INDUSTRY REPORT ON

RETAIL.

Submitted To: Submitted By:

Prof. Sunil Kumar Singh Ankit Sharma
PG20173085
 INDEX

1. Abstract.
2. Introduction.
3. Indian Retail Market.
4. Indian Country Profile.
5. Snapshot of Indian Retail Market.
6. Status Of Indian Retail Market.
7. India’s Unorganized And Organized Market Segment.
8. Sectors Of Indian Retail.
9. The Indian Consumer.
10. Challenges for Retail.
11. Selected Retail Formats in India.
12. Main Indian Market Players and Their Characteristics.
13. International Retailers in India.
14. Summary and Outlook.
 Retailing in India – Background, Challenges, Prospects

Abstract

India has become the second-largest consumer market and seventh-largest retail market
worldwide. The prerequisite for this event was the liberalisation of several sectors of the
economy, whereas the main driver was a continuous increase of the gross domestic product
(GDP). As a consequence, the Indian retail market has shown impressive and constant growth.
Although the global financial crisis affected the Indian economy, the prospects for the Indian
retail market are encouraging. With a steadily growing economy, a broad middle class is
evolving as progress is made in reducing poverty. Nevertheless, the knowledge about specific
features of the Indian market is still unsatisfactorily low. Hence, our article provides a
description of the status quo of India’s retail market, including an analysis of Indian consum-
ers and the positioning of Indian and foreign retailers. It concludes with predictions of plausi-
ble further developments.

Introduction
In the last few years, India has emerged as the seventh largest retail market in the world. Only
two decades ago, market forces in India were in principle subordinated to political considera-
tions, and the overall economic system was managed by the national government. Nearly
every kind of economic activity required permission from state bureaucrats, with the result
that the country was stalled by its “Hindu rate of growth”. This system, named “license raj”,
was gradually eliminated beginning in the middle of the 1980s, ushering in a long and com-
plicated process of economic liberalisation (Jenkins 1999) that continues today. Specifically,
the government seeks to protect the Indian retail market, with its large number of small family
retailers, from free competition. Even so, in recent years Indian politicians have become more
willing to lift certain restrictions. Whereas governmental expenditures and investments were
initially the main drivers of economic growth, the expanding middle class, with its consump-
tion affinity and its pursuit of prosperity, has become more important. In addition, the high
urbanisation rate, an increasing share of women in the workforce, a young population and the
availability of personal credit are driving the Indian economy (Ghosh 2010). All of these fac-
tors contribute to the persistent growth of the Indian retail sector.
This economic growth has raised the interest of domestic firms operating in industries such as
telecommunication in starting retail units. Foreign retailers confronted with highly satiated
home markets and searching for new growth opportunities are also showing interest. Some
prior studies in the management literature have estimated that the leading retailers in India
generate revenues of 10 to 50 billion USD per year (Giridharadas/Rai 2006). However, recent
assessments call these numbers into question. The last two years have demonstrated that gain-
ing access to the Indian retail market is much more difficult than was previously assumed.
Several Indian retailers have had to concentrate on rationalising their processes and cutting
back stores in some regions, leading researchers to conclude that their expansion strategies
were too ambitious. However, in addition to the issues of optimal processes and key metrics,
the Indian retail market is expected to keep growing by 10.0 to 13.0 % per year until 2012. It
is assumed that the Indian retail market will surpass Japan’s in sales in 2010, Germany’s in
2011 and France’s in 2012 (Asipac 2010).
Against this background, we expect that interest in the Indian retail market will remain high.
Nevertheless, successful market entry and sustainable market operation in India require exten-
sive information about the specifics of the market, competitors and customers. We intend to
provide such information in this paper. First, we give an overview of the Indian retail market
with a brief summary of relevant facts and data, including a snapshot of retail history in India.
Second, we present the sections of the Indian retail market. Third, characteristics of Indian
consumers are given, explaining their importance for domestic and foreign retailers. Fourth,
we delineate the traits of retail formats in India. Fifth, we introduce the main domestic retail
players and the foreign retailers operating in India. We complete this article with a summary
and outlook for the Indian retail market.

