Organized Organized Retail and Retail and

FDIFDIKnowledge Session 1Knowledge Session 1

What is organized What is organized retail ?retail ?

Branded stores (Usually Part of a chain)Branded stores (Usually Part of a chain)

Modern Infrastructure and TechnologyModern Infrastructure and Technology

Self ServiceSelf Service

Types of Organized retailTypes of Organized retail Supermarkets & Convenience storesSupermarkets & Convenience stores Department StoresDepartment Stores HypermarketsHypermarkets Cash and carryCash and carry Specialty storesSpecialty stores Single brand Exclusive storesSingle brand Exclusive stores Discount Stores/Factory outletsDiscount Stores/Factory outlets

Retail in IndiaRetail in India

Organized retail is 6% but growing fastOrganized retail is 6% but growing fast

Global range: Global range: 2% in Pakistan2% in Pakistan 35% Brazil35% Brazil 55% Malaysia55% Malaysia 85% USA85% USA

Small Unorganized family run retail storesSmall Unorganized family run retail stores

Organized Retail in Organized Retail in IndiaIndia

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

RelianceReliance Reliance Fresh, Trends, Jewels etcReliance Fresh, Trends, Jewels etc

RPG Spencer'sRPG Spencer's

Aditya Birla MoreAditya Birla More

Cash and CarryCash and Carry Metro AG, Bharti Wal-Mart Metro AG, Bharti Wal-Mart

Retail and IndiaRetail and India

Food and Groceries – 60%Food and Groceries – 60%

Clothing and Footwear – 9-10%Clothing and Footwear – 9-10%

Furniture and Appliances – 5-6%Furniture and Appliances – 5-6%

Indian Retail Key Indian Retail Key Issues Issues

Low sales per outletLow sales per outlet Rs 1000 – 1200 per day RuralRs 1000 – 1200 per day Rural Rs 7000 – Rs 8000 per day UrbanRs 7000 – Rs 8000 per day Urban

Low productivity of LaborLow productivity of Labor 6% of USA levels6% of USA levels

Long Supply chainLong Supply chain 5 to 6 intermediaries Vs 2-3 in USA/Europe5 to 6 intermediaries Vs 2-3 in USA/Europe

Inefficient supply chainInefficient supply chain Poor infrastructure – Roads, Storage etcPoor infrastructure – Roads, Storage etc Low percentage of processed food Low percentage of processed food

Indian Retail Key Indian Retail Key IssuesIssues

Over regulated industryOver regulated industry Antiquated APMC restricts farmers choiceAntiquated APMC restricts farmers choice

Multiple taxesMultiple taxes State VAT, Central CST, Octroi etcState VAT, Central CST, Octroi etc

Archaic labor lawsArchaic labor laws Regulate shift timings, holidays, contract labor Regulate shift timings, holidays, contract labor

etcetc

High Real estate costsHigh Real estate costs Cost of real estate in Cities is very high Cost of real estate in Cities is very high

Organized Retail in Organized Retail in India India

High potentialHigh potential Urbanization and growth of middle classUrbanization and growth of middle class Increase in % of working womenIncrease in % of working women Exposure to modern retail experience (Malls)Exposure to modern retail experience (Malls) Increased demand for branded/Processed Increased demand for branded/Processed

foodfood High growth in turnoverHigh growth in turnover

Still on learning curveStill on learning curve Supply chain, Technology, Mgt practicesSupply chain, Technology, Mgt practices Real estate cost, Manpower quality, theft etcReal estate cost, Manpower quality, theft etc Mounting lossesMounting losses

FDI in retailFDI in retail

Current scenarioCurrent scenario

100% FDI in Cash and Carry100% FDI in Cash and Carry

51% in Single brand stores51% in Single brand stores

Proposal Proposal to allow 100% in Single brand to allow 100% in Single brand and 51% in multi brand retailand 51% in multi brand retail

Current Status: on HoldCurrent Status: on Hold

Potential impactPotential impact Infusion of cash for cash Intensive businessInfusion of cash for cash Intensive business

Infusion of technology and practicesInfusion of technology and practices Boost to supply chain and logisticsBoost to supply chain and logistics Cold storages and processing unitsCold storages and processing units Will require change in APMCWill require change in APMC

Partnership with Indian playersPartnership with Indian players Local knowledge and global expertiseLocal knowledge and global expertise

Boost to Indian SuppliersBoost to Indian Suppliers 30% sourcing from Indian SME30% sourcing from Indian SME Sourcing from India for global operationsSourcing from India for global operations

Potential impactPotential impact

Impact on urban small retailersImpact on urban small retailers Loss of business and potential closureLoss of business and potential closure FDI allowed in 51 citiesFDI allowed in 51 cities

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

Is it a good thing?Is it a good thing? For FarmersFor Farmers

Should get better pricesShould get better prices Impact may be limited to Medium/Large farmsImpact may be limited to Medium/Large farms Better seeds, technology and farm practicesBetter seeds, technology and farm practices Multiple options for farmers Multiple options for farmers Loss of bio diversityLoss of bio diversity

For Small retailersFor Small retailers Loss of business, but most will surviveLoss of business, but most will survive Impact high in proximity to Modern storesImpact high in proximity to Modern stores Will have to adapt and might need supportWill have to adapt and might need support

Is it a good thing?Is it a good thing?

For consumersFor consumers Better prices, larger variety, Better shopping Better prices, larger variety, Better shopping

expexp Convenience for Working familiesConvenience for Working families Would increase consumption expenditureWould increase consumption expenditure

Purchase of processed food, impulse itemsPurchase of processed food, impulse items

For ManufacturersFor Manufacturers 30% rule would benefit SME’s30% rule would benefit SME’s Large manufacturer’s margins squeezedLarge manufacturer’s margins squeezed

Is it a good thing?Is it a good thing?

EmploymentEmployment Loss of unorganized sector jobs at small retailLoss of unorganized sector jobs at small retail Creation of organized sector jobsCreation of organized sector jobs Net Growth in employment if Consumption IncNet Growth in employment if Consumption Inc Additional jobs in supply chain/Food Additional jobs in supply chain/Food

processingprocessing

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

Conditions ApplyConditions Apply APMC act needs to be amendedAPMC act needs to be amended

GST would simplify taxationGST would simplify taxation

Investment in Roads/infra required etcInvestment in Roads/infra required etc

It is long term gameIt is long term game Don’t expect results in 2-3 yearsDon’t expect results in 2-3 years Wal-Mart and co will go slow at firstWal-Mart and co will go slow at first

Politics may still derail the planPolitics may still derail the plan Opposition states and Some Allies opposeOpposition states and Some Allies oppose The JV’s would not operate in such statesThe JV’s would not operate in such states