`A study on the Growth & Challenges of E- Retailing in India

RESEARCH PROJECT REPORT

Submitted to

Veer Bahadur Singh Purvanchal University Jaunpur

In partial fulfillment of the requirements of degree of
BACHELOR OF BUSINESS ADMINISTRATION

Submitted By:
Abhishek Kumar Dubey
B.B.A. 6th Semester
Roll No. 5460002
Enrollment No. PU 12/1949

Under the Supervision of:zx

Arif Sultan
Assistant Professor,
Department of Business Administration

2015

Technical Education & Research Institute

Post-Graduate College, Ravindrapuri,
Ghazipur 233001
Certificate
This is to certify that Abhishek Kumar Dubey, pursuing BBA 6thSemester from this institute,
has prepared the research project report entitled. study on the Growth & Challenges of ERetailing in India partial fulfillment of the requirements of the degree of Bachelor of Business
Administration from Veer Bahadur Singh Purvanchal University, Jaunpur during the session
2014-15.
This report is based on research project undertaken by Abhishek Kumar Dubey under my
supervision during the course of sixth semester and fulfills the requirements of regulations
relating to the nature and standard of BBA course of V.B.S. Purvanchal University.
I recommend that this project report may be sent for evaluation.

Rahul Anand Singh

Associate Professor & Head,
Dept. of Business Administration

Arif Sultan
AssistantProfessor,
Dept. of Business Administration

Declaration
I, Abhishek Kumar Dubey, hereby declare that this research project report entitled A study on
the Growth & Challenges of E- Retailing in India has been prepared by me on the basis of
research done during the course of my sixth semester of BBA programme under the supervision
of Arif Sultan, Assistant Professor, Department of Business Administration, TERI, Ghazipur.

This research project report is my bonafide work and has not been submitted in any form
to any University or Institute for the award of any degree or diploma prior to the under
mentioned date. I bear the entire responsibility of submission of this project report.

10th May 2015

Abhishek Kumar Dubey

(BBA 6th Semester)
Department of Business Administration
Technical Education & Research Institute
P.G. College, Ghazipur

Acknowledgement
The research project report on the A study on the Growth & Challenges of ERetailing in India is an original work of mine but I would never have been able to complete it
alone on my own. I always needed help and support to complete it. This help and support came
from different people. So, I have a long list of people to thanks to.
First of all, I would like to thanks my supervision, Arif Sultan under whose guidance I
complicated the report. Without this support, it was literally impossible to complete it. His
guidance was like a streak of light on a no-moon night to me. It was of immense importance. It
was he who explained the topic in detail to me, told me about various sources from where I could
get the information related to the topic and also helped me in acquiring and gathering
information. It was he who corrected my faults at each and every step and helped me in making
this report presentable.
A word of thanks to Arif Sultan who taught me about report writing.Our H.O.D. Sir
Rahul Anand Singh under whose guidance all our works are accomplished.
My parents have always been a real source of inspiration and great support to me. Their
support was urgently needed by me which they always provided to me. I would also like to
thanks my friends upon whom I greatly resided for the completion of his report.
A special thanks to all my near and dear ones who always supported and encouraged me
to do better and best, they all helped me greatly in the collection of primary data from various
sources.

Last but not the least always second last; I would like to think all other who helped me in
one or other way. May I would have missed someones name, for that I extremely regret and
once again thanks all those whose couldnt be mentioned here.

Abhishek Kumar Dubey

B.B.A.- 6th Semester
Roll No.- 5460002
T.E.R.I. P.G. Collage, Ghazipur

Chapter 1
Introduction

INTRODUCTION
What is retailing?
Retailing is a distribution channel function, where one organization buys products from
supplying firms or manufactures products themselves, and then sells these directly to
consumers.
In majority of retail situations, the organization, from whom a consumer buys, is a reseller of
products obtained from others, and not the product manufacturer. However, some
manufacturers do operate their own retail outlets in a corporate channel arrangement.
Retailers offer many benefits to suppliers and customers as resellers. Consumers, for instance,
are able to purchase small quantities of an assortment of products at a reasonably affordable
price. Similarly, suppliers get an opportunity to reach their target market, build product demand
through retail promotions, and provide consumer feedback to the product marketer.

Retailing in India
Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its
GDP. The Indian retail market is estimated to be US$ 500 billion and one of the top five retail
markets in the world by economic value. India is one of the fastest growing retail markets in the
world, with 1.2 billion people.
As of 2013, India's retailing industry was essentially owner manned small shops. In 2010, larger
format convenience stores and supermarkets accounted for about 4 percent of the industry, and
these were present only in large urban centers. India's retail and logistics industry employs about
40 million Indians (3.3% of Indian population).
Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any
retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process.
In November 2011, India's central government announced retail reforms for both multi-brand
stores and single-brand stores. These market reforms paved the way for retail innovation and
competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single
brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both
in opposition and in support of the reforms. In December 2011, under pressure from the
opposition, Indian government placed the retail reforms on hold till it reaches a consensus.
In January 2012, India approved reforms for single-brand stores welcoming anyone in the world
to innovate in Indian retail market with 100% ownership, but imposed the requirement that the

single brand retailer source 30 percent of its goods from India. Indian government continues the
hold on retail reforms for multi-brand stores.
In June 2012, IKEA announced it had applied for permission to invest $1.9 billion in India and
set up 25 retail stores. An analyst from Fitch Group stated that the 30 percent requirement was
likely to significantly delay if not prevent most single brand majors from Europe, USA and Japan
from opening stores and creating associated jobs in India.
On 14 September 2012, the government of India announced the opening of FDI in multi-brand
retail, subject to approvals by individual states. This decision was welcomed by economists and
the markets, but caused protests and an upheaval in India's central government's political
coalition structure. On 20 September 2012, the Government of India formally notified the FDI
reforms for single and multi brand retail, thereby making it effective under Indian law.
On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in
India. The government managed to get the approval of multi-brand retail in the parliament
despite heavy uproar from the opposition (the NDA and leftist parties). Some states will allow
foreign supermarkets like Walmart, Tesco and Carrefour to open while other states will not.[

Local termsOrganized retailing, in India, refers to trading activities undertaken by licensed retailers, that is,
those who are registered for sales tax, income tax, etc. These include the publicly traded
supermarkets, corporate-backed
business.

and retail chains, and also the privately owned large retail

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing,
for example, the local corner shops, owner manned general stores, Paanbeedi shops, convenience
stores, hand cart and pavement vendors, etc.
Organized retailing was absent in most rural and small towns of India in 2010. Supermarkets and
similar organized retail accounted for just 4% of the market.
Most Indian shopping happens in open markets or numerous small grocery and retail shops.
Shoppers typically wait outside the shop, ask for what they want, and can not pick or examine a
product from the shelf. Access to the shelf or product storage area is limited. Once the shopper
requests the food staple or household product they are looking for, the shopkeeper goes to the
container or shelf or to the back of the store, brings it out and offers it for sale to the shopper.
Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the
product the consumer is asking for. The product typically has no price label in these small retail
shops; all packaged products must display the maximum retail price above which the product
cannot be sold. It is a criminal offence to do so. . The shopkeeper can price the food staple and
household products arbitrarily, and two consumers may pay different prices for the same product
on the same day but never will those price be above the maximum retail price. Price is rarely
negotiated between the shopper and shopkeeper. The shoppers usually do not have time to
examine the product label, and do not have a choice to make an informed decision between
competitive products.
India's retail and logistics industry, organized and unorganized in combination, employs about 40
million Indians (3.3% of Indian population). The typical Indian retail shops are very small. Over
14 million outlets operate in the country and only 4% of them being larger than 500 sq ft (46 m2)

in size. India has about 11 shop outlets for every 1000 people. Vast majority of the unorganized
retail shops in India employ family members, do not have the scale to procure or transport
products at high volume wholesale level, have limited to no quality control or fake-versusauthentic product screening technology and have no training on safe and hygienic storage,
packaging or logistics. The unorganized retail shops source their products from a chain of
middlemen who mark up the product as it moves from farmer or producer to the consumer.
The unorganized retail shops typically offer no after-sales support or service. Finally, most
transactions at unorganized retail shops are done with cash, with all sales being final.
Until the 1990s, regulations prevented innovation and entrepreneurship in Indian retailing. Some
retails faced complying with over thirty regulations such as "signboard licenses" and "antihoarding measures" before they could open doors. There are taxes for moving goods to states,
from states, and even within states in some cases. Farmers and producers had to go through
middlemen monopolies. The logistics and infrastructure was very poor, with losses exceeding 30
percent.
Through the 1990s, India introduced widespread free market reforms, including some related to
retail. Between 2000 to 2010, consumers in select Indian cities have gradually begun to
experience the quality, choice, convenience and benefits of organized retail industry.

