Organized Retail and

FDIKnowledge 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 SME’s Large manufacturer’s 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 Don’t 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 JV’s would not operate in such states