Challenges & Opportunities in

Indian Retail Industry

Agenda
Retailing : An overview
Indian retail
The change factor
FDI in Indian retailing
Why FDI ?
How FDI ?

FDI in Indian retailing

Retailing: An overview

An overview

Retailing
Worlds largest private industry
US$ 6.6 trillion sales annually

Indian retailing
Largest employer after agriculture 8%* of population
Highest outlet density in world
Around 12 mn outlets
Still evolving as an industry
Long way to go

Retailing: An overview

Wal-Mart
Topmost
global
Fortune
500
company(3 Consecutive Years)
Annual Sales of over US$ 250 bn
Indias
two largest retail player
turnover around US$ 158 mn (Bata)
and US$ 102 mn (Shoppers Stop)

Fortune 100
9 Retailers
Carrefour,
Ahold,
Home
Depot,
Kroger, Metro, Kmart-Sears, Target,
Albertsons

An overview

Evolution of Indian retail

Historic/Rural
Reach

Traditional/Perva
sive Reach

Government
Supported

PDS Outlets
Khadi Stores
Cooperatives

Modern Formats/
International

Exclusive Brand
Outlets
Hyper/Super
Markets
Department Stores
Shopping Malls

Convenience
Stores
Mom and
Pop/Kiranas
Weekly
Markets
Village Fairs
Melas
Source of
Entertainmen
t

Neighborhood
Stores/Convenie
nce

Availability/
Low Costs /
Distribution

Shopping
Experience/Efficie
ncy

Evolution of Indian retail

Indian retail

Informal retailing Sector

Typically small retailers.
Evasion of taxes

Difficulty
in
enforcing
collection mechanisms
No monitoring of labor laws

tax

Formal Retailing Sector

Typically large retailers
Greater
enforcement of taxation
mechanisms
High level of labor usage monitoring

Categories of Indian retail

Indian retail

Corporate Houses
Tatas: Tata Trent
RPG group: Food World, Health
and
Glow, etc
ITC: Wills Life Style

Rahejas(ShoppersStop),
Hiranandani(Haiko),
DLF(DT
cinemas) etc.
Dedicated brand outlets
Nike, Reebok, Zodiac etc
Multi-brand outlets
Vijay Sales, Viveks etc
Manufacturers/ Exporters
Pantaloons, Bata, Weekender

Classifying Indian retail

Modern Format retailers

Supermarkets
(Foodworld)
Hypermarkets
(Big
Bazaar)
Department Stores
(S Stop)
Specialty Chains
(Ikea)
Company Owned Company Operated

Traditional Format Retailers

Kiranas: Traditional Mom and Pop
Stores
Kiosks
Street Markets
Exclusive /Multiple Brand Outlets

Indian retail

Large Indian retailers

Hypermarket

Department store

Indian
retailers

Big Bazaar
Giants
Shoprite
Star
Lifestyle
Pantaloons
Pyramids
Shoppers Stop
Trent

Entertainment

Fame Adlabs
Fun Republic
Inox
PVR

The changing Indian consumer

Indian
consumer

Greater per capita income

Increase
in disposable income of
middle class households
20.9%* growth in real disposable
income in 99-03.
Growing high and middle income
population
Growing at a pace of over 10%* per
annum over last decade
Affordability growth
Falling interest rates
Easier consumer credit
Greater variety and quality at all
price points

The changing Indian consumer

Indian
consumer

The urban consumer

Getting
exposed to international
lifestyles
Inclined to acquiring asset
More
discerning and demanding
than ever

No longer need-based shopping

Shopping is a family experience
Changing Mindset
Increasing tendency to spend
Post Liberalization children coming
of age
100 mn 17-21 year olds*. Tend to
spend freely.
Greater levels of education

Challenges
in the Industry
Low domestic competition

Because of fragmented nature of

industry

Lack of exposure to global best

practices
Low entry barriers for unorganized
retailing
Moderate
entry
barriers
for
organized retailing