Growth over 1997-2010India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale. Then, it
required government approval. The approval requirement was relaxed, and automatic permission
was granted in 2006. Between 2000 to 2010, Indian retail attracted about $1.8 billion in foreign
direct investment, representing a very small 1.5% of total investment flow into India.
Single brand retailing attracted 94 proposals between 2006 and 2010, of which 57 were approved
and implemented. For a country of 1.2 billion people, this is a very small number. Some claim
one of the primary restraint inhibiting better participation was that India required single brand
retailers to limit their ownership in Indian outlets to 51%. China in contrast allows 100%
ownership by foreign companies in both single brand and multi-brand retail presence.
Indian retail has experienced limited growth, and its spoilage of food harvest is amongst the
highest in the world, because of very limited integrated cold-chain and other infrastructure. India
has only 5386 stand-alone cold storages, having a total capacity of 23.6 million metric tons.
However, 80 percent of this storage is used only for potatoes. The remaining infrastructure
capacity is less than 1% of the annual farm output of India, and grossly inadequate during peak
harvest seasons. This leads to about 30% losses in certain perishable agricultural output in India,
on average, every year.
Indian laws already allow foreign direct investment in cold-chain infrastructure to the extent of
100 percent. There has been no interest in foreign direct investment in cold storage infrastructure
build out. Experts claim that cold storage infrastructure will become economically viable only
when there is strong and contractually binding demand from organized retail. The risk of cold

storing perishable food, without an assured way to move and sell it, puts the economic viability
of expensive cold storage in doubt. In the absence of organized retail competition and with a ban
on foreign direct investment in multi-brand retailers, foreign direct investments are unlikely to
begin in cold storage and farm logistics infrastructure.
Until 2010, intermediaries and middlemen in India have dominated the value chain. Due to a
number of intermediaries involved in the traditional Indian retail chain, norms are flouted and
pricing lacks transparency. Small Indian farmers realize only 1/3rd of the total price paid by the
final Indian consumer, as against 2/3rd by farmers in nations with a higher share of organized
retail. The 60%+ margins for middlemen and traditional retail shops have limited growth and
prevented innovation in Indian retail industry.
India has had years of debate and discussions on the risks and prudence of allowing innovation
and competition within its retail industry. Numerous economists repeatedly recommended to the
Government of India that legal restrictions on organized retail must be removed, and the retail
industry in India must be opened to competition. For example, in an invited address to the Indian
parliament in December 2010, JagdishBhagwati, Professor of Economics and Law at the
Columbia University analysed the relationship between growth and poverty reduction, then
urged the Indian parliament to extend economic reforms by freeing up of the retail sector, further
liberalization of trade in all sectors, and introducing labor market reforms. Such reforms
Professor Bhagwati argued will accelerate economic growth and make a sustainable difference in
the life of India's poorest.
A 2007 report noted that an increasing number of people in India are turning to the services
sector for employment due to the relative low compensation offered by the traditional agriculture

and manufacturing sectors. The organized retail market is growing at 35 percent annually while
growth of unorganized retail sector is pegged at 6 percent.
The Retail Business in India is currently at the point of inflection. As of 2008, rapid change with
investments to the tune of US$25 billion were being planned by several Indian and multinational
companies in the next 5 years. It is a huge industry in terms of size and according to India Brand
Equity Foundation (IBEF), it is valued at about US$395.96 billion. Organised retail is expected
to garner about 16-18 percent of the total retail market (US$6575 billion) in the next 5 years.
India has topped the A.T. Kearneys annual Global Retail Development Index (GRDI) for the
third consecutive year, maintaining its position as the most attractive market for retail
investment. The Indian economy has registered a growth of 8% for 2007. The predictions for
2008 is 7.9%. The enormous growth of the retail industry has created a huge demand for real
estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300
malls are estimated to be operational in the country.

Growth after 2011

Before 2011, India had prevented innovation and organized competition in its consumer retail
industry. Several studies claim that the lack of infrastructure and competitive retail industry is a
key cause of India's persistently high inflation. Furthermore, because of unorganized retail, in a
nation where malnutrition remains a serious problem, food waste is rife. Well over 30% of food
staples and perishable goods produced in India spoils because poor infrastructure and small retail
outlets prevent hygienic storage and movement of the goods from the farmer to the consumer.,

One report estimates the 2011 Indian retail market as generating sales of about $470 billion a
year, of which a minuscule $27 billion comes from organized retail such as supermarkets, chain
stores with centralized operations and shops in malls. The opening of retail industry to free
market competition, some claim will enable rapid growth in retail sector of Indian economy.
Others believe the growth of Indian retail industry will take time, with organized retail possibly
needing a decade to grow to a 25% share. A 25% market share, given the expected growth of
Indian retail industry through 2021, is estimated to be over $250 billion a year: a revenue equal
to the 2009 revenue share from Japan for the world's 250 largest retailers.,
The Economist forecasts that Indian retail will nearly double in economic value, expanding by
about $400 billion by 2020.[35] The projected increase alone is equivalent to the current retail
market size of France.
In 2011, food accounted for 70% of Indian retail, but was under-represented by organized retail.
A.T. Kearney estimates India's organized retail had a 31% share in clothing and apparel, while
the home supplies retail was growing between 20% to 30% per year.[36] These data correspond to
retail prospects prior to November announcement of the retail reform.
It might be true that India has the largest number of shops per inhabitant. However there are
detailed figures for Belgium, the Netherlands and Luxemburg. In Belgium, the number of outlets
is approximately 8 per 1,000 and in the Netherlands it is 6. So the Indian number must be far
higher.

The Indian retail market-

Indian market has high complexities in terms of a wide geographic spread and distinct consumer
preferences varying by each region necessitating a need for localization even within the
geographic zones. India has highest number of outlets per person (7 per thousand) Indian retail
space per capita at 2 sq ft (0.19 m2)/ person is lowest in the world Indian retail density of 6
percent is highest in the world 1.8 million households in India have an annual income of over
4.5 million (US$71,429.90).
While India presents a large market opportunity given the number and increasing purchasing
power of consumers, there are significant challenges as well given that over 90% of trade is
conducted through independent local stores. Challenges include: Geographically dispersed
population, small ticket sizes, complex distribution network, little use of IT systems, limitations
of mass media and existence of counterfeit goods. A number of merger and acquisitions have
begun in Indian retail market. PWC estimates the multi-brand retail market to grow to $220
billion by 202

Indian retailers
A 2012 PWC report states that modern retailing has a 5% market share in India with about $27
billion in sales, and is growing at 15 to 20% per year. There are many modern retail format and
mall companies in India. Some examples are in the following table.

Challenges

A McKinsey study claims retail productivity in India is very low compared to international peer
measures. For example, the labor productivity in Indian retail was just 6% of the labor
productivity in United States in 2010. India's labor productivity in food retailing is about 5%
compared to Brazil's 14%; while India's labor productivity in non-food retailing is about 8%
compared to Poland's 25%.
Total retail employment in India, both organized and unorganized, account for about 6% of
Indian labor work force currently - most of which is unorganized. This about a third of levels in

United States and Europe; and about half of levels in other emerging economies. A complete
expansion of retail sector to levels and productivity similar to other emerging economies and
developed economies such as the United States would create over 50 million jobs in India.
Training and development of labor and management for higher retail productivity is expected to
be a challenge.
In November 2011, the Indian government announced relaxation of some rules and the opening
of retail market to competition.
India retail reforms

Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
Indian retail, forbidding foreign groups from any ownership in supermarkets, convenience stores
or any retail outlets, to sell multiple products from different brands directly to Indian consumers..
The government of Manmohan Singh, prime minister, announced on 24 November 2011 the
following:

India will allow foreign groups to own up to 51 per cent in "multi-brand retailers", as
supermarkets are known in India, in the most radical pro- liberation reform passed by an
Indian cabinet in years;

Single brand retailers, such as Apple and like can own 100 percent of their Indian stores,
up from the previous cap of 51 percent;

Both multi-brand and single brand stores in India will have to source nearly a third of
their goods from small and medium-sized Indian suppliers;

All multi-brand and single brand stores in India must confine their operations to 53-odd
cities with a population over one million, out of some 7935 towns and cities in India. It is
expected that these stores will now have full access to over 200 million urban consumers
in India;

Multi-brand retailers must have a minimum investment of US$100 million with at least
half of the amount invested in back end infrastructure, including cold chains,
refrigeration, transportation, packing, sorting and processing to considerably reduce the
post harvest losses and bring remunerative prices to farmers;

The opening of retail competition will be within India's federal structure of government.
In other words, the policy is an enabling legal framework for India. The states of India
have the prerogative to accept it and implement it, or they can decide to not implement it
if they so choose. Actual implementation of policy will be within the parameters of state
laws and regulations.

The opening of retail industry to global competition is expected to spur a retail rush to India. It
has the potential to transform not only the retailing landscape but also the nation's ailing
infrastructure.
A Wall Street Journal article claims that fresh investments in Indian organized retail will generate
10 million new jobs between 20122014, and about five to six million of them in logistics alone;
even though the retail market is being opened to just 53 cities out of about 8000 towns and cities
in India.

Indian retail reforms on hold

According to Bloomberg, on 3 December 2011, the Chief Minister of the Indian state of West
Bengal, Mamata Banerjee, who is against the policy and whose Trinamool Congress brings 19
votes to the ruling Congress party-led coalition, claimed that Indias government may put the
FDI retail reforms on hold until it reaches consensus within the ruling coalition. Reuters reports
that this risked a possible dilution of the policy rather than a change of heart.
Several newspapers claimed on 6 December 2011 that India parliament is expected to shelve
retail reforms while the ruling Congress party seeks consensus from the opposition and the
Congress party's own coalition partners. Suspension of retail reforms on 7 December 2011 would
be, the reports claimed, an embarrassing defeat for the Indian government, suggesting it is weak
and ineffective in implementing its ideas.
Anand Sharma, India's Commerce and Industry Minister, after a meeting of all political parties
on 7 December 2011 said, "The decision to allow foreign direct investment in retail is suspended
till consensus is reached with all stakeholders."
On 19 Feb 2013 Tamil Nadu became the first state in the country to stoutly resist MNC 'invasion'
into the domestic retail sector. In Chennai, Tamil Nadu CMDA authorities placed a seal on the
massive warehouse spreading across 7 acres that had reportedly been built for one of the worlds
leading multinational retail giants, Wal-mart.
In February 2014, VasundharaRaje led newly elected Rajasthan Government reversed the earlier
Government's decision of allowing FDI in retail in the state. It reasoned that the sources of

domestic retail are primarily local whereas international retail affects domestic manufacturing
activity and hence reduces employment opportunities.

