SIT Journal of Management

Vol. 3. No. Special. November 2013. Pp. 1-11

A Comparative Study of Organized and Unorganized Retail Sectors in

Bangalore
Mihir Dash* & Sam Chandy**
Abstract
This study analyzes the challenges and opportunities faced by organized and unorganized retail
players in Bangalore. It was found that organized retailers see competition from the unorganized
sector as their biggest challenge, followed by competition between organized retailers and the
inefficiency of distribution channels, internal logistical problem and retail shrinkage, while
unorganized retailers see organized retailing as their major challenge, followed by cost of
operation, logistical problems, competition between other kirana retailers and inefficient
distribution channels. It was also found that organized retailers see Bangalores growing middle
class as their greatest opportunity followed by large number of earning youth customers,
Bangalore having people from all over India, proportionate increase in spending with earnings
and Indias booming economy, while the kirana retailers see Bangalore having people from all
over India as their biggest opportunity, followed by Bangalores growing middle class, Indias
booming economy, large number of educational institutions in Bangalore and proportionate
increase in spending with earnings. Thus, the study found that the major challenges as well as
opportunities of organized and unorganized retail are almost the same. This means that
mitigating the challenges and leveraging on the opportunities could benefit both sectors.

Keywords: retailing, organized and unorganized retailing, competition, distribution channels,

logistics, retail shrinkage, cost of operation.

*Mihir Dash, School of Business, Alliance UniversityChikkahagade Cross, Chandapura-Anekal

Road,Anekal, Bangalore-562106e-mail: mihirda@rediffmail.com, M: +91-9945182465.
**Sam Chandy, Vice President, Operations, Supercold Refrigeration Systems Pvt. Ltd. Industrial
Estate, Manvila, Kulathur P.O.Trivandrum, Kerala 695583.

Dash & Chandy

ISSN: 2278-9111
Electronic copy available at: http://ssrn.com/abstract=2403858

SIT Journal of Management

Vol. 3. No. Special. November 2013. Pp. 1-11

Dash & Chandy

ISSN: 2278-9111
Electronic copy available at: http://ssrn.com/abstract=2403858

SIT Journal of Management

Vol. 3. No. Special. November 2013. Pp. 1-11

Introduction
Indian retail is expected to experience tremendous growth in coming years, and is already
labeled as the sunshine sector in India. The Indian retail sector can be broadly classified into the
organized and the unorganized retail sectors. The unorganized retail sector typically consists of
small-time family-run retail outlets popularly known as mom and pop stores or kirana stores.
The organized retail sector typically consists of large retailers with large numbers of outlets,
product assortment, customer convenience, and so on.

The organized retail industry in India is estimated to be an impressive US $518 billion in 2012,
and has been growing at 10.6% over 2011-12. However, the retail market in India is the most
fragmented in the world. Only 8% of the entire retailing business in India is in the organized
sector, and this share is expected to grow to 20% by 2020. However, this growth may be
impossible without overcoming the numerous challenges faced by the industry.

Organized retail is in the stages of finding its feet in India even now. Organized retail trade
makes up over 70-80% of total trade in developed economies. Indias retail contribution is quite
low even when compared to other developing Asian economies like China, Thailand, South
Korea and Philippines, all of which have retail contributions close to 20-35%. These figures
quite clearly reveal the relative underdevelopment of the Indian organized retail sector.

Challenges faced by Organized Retail Sector in India

The organized retail sector in India is still at a developmental stage, characterized by a very
small number of players trying to create a new paradigm. To become a flourishing industry, the
Indian retail sector has to attract leading Indian and foreign players to make substantial
investments. In addition to this, a number of challenges which organized retailing faces are
identified.1

http://www.naukrihub.com/india/retail/overview/challenges/

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Vol. 3. No. Special. November 2013. Pp. 1-11

Technology is one of the major challenges faced by organized retailers; specifically, the
availability, feasibility, and adoption of technology. Technology is already being widely used for
a host of activities including theft prevention, logistics, billing & payment. The scope of
technology is much wider, and can be used for other functions like understanding customer
preference using RFID, keeping track of customers using CRM packages, enterprise
management tools (ERP), and so on. In particular, technology can be leveraged to alleviate
internal logistical problems and to make distribution channels more efficient. Retail majors are
under serious pressure to improve their supply chain systems and distribution channels and reach
the levels of quality and service desired by customers. This is coupled with the challenge of
recruiting and retaining specialized talent to manage the technology.
Another challenge is that of lack of adequate infrastructure, including proper pliable roads,
airports and railway stations capable of handling large consignments on a daily basis, proper
warehouses, cold storage systems, roads with less traffic, proper connectivity etc. This is coupled
with the problems of power supply. The lack of proper infrastructure and distribution channels in
the country results in inefficient processes.

