrastructure Hurdles - Reliable IT infrastructure is important for managing
modern supply chains which are the backbone of any retailing business and
India faces a clear problem in this area as the non-urban areas have limited IT infra
structure.
Real Estate Hurdles - Archaic laws prevent the much needed growth in
real estate development, which is imperative for retail growth.Taxation Hurdles
- The tax structure in India is still complex and evolving, creating challenges
for retailers.
Inadequate Human Resources - There is hardly any systematic effort to train
manpower for the retail sector, which can create a bottleneck for
growth.
Limited Consumer Insights - There is limited knowledge about the
consumer behavior due to limited market research conducted on the huge
population in towns and rural areas.
Insufficient Government Incentives - Government is yet to create any
major sector specific policies to boost the retail sector.
Policy Related Hurdles - The policy environment in India is complex, creating
challenges for growth and establishment of new business.Generic
infrastructure issues

Supply chain, utilities and IT infrastructure hurdles are generic infrastructure
issues that will be addressed by the natural evolution of the industry. Supply
chain is a key bottleneck for retail sectorgrowth. There are multiple benefits of
proper cold storage facilities.
Inadequate
Utilities
Inadequate Utilities-
structure in roads, rail and ports. We also have a highly fragmented trucking
industry and absence of reliable, national service providers. Accordingly
supply chain management (SCM) systems have very low penetration.
India also lacks national level distribution networks and hubs. Fragmented
supplier network in rural areas lead to multiple levels of product handling. Also
consumer product companies are more focused on front end distribution and
hence the distribution model is more robust in urban areas with high
consumer concentration.
While studying Indian states, we found there are no standard best practices in
India -Maharashtra and Tamil Nadu have the best road and rail network in
India respectively, while West Bengal has the maximum cold storage capacity
in India. Globally, a better logistics infrastructure is sustained through road
maintenance and capacity utilization of the rail network and this is particularly
true in developed countries like the US. There are also several specialized
refrigerated

Consumer of organized retail
The Indian consumer has undergone a remarkable transformation. Just a
decade or two ago, the Indian consumer saved most of his income,
purchased the bare necessities and rarely indulged himself. Today, armed
with a higher income, credit cards, exposure to the shopping culture of the
west and a desire to improve his standard of living, the Indian consumer is
spending like never before. Organized retail with its variety of products and
multitude of malls and supermarkets is fueling his addiction. His new
mentality, in turn, is fueling the growth of organized retail in India.
Young Shoppers
India’s population is young, very young (See Exhibit 6 for India’s bottom-
heavy age pyramid and Exhibit 7 for age-data for the populations of several
countries). Most consumers have grown up with television, the internet, and
have been exposed to the standards of living and consumer culture abroad.

This generation is also making money at a younger age and lots of it, thanks
to call centers and other avenues of employment opening up that cater to
students in college and schools. As a result they are ready to spend most, if
not all of their income on apparel, accessories, and electronics.
Higher Incomes
Liberalization of the country’s economy has brought a number of
employments opportunities. With the entry of a number of multinationals and
the expansion of domestic corporations, job prospects in the country are
looking up. As a result, incomes and consumption are projected to increase
rapidly over the next couple of years (See Exhibit 8 for the personal
disposable income and Exhibit 9 for the private
consumption per head in India). This sets the stage for a very exciting and
promising retail market in the future.
No Money, No Problem
The finance sector has already seen a huge expansion. Unlike a decade ago,
credit cards and short-term loans have become easily accessible and have
contributed to the emergence of a consumer culture in India. Credit card
rewards schemes, flexible financing options and all the other common lures

are tempting the Indian consumer to shop. With loans for everything from a
home to an automobile freely available, the Indian consumer can start
spending on big-ticket items that were traditionally within his reach only after
years of savings.
Urbanization
Growing urbanization is also responsible for the changing consumer
psyche12. As urbanization spreads beyond the major cities, it converts the
local population from net savers to net spenders. This is consistent with what
has been observed in developing countries like Thailand, Malaysia and
developed countries like U.S.A and the U.K.
Food retail in India
Though with a population of a billion and a middle class population of over
300 millions organized retailing (in the form of food retail chains) is still in its
infancy in the Country.India has been rather slow in joining the Organized
Retail Revolution that was rapidly transforming the economies in the other
Asian Tigers. This was largely due to the excellent food retailing system that
was established by the kirana (mom-
and-pop) stores that continue meet with all the requirements of retail
requirements albeit without the convenience of the shopping as provided by
the retail chains; and also due to the highly fragmented food supply chain that
is cloaked with several intermediaries (from farm-processor-distributorretailer)

