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Organized Retail in India, Challenges and Prospects

Acknowledgment

A task or project cannot be completed alone. It requires the effort

of many individuals. I take this opportunity to thank all those who helped me

complete this project.

I express my sincere gratitude to Ms. Aditi Dhool for giving us the

Opportunity to undergo this project. I further thank his for lending a helping

hand when it came to solving my problems related to the project. This project

would not have been possible without his valuable time and support.

I also thank Rai business school for an opportunity to undertake Soft skills

project at the start of our MBA course which helped us to understand deeply

for those topics which are untouched.

This project is an attempt to talk about the Scenario of Retailing and its

Operations in India.

Any suggestions to improve are always welcome.

Rishikesh Kuamr, Rai Business School, New Delhi 1


Organized Retail in India, Challenges and Prospects

Introduction

India today is the second fastest growing economy of the world after

China. Indian economy will grow larger than Britain’s by 2022, Japan by 2032

and by 2050 will become the second largest economy of the world after

China. Indian market has become the most lucrative market for retail

investment in the world.

Some of the factors which have contributed to the growth of organized

retail in India are: increase in the purchasing power of Indians, rapid

urbanization, increase in the number of working women, large number of

working young population. Today people look for better quality product at

cheap rate, better service, better ambience for shopping and better shopping

experience.

The Retail industry in India is emerging as one of the most promising

industries both in terms of contribution to the GDP as well as in creation of the

job opportunities. Starting with the local Kirana and mom and pop stores to

the big hypermarkets and supermarkets, The Indian retail is all poised to go to

a higher level. An IMAGES-KSA Technopak study released at the KSA Retail

Summit 2005 by Mr. Kishore Biyani, managing director of Pantaloon Retail,

India’s largest retailer. “The size of the organized retailing market stood at Rs

280 billion in 2004, thereby, making up a mere 3% of the total retailing market.

Moving forward, organized retailing is projected to grow at the rate of 25%-

30% p.a. and is estimated to reach astounding Rs 1000 billion by 2010.

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Organized Retail in India, Challenges and Prospects

Further, its contribution to total retailing sales is likely to rise to 9% by the end

of the decade,” said Mr. Arvind Singhal, chairman, KSA Technopak.

Driven by the changing lifestyle, augmented disposable income, the

need for convenience and the awakened rural market, the future of Retail

looks dazzling. In addition, India has been ranked as the most attractive

market by the AT Kearney’s Global Retail development index .The index

conducts the study on 30 emerging countries on the basis of 25 macro

economic and retail specific variable to measure the attractiveness of these

markets. Leading global retailers such as Wal-Mart, Tesco and others are

keen to enter the Indian retailing industry. The Chicago-based Sara Lee

Corporation is planning to enter the Indian apparel market. Dior, the well

known watch brand from the Louis Vuitton Moet Hennessy (LVMH) group, is

planning to include India among its top 12 world markets.

The Rosy Blue Group, the world's largest diamond manufacturer, is planning

to invest Rs 900 million in setting up 40 exclusive Orra diamond jewelry

showrooms in India over the next three years. Since foreign direct investment

(FDI) in the retailing sector was not permitted as of mid 2005, most global

players were opting for the franchisee route.

According to the Global Retail Development Index4 of 2005 conducted by AT

Kearney, India was ranked #1 among 30 'most attractive' retailing destinations

across the globe. Kamal Nath, Union Minister for Commerce and Industry in

India, expressed optimism with regard to the retail sector in India.

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Organized Retail in India, Challenges and Prospects

In a seminar conducted by the Federation of Indian Chambers of

Commerce and Industry (FICCI)5 in February 2005, he said, "The importance

of the retail sector in the national economy is not in dispute. All economists

have agreed that giving the retail sector a thrust will not only result in boosting

the economy, but also that the retail sector has the potential to be leveraged

in order to rejuvenate specific targeted sectors, including the rural economy."6

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Organized Retail in India, Challenges and Prospects

What is Retail?

The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a

piece off' or 'to break bulk'. In simple terms it involves activities whereby

product or services are sold to final consumers in small quantities. Although

retailing in its various formats has been around our country for many decades,

it has been confined for along time to family owned corner shops.

Englishmen are great soccer enthusiasts, and they strongly think that one

should never give Indians a corner. It stems from the belief that, if you give an

Indian a corner he would end up setting a shop. That is how great Indians

retail management skill is considered.

What is Organised Retail?

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Organized Retail in India, Challenges and Prospects

The Indian Retail industry is divided into the organized and the unorganized

sector. The unorganized sector mainly includes the local Kirana store and the

mom and pop stores. The organised sector includes the big companies like

the RPG, Pantaloons and the foreign players like addidas, Reebok,

McDonalds and Pizza hut. Most of the Indian Retail industry is characterized

by an unorganized market but the growth of the organised sector in the past

few years has been incredible. Noting that organised retail market is growing

at the rate of 40%, Northbridge Capital said that faster growth rate would be

maintained in the next three years, especially with the entry of major global

players and Indian corporate houses. The organized retail in India has been

divided into various categories like Jewellery and Watches, Catering and

services, Furniture & furnishing, Footwear, Consumer durables, food &

grocery, Clothing & Textile, Mobile handsets, Books, music & gifts etc. The

market share categorization is Although there are abundant factors that drives

retailing in India but the challenges for the retailers are also numerous

The Facts

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Organized Retail in India, Challenges and Prospects

Retailing in more developed countries is big business and better organized

that what it is in India. Report published by McKinsey & Co. in partnership with

Confederation of Indian Industry (CII) states that the global retail business is

worth a staggering US $ 7 trillion. The ratio of organized retailing to

unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it

comes to around 20 to 80.

