FOOD & GROCERY RETAIL

ININDIA
10/12/2010
Abhijit Samanta
International School of Business & Media
Kolkata

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ABSTRACT: -

Retail is being hailed as India’s industry of the future, incited by the country’s huge
urban middle class population. Food and grocery is a very segment of the retail
industry and the potential for new entrants in this segment is enormous, particularly
in untapped markets like rural and semi-rural areas. Growing at a very high rate, the
Indian food retail is going to be the major driving force for the retail industry.

INTRODUCTION: -

A rapid change is happening day by day in the retail industry. Basically because of
the growing disposable income of Indians. The food and grocery is a primary area for
basic human needs so here the change is very effective. In recent years there is a
huge change in the consumption pattern especially in terms of food mostly in lower
and middle income group people. Once in India the concept of buying food items
was from small road side grocer shops & mandis, haats and bazzars by vendors
when food products (processed and groceries) are retailed through supermarket
stores where consumers can inspect, select and pick up the products they like in a
comfortable ambience. The bargaining was one of the most important issue. But
today shopping for groceries is no longer a strenuous and uncomfortable affair.

Instead, it is a pleasurable experience. From simple trading activity, food retailing is

now heading to the status of an industry. Imagine yourself walking through the air
conditioned lanes smelling fresh food and groceries, enjoying light music,
experiencing five star ambiences and above all buying food products (vegetables,
spices and beverages) without bargaining with the vendors. Food retail has
surpassed the dominating apparel and accessories sector. "Contrary to the belief
that fashion is the largest segment of organised retail in India, food & beverages is
the major segment, worth Rs 8,97,000 crore," said Arvind Singhal, Chairman,
Technopak, at the Indian Retail Forum held in Mumbai. There is an old industry
saying that “ customer is king” Food retailers today will update that saying to
“customers is the dictator” because of fierce competition, new technology and
business practices the market power of customer is strong and growing stronger. 1

Reference: - 1 Data are collected form : -

www.indiaretailing.com/food-retail-india.asp

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STARTING & BACKGROUND OF
FOOD RETAIL: -
Traditionally, Indians were used to buying their sugar, wheat, pulses, rice etc. from
their neighborhood baniya. The majority of food and food products were and still are
retailed through neighborhood kirana (baniya) stores. A typical kirana store has a
retail area of 200 sq ft and sells 500 to 800 stock keeping units (SKUs). 2 The kirana
stores focus on dry food products because the infrastructure for cold storage is
lacking. The majority of fresh produce is sold from the carts of traveling vendors.
Such produce is deemed to be of low product quality, variety and hygiene. This
concept is still popular in B-class and II Tier cities of India and giving employment to
thousands of its inhabitants.

Initially the food retail format was seen in A-class cities like Mumbai, Delhi, Chennai
which had co-operative stores like "Apna Bazaar" in Mumbai and "Kendriya
Bhandar" in Delhi. Both were very successful and are operating many outlets in all
strategic localities in the city. Escorts group in the late eighties diversified into non-
auto sectors by getting into agri business or food business. It came out with first
"Nanz" store at South Extension in Delhi in 1990.

The first visible sign of the change in food retailing was seen in mid-eighties. Around
that time a few new food stores were set up in all metro cities in India. Calcutta was
the only exception where it started a little later. At that time couple of leading food
stores started operating such as "Morning Stores" and "Modern Stores" in Delhi,
"Nilgiri" in Bangalore, and “Food Land" in Mumbai "Spencers Food Stores" in
Chennai. Spencers were the first to tie up with a Singapore based large retail chain -
- "Dairyland" and had set up the food stores in Chennai. This was a technology tie
up. In Mumbai, Garware group during the late eighties had set up a large food store,
which is now reported to have been closed down.