Wholesale
system
under-invested
leading to 20-40% wastage

Non level playing field issues

Wide
differences in treatment of
small and large retailers

Industry
Challenges

Challenges

issues

Real Estate Costs

Supply Chain Inconsistency

Poor Infrastructure

Lack of Skilled Manpower

Opportunities

Anticipated
growth

Market size
Current market size is roughly US$
286 bn*
96% of the 12 Million stores are less
than 500 Sq. ft.
Forecast Growth rate for the retailing
industry is roughly 8.3% for 20032008
Sales from large format stores would
rise by 24-49%**
Formal and modern format retailing
would enjoy rapid growth

Growth factors

Growth
factors

Growth determining factors

Government Policy
Infrastructure development
GDP growth
Employment
generation and job
creation
In several new sunrise industries
Implies greater purchasing power

The Indian advantage

Advantage
India

India ranked 1st in the Global

Kearney Retail Development Index
India

Russia

China

A.T

THE SIZE OF THE OPPORTUNITY

Total Retail

Organised

Organised

Rs. Billion

Retail

Retail as %

Rs. Billion

of Total

Products

Food & Grocery

6422

50

Textiles & Apparel

980

185

19

Jewelry & Watches

554

30

Consumer durables

415

43

10

Pharmaceuticals

364

10

Home Solutions

351

32

Books, Music & Gifts

115

15

13

Others

1159

111

10

10360

476

Total

FDI in Indian retailing

FDI in Retail
not
permitted

Current Indian FDI Regime

FDI not permitted in retail trade
sector, except in:
Private labels
Hi-Tech items / items requiring
specialized after sales service
Medical and diagnostic items
Items sourced from the Indian
small sector (manufactured with
technology
provided
by
the
foreign collaborator)
For 2 year test marketing
(simultaneous commencement of
investment in manufacturing
facility required)

FDI in Indian retailing

Current FDI

Metro Group of Germany

Cash-and-carry wholesale trading
Proposal faced strong opposition

Entities established prior to 1997

Allowed
to continue with their
existing foreign equity components.
No
FDI restrictions in the retail
sector pre-1997
Foodworld
51:49 JV between RPG and Dairy
Farm International,
Leading food retailer in India now
Mc Donalds

International retailers in India:

Strategies
Franchise

International company gives name

and technology to local partner. Gets
royalty in return
In
case
master
franchise
is
appointed for region or country, he
has right to appoint local franchisees
Nike, Pizza Hut, Tommy Hilfiger,
Marks and Spencer, Mango
Manufacturing
Company
sets up Indian arm for
production
Bata India. It also has right to
retail in India

How they
are present

International retailers in India:

Strategies

Distribution
International company sets up local
distribution office
Supply products to Indian retailers
to sell
Also set up franchised outlets for
brand
Swarovski, Hugo Boss

Wholesale trading
Cash and Carry operations
100% FDI permitted
Metro Cash n Carry

How they
are present

Why FDI?

Benefits of
FDI

Improve competition
Develop the market
Greater level of exports due to
increased sourcing by major players
Sourcing
by Wal-Mart from China
improved
multifold
after
FDI
permitted in China
Similar
increase
in
sourcing
observed for Metro in India
Provides access to global markets
for Indian producers

Why FDI?

Investment in technology
Cold storage chains solve the perennial
problem of wastage
Greater
investment
in
the
food
processing sector technology
Better operations in production cycle and
distribution

Benefits of
FDI

Better lifestyle
Greater
level
of
wages
paid
by
international players usually
More product variety
Newer product categories
Economies
of scale to help lower
consumer price
Increased
purchasing
capacity
of
consumers

How FDI ?

How FDI ?

FDI should be allowed in stages

Initial stages: 26% FDI

2 yrs

Establishment Phase: 49% FDI 2 yrs

Mature Phase: 100% FDI

2 yrs

FDI policy
No incentives needed to attract FDI
Market
size and potential are
sufficient inducers
No need for costly tax breaks, import
duty exemptions, land and power
subsidies, and other enticements

Thank you