In India the scenario is quiet unique, organized retailing accounts for a

mere 5% of the total retail sector. Although there are around 5 million retail

stores in India, 90% of these have a floor space area of 500 sq.ft. or less. The

emergence of organised retailing in India is a recent phenomenon and is

concentrated in the top 20 urban towns and cities.

The Reason

This emergence of organized retailing has been due to the demographic

and psychographic changes taking place in the life of urban consumers.

Growing number of nuclear families, working women, greater work pressure,

changing values and Lifestyles, increased commuting time, influence of

western way of life etc. have meant that the needs and wants of consumers

have shifted from just being Cost and Relationship drive to Brand and

Experience driven, while the Value element still dominating the buying

decisions.

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Organized Retail in India, Challenges and Prospects

Global Scenario of organized retail

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Organized Retail in India, Challenges and Prospects

Retail stores constitute 20% of US GDP & are the 3 rd largest employer

segment in USA. China on the other hand has attracted several global

retailers in recent times. Retail sector employs 7% of the population in

China. Major retailers like Wal-Mart & Carrefour have already entered the

Chinese market. In the year 2003, Wal-Mart & Carrefour had sales of US $

70.4 Crore & US $ 160 Crore respectively.

The global retail industry has traveled a long way from a small beginning to an

industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The

top 200 retailers alone accounts for 30 % of the worldwide demand. Retail

turnover in the EU is approximately Euros 2,00,000 Crore and the sector

average growth is showing an upward pattern. The Asian economies

(excluding Japan) are expected to grow at 6% consistently till 2005-06.

On the global Retail stage, little has remained same over the

last decade. One of the few similarities with today is that Wal-Mart was

ranked the top retailer in the world then & it still holds that distinction.

Other than Wal-Mart's dominance, there's a little about today's

environment that looks like the mid-1990s. The global economy has changed,

consumer demand has shifted & retailers' operating systems today are

infused with far more technology than was the case six years ago.

Organized retail in India

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Organized Retail in India, Challenges and Prospects

The Indian organized retail industry is valued at about $300 billion and is

expected to grow to $427 billion in 2010 and $637 billion in 2015. Retail

Market India today is the second fastest growing economy of the world after

China. Indian economy will grow larger than Britain's by 2022, Japan by 2032

and by 2050 will become the second largest economy of the world after

China. Indian market has become the most lucrative market for retail

investment in the world. Some of the factors which have contributed to the

growth of organized retail in India are: increase in the purchasing power of

Indians, rapid urbanization, increase in the number of working women, large

number of working young population.

Today people look for better quality product at cheap rate, better service,

better ambience for shopping and better shopping experience. Organized

retail promises to provide all these. The Industry The various formats of

organized retail are: Hypermarkets: They store products of multiple brands

comprising food items and non-food items. Supermarkets: These are self

service stores selling food and personal care products. E.g.: Subhiksha.

Departmental stores: Retails branded goods in non-food categories. E.g.:

Shoppers Stop. Specialty Chains : These stores focuses on a branded

product or a product category. E.g.: Bata Convenience stores: These are

small self service outlet located in crowded urban area. Malls: A huge

enclosures which has different retail formats. e.g.: Nucleus Key players in

organised retail are: Pantaloon Retail: It was started by Kishore Biyani- India's

largest retailer. The various formats of pantaloon retail are: Pantaloons, Big

Bazaar, Food Bazaar, Central etc. RPG Retail: Its various formats are: Food

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Organized Retail in India, Challenges and Prospects

World, Music World, Health & Glow, Spencer's Tata Retail (known as TRENT):

Its various formats are: CromaWestsideStar India Bazaar K Raheja Corp.

Group: Shoppers' Stop, Hypercity, Crossword, InOrbit Mall Reliance Retail

Job Opportunities: Retail accounts for 8% employment in the country. In the

next 2 years the sector is set to provide 2.5 lakh job opportunities.

The types of jobs available in retail are: Retail sales, Store management,

Stock management, Supply chain management, warehousing and operations.

In organised retail the frontliners like shop floor executives, sales executives

etc are in great demand. The frontliners have to directly communicate with the

customers. The other jobs are for store managers, store planners, cashiers,

stockists, logistics, operations, distribution, marketing, finance, HR, IT etc.

Good communication skill, high interpersonal skills, convincing power, positive

attitude and ability to handle stress is a prerequisite for these jobs. Fresh

graduates who want to make career in retail can easily fill these jobs. Stock

planners, Operations, logistics, cashiers have to deal with the numbers daily.

Besides having good communication skills they also require numerical and

analytical ability.

