Changing Retail Landscape in India

Presented By: Uma Shankar Singh

(Alumnus XLRI )


Indian Retail
8.90%
9.0%
6.8%
6.0%
6.0%
5.6%
5.2%
6.4%
6.6%
5.4%
9.2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Projections of 8% sustainable real GDP growth rate till 2020 promise high
growth potential for Indian Retail
R
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t
h

R
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e

Source :Central Statistical Organization (CS0)
Source: Citigroup Research
Timeline of Retailing in India
India Experiencing Rapid Economic
Growth
2,630
916
979
1,068
2,374
4,367
13,245
10.7%
9.4%
6.7%
3.7%
2.0%
2.8%
2.3%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
China India Russia Brazil UK Japan US
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
9.4% growth rate makes India the second fastest growing economy in the
world
G
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P

(
U
S
$

b
n
)


R
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G
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With High Private Consumption
GDP
US$ 935 billion
Private Consumption
US$ 580 Billion
(62%)
Public Spending and Capital
Formation
US$ 355 Billion (38%)
Retail
US$ 342 Billion
(59%)
Non Retail
US$ 238 Billion
(41%)
Urban (5,100 towns)
US$ 154 Billion
(45%)
Rural (6,27,000 villages)
US$ 188 Billion
(55%)
Modern retail US$ 12 billion
8% of urban retail spends
Modern retail
Negligible
Food
Apparel
Beverages
Footwear
Consumer durables
Appliances
Stationery
Kitchen utensils
Furniture
Furnishings
Sports goods
Health & Beauty
Personal Care
Jewellery
Timing
Transport
Communication
Recreation
Cultural Services
Education
Rent
Utilities
Other Services
Source: Central Statistical Organization (CS0) and Technopak Analysis
Conversion rate: 1 US$ = 40.86 Rs.
About US $530 Billion Retail Market by 2012
GDP*
US$ 1,450 billion
Private Consumption
US$ 870 Billion
(60%)
Public Spending and Capital
Formation
US$ 580 Billion (40%)
Retail
US$ 530 Billion
(61%)
Non Retail
US$ 340 Billion
(39%)
Urban
US$ 252 Billion
(47.5%)
Rural
US$ 278 Billion
(52.5%)
Modern retail US$ 78 billion
31% of urban retail spends
Modern retail US$ 9 billion
3% of rural retail spends
Source: Technopak Analysis
*All figures are in nominal terms after taking into account inflation
Which Makes Indian Retail an Attractive Market
India tops the Global Retail Development Index
Modern Retail Organized Channels
The share of organized retail is less than 3% of the total retail
market
The size of modern retail is about US$ 8 Billion and has
grown by 35% CAGR in last five years
85%
81%
55%
40%
36%
30%
20% 20%
3%
0%
20%
40%
60%
80%
100%
US Taiwan Malaysia Thailand Brazil Indonesia Poland China India
Traditional Channel Modern Channel
.. but Rapid Transformation is
Anticipated
Current Size & Future Projections for Indian Retail Market
342
373
408
445
486
530
800
12
18
26
39
59
87
200
0
100
200
300
400
500
600
700
800
900
2007 2008 2009 2010 2011 2012 2017
U
S
$

B
i
l
l
i
o
n
Total Retail Organized Retail
And may reach a share of 25% by 2017
Which categories will grow ?
Food and Groceries
Sector that the largest amount of consumer spends is concentrated.
Maximum opportunity for investments

Consumer durables
With increasing purchasing power, consumers tend to spend the most on this
category.
There is nothing to prevent a company from putting up shops outside the city
limits, because consumer durables are a premeditated purchase.
Availability of finance options has increased spending in this sector.

Home products
With increasing private ownership of homes by relatively young couples,
across most major cities in India, national retail chains offering home
furniture (and accessories) have great potential.
Weekly Markets
Village Fairs
Melas