resulting in huge value loss and high costs. This supplemented with lack of
developed food processing industry kept the organized chains out of the
market place. The correction process is underway and the systems are being
established for effective Business-to-Business (farmer-processor, processor-
retailer) solutions thereby leveraging the core competence of each player in
the supply chain.
Fig-
Spread of Organized Retailing in India
Organized retailing is spreading and making its presence felt in different parts
of the country. The trend in grocery retailing, however, has been slightly

different with a growth concentration in the South. Though there were
traditional family owned retail chains in South India such as Nilgiri’s as early
as 1904, the retail revolution happened with various major business houses
foraying into the starting of chains of food retail outlets in South India with
focus on Chennai, Hyderabad and Bangalore markets,preliminarily. In the
Indian context, a countrywide chain in food retailing is yet to be established as
lots of Supply Chain issues need to be answered due to the vast expanse
of the country and also diverse cultures that are present.
Retail Models in India: Current & Emerging
The Indian food retail market is characterized by several co-existing types and
formats.
These are:
1. The road side hawkers and the mobile (pushcart variety) retailers.
2. The kirana stores (the Indian equivalent of the mom-and-pop stores of the
US),
within which are:
a. Open format more organized outlets
b. Small to medium food retail outlets.
Modern trade – the organized retailers
Within modern trade, we have:

1. The discounter (Subhiksha, Apna Bazaar, Margin Free)
2. The value-for-money store (Nilgiris)
3. The experience shop (Foodworld, Trinethra)
4. The home delivery (Fabmart)
While the focus of this note is on modern organized retail trade, we hereunder
present
insights into the smaller, semi and unorganized retailers.
Hawkers – ‘mobile supermarkets’
The unorganized sector is characterized by the lari-galla vendors (also known
as “mobile supermarket”) seen in every Indian bylane and is, therefore,
difficult to track, measure and analyse. But they do know their business –
these lowest cost retailers can be found wherever more than 10 Indians
collect – a rural post office, a dusty roadside bus stop or a village square. As
far as location is concerned, these retailers have succeeded beyond all doubt.
They have neither village nor city-wide ambitions or plans – their aim is simply
a long walk down the end of the next lane. This mode of “mobile retailers” is
neither scalable nor viable over the longer term, but is certainly replicable all
over India. Most retailing of fresh foods in India occurs in Mandis and roadside
hawker parks, which are usually illegal and entrenched. These are highly
organized in their own way. Hawking of food products, cooked food and

FMCG products is a very interesting model of retailing. Much has been written
about these roadside “malls” – from social security issues to their nuisance
value. However, if you put these hawkers together, they are akin to a large
supermarket with little or no overheads and high degree of flexibility in
merchandise, display, prices and turnover. While shopping ambience and the
trust factor maybe missing, these hawkers sure have a system that works.
Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores Semi-organized
retailers like kirana (mom-and-pop stores), grocers and provision stores are
characterized by the more systematic buying – from the mandis or the farmers
and selling – from fixed structures. Economies of scale are not yet realized in
this format, but the front end is already visibly changing with the times. These
stores have presented Indian companies with the challenge of servicing them,
giving rise to distribution and cashflow cycles as never seen elsewhere in
Asia. The model is very antithesis of modern retail in terms of the buyer
(retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link
the supply of one line of products to another slower moving line of products.
These retailers are not organized in the manner that they could challenge the
power of the sellers, most protests have been in the form of
boycotts, which really haven’t hit any company permanently.