Bharati retail is planning to invest $2.5bn by 2015 which will create

employment opportunity for 60,000 people. Bharti Resources, a learning and

development solutions subsidiary of Bharti Group, has tied-up with Global

Retail School (GRS) to groom graduates and undergraduates in retail

management and other sectors. They will provide 3-month and 6-month

certificate courses for Rs 30,000 and Rs 15,000 respectively in Retail Sales

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Organized Retail in India, Challenges and Prospects

and Marketing, Retail Visual Merchandising and Space Planning, Retail

Supply Chain Management, for creating frontend manpower professionals.

Indeed it is a fact that organised retail in India is all set to grow at an

stupendous pace

Indian organized retail market is growing at a fast pace due to the boom in the

India retail industry. In 2005, the retail industry in India amounted to Rs 10,000

billion accounting for about 10% to the country's GDP. The organized retail

market in India out of this total market accounted for Rs 350 billion which is

about 3.5% of the total revenues.

Retail market in the Indian organized sector is expected to cross Rs 1000

billion by 2010. Traditionally the retail industry in India was largely

unorganized, comprising of drug stores, medium, and small grocery stores.

Most of the organized retailing in India have started recently and is

concentrating mainly in metropolitan cities.

The growth in the Indian organized retail market is mainly due to the change

in the consumers behavior. This change has come in the consumer due to

increased income, changing lifestyles, and patterns of demography which are

favorable. Now the consumer wants to shop at a place where he can get food,

entertainment, and shopping all under one roof. This has given Indian

organized retail market a major boost.

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Organized Retail in India, Challenges and Prospects

Retail market in the organized sector in India is growing can be seen from the

fact that 1500 supermarkets, 325 departmental stores, and 300 new malls are

being built. Many Indian companies are entering the Indian retail market which

is giving Indian organized retail market a boost. One such company is the

Reliance Industries Limited. It plans to invest US$ 6 billion in the Indian retail

market by opening 1000 hypermarkets and 1500 supermarkets.

Pantaloons is another Indian company which plans to increase its retail space

to 30 million square feet with an investment of US$ 1 billion. Bharti Telecoms

an Indian company is in talks with Tesco a global giant for a £ 750 million joint

venture. A number of global retail giants such as Walmart, Carrefour, and

Metro AG are also planning to set up shop in India. Indian organized retail

market will definitely grow as a result of all this investments.

Indian organized retail market is increasing and for this growth to continue the

Indian retailers as well as government must make a combined effort.

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Organized Retail in India, Challenges and Prospects

North India:30-
35% of total
market retail
South India: 15-20%
of total market size
organized retail

East India: 10-


15% of total
West India: 25-30% market size
of total market organized retail
organized retail

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects

Executive Summary

The real GDP is expected to grow at 8-10 per cent per annum in the next five

years. As a result, the consuming class with annual household incomes above

Rs. 90,000 is expected to rise from about 370 million in 2006-07 to 620 million

in 2011-12. Consequently, the retail business in India is estimated to grow at

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Organized Retail in India, Challenges and Prospects

13 per cent annually from US$ 322 billion in 2006-07 to US$ 590 billion in

2011-12. The study shows:

• The unorganized retail sector is expected to grow at about 10 per cent

per annum with sales rising from US$ 309 billion in 2006-07 to US$ 496 billion

in 2011-12.

• Given the relatively weak financial state of unorganized retailers, and

the

physical space constraints on their expansion prospects, this sector alone will

not be able to meet the growing demand for retail.

• Hence, organized retail which now constitutes a small four per cent of

total retail sector is likely to grow at a much faster pace of 45-50 per cent per

annum and quadruple its share in total retail trade to 16 per cent by 2011-12.

• This represents a positive sum game in which both unorganized and

organized retail not only coexist but also grow substantially in size.

• The majority of unorganized retailers surveyed in this study, indicated their

preference to continue in the business and compete rather than exit.

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Organized Retail in India, Challenges and Prospects

KEY CHALLENGES:

1) Economic slowdown: –

With economic slowdown hitting most of the economies, the organized retail

sector in India is also witnessing a hold back. Most of the major retail giants

have either postponed their ideas of expansion and are afraid of undertaking

any new big projects. Although most of the companies have already taken an

initiative to make their way in the rural market and others are also planning to

do the same but due to the economic turmoil, this effort seems to have taken

a back seat.

1) LOCATION:

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Organized Retail in India, Challenges and Prospects

"Right Place, Right choice"

Location is the most important ingredient for any business that relies on

customers, and is typically the prime consideration in a customer’s store

choice. Locations decisions are harder to change because retailers have to

either make sustainable investments to buy and develop real estate or commit

to long term lease with developers. When formulating decision about where to

locate, the retailer must refer to the strategic plan:

* Investigate alternative trading areas.

* Determine the type of desirable store location

* Evaluate alternative specific store sites

2) MERCHANDISE:

The primary goal of the most retailers is to sell the right kind of merchandise

and nothing is more central to the strategic thrust of the retailing firm.

Merchandising consists of activities involved in acquiring particular goods and

services and making them available at a place, time and quantity that enable

the retailer to reach its goals. Merchandising is perhaps, the most important

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Organized Retail in India, Challenges and Prospects

function for any retail organization, as it decides what finally goes on shelf of

the store.

3) PRICING:

Pricing is a crucial strategic variable due to its direct relationship with a firm's

goal and its interaction with other retailing elements. The importance of pricing

decisions is growing because today's customers are looking for good value

when they buy merchandise and services. Price is the easiest and quickest

variable to change.