Convenience Stores
Mom and Pop/Kiranas
PDS Outlets
Khadi Stores
Cooperatives
Exclusive Brand Outlets
Hyper/Super Markets
Department Stores
Shopping Malls
Traditional/Pervasive
Reach
Government
Supported
Historic/Rural
Reach
Modern Formats/
International
Evolution of Indian retail
Source of
Entertainment
Neighborhood
Stores/Convenience
Availability/ Low
Costs /
Distribution
Shopping
Experience/Efficiency
Price, concern and typical Indian features are some examples
Adaptation to Local Market Road for
Success
Source: McKinsey Quaterly, winning the Indian consumer, 2005
Chicken hamburger to reach
segments that do not eat beef
McDonalds Maharaja Mac
Nokia 1100
Anti dust keypad for dirty roads,
anti slip grip for the heat and flash-
light in case of electricity shortage
Indian menus with singe touch
Samsung microwaves
Memory backup to compensate
for frequent power shortage
Samsung laundry machine
10 milli lt. sachet for less than 5
cents increased the shampoo
buying population dramatically
Head & Shoulders
Recent Trends
Experimentation with formats: Retailing in India is still
evolving and the sector is witnessing a series of
experiments across the country with new formats being
tested out. Ex. Quasi-mall, sub-urban discount stores,
Cash and carry etc.

Store design : Biggest challenge for organized retailing to
create a customer-pull environment that increases the
amount of impulse shopping. Research shows that the
chances of senses dictating sales are upto 10-15%. Retail
chains like MusicWorld, Baristas, Piramyd and Globus
are laying major emphasis & investing heavily in store
design.

Emergence of discount stores: They are expected to
spearhead the organized retailing revolution. Stores trying
to emulate the model of Wal-Mart. Ex. Big Bazaar,
Bombay Bazaar, RPGs.

Unorganized retailing is getting organized: To meet the
challenges of organized retailing such as large Cineplex's,
and malls, which are backed by the corporate house such
as 'Ansals' and 'PVR the unorganized sector is getting
organized. 25 stores in Delhi under the banner of
Provision mart are joining hands to combine monthly
buying. Bombay Bazaar and Efoodmart formed which are
aggregations of Kiranas.
Recent changes:







Unorganized : Vast majority of the twelve million
stores are small "father and son" outlets

Fragmented : Mostly small individually owned
businesses, average size of outlet equals 50 s.q. ft.
Though India has the highest number of retail
outlets per capita in the world, the retail space per
capita at 2 s.q. ft per person is amongst the lowest.

Rural bias: Nearly two thirds of the stores are
located in rural areas. Rural retail industry has
typically two forms: "Haats" and Melas". Haats
are the weekly markets : serve groups of 10-50
villages and sell day-to-day necessities. Melas are
larger in size and more sophisticated in terms of
the goods sold (like TVs)








Traditionally three factors have plagued
the retail industry:
Retail Market not limited to metros but widely across India
The classic skimming strategy in the
metros is not longer sufficient
100 cities strategy
Over 250 large size shopping malls
are currently under construction
Leading cities 2030 are
forecasted to be
Mumbai
New Delhi
Chandigarh

New Delhi
Bangalore
Mumbai
Chennai
Kolkata
Ahamabad
Hyderabad
Pune
Above 10 Mn inhabitants
Above 4 Mn inhabitants
Above 2 Mn inhabitants
Above 1 Mn inhabitants
Kanpur
Lucknow
Jaipur
Nagpur
Coimbatore
Bhopal
Madurai
Kochin
Varanasi
Visakhapatnam
Patna
Indore
Surat
Vadodara
Ludhiana
Drivers for Indian Retail
High Income
Opportunities
Changing Attitude International
Exposure
Necessities to
Lifestyle
Service Sector: creating
new jobs.
Working Population in
2010 will 70%
IT Industry: increasing
professional opportunities
Rising Salary levels
MNCs entering India and
homegrown companies
going global


From Save to Spend
High disposable income
family structures on a rise
Nuclear Families
DINKS (Double Income
No Kids)
Multi income families



International travel
Exposure to global
trends
Highest Growth in
outbound tourists in
the world

Shift of expense
basket from basics to
lifestyle products
Increased spend on
Apparel, personal care,
entertainment
Easy Bank credit
boosts retail