Another challenge is that of cost of operation, arising from: higher labor costs, social security to
employees, high quality real estate, rentals, security, maintenance, much bigger premises,
comfort facilities such as air-conditioning, back-up power supply, higher electricity tariffs, taxes,
and so on. This is added to the increasing cost of land and increasing rental rates.

Competition is another major challenge, from unorganized sector, from other organized sector
players, and from international players. Traditional retailing in the form of kirana stores, with its
low cost structure, has adapted to the advent of organized retail, becoming more customer
friendly by offering credit, home deliveries, and so on, adding a personal touch to shopping that
organized retailers may find impossible to emulate. Organized retail players also compete, with
loyalty programs, home delivery of goods, customer retention strategies, offers, and discounts.
International players are also in the scene. Currently, FDI in retail is restricted to 51%, but it is
expected to be thrown open to international competition.

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Opportunities for the Organized Retail Sector in India

These are factors which are, to an extent, opportunities, and which have the potential to leave a
positive impact on the retail landscape if effectively tapped.
Indias economy is a major source of opportunity. Indias economy is currently the third largest
in the world, with a GDP of US $4.735 trillion in 2012, and growing at 6.7% p.a. This has been
accompanied with a huge growth in incomes, and a proportionate increase in spending. The
Indian middle class is fast-growing, expected to reach 267 million by 2015. Also, there has been
a shift in the age profile of spenders - a new set of young earners, in their mid-twenties, has
emerged - the Gen Y - and over seven million people are entering this category every year.
India is a very young nation, with two-thirds of its population is below the age of 35, and nearly
50 % is below 25.

Another source of opportunity is the tremendous growth in recent years of metropolitan cities
such as Bangalore. The top six metropolitan cities of Mumbai, Delhi, Chennai, Kolkata,
Bangalore and Hyderabad are at the centre of Indias booming economy, representing 6% of the
population yet contributing 14% of Indias GDP; also, 85% of Indias urban retail market is
concentrated in these cities. In particular, Bangalores position as Indias major economic hub
has consolidated over the years. Bangalore's US$ 60.5 billion economy makes it a major
economic centre in India, housing many industries, including heavy industries, education,
software companies, aerospace, telecommunications, machine tools, heavy equipment, and
defense establishments. In particular, Bangalore is the Silicon Valley of India, the leading
contributor to India's IT industry. This has attracted many non-Bangaloreans to come to
Bangalore for reasons like job, higher education, training, and so on. This has lead to increased
diversity and a cosmopolitan culture, with a growing consumer/mall culture.
Bangalores fast developing infrastructure also plays a role in attracting the organized retail
sector. Bangalore is undoubtedly one of the fastest growing cities in Asia and also one of the
most sought after cities in India by people, companies, multinationals and tourists. Bangalore

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city has also seen great improvements in its roads, highways and other infrastructure, including
several flyovers, road projects, and the Bangalore Metro project.

The present study focuses on the challenges and opportunities faced by organized retail players.
The objectives of the study include identifying the factors promoting or restricting the growth of
organized retailing in Bangalore, comparing the extent of impact of the identified factors (both
challenges and opportunities) within different product-based shop formats across organized
retailers, comparing the organized and unorganized retailing scenario in Bangalore in order to
understand these segments and to find out if they share the same challenge and opportunity
factors, and comparing the organized and kirana sectors to understand their individual strengths
and weaknesses.

Organized retailing, if at all it should grow to its expected levels, will grow from urban areas like
Bangalore, Mumbai, Delhi, Kochi, Kolkata and Chennai where it already has a presence. The
future of organized retailing depends on the performance of this sector in the above mentioned
cities. For this reason, the study was carried out in the city of Bangalore among organized
retailers. Since this study deals with the challenges faced by organized retailers, it could, to an
extent be generalized for the other major cities in India. However, this generalization may vary
depending on factors like presence of airports, ports, proper infrastructure, availability and
adoption of technology, availability of skilled labor, mindset of state governments, mindset of
people, and other local factors across states.

