Changing Retail Landscape in India

Presented By: Uma Shankar Singh (Alumnus XLRI)

Indian Retail8.90%

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%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail…

Real

Gro

wth

Rat

e

Source :Central Statistical Organization (CS0)

Source: Citigroup Research

Timeline of Retailing in India

India Experiencing Rapid Economic Growth

9.4% growth rate makes India the second fastest growing economy in the world

GDP

(US$

bn)

Real

Gro

wth

Rat

e

With High Private ConsumptionGDP

US$ 935 billion

Private ConsumptionUS$ 580 Billion

(62%)

Public Spending and Capital Formation

US$ 355 Billion (38%)

Retail US$ 342 Billion

(59%)

Non RetailUS$ 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 ConsumptionUS$ 870 Billion

(60%)

Public Spending and Capital Formation

US$ 580 Billion (40%)

RetailUS$ 530 Billion

(61%)

Non RetailUS$ 340 Billion

(39%)

UrbanUS$ 252 Billion

(47.5%)

RuralUS$ 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 87200

0100200300400500600700800900

2007 2008 2009 2010 2011 2012 2017

US

$ Bi

llion

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 MarketsVillage Fairs

Melas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super Markets

Department StoresShopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Evolution of Indian retail

Source of Entertainmen

t

Neighborhood Stores/Convenie

nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie

ncy

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

HyderabadPune

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 RetailHigh Income

OpportunitiesChanging Attitude International

ExposureNecessities 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 India’s 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 RetailingJoint 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 Shopper’s 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, Sam’s 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 expectationo 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 centerso Community shopping centerso Shopping strips “cluster of stores”o A location within a larger store

Retail Category Management

Tips for Increasing Sales in Retail Space

• Attract and Keep shoppers in the store• Honor the transition zone• Don’t 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

competitorsEx: 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

Major Wholesaler Types

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 company’s 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