4) TARGET AUDIENCE:

"Consumer the prime mover"

"Consumer Pull", however, seems to be the most important driving factor

behind the sustenance of the industry. The purchasing power of the

customers has increased to a great extent, with the influencing the retail

industry to a great extent, a variety of other factors also seem to fuel the

retailing boom.

5) SCALE OF OPERATIONS:

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Organized Retail in India, Challenges and Prospects

Scale of operations includes all the supply chain activities, which are carried

out in the business. It is one of the challenges that the Indian retailers are

facing. The cost of business operations is very high in India.

6) The Retail Environment:-

The foreign retailers who considered India as a gold mine, till a few

years back, have now started rethinking about their plans for entering the

market. The ever increasing terrorist activities have added on to the economic

slowdown. First of all, the government regulations on the foreign entry in retail

(51 % in single brand retailing and 100 % in cash and carry format) along with

the economic slow downs and terrorist activities has forced most of the

companies to reconsider about their plans of entering Indian retail industry.

7) Disorganized supply chain network:–

Along with economic slow down, a disorganized supply chain is

also standing in the way of organised players to tap the rural markets and

expand their operations. An efficient supply chain network enables the

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Organized Retail in India, Challenges and Prospects

company to reduce the cost as well as manage the demand of its customer.

Without an efficient supply chain, it becomes almost impossible for these

companies to provide better product assortments across the country

effectively with minimum cost. Therefore, an under developed supply chain

network has also been hindering the scaling of the retail operations since a

long time.

8) Technology hurdles: -

.An effective IT system is very crucial for the success of the supply chain

which supports the retailing operations but as compared to the developed

countries, India is incompetent in installing and managing an effective IT

system especially in the rural areas which has been a trouble for the Indian

Retailers since a long time.

9) Lack of utilities:–

Most of the metro cities are equipped with all the facilities and requirements of

the modern businesses but the inadequate utilities like transport system,

power, telecommunication, water, internet facilities etc. in the other part of the

countries has also pushed the retailers one step back in sustaining the retail

operations in a widespread geographical location. Although relevant steps

have been taken over the past few years to make these facilities available in

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Organized Retail in India, Challenges and Prospects

all parts of the country but this endeavor needs an acceleration to match the

growth of the zooming industry.

10) Location planning: –

Location is considered as one of the most important ingredients for the

success of a retail business. But because of the fluctuating cost of the real

estate in the country, a higher stamp duty as compared to the other countries

and the zoning laws, a dilemma has been created over the land use for the

commercial purposes. The Retailers are finding it very difficult to first of all

select a location which is found to be the most appropriate for their operations

and then to cope up with the fluctuating costs of land and paying a high stamp

duty which adds on to their investment and reduces their margin.

11) Unproductive human resource: –

The retail industry has been creating a lot of employment and a major chunk

of the population has been engaged in the retail industry but looking at the

tough working conditions in retail i.e. long working hours, no weekends and

festival holidays, it becomes very difficult to hire people who can create a

bottleneck for the success. In the aura of optimizing the cost, the companies

are also neglecting the training needs of the newly hired people which is also

a major factor for reducing the efficiency of the human resource.

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Organized Retail in India, Challenges and Prospects

12) The presence of a grey market: –

In most of the cities, the dominance of the grey markets has been acting as a

threat to the big retailers. By selling the product at a cheaper rate, they are

shifting the consumer perception from the focus on quality to a focus on price.

Retailing in India: the present scenario

The present value of the Indian retail market is estimated by the India Retail

Report to be around Rs. 12,00,000 crore($270 billion) and the annual growth

rate is 5.7 percent. Retail market for food and grocery with a worth of Rs.

7,43,900 crore is the largest of the different types of retail industries present in

India. Furthermore around 15 million retail outlets help India win the crown of

having the highest retail outlet density in the world.

As can be clearly seen, retailing in India is superior than those of its

contenders. Retail sector is a sunrise industry in India and the prospect for

growth is simply huge. There are many factors that have stimulated the rise of

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Organized Retail in India, Challenges and Prospects

the shopping centers and multiplex-malls in a jiffy. Some of them can be listed

as follows:

1) Rise in the purchasing power of Indians- the rise in the per capita

income in the last few years has been magnificent. This has led to the

generation of insatiable wants of the upper and middle class. The demand of

new as well as second hand durables has risen throughout the country thus

providing the incentive for taking up retailing.

2. Favorable to farmers-

retailing has helped in removing the middlemen and has thus enhanced the

remuneration to farmers. This is a new revolution in the agricultural sector in

India and will go a long way in amending the condition of agriculture, a major

concern among policy makers.

3. Use of credit- a typical Indian is most conversant with using credit cards

than carrying money. This has led to a shift of the consumer base towards

supermarkets and make the payments in the form of credit.

4. Comfortable Atmosphere-

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Organized Retail in India, Challenges and Prospects

a visit to a retail store appears to be more soothing for the generation-Y.

People and kids prefer to shop in an air conditioned a tech savvy manner.

The retail industry is the second largest employer in India. It currently employs

about 7 percent of the total labor force in India. Finance Minister P.