Single-brand retail reforms approved

On 11 January 2012, India approved increased competition and innovation in single-brand retail.
The reform seeks to attract investments in operations and marketing, improve the availability of
goods for the consumer, encourage increased sourcing of goods from India, and enhance
competitiveness of Indian enterprises through access to global designs, technologies and
management practices. In this announcement, India requires single-brand retailer, with greater
than 51% foreign ownership, to source at least 30% of the value of products from Indian small
industries, village and cottage industries, artisans and craftsmen.
Mikael Ohlsson, chief executive of IKEA, announced IKEA is postponing its plan to open stores
in India. He claimed that IKEA's decision reflects Indias requirements that single-brand retailers
such as IKEA source 30 percent of their goods from local small and medium-sized companies.
This was an obstacle to IKEA's investment in India, and that it will take IKEA some time to
source goods and develop reliable supply chains inside India. Ikea announced that it plans to
double what it sources from India already for its global product range, to over $1 billion a year,
within three years. IKEA in the near term plans to focus expansion instead in China and Russia,
where such restrictions do not exist.
On 19 Feb 2013 Tamil Nadu became the first state in the country to stoutly resist MNC 'invasion'
into the domestic retail sector. In Chennai, Tamil Nadu CMDA authorities placed a seal on the

massive warehouse spreading across 7 acres that had reportedly been built for one of the worlds
leading multinational retail giants, Wal-mart.
Social impact and controversy with retail reforms
The November 2011 retail reforms in India have sparked intense activism, both in opposition and
in support of the reforms.

Controversy over allowing Forigen retailersOf deregulating retail in India are making one or more of the following claims:,

Independent stores will close, leading to massive job losses. Walmart employs very few
people in the United States. If allowed to expand in India as much as Walmart has
expanded in the United States, few thousand jobs may be created but millions will be
lost.

Walmart's efficiency at supply chain management leads to direct procurement of goods

from the supplier. In addition to eliminating the "middle-man", due to its status as the
leading retailer, suppliers of goods are pressured to drop prices in order to assure
consistent cash flow.

The small retailer and the middle man present in the retail industry play a large part in
supporting the local economy, since they typically procure goods and services from the
area they have their retail shops in. This leads to increased economic activity, and wealth
redistribution. With large, efficient retailers, goods are acquired in other regions, hence
reducing the local economy.

Walmart will lower prices to dump goods, get competition out of the way, become a
monopoly, then raise prices. It is argued this was the case of the soft drinks industry,
where Pepsi and Coca-Cola came in and wiped out all the domestic brands.

India doesn't need foreign retailers, since homegrown companies and traditional markets
have been able to do the job.

Work will be done by Indians, profits will go to foreigners.

Like the East India Company, Walmart could enter India as a trader and then take over
politically.

There will be sterile homogeneity and Indian cities will look like cities anywhere else.

The government hasn't built consensus.

The government claims modern retail will create 4 million new jobs. This cannot be true
because Walmart, with over 9000 stores worldwide, has only 2.1 million employees.

The Democratic staff of the U.S. House Committee on Education and the Workforce
Report- Wal-Marts low wages and their effect on taxpayers and economic growth.

Supporters claim none of these objections has merit. They claim:

Organized retail will need workers. Walmart employs 1.4 million people in United States
alone. With United States population of about 300 million, and India's population of
about 1200 million, if Walmart-like retail companies were to expand in India as much as
their presence in the United States, and the staffing level in Indian stores kept at the same
level as in the United States stores, Walmart alone would employ 5.6 million Indian
citizens. jobs will be created Walmart has a 6.5% market share of the total United States
retail. Adjusted for this market share, the expected jobs in future Indian organized retail

would total over 85 million. In addition, millions of additional during the building of and
the maintenance of retail stores, roads, cold storage centers, software industry, electronic
cash registers and other retail supporting organizations. Instead of job losses, retail
reforms are likely to be massive boost to Indian job availability.

KPMG - one of the world's largest audit companies - finds that in China, the employment
in both retail and wholesale trade increased from 4% in 1992 to about 7% in 2001, post
China opening its retail to foreign and domestic innovation and competition. In absolute
terms, China experienced the creation of 26 million new jobs within 9 years, post China
announcing FDI retail reforms. Additionally, contrary to some concerns in China, post
retail reforms, the number of traditional small retailers also grew by 30% over 5 years.

India needs trillions of dollars to build its infrastructure, hospitals, housing and schools
for its growing population. The Indian economy is small, with limited surplus capital.
The government is already operating on budget deficits. It is simply not possible for
Indian investors or the government to fund this expansion, job creation and growth at the
rate India needs. Global investment capital through FDI is necessary. Beyond capital, the
Indian retail industry needs knowledge and global integration. Global retail leaders, some
of which are partly owned by people of Indian origin, can bring this knowledge. Global
integration can potentially open export markets for Indian farmers and producers.
Walmart, for example, expects to source and export some $1 billion worth of goods from
India every year, since it came into Indian wholesale retail market.[

Walmart, Carrefour, Tesco, Target, Metro, Coop are some of over 350 global retail
companies with annual sales over $1 billion. These retail companies have operated for

over 30 years in numerous countries. They have not become monopolies. Competition
between Walmart-like retailers has kept food prices in check. Canada credits their very
low inflation rates to Walmart-effect. Anti-trust laws and state regulations, such as those
in Indian legal code, have prevented food monopolies from forming anywhere in the
world. Price inflation in these countries has been 5 to 10 times lower than price inflation
in India. The current consumer price inflation in Europe and the United States is less than
2%, compared to India's double digit inflation.

The Pepsi and Coca-Cola example is meaningless in the context of Indian beverage
market. More competition is lacking because of limited demand. Indian consumer has
limited interest in soft drinks. Soft drinks represent less than 5% of Indian beverage
market. Indian consumers prefer milk-based, tea and coffee and these account for 90% of
Indian beverage market, with plenty of competing domestic brands and even European
brands like Nestl. The next most important market in India is bottled water, which
outsells the combined soft drink sales of the Pepsi and Coca-Cola. Organized retail too
will have numerous brands and strong competition.

Comparing the 21st century to the 18th century is inappropriate. Conditions today are
different. India wasn't a democracy then. Global awareness and news media have also
changed. For example, China has over 57 million square feet of retail space owned by
foreigners, employing millions of Chinese citizens. Yet, China hasn't become a vassal of
imperialists, enjoying respect from all global powers. Other Asian countries like
Malaysia, Taiwan, Thailand and Indonesia see foreign retailers as catalysts of new
technology and price reduction; and they have benefited by welcoming FDI in retail.
India too will benefit by integrating with the world, rather than isolating itself.

With 51% FDI limit in multi-brand retailers, nearly half of any profits will remain in
India. Any profits will be subject to taxes, and such taxes will reduce Indian government
budget deficit. Many years ago, China adopted the retail reform policy India has
announced; allowing FDI in its retail sector. FDI-financed retailers in China took between
5 to 10 years to post profits, in large part because of huge investments initially made.
Like China, it is unlikely foreign retailers will earn any profits in India for the first 5 to
10 years. Ultimately, retail companies must earn profits by creating value.

States have a right to say no to retail FDI within their jurisdiction. States have the right to
add restrictions to the retail policy announced before they implement them. Thus, they
can place limits on number, market share, style, diversity, homogeneity and other factors
to suit their cultural preferences. Finally, in future, states can always introduce
regulations and India can change the law to ensure the benefits of retail reforms reach the
poorest and weakest segments of Indian society, free and fair retail competition does
indeed lead to sharply lower inflation than current levels, small farmers get better prices,
jobs created by organized retail pay well, and healthier food becomes available to more
households.

Inbuilt inefficiencies and wastage in distribution and storage account for why, according
to some estimates, as much as 40% of food production doesn't reach consumers. Fifty
million children in India are malnourished. Food often rots in farms, in transit, or in
antiquated state-run warehouses. Cost-conscious organized retail companies will avoid
waste and loss, making food available to the weakest and poorest segment of Indian
society, while increasing the income of small farmers. Walmart, for example, since its

arrival in Indian wholesale retail market, has successfully introduced the "Direct Farm
Project" at Haider Nagar near Malerkotla in Punjab, where 110 farmers have been
connected with BhartiWalmart for sourcing fresh vegetables directly, thereby reducing
waste and bringing fresher produce to Indian consumers.

Indian small shops employ workers without proper contracts, making them work long
hours. Many unorganized small shops depend on child labour. A well-regulated retail
sector will help curtail some of these abuses.

Organized retail has enabled a wide range of companies to start and flourish in other
countries. For example, in the United States, retailer Whole Foods has rapidly grown to
annual revenues of $9 billion by working closely with farmers, delighting customers and
caring about the communities it has stores in.

The claims that there is no consensus is without merit. About 10 years ago, when
opposition formed the central government, they had proposed retail reforms and
suggested India consider FDI in retail. Retail reforms discussions are not new. More
recently, retail reforms announced evolved after a process of intense consultations and
consensus building initiative. In 2010, the Indian government circulated a discussion
paper on FDI retail reforms. On 6 July 2011, another version of the discussion paper was
circulated by the central government of India. Comments from a wide cross-section of
Indian society including farmers' associations, industry bodies, consumer forums,
academics, traders' associations, investors, economists were analyzed in depth before the
matter was discussed by the Committee of Secretaries. By early August 2011, the
consensus from various segments of Indian society was overwhelming in favor of retail
reforms. The reform outline was presented in India's Rajya Sabha in August 2011. The

announced reforms are the result of this consensus process. The current opposition is not
helping the consensus process, since consensus is not built by threats and disruption.
Those who oppose current retail reforms should help build consensus with ideas and
proposals. The opposition parties currently disrupting the Indian parliament on retail
reforms have not offered even one idea or a single proposal on how India can eliminate
food spoilage, reduce inflation, improve food security, feed the poor, improve the
incomes of small farmers.