SWOT ANALYSIS:
A SWOT analysis of the Indian organized retail industry is presented
below:
STRENGTH:
1. Retailing is a "Technology-intensive" industry. It is technology that will help the
organized retailers to score over the unorganized retailers. Successful
organized retailers today work closely with their vendors to predict consumer
demand, shorten lead times, reduce inventory holding and ultimately save cost.
Example: Wal-Mart pioneered the concept of building competitive advantage
through distribution & information systems in the retailing industry. They introduced
two innovative logistics techniques – cross-docking and EDI (electronic data
ennterchange)

2. On an average a super market stocks up to 5000 SKU's against a few hundred
stocked with an average unorganized retailer. This will provide variety in products
(required breadth & depth for consumers)
3. As a consequence of high volumes, procurement will be direct from the
Manufacturer. Hence, merchandise can be offered at lower costs.
Weakness:
1. Less Conversion level: Despite high footfalls, the conversion ratio has been very
low in the retail outlets in a mall as compared to the standalone counter
parts. It is seen that actual conversions of footfall into sales for a mall outlet is
approximately 20-25%. On the other hand, a high street store of retail chain has an
average conversion of about 50-60%. As a result, a standalone store has a ROI
(return on investment) of 25-30%; in contrast the retail majors are
experiencing a ROI of 8-10%
2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandise
mix for the mall outlets. Since the stand-alone outlets were established long time
back, so they have stabilized in terms of footfalls & merchandise mix and thus have a
higher customer loyalty base.
Opportunity:

1. The Indian middle class is already 30 Crore & is projected to grow to over 60 Crore
by 2010 making India one of the largest consumer markets of the world. The
IMAGES-KSA projections indicate that by 2015, India will have over 55 Crore
people under the age of 20 - reflecting the enormous opportunities possible in the kids
and teens retailing segment.
2. Organized retail is only 3% of the total retailing market in India. It is estimated to
grow at the rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010.
3. Percolating down : In India it has been found out that the top 6 cities contribute for
66% of total organized retailing. While the metros have already been exploited, the
focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of which
has so far been concentrated in the metros is beginning to percolate down to these
smaller cities and towns. The contribution of these tier-II cities to total organized
retailing sales is expected to grow to 20-25%.
4. Rural Retailing: India's huge rural population has caught the eye of the retailers
looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga"
offering a diverse range of products from FMCG to electronic goods to automobiles,
attempting to provide farmers a one-stop destination for all their needs." Hariyali
Bazar" is started by DCM Sriram group which provides farm related inputs &
services. The Godrej group has launched the concept of 'agri-stores' named "Adhaar"
which offers agricultural products such as fertilizers & animal feed along with the
required knowledge for effective use of the same to the farmers. Pepsi on the other
hand is experimenting with the farmers of Punjab for growing the right quality of
tomato for its tomato purees & pastes.

Threats:
1. If the unorganized retailers are put together, they are parallel to a large supermarket
with no or little overheads, high degree of flexibility in merchandise,
display, prices and turnover.2. Shopping Culture: Shopping culture has not
developed in India as yet. Even now malls are just a place to hang around with family
and friends and largely confined to window-shopping.
3. Cultural Variation leads to variation in merchandise in India at
different geographical locations.

RESEARCH DESIGN & METHODOLOGY
A research design is the detailed blueprint used to guide a research study

towards its objectives. The process of designing a research study involves
many interrelated decisions. The most significant decision is the choice of
research approach, because it determines how the information will be
obtained.
To design something also means to ensure that the pieces fit together. The
process of research design makes it possible for a researcher to understand
the process to be applied to continue the research.
The research can be categorized into different research design :-
• Exploratory Research Design

• Descriptive & Diagnostic Research Design
• Experimental Research Design
Since this research is related to the “ORGANIZED RATAIL IN

INDIA-CHALLENGES & PROSPECTS.” So, I will put emphasis on Descriptive
Research Design.
ANALYSIS OF DATA
I collected secondary data for my research. I collected information from

yellow pages, books and magazines.
Special care is required in collecting secondary data one of which is
that the data must be collected from more than one source. This improves
accuracy and efficiency of research formulation.