Data and Methodology:

The data for the study was collected from a sample of one hundred managers of organized retail
outlets and one hundred unorganized retail outlets in order to assess the impact of the challenge
and opportunity factors. The sample retail outlets were selected by convenience sampling
methods. The respondents were administered a structured questionnaire in which they were
asked to rate the extent to which they were affected by each challenge factor and each
opportunity factor on a seven-point Likert scale. Data was also collected from retailers to assess
the extent of impact of each factor on the different product formats.
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The challenge factors considered were: Technology, Internal Logistics, Skilled workforce, Retail
Shrinkage, Understanding Customers (Behavior and Loyalty), Coping with Ever-Increasing
Customer Demand, Inefficient Distribution Channels, Lack of infrastructure, Power Supply
issues, Cost of operation, Land & Rental Rates, Competition from the other Sector, Competition
between Retailers of same sector, and Government opposition to FDI. The opportunity factors
considered were: Indias booming economy, Large, earning youth customer base, Proportionate
increase in spending with earnings, Increase in trend of Impulse buying, High bargaining power
with suppliers, In house branding of goods, Bangalore's position as India's major economic hub,
Bangalores fast developing infrastructure, Bangalore's growing middle class, Bangalore has
people from all over India, Large number of educational institutions, Bangalore developing as a
tourist destination, and the Growing mall culture in Bangalore

Findings
The extent to which organized and unorganized retailers perceive the impact of the challenge
factors is summarized in Table 1.
Table 1: Table showing mean ratings of Challenge factors
Organized
Kirana
F value
Retailers
Stores
4.76
3.17
100.778
Technology Availability, adoption and feasibility
5.20
5.59
6.116
Internal Logistical Problem
4.65
4.98
2.503
Availability of skilled workforce
5.05
4.91
0.526
Retail Shrinkage
5.00
4.63
5.480
Understanding Customers (Behavior and Loyalty)
4.50
4.20
2.793
Ever Increasing Customer Demand
5.26
5.35
0.254
Inefficient Distribution Channels
4.55
3.83
22.231
Delays due to lack of infrastructure
3.40
5.24
220.162
Power Supply
4.10
5.18
60.852
Land & Rental Rates
5.89
6.06
1.129
Competition from the other Sector
5.77
5.50
3.075
Competition between Retailers of same sector
4.64
5.60
43.646
Cost of operation
1.00
1.00
Government opposition to FDI
Source: Primary Data

p-value
0.000
0.014
0.115
0.469
0.020
0.096
0.615
0.000
0.000
0.000
0.289
0.081
0.000

Organized retailers see competition from the unorganized sector as their biggest challenge,
followed by competition between organized retailers and the inefficiency of distribution
channels, internal logistical problem and retail shrinkage. For unorganized retailers, the major
challenge they see ahead of them is organized retailing, followed by cost of operation, logistical
problem, competition between other kirana retailers and inefficient distribution channels.
Governments opposition to FDI does not seem to affect organized or unorganized sectors.
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Overall, it was found that the first few rankings are the same for organized and unorganized
retailing. So it can be understood that the major challenges faced by organized and unorganized
retailers are largely the same. Dealing with these challenges could lead to the benefit of both
sides, and the co-existence of both kirana and organized retailing in the same retail landscape.

The extent to which organized and unorganized retailers perceive different opportunity factors is
summarized in Table 2.
Table 2: Table showing mean ratings of Opportunity factors
Organized
Kirana
F value
Retailers
Stores
5.27
5.49
2.387
Indias booming economy
5.81
4.27
71.343
Large, earning youth customers
4.58
5.03
4.782
Bangalore developing as a tourist destination
4.71
3.72
32.263
Increase in trend of Impulse buying
5.26
5.43
0.823
Large number of educational institutions
5.46
6.01
16.653
Bangalore has people from all over India
6.00
5.69
3.846
Bangalore's growing middle class
4.47
5.01
8.298
Bangalore's position as India's major economic hub
5.28
5.36
0.190
Proportionate increase in spending with earnings
4.74
4.35
3.163
Growing mall culture in Bangalore
3.35
1.73
96.064
High bargaining power with suppliers
3.21
3.14
0.092
In house branding of goods
4.64
5.31
16.194
Bangalores fast developing infrastructure
Source: Primary Data

p-value
0.124
0.000
0.030
0.000
0.365
0.000
0.051
0.004
0.663
0.077
0.000
0.761
0.000

Organized retailers see Bangalores growing middle class as their greatest opportunity followed
by large number of earning youth customers, Bangalore having people from all over India,
proportionate increase in spending with earnings and Indias booming economy. The kirana
retailers on the other hand see Bangalore having people from all over India as their biggest
opportunity followed by Bangalores growing middle class, Indias booming economy, large
number of educational institutions in Bangalore and proportionate increase in spending with
earnings. Organized retailers as well as unorganized retailers feel that higher bargaining power
with suppliers and in-house branding of goods are not a huge opportunity.