A study by Global Insights research found that modern retailers such as Walmart create
jobs directly, indirectly and by induced effects. In Dallas-Fort Worth area of the United
States, with a population of about 2 million people, Global Insights found that Walmart
alone had helped create about 6,300 new net jobs with an average salary of over $21,000
each.[ For India's urban population of over 400 million, an average salary of less than
$2,100 per year, this scales to over 12 million new jobs. Other multi-brand retailers, such
as Mitsukoshi of Japan, employ a much higher number of sales support employee per
store, than Walmart, to suit local consumer culture. The Global Insights study also found
that the modern retail such as Walmart were a key contributor in creating new net jobs
and maintaining low consumer price inflation rates from 1985 to 2005.

Opposition to retail reforms

Within a week of retail reform announcement, Indian government has faced a political backlash
against its decision to allow competition and 51% ownership of multi-brand organized retail in
India.

Despite the fact that Salman Khurshid, Indias law minister, claiming that many opposition
parties, including the BharatiyaJanata Party, had privately encouraged the government to push
through the retail reform, the intense criticism now targets Congress-led coalition government,
and its decision to push through one of the biggest economic reforms in years for India.
Opposition parties claim supermarket chains are ill-advised, unilateral and unwelcome.
The opposition claims the entry of organized retailers would lead to their dominance that would
decimate local retailers and force millions of people out of work.
Mamata Banerjee, the chief minister of West Bengal and the leader of the Trinamool Congress,
announced her opposition to retail reform, claiming "Some people might support it, but I do not
support it. You see America is America and India is India. One has to see what ones capacity
is".
Other states whose Chief Ministers have either personally announced opposition or announced
reluctance to implement the retail reforms: Tamil Nadu, Uttar Pradesh, Bihar and Madhya
Pradesh.
Chief Ministers of many states have not made a personal statement in opposition or support of
India needing retail reforms. Gujarat, Kerala, Karnataka and Rajasthan are examples of these
states. Both sides have made conflicting claims about the position of chief ministers from these
states.
A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a senior leader of the
opposition BharatiyaJanata Party (BJP), threatened to "set fire to the first Wal-Mart store

whenever it opens;" with her colleague SushmaSwaraj busy tweeting up a storm of

misinformation about how Wal-Mart allegedly ruined the U.S. economy.
On 1 December 2011, an India-wide "bandh" (close all business in protest) was called by
political parties opposing the retail reform. While many organizations responded, the reach of the
protest was mixedThe Times of India, a national newspaper of India, claimed people appeared
divided over the bandh call and internal rivalry among trade associations led to a mixed
response, leaving many stores open day-long and others opening for business as usual in the
second half of the day. Even Purti Group, a network of stores owned and operated by
NitinGadkari were open for business, ignoring the call for bandh. Gadkari is the president of BJP,
the key party currently organizing opposition to retail reform.
The Hindu, another widely circulated newspaper in India, claimed the opposition's call for a
nation wideshutdown on 1 December 2011, in protest of retail reform received a mixed response.
Some states had strong support, while most did not. Even in states where opposition political
parties are in power, many ignored the call for the shutdown. In Gujarat, Bihar, Delhi, Andhra
Pradesh, Haryana, Punjab and Assam the call evoked a partial response. While a number of
wholesale markets observed the shutdown, the newspaper claimed a majority of kirana stores and
neighborhood small shops for whom apparently the trade bandh had been called remained
open, ignoring the shutdown call. Conflicting claims were made by the organizers of the nation
wideshutdown. Contrary to eyewitness reports, one Trader union's secretary general claimed
traders across the country participated wholeheartedly in the strike.
The political parties opposing the retail reforms physically disrupted and forced India's
parliament to adjourn again on Friday 2 December 2011. The Indian government refused to cave

in, in its attempt to convince through dialogue that retail reforms are necessary to protect the
farmers and consumers. Indian parliament has been dysfunctional for the entire week of 28
November 2011 over the opposition to retail reforms.

Support for retail reforms

In a pan-Indian survey conducted over the weekend of 3 December 2011, overwhelming
majority of consumers and farmers in and around ten major cities across the country support the
retail reforms. Over 90 per cent of consumers said FDI in retail will bring down prices and offer
a wider choice of goods. Nearly 78 per cent of farmers said they will get better prices for their
produce from multi-format stores. Over 75 per cent of the traders claimed their marketing
resources will continue to be needed to push sales through multiple channels, but they may have
to accept lower margins for greater volumes.
A study in India on title 'Foreign Direct Investment In Indian Retail Sector: Drawing lessons
from the international experience', concluded that the entry of FDI in multi brand retail in India
can be growth enhancing only if proper safeguards are in place and the market environment is
regulated. Firstly, the resources should be dedicated for a comprehensive study of retail and its
related industries. Secondly, the number of big retail outlets in a particular city should be decided
on the basis of population criterion and the employment level of local youth in the retail
business. Thirdly, the format of these retail chains should also be regulated as is done in
Malaysian case. They should not be in the form of neighborhood convenience store and there
should be minimum and maximum limit of the size of these stores. Fourthly, it is important to
ensure that no single retailer monopolizes the procurement operations in an area, district or state
in order to protect the local suppliers. Lastly, the predatory pricing and the anti competitive

practices of these international retailers should be prohibited in order to create a playing field for
local retailers SOURCE.

Farmer groups
Various farmer associations in India have announced their support for the retail reforms. For
example:

ShriramGadhve of All India Vegetable Growers Association (AIVGA) claims his

organization supports retail reform. He claimed that currently, it is the middlemen
commission agents who benefit at the cost of farmers. He urged that the retail reform
must focus on rural areas and that farmers receive benefits. Gadhve claimed, "A better
cold storage would help since this could help prevent the existing loss of 34% of fruits
and vegetables due to inefficient systems in place." AIVGA operates in nine states
including Maharashtra, Andhra Pradesh, West Bengal, Bihar, Chhattisgarh, Punjab and
Haryana with 2,200 farmer outfits as its members.

Bharat KrishakSamaj, a farmer association with more than 75,000 members says it
supports retail reform. Ajay VirJakhar, the chairman of Bharat Krishak Samaj, claimed a
monopoly exists between the private guilds of middlemen, commission agents at the
sabzimandis (India's wholesale markets for vegetables and farm produce) and the small
shopkeepers in the unorganized retail market. Given the perishable nature of food like
fruit and vegetables, without the option of safe and reliable cold storage, the farmer is
compelled to sell his crop at whatever price he can get. He cannot wait for a better price
and is thus exploited by the current monopoly of middlemen. Jakhar asked that the

government make it mandatory for organized retailers to buy 75% of their produce
directly from farmers, bypassing the middlemen monopoly and India's sabzimandi
auction system.

Consortium of Indian Farmers Associations (CIFA) announced its support for retail
reform. Chengal Reddy, secretary general of CIFA claimed retail reform could do lots for
Indian farmers. Reddy commented, "India has 600 million farmers, 1,200 million
consumers and 5 million traders. I fail to understand why political parties are taking an
anti-farmer stand and worried about half a million brokers and small shopkeepers". CIFA
mainly operates in Andhra Pradesh, Karnataka and Tamil Nadu; but has a growing
members from rest of India, including ShetkariSanghatana in Maharashtra, Rajasthan
Kisan Union and Himachal Farmer Organisations.

Prakash Thakur, the chairman of the People for Environment Horticulture & Livelihood
of Himachal Pradesh, announcing his support for retail reforms claimed FDI is expected
to roll out produce storage centers that will increase market access, reduce the number of
middlemen and enhance returns to farmers. Highly perishable fruits like cherry, apricot,
peaches and plums have a huge demand but are unable to tap the market fully because of
lack of cold storage and transport infrastructure. Sales will boost with the opening up of
retail. Even though India is the second-largest producer of fruits and vegetables in the
world, its storage infrastructure is grossly inadequate, claimed Thakur.

Sharad Joshi, founder of ShetkariSangathana (farmers association), has announced his

support for retail reforms. Joshi claims FDI will help the farm sector improve critical
infrastructure and integrate farmer-consumer relationship. Today, the existing retail has
not been able to supply fresh vegetables to the consumers because they have not invested

in the backward integration. When the farmers' produce reaches the end consumer
directly, the farmers will naturally be benefited. Joshi feels retail reform is just a first step
of needed agricultural reforms in India, and that the government should pursue additional
reforms.
Suryamurthy, in an article in The Telegraph, claims farmer groups across India do not support
status quo and seek retail reforms, because with the current retail system the farmer is being
exploited. For example, the article claims:

Indian farmers get only one third of the price consumers pay for food staples, the rest is
taken as commissions and markups by middlemen and shopkeepers

For perishable horticulture produce, average price farmers receive is barely 12 to 15% of
the final price consumer pays

Indian potato farmers sell their crop for Rs. 2 to 3 a kilogram, while the Indian consumer
buys the same potato for Rs. 12 to 20 a kilogram.

Economists and entrepreneurs

Many business groups in India are welcoming the transformation of a long-protected sector that
has left Indian shoppers bereft of the scale and variety of their counterparts in more developed
markets.
B. Muthuraman, the president of the Confederation of Indian Industry, claimed the retail reform
would open enormous opportunities and lead to much-needed investment in cold chain,
warehousing and contract farming.