Chidambaram's recent statement “salaries ought not be legislated” is a
welcome move as most of the organized retail is in private hands. However
only about 4.6% of the total retail trade is in organized sector. It generates
about Rs.55,000 crore ($12.4 billion). The major and minor players
desperately need to work hard in this direction so that next time the figures
look more decent. The government must also make an attempt to ameliorate
the situation as political instability and infrastructure namely power and roads
are the major roadblocks in the path of smooth functioning of the market.

Retail Vs Organized landscape in India

Retailing in India is emerging as one of the largest industries, with a total

market size of USD 320 billion in 2006 and growing at a healthy CAGR of 5

per cent till date. Rising incomes and increased con sumerism in urban areas

along with an upswing in rural consumption will further fuel this growth to

around 7-8 per cent. This driver is further illustrated in the statistic (Fig. 1.1)

that the percentage of people in urban areas in India has been growing

steadily to reach 29 per cent from just 17 per cent fifty years ago.

In addition, India has been ranked as the most attractive market for global

retailers to enter now, according to A.T. Kearney's Global Retail Development

Index

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Organized Retail in India, Challenges and Prospects

Fig. 1.1

(GRDI) for 2006 (Fig. 1.2). The GRDI is conducted annually to follow the

attractiveness of top emerging markets for retail. For the past five years, A.T.

Kearney has helped retailers prioritize their global development strategies by

publishing the GRDI. The Index ranks 30 emerging countries based on more

than 25 macroeconomic and retail-specific variables.

Many factors contribute to India being the most attractive retail target market.

A stable democracy provides an economic and social background that

comforts big

international organizations. On the economic front, the country has seen over

7% GDP growth for the last few years, driving increasing prosperity and

consumerism. A look at India's demographics further lends credibility to the

retail story. India's consumer market today encompasses over 400 million

people with rising disposable incomes. Population shifts towards urban areas

and income shifts towards higher

income classes are key factors driving consumerism. Also higher incomes are

now in the hands of a younger population with lesser dependencies. This

implies

Fig. 1.3

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Organized Retail in India, Challenges and Prospects

more income available for spending rather than for savings and investment.

Can any retailer now afford to miss this story?

Another important factor announcing India's signifcance for retailers is the

current optimal stage of readiness within India for retail and for the entry of

retailers.

Retail markets worldwide have been observed to progress through four

stages as they evolve from an emerging to a mature market, usually over the

course of 5 to 10 years (Fig. 1.3). These stages are defined as:

1. Opening: A market that is just beginning its modern retail story, in all

major cities.

2. Peaking: A market that is developing quickly and is ready for modern

retail.

3. Declining: A market that is still big and growing, but space for new

entrants is getting tighter.

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Organized Retail in India, Challenges and Prospects

4. Closing: A market having small window of opportunity for new entrants;

such markets generally have a very high penetration of modern retail.

The above figure shows that key Asian economies, viz. India and Vietnam are

in the peaking phase, while China has just tipped into declining. This means

that the next one to three years are the best time for foreign retailers to enter

India. They cannot wait for the government to set things in order. While the

government has announced some benefits for foreign retailers by allowing

them to own up to 51 per cent of a single brand retail company, the relaxed

regulations do not extend to retailers that sell a variety of brands.

India's government seems to be on a gradual but definite path towards

allowing foreign retailers into the country. And when it takes the final steps,

the peak time to enter will quickly pass, giving retailers that enter now a

distinct edge. Different global retailers are

Fig. 1.4

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Organized Retail in India, Challenges and Prospects

in talks to identify the best mode of entry in India – we believe it is time for

them to enter, through means allowed by the Indian government.

Already domestic retailers and conglomerates are venturing into retail, e.g.

Reliance and Birla, to stake out ground in the emerging market prior to the

entry of international players. International retailers should adopt the strategy

undertaken by the likes of Metro and Tesco in starting to test the market

conditions and initializing the process for an imminent deep dive. Because if

they wait any longer, they may see a repetition of the China story where many

retailers missed

the bus, as the market saturated before they could get their acts together.

Given the attractiveness of the Indian market for retailit is no wonder that

retailing already accounts for 39 per cent of India's GDP, which is quite a

significant proportion if compared with other developed and devel-

oping economies. However the proportion of retailing which is in the

organized sector is still a very small portion, with penetration at 6 per cent

(Fig. 1.4).

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Organized Retail in India, Challenges and Prospects

Organized retail itself has been growing at a freneticpace and this growth is

expected to continue at a blistering rate of approximately 35 per cent per

annum till 2010.

Retail as a whole can be broken into categories,depending on the type of

products serviced. For India, food and groceries form the biggest category in

the retail pie (Fig. 1.5), accounting for close to 70%. However this category

has the lowest organized retail penetration of 1%, which is indicative of the

greater opportunity available for organized retail and also explains why so

many retailers have plans for this category in the pipeline. In comparison,

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Organized Retail in India, Challenges and Prospects

footwear and clothing segments boast the highest penetration of organized

retail, as international brands like Nike, Reebok and Levis had started setting

up shop almost a decade ago. This segment may see further activity,

Key issues in the way of retail growth in India:-

An analysis of the retail landscape across India highlights ten key issues that

hinder development of the sector. Since these issues can be pertinent for the

retail sector specifically or for the overall Indian industry, they were rated

based on their importance for the retail sector and the Indian industrial sector.