India – A Market Overview

India – A Country Profile
India has a population of about 1.21 billion people and is the second most populous country
after China. About 70 % of Indian people, i.e. 743 millions, live in 138 million households in
one of India’s 600,000 villages. The other 30 % of Indians live in one of the 5,170 cities,
which are classified from Tier I to Tier IV according to their number of inhabitants. The
growth of the population within the next five years is expected to amount to 1.3 %. India’s
population is relatively young: the median age is 25.9 years, and 30.5 % of the population is
younger than 14 years. About 64.3 % of Indians are between 15 and 64 years old. Only 5.2 %
of India’s residents are older than 65 years (CIA Factbook India 2010). The life expectancy is
quite low at 66 years. Despite the expected aging of the population, in 2020 the average
Indian will be only 29 years old, and the percentage of people aged 15-49 years will still be
high, at 53.0 %. Therefore, the Indian retail market will remain attractive for several decades.
India’s gross domestic product (GDP) for 2009 is expected to be 3.57 trillion USD (in pur-
chasing power parity), which corresponds to a GDP per capita of 1,031 USD (Gtai 2010). The
share of agriculture in the GDP is 16.1 %, the share of industry is 28.6 % and, the share of
services is 55.3 % (CIA Factbook India 2010). The outlook for the Indian GDP is optimistic.
Hence, for the fiscal year 2010/2011, the growth rate is expected to be 8.5 %, according to the
Reserve Bank of India. This indicates that the Indian economy is recovering quickly after the
slowdown in the past two years caused by the global financial crisis. A recent report by Mor-
gan Stanley predicts a potential growth rate of 9 to 9.5 % for India’s GDP for the period of
2013 to 2015.
One of the main concerns in India is the enduring high inflation rate. The highest rate, 11.05
%, was measured in August 2008. Although inflation has decreased slightly within the last
few months and was registered at 6.0 % at the end of March 2010 by the Reserve Bank of
India, the inflation of food prices is distressing. From January 2009 to January 2010 food
prices increased by 20 % (Bajaj 2010). Prices for cereals and milk have increased the most
over the past two years. Because food prices are the major driver of inflation, the government
is very concerned about securing affordable and sufficient access to food for all Indians. For
the next fiscal year, the inflation rate for food prices is expected to partially relax to 13.1 %.
Hence, the inflation of food prices in India will remain an issue in the coming months and
years.
Snapshot of Retail History in India
Despite the importance of India as a country that produces many specialty goods, such as sea-
sonings, that are traditionally exported, the retail sector was long directed primarily to satisfy
the basic needs of the Indian people. Thus, the supplying of grains and pulses at low prices
was the main concern of retail companies. To compensate for the shortcomings of a planned
economy, the government was predominately engaged in the distribution of goods. Because of
this limited focus on consumers and the sheer size of the country, most Indian consumers buy
products to meet their daily needs in small stores (kirana stores), at wet markets and in
bazaars near their living and working areas (Sengupta 2008). For decades, large retail formats
such as supermarkets or malls were nearly unknown. Instead, government-run public distribu-
tion stores (PDS), fair price shops and co-operative stores have long been the prevailing retail
formats, especially in rural India.
In PDS, chiefly wheat, rice, sugar and kerosene are sold. These stores are more or less suffi-
cient instruments of the government’s economic policy for ensuring the availability of staple
foods to the public at affordable prices (Ahluwalia 1993; Howes/Jha 1994). Regardless of
whether this retail model is considered to be old-fashioned, food shortages and inflation of
food prices in recent years have led the government to reinforce its endeavors to strengthen
the PDS system. Other important retail formats for Indian consumers have included paan-bidi
shops, traditional convenience stores, street vendors and mobile vendors (Sengupta 2008).
The history of modern retailing and organised retail in India began earlier than is often sup-
posed. In 1971, India’s first “supermarket” was opened, in the form of Nilgiris at Bengaluru
(Sengupta 2008). Modern Indian retail incorporates the concept of self-service and includes a
chain of stores that are operated with modern management techniques. In the late 1970s, the
number of brands, especially of daily cosmetics and sanitary articles, increased sharply (Sen-
gupta 2008). This widening of the product range has intensified competition among manufac-
turers for shelf space in all retail formats.
Apart from these early attempts, the modern retail sector in India took shape mostly at the
beginning of the 21st century, when some domestic retailers set up their supermarket concepts.
The sector gained significant momentum in 2006, when the Indian retail market was opened
for FDI. In January 2006, the Indian retail market was opened for foreign companies to own
up to 51 % in single-brand retail and 100 % in wholesale and cash and carry. For several years,
multi-brand retail for foreign firms was restricted, leading to operations through franchises
with Indian partners, such as Wal-Mart with Bharti Enterprises. In summer 2010, paramount
steps were taken. In the near future, foreign retailers will be permitted to hold 49 % of multi-
brand retail in India. This change resulted from the expectation that further liberalisation might
improve the disastrous existing infrastructure. In August 2010, the Consumer Affairs Ministry
recommended that “A significant chunk of investments should be spent on back-end
infrastructure, besides logistics and agro-processing” (Menon 2010). There are no reliable
sources by which to assess the development of retail sales and retail formats since 2000, but it
can be said that some retail formats, such as supermarkets, have increased their store numbers
tenfold between 2001 and 2006 (see table 1).
In spite of the partial liberalisation of the market, the subsequent market entry of several
retailers and new options for purchases, the buying patterns of the Indian consumer have not
changed completely. In fact, the typical Indian consumer still buys in small shops in his/her
neighbourhood (Anonymous 2007). Only 10 % are willing to travel more than five kilometres
to purchase apparel. This pattern is reflected by the low share of organised retail (see chapter
2.4). The key question is whether organised retail will be able to raise its market share consid-
erably. The success of this attempt is correlated with the progressive adoption of new retail
formats by Indian consumers. However, it is unclear whether they will adopt the new retail
formats. One empirical study has focused on the question of whether Indian consumers are
likely to move from kirana stores to organised retail (Goswami/Mishra 2009). The study con-
cluded that customer patronage of grocery stores is positively related to location, home shop-
ping options, cleanliness and special offers.
To sum up, since liberalisation in 2006, the Indian retail market has experienced a remarkable
shift from small stores to modern large-scale formats such as supermarkets/hypermarkets,
specialty stores, department stores, factory outlets and discounters. All of these concepts can
be summarised under the label “organised retail”. Despite the enduring dominance of small
stores in India, these new retail formats have increased their market shares. Although the
global financial crisis has lowered the optimism of both domestic and foreign retailers, they
are still confident that they will succeed, at least in the medium term. Particularly, Indian
retailers are planning their next expansion phase (see chapter 4). To understand these growth
plans, we describe in the following section the current situation of the Indian retail market.