Organized retailers will reduce waste by improving logistics, creating cold storage to prevent
food spoilage, improve hygiene and product safety, reduce counterfeit trade and tax evasion on
expensive item purchases, and create dependable supply chains for secure supply of food staples,
fruits and vegetables. They will increase choice and reduce Indias rampant inflation by reducing
waste, spoilage and cutting out middlemen. Fresh investment in organized retail, the supporters
of retail reform claim will generate 10 million new jobs by 2014, about five to six million of
them in logistics alone.
Organized retail will offer the small Indian farmer more competing venues to sell his or her
products, and increase income from less spoilage and waste. A Food and Agricultural
Organization report claims that currently, in India, the small farmer faces significant losses postharvest at the farm and because of poor roads, inadequate storage technologies, inefficient supply
chains and farmer's inability to bring the produce into retail markets dominated by small
shopkeepers. These experts claim India's post-harvest losses to exceed 25%, on average, every
year for each farmer.
Unlike the current monopoly of middlemen buyer, retail reforms offer farmers access to more
buyers from organized retail. More buyers will compete for farmers produce leading to better
support for farmers and to better bids. With less spoilage of staples and agricultural produce,
global retail companies can find and provide additional markets to Indian farmers. Walmart,
since its arrival in India's wholesale retail market, already sources and exports about $1 billion
worth of Indian goods for its global customers.
Not only do these losses reduce food security in India, the study claims that poor farmers and
others lose income because of the waste and inefficient retail. Over US$50 billion of additional

income can become available to Indian farmers by preventing post-harvest farm losses,
improving transport, proper storage and retail. Organized retail is also expected to initiate
infrastructure development creating millions of rural and urban jobs for Indias growing
population. One study claims that if these post-harvest food staple losses could be eliminated
with better infrastructure and retail network in India, enough food would be saved every year to
feed 70 to 100 million people over the year.
Supporters of retail reform, The Economist claims, say it will increase competition and quality
while reducing prices helping to reduce India's rampant inflation that is close to the double
digits. These supporters claim that unorganized small shopkeepers will continue to exist
alongside large organized supermarkets, because for many Indians they will remain the most
accessible and most convenient place to shop.
AmartyaSen, the Indian-born Nobel Prizewinning economist, in a December 2011 interview
claims foreign direct investment in multi brand retail can be good thing or bad thing, depending
on the nature of the investment. Quite often, claims Professor Sen, FDI is a good thing for India.

Allowed in some states, banned in others

The governments of some states, particularly Congress-ruled states have said they will allow
foreign supermarkets to open in their state:

Andhra

Pradesh,

Assam,

Delhi,[88]Haryana,

Kashmir,

Maharashtra,

Manipur,

Uttarakhand, Daman & Diu and Dadra and Nagar Haveli, will allow foreign retailers.

Other states, particularly BJP-ruled states have said they will not allow foreign supermarkets to
open in their state, these are:

West Bengal,]Gujarat, Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura, and Orissa,
Rajasthan

Supporters of retail reform who have voiced the need to promote organized retail include Chief
Ministers of several states of India, several belonging to political parties that have no affiliation
with Congress-led central government of India. The list includes the Chief Ministers of
Maharashtra, Andhra Pradesh, Tamil Nadu and Gujarat. In a report submitted earlier in 2011,
these Chief Ministers urged the Prime Minister to prioritize reforms to help promote organized
retail, shorten the retail path from farm to consumer, allow organized retail to buy direct from
farmers at remunerative produce prices, and reduce farm to retail costs Similarly, the Chief
Minister of Delhi has come out in support of the retail reform, as have the Chief Ministers of the
two farming states of Haryana and Punjab in north India., The Chief Ministers of Haryana and
Punjab claim that the announced retail reforms will never benefit farmers in their states.
The Chief Minister of the state of Maharashtra - the state with the biggest GDP in India and
home to its financial capital Mumbai - has also welcomed the retail reform.
TarunGogoi, the Chief Minister of Assam, an eastern state in India, announcing his support to the
retail reform, claimed "this will go a long way in bringing about a sea change in rural economy.
The decision will boost agriculture and allied sectors, manufacturing, logistics, integrated cold
chains, refrigerated transportation and food processing facilities in a big way." Criticising the

BJP-organized opposition, Gogoi claimed that these parties who had just a few years ago dubbed
opening up retail as good for India, are now singing a different tune.

2013 state Elections

In December 2013 elections were held in the state of Delhi and a new party came to power The
new Chief Minister of Delhi opposes foreign investment in retail and has written to the federal
government to withdraw permission given by the previous Chief Minister to allow foreign
retailers to open shops in the state The federal Industry Ministry has responded by saying it does
not want foreign investors to think of India as an "unpredictable banana republic" therefore the
rules are such that once a state government allows foreign retailers in that state, they cannot disallow the foreign shops if a new party comes to power in that state.

Current supermarkets
Existing Indian retail firms such as Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and
ShopRite support retail reform and consider international competition as a blessing in disguise.
They expect a flurry of joint ventures with global majors for expansion capital and opportunity to
gain expertise in supply chain management. Spencer's Retail with 200 stores in India, and with
retail of fresh vegetables and fruits accounting for 55 per cent of its business claims retail reform
to be a win-win situation, as they already procure the farm products directly from the growers the
involvement of middlemen or traders. Spencers claims that there is scope for it to expand its
footprint in terms of store location as well as procuring farm products. Foodworld, which
operates over 60 stores, plans to ramp up its presence to more than 200 locations. It has already
tied up with Hong Kong-based Dairy Farm International. With the relaxation in international

investments in Indian retail, Indias Foodworld expects its global relationship will only get
stronger. Competition and investment in retail will provide more benefits to consumers through
lower prices, wider availability and significant improvement in supply chain logistics.

Types of Retailing in India(a) Single Brand- Single brand implies that foreign companies would be allowed to sell goods
sold internationally under a single brand, viz., Reebok, Nokia and Adidas. FDI in Single
brand retail implies that a retail store with foreign investment can only sell one brand. For
example, if Adidas were to obtain permission to retail its flagship brand in India, those retail
outlets could only sell products under the Adidas brand and not the Reebok brand, for which
separate permission is required. If granted permission, Adidas could sell products under the
Reebok brand in separate outlets.
(b) Multi Brand- FDI in Multi Brand retail implies that a retail store with a foreign investment
can sell multiple brands under one roof. Opening up FDI in multi-brand retail will mean that
global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of
household items and grocery directly to consumers in the same way as the ubiquitous kirana
store. The approval for single and multi brand includes a set of riders for the foreign investors,
aimed at ensuring that the foreign investment makes a genuine contribution to the development
of Indian infrastructure and logistics, at the same time facilitating integration of small retailers
into the upgraded value chain.
While the minimum capital requirement of US$ 100 million is unlikely to be an issue for the
large foreign players vying to enter India in the supermarket/ hypermarket segment, it could

make it difficult for foreign investors planning to enter specialty formats such as music, mobile,
electronics goods, among others, as these formats require relatively lower investments. Further,
the approval requirements from State Governments could limit the cities that FDI backed
retailers can operate in. The current opposition raised by a number of political parties, if persists,
may pose a major roadblock in the entry of the foreign retailers in India. Besides restricting the
number of cities these retailers can operate in, it could also lead to problems in creating supply
chain efficiency.

Source: Press Information Bureau, ICRA [Note: 1] Back-end infrastructure will include
capital expenditure on all activities, excluding that on front-end units; i.e. it will include

investment made towards processing, manufacturing, distribution, design improvement, quality

control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure, etc.
Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end
infrastructure.

Rationale Behind Allowing FDI in Retail Sector

FDI can be a powerful catalyst to spur competition in the retail industry, due to the current
scenario of low competition and poor productivity. Permitting foreign investment in food-based
retailing is likely to ensure adequate flow of capital into the country, & its productive use in a
manner likely to promote the welfare of all sections of society, particularly farmers and
consumers. It would also help bring about improvements in farmers income & agricultural
growth and assist in lowering consumer prices inflation.10 Apart from this, by allowing FDI in
retail trade, India will significantly flourish in terms of quality standards and consumer
expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and
cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we
should not only permit but encourage FDI in retail trade. Indian Council of Research in
International Economic Relations (ICRIER) has projected the worth of Indian retail sector to
reach $496 billion by 2011-12 and ICRIER has also come to the conclusion that investment of
big money (large corporate and FDI) in the retail sector would in the long run not harm
interests of small traditional retailers.

Entry Options for Foreign Players Prior to FDI Policy (2006)

Although prior to Jan 24, 2006, FDI was not authorized in retailing, most general players had
been operating in the country. Some of entrance routes used by them have been discussed in sum
as below:(a) Franchise Agreements:
It is an easiest track to come in the Indian market. In franchising and commission agents
services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of
India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for
entrance of quick food bondage opposite a world. Apart from quick food bondage identical to
Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as Spencer, have
entered Indian marketplace by this route.

(b) Cash And Carry Wholesale Trading:

100% FDI is allowed in wholesale trading which involves building of a large distribution
infrastructure to assist local manufacturers. The wholesaler deals only with smaller retailers and
not Consumers. Metro AG of Germany was the first significant global player to enter India
through this route.

(c) Strategic Licensing Agreements:

Some foreign brands give exclusive licences and distribution rights to Indian companies.
Through these rights, Indian companies can either sell it through their own stores, or enter into
shop-in-shop arrangements or distribute the brands to franchisees. Mango, the Spanish apparel

brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR
entered into a similar agreement with RadhakrishnaFoodlands Pvt. Ltd.
(d) Manufacturing and Wholly Owned Subsidiaries:
The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in
manufacturing are treated as Indian companies and are, therefore, allowed to do retail. These
companies have been authorized to sell products to Indian consumers by franchising, internal
distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an
exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary,
Nike India Private Limited.