Bibliography:
• Newman J. Andrew & Cullen Peter, “ Retailing- Environment & Operations”

Thomson Asia Pte. Ltd, Singapore
• Vedamani G. Gibson, “ Retail Management- Functional Principles &

Practices”, Jaico Publishing House
• Pradhan Swapna, “ Retail Management- Text & Case
Tata McGraw Hill Publishing Co. Ltd
• Kotler Philip, Lane Kevin, Koshy Abraham, Jha Mithileshwar, “ Marketing

Management- A South Asian Perspective”, Dorling Kindersley{India}Pvt. Ltd
References:
• www.scribd.com
• www.logsiamag.com
• www.scmr.com
• www.indianmba.com
• www.fibre2fashion.com

• www.viaworld.in
• www.expresscomputeronline.com
• www.valuenotes.com
• www.nitine.blogspot.com
• www.indianretail.co
• www.omretail.com
• www.naukrihub.com
• www.etretailbiz.com
• www.euromonitor.com
• www.indianbusiness.nic.in


Neha Singhal
neeha.singhal@gmail.com

Project On Organized Retail in India by Rishikesh (RBS)

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Organized Retail in India, Challenges and Prospects

A task or project cannot be completed alone. It requires the effort

complete this project.

I express my sincere gratitude to Ms. Aditi Dhool for giving us the

for those topics which are untouched.

Any suggestions to improve are always welcome.

Rishikesh Kuamr, Rai Business School, New Delhi 1

investment in the world.

Some of the factors which have contributed to the growth of organized

retail in India are: increase in the purchasing power of Indians, rapid

urbanization, increase in the number of working women, large number of

The Retail industry in India is emerging as one of the most promising

industries both in terms of contribution to the GDP as well as in creation of the

a higher level. An IMAGES-KSA Technopak study released at the KSA Retail

Summit 2005 by Mr. Kishore Biyani, managing director of Pantaloon Retail,

Moving forward, organized retailing is projected to grow at the rate of 25%-

30% p.a. and is estimated to reach astounding Rs 1000 billion by 2010.

Rishikesh Kuamr, Rai Business School, New Delhi 2

of the decade,” said Mr. Arvind Singhal, chairman, KSA Technopak.

Driven by the changing lifestyle, augmented disposable income, the

market by the AT Kearney’s Global Retail development index .The index

conducts the study on 30 emerging countries on the basis of 25 macro

economic and retail specific variable to measure the attractiveness of these

planning to include India among its top 12 world markets.

to invest Rs 900 million in setting up 40 exclusive Orra diamond jewelry

players were opting for the franchisee route.

According to the Global Retail Development Index4 of 2005 conducted by AT

Kearney, India was ranked #1 among 30 'most attractive' retailing destinations

India, expressed optimism with regard to the retail sector in India.

Rishikesh Kuamr, Rai Business School, New Delhi 3

In a seminar conducted by the Federation of Indian Chambers of

Commerce and Industry (FICCI)5 in February 2005, he said, "The importance

in order to rejuvenate specific targeted sectors, including the rural economy."6

Rishikesh Kuamr, Rai Business School, New Delhi 4

product or services are sold to final consumers in small quantities. Although

retail management skill is considered.

What is Organised Retail?

Rishikesh Kuamr, Rai Business School, New Delhi 5

services, Furniture & furnishing, Footwear, Consumer durables, food &

Rishikesh Kuamr, Rai Business School, New Delhi 6

Retailing in more developed countries is big business and better organized

worth a staggering US $ 7 trillion. The ratio of organized retailing to

unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it

comes to around 20 to 80.

In India the scenario is quiet unique, organized retailing accounts for a

emergence of organised retailing in India is a recent phenomenon and is

concentrated in the top 20 urban towns and cities.

This emergence of organized retailing has been due to the demographic

and psychographic changes taking place in the life of urban consumers.

Growing number of nuclear families, working women, greater work pressure,

changing values and Lifestyles, increased commuting time, influence of

Rishikesh Kuamr, Rai Business School, New Delhi 7

Global Scenario of organized retail

Rishikesh Kuamr, Rai Business School, New Delhi 8

retailers in recent times. Retail sector employs 7% of the population in

70.4 Crore & US $ 160 Crore respectively.

turnover in the EU is approximately Euros 2,00,000 Crore and the sector

average growth is showing an upward pattern. The Asian economies

(excluding Japan) are expected to grow at 6% consistently till 2005-06.

Other than Wal-Mart's dominance, there's a little about today's

Organized retail in India

Rishikesh Kuamr, Rai Business School, New Delhi 9

growth of organized retail in India are: increase in the purchasing power of