Comparing between the organized and unorganized sectors of retailing, it was found that even
though there are differences in the extent to which organized retail and unorganized retail sector
perceives a challenge or opportunity factor, the first few major factors are common for both
segments.

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The extent to which the challenge and opportunity factors are perceived to affect different
product segments is summarized in Tables 3 and 4.
Table 3: Table showing Challenge factors in different product segments
Health,
Home
Food &
Beauty
Books &
General
Decor &
Beverage
&
Music
Merchandise
furnishing
Wellness
Technology Availability, adoption and
3.62
3.95
5.08
5.83
5.77
feasibility

Electronic
Goods &
Consumer
Appliances

Fashion
(Clothing,
Footwear &
Accessories)

3.00

5.94

Government opposition to FDI

1.00

1.00

1.00

1.00

1.00

1.00

1.00

Internal Logistical Problem

5.92

5.81

5.17

3.75

6.31

6.00

3.67

Availability of skilled workforce

5.69

4.14

6.08

6.17

2.92

6.36

2.72

Retail Shrinkage

2.54

6.14

5.58

4.33

5.85

3.73

5.94

Understanding Customers (Behavior

and Loyalty)

5.38

4.76

4.17

5.83

3.92

6.18

5.06

Ever Increasing Customer Demand

3.46

4.10

2.58

4.83

6.00

6.18

4.67

Inefficient Distribution Channels

5.77

6.19

5.58

4.58

6.08

5.18

3.50

Delays due to lack of infrastructure

(Roads and Traffic, Airport, Railways,
Ports)

4.54

5.19

4.17

4.50

5.62

4.09

3.61

Power Supply

3.15

4.10

3.00

4.00

3.15

3.18

2.94

Land & Rental Rates

3.69

4.24

3.08

4.92

4.00

3.82

4.61

Competition from Unorganized Sector

3.54

6.14

6.33

6.33

6.23

6.00

6.39

Competition between Retailers

5.69

5.48

5.25

5.08

6.31

6.18

6.33

Cost of operation

4.00

4.43

4.33

5.83

4.00

4.00

5.61

Fashion
(clothing,
footwear &
accessories)
5.28

Source: Primary Data

Table 4: Table showing Opportunity factors in different product segments

Home
decor &
furnishing

Food &
beverage

Health,
beauty &
wellness

Books
& music

General
merchandise

Indias booming economy

5.62

4.86

5.17

4.75

5.38

Electronic
goods &
consumer
appliances
6.18

Large, earning youth customers

Bangalore developing as a tourist
destination
Increase in trend of Impulse buying
Large number of educational
institutions
Bangalore has people from all over
India
Bangalore's growing middle class

6.08

5.71

5.75

6.17

5.08

6.27

5.78

3.46

5.57

6.33

5.83

3.77

3.64

3.39

3.08

4.90

3.75

3.17

6.08

5.18

6.06

3.00

5.62

6.17

6.58

4.38

5.27

5.61

5.92

5.76

6.33

6.00

5.00

4.91

4.50

6.38

6.29

4.08

5.67

6.38

6.27

6.44

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10
Bangalore's position as India's major
economic hub
Proportionate increase in spending with
earnings
Growing mall culture in Bangalore
High bargaining power with suppliers
Source: Primary Data

3.15

6.14

5.17

3.00

3.92

4.18

4.56

5.77

6.14

2.75

5.67

5.38

4.64

5.67

3.15

4.48

4.42

5.75

4.00

6.18

5.39

2.62

3.00

2.50

1.92

5.15

3.00

4.72

According to the Technopak report on organized retailing in India (2007), the following table
shows the share of each product segment in the total retailing scenario in India in 2006, and a
projection for the year 2010.
Table 5: Table showing the share of various segments in the Indian retail scenario
2006

2010

Home decor & furnishing

3%

4%

Food & beverage

60%

55%

Health, beauty & wellness

7.4%

8%

Books & music

1.6%

2%

4%

5%

General merchandise
Electronic goods & consumer appliances

5%

5%

Fashion (clothing, footwear & accessories)