Current Position and FDI Norms in Indian Retail:

In 2010, the Indian retail market was valued at $435 billion of which the share of modern retail
was 7 per cent. The sector is expected to grow to $535 billion by 2013 with the share of modern
retail at 10 per cent. In 2007, India was ranked the twelfth largest consumer market and it is
expected to be the fifth-largest consumer market by 2025 after the US, Japan, China and the UK
(McKinsey & Company 2007). In 2010, India attracted the largest number of new retailers
among emerging and mature markets (CBRE 2011). According to study conducted by ICRIER,
total retail business in India will grow at 13% annually, from US $322 billion in 2006-07 to US
$590 billion in 2011-12 and further US $1 trillion by 2016-17 (figure-2)

Being aware of the large market, growing consumerism and brand-consciousness and to provide
a greater fillip to high economic growth, in 1997, the Indian retail sector witnessed the first
footprints of FDI with 100% FDI being permitted in cash & carry wholesale trading under the
government approval route, subsequently brought under the automatic route in 2006. As a step
ahead, FDI in single brand retail was permitted to the extent of 51% in 2006, while FDI in multibrand retail remained prohibited till recently. Despite changes in consumer behaviour and retail
modernization, India is one of the few countries where FDI was prohibited in multi-brand retail
(until 2011), primarily to protect the traditional mom-and-pop retailers. This policy restricts
global low-cost multi-brand retailers such as Wal-Mart, Tesco and Metro AG from catering
directly to Indian consumers. Within the country, there has been significant debate on whether
FDI should be allowed in multi-brand retail. In July 2010, the Department of Industrial Policy
and Promotion (DIPP) released a Discussion Paper on Foreign Direct Investment (FDI) in
Multi-Brand Retail Trading to facilitate discussion and debate on whether FDI should be
allowed in multi-brand retail and, if so, what conditions should be imposed on FDI. Although a

number of issues have been discussed in the Discussion Paper, the implications of the
liberalization for Indian consumers have not been discussed. The Economic Survey of 2010-11
mentioned that a phased opening of FDI in multi-brand retail is likely to benefit the consumers,
but did not state the exact benefits. In July 2011, a Committee of Secretaries (CoS) had cleared
the proposal to allow up to 51% FDI in multi-brand retail, which has been approved by the
Union Cabinet in November 2011, albeit with a few riders to set up the supply chain and reduce
inflation. The Union Cabinet has also approved increasing the FDI limit in single brand retail to
100% with government approval. While no parliamentary approval is needed for the decision,
State Governments have the prerogative to disallow the same in their respective states. As a part
of the economic liberalization process set in place by the Industrial Policy of 1991, the
government of India opened up the retail sector to FDI through a series of steps:

1995 World Trade Organizations (WTO) General Agreement on Trade in Services

(GATS) which included both wholesale and retail trade in services came into effect.
1997 FDI in cash and carry (wholesale) allowed up to 100% under the government
approval route.
2006 - FDI in single brand retail was permitted to the extent of 51%; FDI in cash and
carry brought under automatic route.
2011 100% FDI in single-brand retail permitted with government approval; 51% FDI in
multi-brand retail with few conditions.

SWOT analysis of Retail IndustryStrengths Emerging retail formats like malls, hyper/supermarkets and specialty stores which provide
product, service and entertainment at one place.
Indian consumers have high disposable incomes, which translates into high consumption levels.
Large number of earning young population.
Growth of real-estate and Improvement in infrastructure.
Huge agricultural sector offering an abundance of raw materials.

Weaknesses Demographic differences between the regions require a regionally adjusted approach to
business.
Presence of a significant number of strong and well-established players in the sector limits
market entry potential.
Relatively small domestic market limits growth opportunities.
High real-estate and distribution cost are the obstacles for growth of retail in India.

Opportunities
Increasing awareness of consumers about products and services.
Changing consumers requirements and lifestyles.
Innovation for new product development.
Private label sector has been boosted by economic downturn.

Threats
Economic slowdown is having an adverse effect on consumer spending.
Rigid government policies and regulations restrict the entry of new players.
Price competition among retailers puts downwards pressure on margins.
Entry of International players in Indian markets consumes the share of Indian retailers

Evolution of Indian retail:

Retailing is one of the biggest sectors and it is witnessing revolution in India. The new entrant in

retailing in India signifies the beginning of retail revolution. India's retail market is expected to
grow tremendously in next few years. According to AT Kearney, The Windows of Opportunity
shows that Retailing in India was at opening stage in 1995 and now it is in peaking stage in 2006.
The origins of retailing in India can be traced back to the emergence of Kirana stores and momand-pop stores. These stores used to cater to the local people. Eventually the government
supported the rural retail and many indigenous franchise stores came up with the help of Khadi&
Village Industries Commission. The economy began to open up in the 1980s resulting in the
change of retailing. The first few companies to come up with retail chains were in textile sector,
for example, Bombay Dyeing, S Kumar's, Raymonds, etc. Later Titan launched retail
showrooms in the organized retail sector. With the passage of time new entrants moved on from
manufacturing to pure retailing.

Retail outlets such as Food world in FMCG, Planet M and Music world in Music, Crossword in
books entered the market before 1995. Shopping malls emerged in the urban areas giving a
world-class experience to the customers. Eventually hypermarkets and supermarkets emerged.
The evolution of the sector includes the continuous improvement in the supply chain
management, distribution channels, technology, back-end operations, etc. this would finally lead
to more of consolidation, mergers and acquisitions and huge investments. India's retail market is
expected to grow tremendously in next few years. India shows US$330 billion retail market that
is expected to grow 10% a year, with modern retailing just beginning. In India, the most of the
retail sector is unorganized. The main challenge facing the organized sector is the competition
from unorganized sector. Unorganized retailing has been there in India for centuries. The main
advantage in unorganized retailing is consumer familiarity that runs from generation to

generation. It is a low cost structure; they are mostly operated by owners, have very low real
estate and labor costs and have low taxes to pay. Organized retail business in India is very small
but has tremendous scope.

Retail formats in India:

Hyper marts/supermarkets: large self-servicing outlets offering products from a variety of
categories.
Mom-and-pop stores: they are family owned business catering to small sections; they are
individually handled retail outlets and have a personal touch.
Departmental stores: are general retail merchandisers offering quality products and services.
Convenience stores: are located in residential areas with slightly higher prices goods due to the
convenience offered.
Shopping malls: the biggest form of retail in India, malls offers customers a mix of all types of

products and services including entertainment and food under a single roof.
E-trailers: are retailers providing online buying and selling of products and services.
Discount stores: these are factory outlets that give discount on the MRP.
Vending: it is a relatively new entry, in the retail sector. Here beverages, snacks and other small
items can be bought via vending machine.
Category killers: small specialty stores that offer a variety of categories. They are known as
category killers as they focus on specific categories, such as electronics and sporting goods. This
is also known as Multi Brand Outlets or MBO's.
Specialty stores: are retail chains dealing in specific categories and provide deep assortment.
Mumbai's Crossword Book Store and RPG's Music World are a couple of example.

Trends in the Retail industryEmergence of organized retail:

Real estate development in the country, for example, theconstruction of mega malls and
shopping malls, is augmenting the growth of the organized retailBusiness.
Spending capacity of youth of India:
India has a large youth population, which is a conduciveenvironment to growth of this sector.
Raising incomes and purchasing power:
The per capita income in India has doubled between 2000-01 and 2009-10 resulting in improved
purchasing power.
Changing mindset of customers:
The customer mind set is gradually shifting from low price tobetter convenience, high value and
a better shopping experience.

Easy customer credit:

Emergence of concepts such as quick and easy loans, EMIs, loan through credit cards, has made
purchasing possible for Indian consumers, for products such as consumer durables.

Higher brand consciousness:

There is high brand consciousness among the youth; 60% of Indias population is below the age
of 30 leading to popularization of brands and products

GROWTH OF RETAIL INDUSTRY IN INDIAAn increasing number of people in India are turning to the services sector for employment due
to the relative low compensation offered by the traditional agriculture and manufacturing sectors.
The organized retail market is growing at 3.5 percent annually while growth of unorganized
retail sector is pegged at 6 percent. The Retail Business in India is currently at the point of
inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by
several Indian and multinational companies in the next 5 years. It is a huge industry in terms of
size and according to management consulting firm Techno park Advisors Pvt. Ltd., it is valued at
about US $ 350 billion. Organized retail is expected to garner about 16-18 percent of the total
retail market (US $ 65-75 billion) in the next 5 years.

According to the tenth report of GRDI of AT Kearney, India is having a very favorable retail
environment and it is placed at 4th spot in the GRDI. The main reasons behind that is the 9% real
GDP growth in 2010, forecasted yearly growth of 8.7% through 2016, high saving and
investment rate andincreased consumer spending. According to report, organized retail accounts
for 7% of Indias roughly$435 billion retail market and is expected to reach 20% by 2020. Food

accounts for 70% of Indian retail ,but it remains under penetrated by organized retail. Organized
retail has a 31% share in clothing and apparel and continues to see growth in this sector. A report
by Boston Consulting Group has revealed that the countrys organized retail is estimated at US $
28 billion with around 7% penetration. It is projected to become a US $ 260 billion business over
the next decade with around 21% penetration. The analysts believe that the sector is likely to
show significant growth of over 9% over the next ten years and also see rapid development in
organized retail format with proportion likely to reach more respectable 25%by 2018. The BMI
India Report for the first quarter of 2012 released forecasts that total retail sales with growth
from US $ 422.09 billion in 2011 to US $ 825.46 billion by 2015.The reporthighlights strongly
underlying economic growth, population expansion, increasing disposable income and rapid
emergence of organized retail infrastructure as major factors behind the forecast growth.

According to department of Industry Policy and Promotion Cumulative, FDI inflows in single
brand retail trading stood at US$ 44.45 million during April 2000 to September 2011.
Indian retail sector is wearing new clothes and with a three year compounded annual growth rate
of46-64%, retail is the fastest growing sector in the Indian economy. The sector is the second
largest employer after agriculture, employing more than 35 million people with wholesale trade
generating an additional employment to 5.5 million crore. The enormous growth of retail
industry has created a huge demand for real estate. Property developers are creating retail real
estate at an aggressive pace.
According to report titled India Organized Retail Market 2010, published by Knight Frank,
during 2010-12,around 55 million square feet of retail space will be ready in Mumbai, NCR,
Bangalore, Kolkata, Chennai, Hyderabad and Pune. Besides between 2010 and 2012 the
organized retail real estate will be grown from existing 41 million square feet to 95 million

square feet. The total no. of shopping mall is expected to expand at CAGR of 18.9% by 2015.
Hypermarket, currently accounting for 14% of mall spaceis expected to witness high growth.
Industry experts predict that the next phase of growth in the retail sector will emerge from the
rural market. By 2012, the rural retail market is projected to have a total of more than 50%
market share.