Until the late 1990s, food retailing has been concentrated in the south of the country.
Southern India has been witnessing revolutionized activity in food retailing. It has
thoroughly experienced the food retailing in various formats such as the
supermarkets, hypermarkets and neighbourhood stores. These include Food World,
Subhiksha, Nilgiris, Margin Free, and Big Bazaar. The reason being that most
entrepreneurs who started organised retail came from southern India and the cost of
real estate in the southern region was less than other regions (particularly north and
west). Since then, however, organised food retailing has emerged across the
country, inspired by the presence of high potential markets in the north, west and
east as well as the success of some non-food retailers and food services companies
in these regions. 3

Reference 2, 3: - • http://www.pfionline.com/review/review7/review7.html,

•http://www.thehindubusinessline.com/catalyst/2003/06/19/stories/
2003061900010100.htm
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 STATICS IN FOOD RETAIL: -

Indian retail food industry has revolutionized shopping experience of Indian

customers. Growing at the rate of 30%, the Indian food retail is going to be and no
doubt is the major driving force for the retail industry. Food accounts for the largest
share of consumer spending. Food and food products account for about 50% of the
value of final private consumption. This share is significantly higher compared to
developed economies, where food and food products account for about 20% of
consumer spending.

Ireena Vittal, principal, McKinsey & Co. in Food Forum 2008, said, "At US$ 175
billion today the food industry is likely to grow to US$ 400 billion by 2025. The
percentage of income spent in households will drive growth in the food market.

Indian consumers are happy with store goods than branded goods and are very
conservative on packaged goods. There are 10 million street vendors in India, of
which 6 million only sell food. Currently, the retail food sector is US$ 70 billion and is
expected to rise to US$ 150 billion by 2025. Food has the largest consumption in the
Indian economy and will remain the single largest category."

Total Consumption

Others Consumption
50% 50% Food & Food Products

McKinsey & Co Forcast

600
US $ billion

400
McKinsey Forcast
200
Real Picture
0
2008 2025

Reference: - • www.fnbnews.com/article/detnews. asp?articleid

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There are various factors paving the way to revolutionizing food retailing in India.
Among them few are:

 Changing life styles and tastes

 Growing need for convenience
 Increasing disposable income
 Increasing numbers of working women
 Change in consumption patterns
 Higher aspirations among youth
 Impact of western lifestyle
 Plastic Revolution – Increased use of credit cards and debit cards

THE CHANGING TREND: -

With the changing food consumption patterns, consumers need for convenience,
choice and value for money the set-up of retail format is changing. The Indian
consumers do visit about eight to ten outlets to purchase various food products,
which make up the daily consumption basket. These outlets include neighborhood
kirana stores, bakeries, fruit and vegetable outlets, dairy booths and chakkies
(small flour mills), which is very time-consuming and unproductive way of shopping
for food. With changing lifestyle there is growing scarcity of time, and convenience in
food shopping is emerging as an important driver of growth of one-stop retail formats
that can offer consumer 'value for time' in addition to 'value for money'. These are
giving an opportunity to various other retail formats:

A. Neighborhood Stores: -
In India about 90% of food purchases are made within a distance of 1.5 km from the
customer's home. This means that an organized retailer would need to have a
'neighborhood store' close to customers in order to capture the share of wallet that is
spent on food. These stores would cater to the consumer's daily and weekly needs.
The outlets closest to a neighborhood store in India are 'Safal' outlets operated by
Mother Dairy in Delhi, Margin Free in Kerala and Subhiksha

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B. Supermarkets: -
This format caters to the consumers' need for choice and variety. These needs
translate into 'more width' and 'more depth' in each category. These stores cater to
the consumers in a catchment area with a radius of 3 to 4 km and therefore need to
be destination stores. A supermarket can cater to the consumers' weekly, monthly
and occasional needs. Examples of supermarkets already in India are Food World,
Trinetra and Nilgiri's.

C. Hypermarkets: -
Hypermarkets are essentially destination stores catering to the consumers' bulk
shopping needs in both food and non-food categories. The key added values for the
customer are 'choice' and 'value for money' because products are sold at a
discounted price. The hypermarkets model of food retailing is new to India.
Spencers (RPG), Big Bazaar (Pantaloons), Star India Bazaar.