Customer value drivers are continuing to fragment as a result of changing demographics & value systems
Consumption expenditure is 60 % of Indias GDP
Market &
Government
Easing out on Import
barriers, Government
sponsorship taking
shape (FDI Policy, Tax
and Duty structure,
Subsidies)
Fluid retail Segments
M-Commerce & e-
Commerce boosts retail
Global Heavyweights in Indian Retailing
Joint Ventures Product Range Retail Formats
Bharti-Walmart (with $2.5
Billion investment by
Bharti)
Food & grocery, electronics & appliances, clothing &
footwear, furniture & furnishing, household articles.
Hypermarkets, Supermarkets and
Convenience
Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets
Home Retail Group plc -
Shopper's Stop Ltd and
Hypercity Retail India
Private Ltd
Franchising the Argos concept under the terms of the
arrangement, Argos will be providing its brand,
catalogue and multi-channel expertise and IT support
Multi Channel propositions
Tata-Woolworths Sourcing agreement for Consumer durables and
Foods under brand name CROMA
Multi brand retail chain
Staples Inc Pantaloon
Retail
Global Sourcing of Office equipments across various
businesses
Cash and carry
Reliance Food & grocery, electronics & appliances, clothing &
footwear, furniture & furnishing, household articles.
Multi format and Multi Category
Birla Food & grocery, electronics & appliances, clothing &
footwear, furniture & furnishing, household articles.
Convenience and Supermarket
Format Definition
Formats Description
Key categories retailed Typical size
Sq.ft.
Example
Hyper markets
A large superstore, combining a
supermarket and departmental
store, offering full lines of
grocery and general
merchandise all under one roof
Food, groceries, apparel,
furnishings, consumer durables
15,000-100,000 Big Bazaar, Hypercity, Spencer, Star
India Bazaar, Vishal Megamart
Super markets
A large self service outlet
offering food and household
goods
Food, groceries, medicines 3,000-15,000 FoodWorld, Trinethra, Subshiksha,
Food baazar
Departmental
stores
A large self service outlet
offering a variety of
merchandise
Apparel, Jewellery, watches, fashion
accessories, footwear, furniture,
furnishings
10,000-50,000 Shoppers Stop, Lifestyle, Pantaloon,
Westside
Category
killers
Large speciality stores focussed
on one or a few categories of
merchandise, offering a wide
selection at low prices
Electronics, office supplies, apparel
20,000-100,000 Best Buy Circuit City, Staples
Convenience
stores
Small size, easily accessible
stores offering a quick
shopping, fast check out
experience and extended
working hours
Food, groceries, medicines 500-2,000 In&Out, Trinethra, Subhiksha,
traditional stores
Format Definition (Contd.)
Formats Description
Typical size
Sq.ft.

Example
Single brand
outlets
Retail outlet offering products of a
single brand
Apparel, footwear, tyres, food
services, furniture
1,000-5,000
Nike, Adidas, Colourplus, McDonalds,
Gautier, Gucci, TBZ
Multibrand
speciality
stores
Retail outlet offering multiple
branded products belonging to
a single category class
Footwear, apparel, electronics,
books
1,000-20,000
Planet Sports, Planet Fashion,
Crosswords
Warehouse
clubs
Warehouse style large stores,
offering goods in bulk at
discount prices to members
Food, groceries
100,000 +
Metro cash and carry, Costco, Sams
Club
Key categories retailed
Retail Challenges
Organizing Retail in India-Challenges
Heterogeneous market
Product offerings in different stores across the country will be very
different
No standard mode of operation across formats
Market not mature (has to be validated)
Infrastructure will bring about logistical challenges
Though, improvements in road networks, power supply are
underway
Trained employees with understanding of retail business are inadequate
compared to the needs of organized retail
Barriers to Entry
High taxes, bureaucratic clearance process and labour laws
High cost of real estate
though over 600 malls are to come up all over the country by the
next 4 years
Indian retailers are deeply entrenched, are expanding and building on
logistics and technology initiatives
Processes
Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment,
Lean supply chain JIT inventory, flow through warehouse
Evolving processes in Supply chain & merchandising
Global Best Practices not adopted
Consumer
Infrastructure
High disposable income
Changing consumer preferences
28 states, 100+ religion, 250+ festivals
Supply chain not reliable. Cold storage infrastructure evolving
Outsourced transportation
Low level automation in warehouses
Supplier/
Vendor
Current IT
Little or no collaboration between vendor & retailer
Low fill rates from vendors
Highly localized assortments leading to relationship with multiple vendors
Complex trading contracts and off invoice discounts

Multiplicity of disparate Systems & Data Formats
No architecture roadmap
Base ERP and home grown POS solutions. Low investments in store systems
No investments in planning & optimization technologies
At ground level .
Government Policies
51% FDI allowed in single-brand formats
100% FDI in cash-and-carry format
NO FDI in multi-brand stores ( like Wal-Mart)
Trends indicate that the FDI would open up in
retail sector, however political consensus has
to be reached before that happens