India's retail market is expected to be worth about US$ 410 billion, with 5 per cent of sales
through organized retail, meaning that the opportunity in India remains immense. Retail should
continue to grow rapidlyup to US$ 535 billion in 2013, with 10 per cent coming from
organized retail, reflecting a fast-growing middle class, demanding higher quality shopping
environments and stronger brands, according to the report Expanding Opportunities for Global
Retailers, released by A T Kearney.

TABLE I
Share of Retail Trade in Gross Domestic Product (G.D.P.)

TABLE II
Share of Organized Retail Sector in Total Retail Trade

Data shown in Table - I and II is collected from secondary source. Therefore, these are in
approximate figures.

FDI POLICY IN RETAIL

Growing liberalization of the FDI policy in the past decade has been one of the key factors for
transforming India from a closed economy into one of the favored destinations for foreign
investments. The FDI policy governs and regulates the entire inflow of foreign investments into
the country. The current FDI cap across various sections in retail is as follows:

TABLE-III
FDI POLICY IN RETAIL (AUGUST 2011)
SECTOR/ ACTIVITY
Wholesale cash and carry trading
Single brand product retailing
Multi brand front end retail

FDI CAP
100%
51%
Currently not allowed

ENTRY ROUTE
Automatic
Foreign investment
promotion board

The government is considering in allowing foreign direct investment in multi brand retailing as a
measure to make India more attractive to overseas investors. The proposal, piloted by the
Department of Industrial Policy and Promotion (DIPP) is currently at the discussion stage and is
awaiting government clearance. Liberalization of FDI in multi brand retail is getting closer to
reality. After almost a year of deliberation, the white paper published by the DIPP\ Ministry of
Commerce and Industry, a retail FDI draft document has been submitted to the Union Cabinet for

approval. This is the final hurdle that needs to be surpassed. One aspect seems to be clear that
will be no one shot, big-bang kind of approach to word introducing FDI in multi brand retail.
Instead, we could expect a phased liberalization approach with a number of conditions laid
down, at least initially, for foreign retailers to enter India. The conditions would be intended to
assure the opposition parties, the local retailer lobbies, the farmer and trade union etc. that the
government has adopted a balanced midway kind of approach after due consideration of the
views of all stakeholders involved.
On 10th Jan, 2012 Indian Government allow Foreign Investment to float and run wholly owned
single brand retail stores even as the bigger reform measure opening multi brand retailing to
international investors remains mired in political cobweb. Currently, FDI in retail trade in
prohibited except in single brand retail trading in which up to 51% FDI is permitted, subject to
certain conditions. The DIPP, part of ministry of commerce and Industry has now allowed FDI
upto 100% in single brand product retail trading under the Govt. approval route. However the
Govt. has put on hold provisions for 51% FDI in multi brand retail.
This relaxation in Foreign Investment norms for single brand retailing would be subject to
following conditions:
Products should be sold under the same brand internationally.
It would cover only those products which are branded during manufacturing.
It would need to ensure mandatory sourcing of at least 30% of the value of the product sold, to
be the done from Indian small Industries/village and cottage Industries, Artisans and Craftsmen.
Small Industry will be defined as Industry with the total investment in plant and machinery not
exceeding $1million. The relaxation in foreign investment in single brand retail sector comes as

compromise for the government who has been able to arrive at a political concusses to open
multi brand
retail stores for foreign investors.

Challenges Faced by the Retail Industry:

International Standards: Even though India has well over 5 million retail outlets of different
sizes and styles, it still has a long way to go before it can truly have a retail industry at par with
International standards. This is where Indian companies and International brands have a huge
role to play.
Inefficient supply chain management: Indian retailing is still dominated by the unorganized
sector and there is still a lack of efficient supply chain management. India must concentrate on
improving the supply chain management, which in turn would bring down inventory cost, which
can then be passed on to the consumer in the form of low pricing.
Lack of Retail space: Most of the retail outlets in India have outlets that are less than 500
square feet in area. This is very small by International Standards.
Cultural Diversity: India's huge size and socio economic and cultural diversity means there is
no
established model or consumption pattern throughout the country. Manufacturers and retailers
will have to devise strategies for different sectors and segments which by itself would be
challenging.
Real estate issues: The enormous growth of the retail industry has created a huge demand for
real estate. Property developers are creating retail real estate at an aggressive pace. With over
1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need
additional retail space of 700,000,000 sq ft (65,000,000 m2) as compared to today.

Human resource problems: Trained manpower shortage is a challenge facing the organized
retail sector in India. The Indian retailers have difficulty in finding trained person and also have
to pay more in order to retain them. This again brings down the Indian retailers profit levels.
Frauds in Retail: It is one of the primary challenges the companies would have to face. Frauds,
including vendor frauds, thefts, shoplifting and inaccuracy in supervision and administration are
the challenges that are difficult to handle. This is so even after the use of security techniques,
such as CCTVs and POS systems. As the size of the sector would increase, this would increase
the number of thefts, frauds and discrepancies in the system.
Challenges with Infrastructure and Logistics: The lack of proper infrastructure and
distribution
channels in the country results in inefficient processes. This is a major hindrance for retailers as
a non-efficient distribution channel is very difficult to handle and can result in huge losses.
Infrastructure does not have a strong base in India. Urbanization and globalization are
compelling companies to develop infrastructure facilities. Transportation, including railway
systems, has to be more efficient. Highways have to meet global standards. Airport capacities
and power supply have to be enhanced. Warehouse facilities and timely distribution are other
areas of challenge. To fully utilize India's potential in retail sector, these major obstacles have to
be removed.

Future Prospects of Organized Retail Sector in India:

India has been ranked as the third most attractive nation for retail investment among 30 emerging
markets by the US-based global management consulting firm.

AT Kearneys study on Global Retailing Trends Found that India is the least competitive as
wellas least saturated of all major Global markets. This implies that there is significantly low
entry
barriers for players trying to setup base in India, in terms of competitive landscape. The report
further stated that Global Retailer such as Wal-Mart, Carrefour, Tesco and Casino would take
advantage of more favorable FDI rules that are likely to be introduced in India. A good talent
pool, unlimited opportunities, huge markets and availability of quality raw material at cheaper
cost is expected to make India overtake the world best retail economies by 2042.
The sector is expected to see an investment of over $30billion within next 5 years and putting
modern retail in the country to $175-200 billion, according to Techno park estimates.
International retailers see India as the last retailing frontier left as the Chinas retail sector is
becoming as saturated. Domestic players are selectively growing in India-postponing aggressive
expansion plans, adding stores judiciously and shifting gears to tier 2 and 3 cities. While India is
a difficult market to enter, the potential payoff is huge. Indias population of nearly 1.2 billion
fore cast eventually to overtake Chinas also is an attractive target.

Carrefour, the worlds second-largest retailer, has opened its first cash-and-carry store in
India in New Delhi. Germany-based wholesale company Metro Cash & Carry (MCC)
opened its second wholesale centre at Uppal in Hyderabad, taking to its number to six in
the country.
Jewellery retail store chain Tanishq plans to open 15 new retail stores in various parts of
the country in the 2011-12 fiscal.

 V Mart Retail Ltd, a medium-sized hypermarket format retail chain, is set to open 40
outlet sover the next three years, starting with 13 stores in 2011, in Tier-II and Tier-III
cities.
Reliance Retail, the wholly owned subsidiary of MukeshAmbani's Reliance Industries, is
set toopen 150 stores by the end of Dec. 2011 and double the number of stores across the
country in
all formats within five years.
Future Value Retail, a Future Group venture, will take its hypermarket chain Big Bazaar
to smaller cities of Andhra Pradesh, with an investment of around US$ 1.54 million to
US$ 4.41
million depending on the size and format.
RPG-owned Spencer's Retail plans to set up 25 Hyper Markets Through 2012 in the
country.
Spar Hypermarkets, the global food retailing chain of the Dubai-based Landmark Group,
expects to start funding its India expansion beyond 2013 out of its local cash flow in the
country. So far, the Landmark Group has invested US$ 51.31 million in setting up five
hypermarkets and plans to pump in another US$ 51.31 million into the next phase of
expansion.
Leading watchmaker Titan Industries Limited plans to invest about US$ 21.83 million for
opening50 premiums watch outlets Helios in next five years to attain a sales target of
US$ 87.31 million.
British high street retailer, Marks and Spencer (M&S) plans to significantly increase its
retail presence in India, targeting 50 stores in the next three years.
Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship Zara
brand in India in June 2010. It further plans to open a total of five Zara outlets in India.
Bharti Retail, owner of Easy Day storesupermarkets and hyper martsplans to invest
about US$ 2.5 billion over the next five years to add about 10 million sq ft of retail space
in the country by then, according to a company spokesperson.

 India's retail industry is the second largest sector, after agriculture, which provides
employment opportunities. According to Associated Chambers of Commerce and
Industry of India (ASSOCHAM), the retail sector will create 50,000 jobs in next few
years.
Retail companies are starting retail management courses in partnership with management
institutes, roping in talent from other sectors and developing comprehensive career
growth and loyalty plans for existing employees.
Top players like Pantaloon Retail India Limited, Trent, Shopper's Stop, RPG Group and
ebony are virtually on their toes. Consider the plans of largest player, The Pantaloon
Retail India Ltd; the company has developed a comprehensive strategy, where in it
expects that in 2years, it will not recruit any new managers from outside.