D. Cash & Carry (C & C) Stores

These stores sell their products to their members only. The members are typically
retailers and institutions. The key added value is a wide range of products under one
roof, available at wholesale prices. Metro has started the first C & C store in India in
Bangalore. The typical area of a C & C store is 70,000 to 100,000 sq. ft. and both
food and non-food products are stocked.

KEY DEVELOPMENTS IN
FOOD RETAIL: -

The major development in food retail is consideration of Foreign Direct Investment

(FDI) with a limitation that all companies would have to meet mandated export
obligations. The government is also considering the opening up of the $330-billion
retail market with adequate provisions to protect neighborhood stores.

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In every retail format food trade is growing. More and more corporate houses such
as HLL, ITC, Godrej and Reliance are already working into food retail. Huge
increase is expected from the corporate players, which will help grow the entire food
retail sector.

Dabur’s Amit Burman has also forayed into food retailing. According to Amit
"Food and beverages retailing is a very attractive segment and with Lite Bite
Concepts we are targeting Rs 1,000 crore sales in a couple of years with around 200
outlets," Well-established players such as Subhiksha, Food Bazaar and Spencer's
Daily are also tapping into backward linkages, while trying to match their expanding
geographies with retail formats. 4

AC Nielsen estimates:-

Modern food formats like Food Bazaar and Spencer's have their eye on the
unbranded part of the consumer's shopping basket. This constitutes as much as
60% of the total purchases and growing sharply, says AC Nielsen estimates.
Retailers are offering a package of convenience and freshness, and have an edge
over manufacturers that focus mainly on packaged conveniences.

Food retailers are offering 'live kitchen' formats, which offer on-the-spot home-style
gravies, dal, cooked rice and kneaded dough with options like grinding coffee fresh
at store, idli batter, paneer, curd and cut vegetables. 5

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Key Challenges in Food Retailing: -

Demand Side: -

► Demand for fresh / home-made and value consciousness:-

The Indian consumer is extremely value conscious. A TSMG study indicates that
packaged food players need to drive down prices by almost 35-40% to be
comparable on cost with homemade food.

Reference: - 4 www.dabur.com

5 www.acnelson.com

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► Diversity of tastes and preferences: -

Multiple cultures, languages and religions have a huge bearing on the tastes and
preferences of the Indian consumer. This will pose a challenge for players aspiring to
develop a pan Indian presence.

► Willingness to travel: -

Given the current density of retail outlets in India, retailers will have to motivate the
consumer to trade convenience with price, range and ambience.

Supply Side: -
► Sourcing base and efficiency: -

The fragmented agricultural supply base coupled with an inadequate legal

framework make it difficult for retailers and food processors to procure quality
produce at competitive costs directly from farmers. The small size of the food
processing industry further limits the supply options.

►Real estate availability and cost: -

Rentals account for 7-7.5% of the total costs for organized retail in India against
global benchmarks of less than 3%. Real estate availability and costs will continue to
remain a challenge in the retail industry with factors like adequate parking, ambience
and proximity being the key drivers of footfalls.

► Manpower availability: -

As organized retail expands, there is expected to be a dearth of skilled manpower.

The lack of institutions and courses for different aspects of retail management will
have an impact on the overall supply of quality manpower.

Reference: - 6 By article of Pankaj Gupta of Tata Strategic Management Group

www.tsmg.com,
www.linkedin.com/.../tata-strategic-management-group
www.tatastrategic.com/media.html?start=15

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CONCLUSION: -

The past 4-5 years have seen increasing activity in food retailing. Various business
houses have already planned for few investments in the coming 2-3 years. Though
the retailers will have to face increasingly demanding customers and intensely
competitive rivals, more investments will keep flowing in and the share of organized
food sector will grow rapidly.

Organized food retailing in India is surely poised for a takeoff and will provide many
opportunities both to existing players as well as new entrants.