14%

15%

Others
5%
Source: Technopak 2007 report on Organized Retailing in India

6%

The above figure shows a high 60% share for food and beverage segment in the year 2006,
followed by fashion clothing, footwear and accessories at 14%. Since these segments collectively
contribute to about 74% of the entire gamut of retailing in India, more emphasis should be made
to negate the challenge factors and to leverage upon the opportunity factors faced by these two
segments. Considering the top five challenges and opportunities in case of food & beverage
segment, the following results are found.
Table 6: Table showing ranks of challenges and opportunities for the food and beverage segment
Challenges
Opportunities
Inefficient distribution channels
Growing middle class
Rank 1
Rank 2

Competition from unorganized sectors

Bangalores position as a major economic hub

Rank 3

Retail Shrinkage

Proportionate increase in spending with earnings

Rank 4

Internal Logistical problem

Bangalore has people from all over India

Rank 5

Competition between organized retailers

Source: Primary Data

Large number of earning youth customers

Since food and beverage alone add up to 60% of the entire retailing activities in India, the key to
a successful organized retailing future lies in negating the above mentioned challenges and
leveraging upon the above opportunities. Similarly, considering the top five challenges and
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opportunities in case of Fashion clothes, footwear and accessories segment, we get the following
results.
Table 7: Table showing ranks of challenges and opportunities for fashion clothing and footwear segment
Challenges
Opportunities
Competition from the unorganized sector
Growing middle class in Bangalore
Rank 1
Rank 2

Competition from organized sector

Increase in impulse buying behavior

Rank 3

Retail Shrinkage

Large number of earning youth customers

Rank 4

Technology, availability and feasibility

Proportionate increase in spending with earnings

Rank 5

Cost of Operation
Source: Primary Data

Large number of educational institutions

The fashion clothes, footwear and accessories segment is the biggest Indian retailing segment
after food and beverage. The 2010 projection shows a substantial increase in the share of this
segment over 2006. Therefore it is important to negate the above mentioned challenges and
leverage upon the above opportunities in order to ensure a proper growth, not just of this
segment, but of retailing as such.

Discussion
Both organized sector and the unorganized sector see each other as their biggest threat. But
actually, it was found in the study that their major challenges as well as opportunities are almost
the same. This means that mitigating the challenges and leveraging on the opportunities could
benefit both sectors. This comes as a pacifier to the much talked about debate about organized
retailers making unorganized retailers out of business.
It is not possible to deal with all the challenge and opportunity factors all at once. The most
popular product segment in the Indian retailing scenario is the food & beverage segment,
followed by the fashion clothing, footwear and accessories segment. They together contribute to
about 74% of the entire retailing revenue. Therefore dealing with the most critical challenge and
opportunity factors of these two segments would definitely give a face lift to the entire organized
retailing sector.
Organized retail players must adopt strategies to enhance their growth. Without doubt, they have
to make substantial investments in technology to ensure zero wastage of goods, time, effort, etc.;
and in particular, they have to invest in supply chain infrastructure. On the other hand, the
Government can to take several steps to help enhance organized retail growth. It can ensure
single window clearance for retail chains, and can permit FDI in retail in phases, starting perhaps
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with food retailing. It can ensure flexibility of labor laws, ensuring availability of a skilled
workforce for organized retail. It can ease distribution-infrastructure creation and Octroi. It can
ease real estate and rent laws for retail outlets, and enforce zoning laws and city development
plans.
The present study has some mild limitations. The sample selection was judgmental and
convenience-based and this may not be perfectly representative of the retail scenario. Also, the
sample size for kirana retailers was low, and could have given a better representation if a higher
sample size was considered.
References
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Banerjee, R. and Balakrishnan, R. (2008), Second Tier Retailing is a Smart Idea, The
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Berman, B. and Evans, J.R. (2003), Retail Management: A Strategic Approach, 9th Ed,
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Chadha, A.S. (2008), India Most Attractive Retail Destination in the World, The Economic
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Freathy, P. (2003), The Retailing Book: Principles and Applications, Prentice Hall
Guha, R. and Jayaswal, R. (2008), Government may allow FDI in food retail, The
Economic Times, 22 April 2008
Gupta, S.L. (2007), A Study on Trends in Retailing Industry in India - A Case Study on
Shopping Malls, BVIMR-Management Edge Journal of Bharati Vidyapeeth University,
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Singhal, A. (2007), Impending Economic Impact of a resurgent Indian retail sector,
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Writangar, M. (2008), Frauds steal retail show, The Economic Times, 22 January 2008

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