The origin of these issues and hence their ownership lies with different

stakeholders. Therefore, these issues were also rated based on the extent to

which government and industry could control them. A 2 x 2 matrix was subse-

quently created which used the two dimensions to segment the issues. The

issues were then classified into four categories:

Generic infrastructure issues - These are environmental challenges faced by

the Indian industry as a whole and some of the issues like underdeveloped

supply chain are critical for retail sector.

Fig. -

Rishikesh Kuamr, Rai Business School, New Delhi 33


Organized Retail in India, Challenges and Prospects

Rishikesh Kuamr, Rai Business School, New Delhi 34


Organized Retail in India, Challenges and Prospects

Generic policy issues - They are issues affecting the industrial sector that

are shaped by government policies. Some of these issues like real estate

hurdles can have significant impact on the growth of the retail sector Specific

infrastructure issues- Issues that are specific to the retail sector and are also

controlled by it comprise this category. Since the retail industry can affect

these issues, they are very critical from the industry perspective.

Specific policy issues - Retail sector specific policies like sector incentives fall

into this category.

The key issues are outlined below:

Underdeveloped Supply Chain - The country lacks quality logistics

infrastructure which hinders scaling up of retailing operations. Inadequate

Utilities - Lack of basic infrastructure like power, transport and communication

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Organized Retail in India, Challenges and Prospects

creates difficulty in sustaining retail operations across the large geographical

spread of country.

IT Infrastructure Hurdles - Reliable IT infrastructure is important for managing

modern supply chains which are the backbone of any retailing business and

India faces a clear problem in this area as the non-urban areas have limited IT infra

structure.

Real Estate Hurdles - Archaic laws prevent the much needed growth in

real estate development, which is imperative for retail growth.Taxation Hurdles

- The tax structure in India is still complex and evolving, creating challenges

for retailers.

Inadequate Human Resources - There is hardly any systematic effort to train

manpower for the retail sector, which can create a bottleneck for

growth.

Limited Consumer Insights - There is limited knowledge about the

consumer behavior due to limited market research conducted on the huge

population in towns and rural areas.

Insufficient Government Incentives - Government is yet to create any

major sector specific policies to boost the retail sector.

Policy Related Hurdles - The policy environment in India is complex, creating

challenges for growth and establishment of new business.Generic

infrastructure issues

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Organized Retail in India, Challenges and Prospects

Supply chain, utilities and IT infrastructure hurdles are generic infrastructure

issues that will be addressed by the natural evolution of the industry. Supply

chain is a key bottleneck for retail sectorgrowth. There are multiple benefits of

proper cold storage facilities.

Inadequate
Utilities

Inadequate Utilities-

structure in roads, rail and ports. We also have a highly fragmented trucking

industry and absence of reliable, national service providers. Accordingly

supply chain management (SCM) systems have very low penetration.

India also lacks national level distribution networks and hubs. Fragmented

supplier network in rural areas lead to multiple levels of product handling. Also

consumer product companies are more focused on front end distribution and

hence the distribution model is more robust in urban areas with high

consumer concentration.

While studying Indian states, we found there are no standard best practices in

India -Maharashtra and Tamil Nadu have the best road and rail network in

India respectively, while West Bengal has the maximum cold storage capacity

in India. Globally, a better logistics infrastructure is sustained through road

maintenance and capacity utilization of the rail network and this is particularly

true in developed countries like the US. There are also several specialized

refrigerated

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Organized Retail in India, Challenges and Prospects

Consumer of organized retail

The Indian consumer has undergone a remarkable transformation. Just a

decade or two ago, the Indian consumer saved most of his income,

purchased the bare necessities and rarely indulged himself. Today, armed

with a higher income, credit cards, exposure to the shopping culture of the

west and a desire to improve his standard of living, the Indian consumer is

spending like never before. Organized retail with its variety of products and

multitude of malls and supermarkets is fueling his addiction. His new

mentality, in turn, is fueling the growth of organized retail in India.

Young Shoppers

India’s population is young, very young (See Exhibit 6 for India’s bottom-

heavy age pyramid and Exhibit 7 for age-data for the populations of several

countries). Most consumers have grown up with television, the internet, and

have been exposed to the standards of living and consumer culture abroad.

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Organized Retail in India, Challenges and Prospects

This generation is also making money at a younger age and lots of it, thanks

to call centers and other avenues of employment opening up that cater to

students in college and schools. As a result they are ready to spend most, if

not all of their income on apparel, accessories, and electronics.

Higher Incomes

Liberalization of the country’s economy has brought a number of

employments opportunities. With the entry of a number of multinationals and

the expansion of domestic corporations, job prospects in the country are

looking up. As a result, incomes and consumption are projected to increase

rapidly over the next couple of years (See Exhibit 8 for the personal

disposable income and Exhibit 9 for the private

consumption per head in India). This sets the stage for a very exciting and

promising retail market in the future.

