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Organized Retail and FDI

Knowledge Session 1

What is organized retail ?


Branded stores (Usually Part of a chain)
Modern Infrastructure and Technology Self Service Types of Organized retail Supermarkets & Convenience stores Department Stores Hypermarkets Cash and carry Specialty stores Single brand Exclusive stores Discount Stores/Factory outlets

Retail in India
Organized retail is 6% but growing fast
Global range:
2% in Pakistan

35% Brazil
55% Malaysia 85% USA

Small Unorganized family run retail stores

Organized Retail in India


Future group
Pantaloon, Big Bazaar, food bazaar, eZone etc

Reliance
Reliance Fresh, Trends, Jewels etc

RPG Spencer's Aditya Birla More Cash and Carry


Metro AG, Bharti Wal-Mart

Retail and India


Food and Groceries 60%

Clothing and Footwear 9-10%

Furniture and Appliances 5-6%

Indian Retail Key Issues


Low sales per outlet Rs 1000 1200 per day Rural Rs 7000 Rs 8000 per day Urban Low productivity of Labor 6% of USA levels Long Supply chain 5 to 6 intermediaries Vs 2-3 in USA/Europe Inefficient supply chain Poor infrastructure Roads, Storage etc Low percentage of processed food

Indian Retail Key Issues


Over regulated industry
Antiquated APMC restricts farmers choice

Multiple taxes
State VAT, Central CST, Octroi etc

Archaic labor laws


Regulate shift timings, holidays, contract labor etc

High Real estate costs


Cost of real estate in Cities is very high

Organized Retail in India


High potential Urbanization and growth of middle class Increase in % of working women Exposure to modern retail experience (Malls) Increased demand for branded/Processed food High growth in turnover Still on learning curve Supply chain, Technology, Mgt practices Real estate cost, Manpower quality, theft etc Mounting losses

FDI in retail
Current scenario
100% FDI in Cash and Carry 51% in Single brand stores Proposal
to allow 100% in Single brand and 51% in multi brand retail

Current Status: on Hold

Potential impact
Infusion of cash for cash Intensive business

Infusion of technology and practices Boost to supply chain and logistics Cold storages and processing units Will require change in APMC
Partnership with Indian players Local knowledge and global expertise Boost to Indian Suppliers 30% sourcing from Indian SME Sourcing from India for global operations

Potential impact
Impact on urban small retailers
Loss of business and potential closure FDI allowed in 51 cities

Farm to fork
Better prices for farmers, consumers Reduced losses in transport & Storage Contract farming Technology sharing with farmers

Is it a good thing?
For Farmers Should get better prices Impact may be limited to Medium/Large farms Better seeds, technology and farm practices Multiple options for farmers Loss of bio diversity For Small retailers Loss of business, but most will survive Impact high in proximity to Modern stores Will have to adapt and might need support

Is it a good thing?
For consumers
Better prices, larger variety, Better shopping exp Convenience for Working families Would increase consumption expenditure
Purchase of processed food, impulse items

For Manufacturers
30% rule would benefit SMEs Large manufacturers margins squeezed

Is it a good thing?
Employment
Loss of unorganized sector jobs at small retail Creation of organized sector jobs Net Growth in employment if Consumption Inc Additional jobs in supply chain/Food processing

Government
Higher tax revenues through organized retail May boost agri exports from India

Conditions Apply
APMC act needs to be amended

GST would simplify taxation


Investment in Roads/infra required etc It is long term game
Dont expect results in 2-3 years Wal-Mart and co will go slow at first

Politics may still derail the plan


Opposition states and Some Allies oppose The JVs would not operate in such states

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