Benefits of FDI in retail Drawbacks of FDI in retail
Inflow of investment and funds.
Improvement in the quality of
employment.
Generating more employment.
Increased local sourcing.
Provide better value to end
consumers.
Investments and improvement in the
supply chains and warehousing.
Franchising opportunities for local
entrepreneurs.
Growth of infrastructure.
Increased efficiency.
Cost reduction.
Implementation of IT in retail.
Stimulate infant industries and other
supporting industries.
Would give rise to cut-throat
competition rather than promoting
incremental business.
Promoting cartels and creating
monopoly.
Increase in the real estate prices.
Marginalize domestic entrepreneurs.
The financial strength of foreign
players would displace the
unorganized players.
Absence of proper regulatory
guidelines would induce unfair trade
practices like Predatory
Pros and Cons of allowing FDI in retail

The Way Ahead

India is amongst the least saturated of all major global
markets in terms of penetration of modern retailing
formats

Many strong regional and national players emerging
across formats and product categories

Most of these players are now gearing up to expand
rapidly after having gone through their respective
learning curves

Real Estate Developers are also moving fast through the
learning curve to provide qualitative environment for the
consumers

The Shopping Mall formats are fast evolving

Partnering among Brands, retailers, franchisees, investors
and malls

Improved Infrastructure

In view of a compressed
evolution cycle, retailers need to
simultaneously address issues of speed,
Execution and efficiency

Retailers Marketing Decisions
Target market

Product assortment:
o Must match target market expectation
o Decide product assortment breadth and depth
Procurement

Prices:
o Must be decided in relation to the target market, the product
assortment and the competition
Retailers Marketing Decisions
Services:
o Pre-purchase services as advertising and accept telephone and
mail orders
o Post-purchase services as gift wrapping and shipping and
delivery
o Ancillary services as parking, general information and rest room

Store atmosphere as walls, lighting, Product placement, and floor

Store activities

Communications tools as ads, run special sales, and issue money
saving coupons
Retailers Marketing Decisions
Location decision:
o Central business district down town
o Regional shopping centers
o Community shopping centers
o Shopping strips cluster of stores
o A location within a larger store
Retail Category Management
Define
the
category
Figure
out its
role
Assess
perform
ance
Set goals
Choose
the
audience
Figure
out
tactics
Impleme
nt the
plan
Tips for Increasing Sales
in Retail Space
Attract and Keep shoppers in the store
Honor the transition zone
Dont make them hunt
Make merchandise available to the reach and touch
Note that men do not ask questions
Remember women need space
Make checkout easy
Indicators of Sales Effectiveness
Number of people passing by
Percent who enter store
Percent who buy
Average amount spent per sale
Private Label Brands
A privatee- label brand( a reseller, store, house)
is a brand that retailers and wholesalers develop

Why do intermediaries bother to sponsor their own brands?
They can be more profitable
Retailers develop exclusive store to differentiate themselves from
competitors
Ex: Canadian company LOBLAW which start as local store brand
and then become global
Wholesaling
Wholesaling includes all the activities in selling goods or
services to those who for resale or business use



Wholesaling Functions

Selling and
promoting
Buying and
assortment building
Bulk breaking
Warehousing
Transportation Financing
Risk bearing
Market
information
Management
services and
counseling
Major Wholesaler Types
wholesaler
Merchant
Full-service
Limited-
service
Brokers
and agents
Manufactu
rers
Specialized
Market Logistics
Market logistic includes planning the infrastructure to meet demand,
then implementing and controlling the physical flow of materials
and goods from points of origin to points of use to meet customer
requirements at profit
Market Logistics Planning
Deciding on the companys value proposition to its customers
Deciding on the best channel design and network strategy
Developing operational excellence
Implementing the solution
What are
Integrated Logistics Systems?
An integrated logistics system (ILS) includes
materials management, material flow systems, and
physical distribution, aided by information
technology.
Market Logistics Activities
Sales forecasting
Distribution scheduling
Production plans
Finished-goods inventory
decisions
Packaging

In-plant warehousing
Shipping-room processing
Outbound transportation
Field warehousing
Customer delivery and
servicing

Market Logistics Decisions
How should orders be handled?(Order processing)
Where should stock be located?(Warehousing)
How much stock should be held?(Inventory)
How should goods be shipped?( Transportation)
Thank You