No Money, No Problem

The finance sector has already seen a huge expansion. Unlike a decade ago,

credit cards and short-term loans have become easily accessible and have

contributed to the emergence of a consumer culture in India. Credit card

rewards schemes, flexible financing options and all the other common lures

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Organized Retail in India, Challenges and Prospects

are tempting the Indian consumer to shop. With loans for everything from a

home to an automobile freely available, the Indian consumer can start

spending on big-ticket items that were traditionally within his reach only after

years of savings.

Urbanization

Growing urbanization is also responsible for the changing consumer

psyche12. As urbanization spreads beyond the major cities, it converts the

local population from net savers to net spenders. This is consistent with what

has been observed in developing countries like Thailand, Malaysia and

developed countries like U.S.A and the U.K.

Food retail in India

Though with a population of a billion and a middle class population of over

300 millions organized retailing (in the form of food retail chains) is still in its

infancy in the Country.India has been rather slow in joining the Organized

Retail Revolution that was rapidly transforming the economies in the other

Asian Tigers. This was largely due to the excellent food retailing system that

was established by the kirana (mom-

and-pop) stores that continue meet with all the requirements of retail

requirements albeit without the convenience of the shopping as provided by

the retail chains; and also due to the highly fragmented food supply chain that

is cloaked with several intermediaries (from farm-processor-distributorretailer)

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Organized Retail in India, Challenges and Prospects

resulting in huge value loss and high costs. This supplemented with lack of

developed food processing industry kept the organized chains out of the

market place. The correction process is underway and the systems are being

established for effective Business-to-Business (farmer-processor, processor-

retailer) solutions thereby leveraging the core competence of each player in

the supply chain.

Fig-

Spread of Organized Retailing in India

Organized retailing is spreading and making its presence felt in different parts

of the country. The trend in grocery retailing, however, has been slightly

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Organized Retail in India, Challenges and Prospects

different with a growth concentration in the South. Though there were

traditional family owned retail chains in South India such as Nilgiri’s as early

as 1904, the retail revolution happened with various major business houses

foraying into the starting of chains of food retail outlets in South India with

focus on Chennai, Hyderabad and Bangalore markets,preliminarily. In the

Indian context, a countrywide chain in food retailing is yet to be established as

lots of Supply Chain issues need to be answered due to the vast expanse

of the country and also diverse cultures that are present.

Retail Models in India: Current & Emerging

The Indian food retail market is characterized by several co-existing types and

formats.

These are:

1. The road side hawkers and the mobile (pushcart variety) retailers.

2. The kirana stores (the Indian equivalent of the mom-and-pop stores of the

US),

within which are:

a. Open format more organized outlets

b. Small to medium food retail outlets.

Modern trade – the organized retailers

Within modern trade, we have:

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Organized Retail in India, Challenges and Prospects

1. The discounter (Subhiksha, Apna Bazaar, Margin Free)

2. The value-for-money store (Nilgiris)

3. The experience shop (Foodworld, Trinethra)

4. The home delivery (Fabmart)

While the focus of this note is on modern organized retail trade, we hereunder

present

insights into the smaller, semi and unorganized retailers.

Hawkers – ‘mobile supermarkets’

The unorganized sector is characterized by the lari-galla vendors (also known

as “mobile supermarket”) seen in every Indian bylane and is, therefore,

difficult to track, measure and analyse. But they do know their business –

these lowest cost retailers can be found wherever more than 10 Indians

collect – a rural post office, a dusty roadside bus stop or a village square. As

far as location is concerned, these retailers have succeeded beyond all doubt.

They have neither village nor city-wide ambitions or plans – their aim is simply

a long walk down the end of the next lane. This mode of “mobile retailers” is

neither scalable nor viable over the longer term, but is certainly replicable all

over India. Most retailing of fresh foods in India occurs in Mandis and roadside

hawker parks, which are usually illegal and entrenched. These are highly

organized in their own way. Hawking of food products, cooked food and

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Organized Retail in India, Challenges and Prospects

FMCG products is a very interesting model of retailing. Much has been written

about these roadside “malls” – from social security issues to their nuisance

value. However, if you put these hawkers together, they are akin to a large

supermarket with little or no overheads and high degree of flexibility in

merchandise, display, prices and turnover. While shopping ambience and the

trust factor maybe missing, these hawkers sure have a system that works.

Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores Semi-organized

retailers like kirana (mom-and-pop stores), grocers and provision stores are

characterized by the more systematic buying – from the mandis or the farmers

and selling – from fixed structures. Economies of scale are not yet realized in

this format, but the front end is already visibly changing with the times. These

stores have presented Indian companies with the challenge of servicing them,

giving rise to distribution and cashflow cycles as never seen elsewhere in

Asia. The model is very antithesis of modern retail in terms of the buyer

(retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link

the supply of one line of products to another slower moving line of products.

These retailers are not organized in the manner that they could challenge the

power of the sellers, most protests have been in the form of

boycotts, which really haven’t hit any company permanently.

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Organized Retail in India, Challenges and Prospects

SWOT ANALYSIS:

A SWOT analysis of the Indian organized retail industry is presented

below:

STRENGTH:

1. Retailing is a "Technology-intensive" industry. It is technology that will help the

organized retailers to score over the unorganized retailers. Successful

organized retailers today work closely with their vendors to predict consumer

demand, shorten lead times, reduce inventory holding and ultimately save cost.