Suggestions for retail sector in India:

Many agencies have estimated differently about the size of organized retail market in 2011. The
one thing that is common amongst these estimates is that Indian organized retail market will be

very big in 2011. The status of the retail industry will depend mostly on external factors like
Government regulations and policies and real estate prices, besides the activities of retailers and
demands of the customers also show impact on retail industry. As the retail market place changes
shape and competition increases, the potential for improving retail productivity and cutting costs
is likely to decrease. Therefore it is important for retailers to secure a distinctive position in the
market place based on values relationships or experience.
Finally, it is important to note that these strategies are not strictly independent of each other
value is function of not just price quality and service but can also be enhanced by personalization
and offering a memorable experience.

ISSUES BEFORE RETAIL RECTOR IN INDIA: ENTRY OF ORGANIZED

RETAIL PLAYERS :

In Indian retail sector organized retail is a recent phenomenon. It is a zero-sum game

between 2 players:a) Organized sector &
b) Unorganized sector
Indias retail is dominated by a large number of small retailers consisting of the local kirana
shops, owner manned general stores, chemists, footwear shops, apparel shops, paan&beedi
shops, hand-cart hawkers, pavement vendors etc. which together make up the so-called
Unorganized retail.
Organized retail is reflected in sprawling shopping centers, multiplex-malls & huge complexes
which offer shopping, entertainment and food all under one roof. The last 3-4 years have
witnessed the entry of a number of organized retailers Opening stores in various modern formats
in metros and other important cities. Organized retailing has begun to tap the enormous market
but its share is small. A number of large business houses have entered the retail business with
very ambitious expansion plan. However, opinions are divided on the impact of growth of
organized retail in the country. Concerns have been raised that growth of organized retail may
have an adverse impact on retailers in the unorganized sector. It has also been that growth of
organized retailing will yield efficiencies in supply chain, enabling better success to markets to
producers (including farmers and small producers) and enabling higher prices, on the one hand
and, lower prices to consumers, on the other. In India, organized retail contributed roughly 4% of
the total Indian retail 2006-07, which is very small even compared with most of the emerging
market economics. However. During the coming 9 years. It is projected to grow at a compound
rate of 40-45 percent per annum and is estimated to contribute 16% to total Indian retail by 201112.

Interestingly, this huge growth in organized retail does not involve a decline in the business of
unorganized retail, the sales of the unorganized retail, the sales of the unorganized sector is
expected to grow by 10% p.a., from US$ 308.8 billion 2006-07 to US $ 495.6 billion in 2011-12.

UNORGANISED RETAIL SECTOR IN INDIAUndeniably, around 96% of Indian retail sector is unorganized and hence majority of sales take place
through unorganized stores popularly known as kirana or mom-and-pop stores. The unorganized
retail sector is expected to grow at about 10% per annum with sales rising from 309 billion in 2006-

07 to reach US $ 496 billion in 2011-12. Despite the steady expansion of organized retailers. Though
organized sector is growing a faster rate, unorganized sector is still preferred by the customers as
they are more convenient and easy to approach. The kirana shop owner knows that the buyer buys
place first. They offer that utility. Total number of traditional retailers is estimated to be 13 million by
Technopak Advisers Pvt. Ltd. The classification of the unorganized retail universe by category is
shown below:
CATEGORIES OF TRADITIONAL RETAILERS-

Fruit & vegetable sellers

Food stores

Sells fruits and vegetables.

Result of bakery products. Also sells dairy and

Non-Vegetable Store
Kirana I

processed food and beverages.

Sells chicken and mutton.
Sells bakery products, dairy and processed

Kirana II

food,home and personal care and beverages.

Sells categories available at a kirana I store

Apparel

plus cereals, pulses, spices and edible oils.

Sells mens wear, womens wear, innerwear,

Footwear
Customer durables & IT
Furnishing
Hardware
General mechanize

kinds & infant wear.

Sells mens wear, womens wear, kids wear
Sells electronics, durables & IT products.
Sells home lines & upholstery.
Sells sanitary ware, door fitting, tiles.
Includes lighting, stationery, toys, gifts &
crockery.

FUTURE TRENDS UNORGANISED SECTOR 1:. The unorganized sector will

grow @10% per annum but given the relatively weak financial of the unorganized sector and the
space constraints on their compansion prospects, this sector alone will not be able to meet the

growing demand. 2. The unorganized sector will expand further due to its proximity, goodwill,
credit sales, bargaining, loose items, convenient timings and home delivery.

4. ORGANISED RETAIL SECTOR IN INDIA The Indian retail sector is highly fragmented,
consisting predominantly of small, independent, and owner managed shop. The domestic
organized retail industry is at a nascent stage. India got started with organized chain retailing just
a few years ago. There are just very few categories, the most prominent being apparel, where
organized retail chains have had a significant presence for more than 3-4 years. Indian retailers
have done very well. Particularly after taking into account the various obstacles and hindrances
like real estate costs, lack of trained manpower etc. Growth of organized sector of retailing will
yield efficiencies in the supply chain, enabling better access to markets, to producers and to
customers. The strength of organized retail lies in resource availability. It can translate into
efficient supply chain management, leading to faster inventory turnaround, resulting in improved
button lines. It is anticipated that the further belongs to organized sector in India. Indias
organized sector is all set to explode. While the existing players such as future group, Bharti,
Reliance Retail, Essar, Shoppers stop and Aditya Birla group are endeavouring to consolidate
their markets, others such as Mohindra&Mohindra, Parsavnath& DLF, Hero Honda &Indiabulls
have announced plans to enter the retail sector. Organised sector is going to grow at a much
faster rate of 45-50 percent per annum and quadruple its share in total retail to 16% by 2011-12.
Government is also apprehensive about the uncertain future of this sector considering the vote
bank attached to retail, political environment is quite willing to take the risk of 100% FDI in
retail. The Major challenge facing the organized sector is competition from unorganised sector

Traditional retailing has been established in India for some centuries. It is a low cost structure,
mostly owner-operated, negligible real estate & labour costs & little or no taxes to pay.

SHARE OF ORGANISED SECTOR IN RETAIL SECTOR:

The increasing growth of retail sector is going to affect organized sector positively. Presently the
organized sector does not enjoy a significant chunk of market share. When compared with
developed countries, it is very low, a meager 4%.

TABLE 2
SHARE OF ORGANIZED RETAIL IN SELECTED COUNTRIES, 2006
Country

Total Retail Sales (US$ bn)

Share of Organized Retail

(%)

USA
Japan
Chinba
United kingdom
France
Germany
India
Brazil
Russia
Korea, south
Indonesia
Poland
Thailand
Pakistan
Argentina
Philippines
Malaysia
Czech republic
Vietnam
Hungary

2,983
1,182
785
475
436
421
322
284
276
201
150
120
68
67
53
51
34
34
26
24

85
66
20
80
80
80
4
36
33
15
30
20
40
1
40
35
55
30
22
30

MODERN RETAIL FORMATS IN INDIA

The face of India retail sector is changing, new & innovative business models are being adopted.
The formats prevalent in retail sector are:1. HYPER MARKET Hypermarket offer a large basket of products, ranging from grocery.
Fries & processed food, beauty & healthcare products etc. Example Spencers, Big Bazaar
2. CASH & CARRY These are large B2B focused retail formats, buying & selling in bulk for
various commodities and carry several thousand stock-keeping. Example Mito, a Germany
based C&G.
3. DEPARTMENT STORES - Department stores have a large layout with a wide range of
merchandise mix, usually in cohesive categories, such as showed towards garments. Example:Ebony, Shoppers stop, Westside

4. SPECIALITY STORES Speciality stores are single category, focusing on individuals and
group clusters of the same class with high product loyalty. Examples Footwear stores, gift
stores etc.

Examples- Archies, Woodlannd etc.

5. DISCOUNT STORE A discount store is a retail store offering a wide range of products,
mostly branded, at discounted prices or apparel or footwear brands. Example Subhiksha,
Koutons, Nike, Levis
6. CONVENIENT STORE A convenience store is a relatively small retail store located near a
residential area (closer to consumer), open long hours, 7 days a week and carrying a limited
range of staples and groceries. Example - In & Out, Safal, 6ten.

MAJOR PLAYERS IN ORGANISED SECTOR AND THEIR BUSINESS STRATEGIES

High population density in the Metropolitan cities and surrounding tier I towns is driving the
geographic penetration of modern retail.
Typically, firms are positioning themselves in one or both of the segments: Lifestyle & value
retailing under multiple retail formats. Retail firms are adopting a combination of formats:Mega - (hyper and / or super)
Medium - (deptt. and / or speciality)
Small - (convenient and / or discount)

It does not make any difference that what route is being followed by the retailer, the domestic
retail industry of India has benefitted in terms of
Investment
Technical knowhow an expertise
Improvements in supply chain and logistics
Demand for store brand private labels.
Business strategy of organized retail players are explained below:Retailer
Subhiksha

Segment
Value

Trent Limited

Lifestyle & value

Future Group: PRIL

Lifestyle & value

ITC Choupal Sagar&Choupal

Fresh

Value

Business Strategy
Low-price high-volume
strategy: by keeping no fancy
frills front-end and by
becoming an intermediary at
the back end, Subhiksha
leverages on discounted prices
on bulk purchases and cash
payments.
Single- brand strategy:
leverages on high margins in
private labels, and targets
consumers in socio-economic
class B and C.
Strategic JVs and subsidiaries
around retail has enabled PRIL
to develop retailing across age-groups, all product categories,
the entire customer segments
under multiple retail formats.
Backward integration through
IT-based business model:
leverages by building direct
relationship with the supply
service, the fanners, to sell as
well as purchase products and

Spencers Retail

Value

NDDB: Mother

Value

Dairy

services.
The "duck and the duckling"
model: by having two- or threevalue segment stores, backed by
a cluster of small-sized Fresh,
Daily, and Express stores, to
leverage, on economies of scale
at back-end value chain.
Operates on a co-operative
model with the objective of
increasing farmers' welfare, Has
a strong
presence in Delhi's NCR
region. Strategically located in
residential areas and follows a
low-price strategy for fruit and
vegetables