Example: Wal-Mart pioneered the concept of building competitive advantage

through distribution & information systems in the retailing industry. They introduced

two innovative logistics techniques – cross-docking and EDI (electronic data

ennterchange)

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Organized Retail in India, Challenges and Prospects

2. On an average a super market stocks up to 5000 SKU's against a few hundred

stocked with an average unorganized retailer. This will provide variety in products

(required breadth & depth for consumers)

3. As a consequence of high volumes, procurement will be direct from the

Manufacturer. Hence, merchandise can be offered at lower costs.

Weakness:

1. Less Conversion level: Despite high footfalls, the conversion ratio has been very

low in the retail outlets in a mall as compared to the standalone counter

parts. It is seen that actual conversions of footfall into sales for a mall outlet is

approximately 20-25%. On the other hand, a high street store of retail chain has an

average conversion of about 50-60%. As a result, a standalone store has a ROI

(return on investment) of 25-30%; in contrast the retail majors are

experiencing a ROI of 8-10%

2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandise

mix for the mall outlets. Since the stand-alone outlets were established long time

back, so they have stabilized in terms of footfalls & merchandise mix and thus have a

higher customer loyalty base.

Opportunity:

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Organized Retail in India, Challenges and Prospects

1. The Indian middle class is already 30 Crore & is projected to grow to over 60 Crore

by 2010 making India one of the largest consumer markets of the world. The

IMAGES-KSA projections indicate that by 2015, India will have over 55 Crore

people under the age of 20 - reflecting the enormous opportunities possible in the kids

and teens retailing segment.

2. Organized retail is only 3% of the total retailing market in India. It is estimated to

grow at the rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010.

3. Percolating down : In India it has been found out that the top 6 cities contribute for

66% of total organized retailing. While the metros have already been exploited, the

focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of which

has so far been concentrated in the metros is beginning to percolate down to these

smaller cities and towns. The contribution of these tier-II cities to total organized

retailing sales is expected to grow to 20-25%.

4. Rural Retailing: India's huge rural population has caught the eye of the retailers

looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga"

offering a diverse range of products from FMCG to electronic goods to automobiles,

attempting to provide farmers a one-stop destination for all their needs." Hariyali

Bazar" is started by DCM Sriram group which provides farm related inputs &

services. The Godrej group has launched the concept of 'agri-stores' named "Adhaar"

which offers agricultural products such as fertilizers & animal feed along with the

required knowledge for effective use of the same to the farmers. Pepsi on the other

hand is experimenting with the farmers of Punjab for growing the right quality of

tomato for its tomato purees & pastes.

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Organized Retail in India, Challenges and Prospects

Threats:

1. If the unorganized retailers are put together, they are parallel to a large supermarket

with no or little overheads, high degree of flexibility in merchandise,

display, prices and turnover.2. Shopping Culture: Shopping culture has not

developed in India as yet. Even now malls are just a place to hang around with family

and friends and largely confined to window-shopping.

3. Cultural Variation leads to variation in merchandise in India at

different geographical locations.

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Organized Retail in India, Challenges and Prospects

RESEARCH DESIGN & METHODOLOGY

A research design is the detailed blueprint used to guide a research study


towards its objectives. The process of designing a research study involves
many interrelated decisions. The most significant decision is the choice of
research approach, because it determines how the information will be
obtained.
To design something also means to ensure that the pieces fit together. The
process of research design makes it possible for a researcher to understand
the process to be applied to continue the research.
The research can be categorized into different research design :-

• Exploratory Research Design


• Descriptive & Diagnostic Research Design
• Experimental Research Design

Since this research is related to the “ORGANIZED RATAIL IN


INDIA-CHALLENGES & PROSPECTS.” So, I will put emphasis on Descriptive
Research Design.

ANALYSIS OF DATA

I collected secondary data for my research. I collected information from


yellow pages, books and magazines.
Special care is required in collecting secondary data one of which is
that the data must be collected from more than one source. This improves
accuracy and efficiency of research formulation.

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Organized Retail in India, Challenges and Prospects

Bibliography:

• Newman J. Andrew & Cullen Peter, “ Retailing- Environment & Operations”


Thomson Asia Pte. Ltd, Singapore

• Vedamani G. Gibson, “ Retail Management- Functional Principles &


Practices”, Jaico Publishing House

• Pradhan Swapna, “ Retail Management- Text & Case

Tata McGraw Hill Publishing Co. Ltd

• Kotler Philip, Lane Kevin, Koshy Abraham, Jha Mithileshwar, “ Marketing


Management- A South Asian Perspective”, Dorling Kindersley{India}Pvt. Ltd

References:
• www.scribd.com
• www.logsiamag.com
• www.scmr.com
• www.indianmba.com
• www.fibre2fashion.com

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Organized Retail in India, Challenges and Prospects

• www.viaworld.in
• www.expresscomputeronline.com
• www.valuenotes.com
• www.nitine.blogspot.com
• www.indianretail.co
• www.omretail.com
• www.naukrihub.com
• www.etretailbiz.com
• www.euromonitor.com
• www.indianbusiness.nic.in

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Organized Retail in India, Challenges and Prospects

Rishikesh Kuamr, Rai Business School, New Delhi 52


Organized Retail in India, Challenges and Prospects

Neha Singhal

neeha.singhal@gmail.com

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