Status of the Indian Retail Market

Today, the Indian retail market accounts for 12 % of India’s GDP. The Indian retail market
has grown from 201 billion USD in 1998 to an estimated 353 to 450 billion USD (271.5 to
346.2 billion EUR, using an exchange rate of 1.3 USD/EUR). The broad range of the esti-
mated retail sales can be explained by two reasons. First, there are no official data on how
many retailers operate in India and what they earn. Because the Indian retail market is driven
by small retailers, the specific turnover is naturally small. The second reason for the broad
range of values is that some major domestic retailers are subsidiaries of large enterprises.
These companies often do not report sales and profit numbers for their retail units. Hence,
both the size of the market and its growth can be only roughly appraised.
Overall, the Indian retail market has witnessed tremendous growth within the past five years.
Consequently, from 2005 to 2007, India was rated as the most attractive country for retail
investment (A.T. Kearney 2008). In 2009, the Indian retail market expanded by 12 %. How-
ever, the worldwide economic downturn has also impacted India and its retail industry. There-
fore, several firms have adjusted their expansion plans. Despite several signs of market con-
centration and consumer satiation in the last 24 months, the outlook for the overall Indian
retail market is promising.
For 2010 and 2011, annual growth in retail sales of 6.0 to 6.5 % is forecasted (PriceWater-
houseCoopers 2009). Other retail experts expect that Indian retail sales will increase to 590
billion USD, and that the share of organised retail will increase to 16 % by 2011/2012 (Joseph
et al. 2008). Even greater growth in sales is predicted by A.T. Kearney (2008), with an overall
value of the Indian retail market of 833 billion USD in 2013, increasing to 1.3 trillion USD by
2018. Paradoxically, Indian organisations predict retail sales expansion to be much lower and
expect sales of 543.2 billion USD in 2014 (IBEF 2010a) and 637 billion USD in 2015. These
different metrics probably result from different motivations. Whereas foreign consultancy
firms could be motivated to exaggerate India’s growth potential to attract investors (and con-
sultancy projects), governmental organisations might be motivated to underestimate the mar-
ket’s value reducing the interest of foreign retailers.
Even with the impressive growth of the sector in recent years and its increasing concentration
in some parts of the industry, India is still perceived as an attractive retail marketplace. The
Global Retail Development Index 2009 again named India as the most attractive market (A.T.
Kearney 2009). According to the report India is still a non-satiated retail market. In general,
the Indian retail market can be split into two segments: The organised retail segment, which
has a share of 3 to 6 % of total sales and is growing at more than 20 % a year (Asipac 2010;
IBEF 2010a), and the unorganised retail segment, which dominates the Indian retail scene. In
the next section, we will examine both retail segments in depth.

India’s Unorganised and Organised Retail Segments

The Indian retail market is highly fragmented into small, privately owned stores, the so-called
unorganised retail or traditional retail. These unorganised retail stores account for 94 to 97 %
of sales, compared to about 80 % in China, about 60 % in Thailand and about 15 % in the US
(Srivastava 2008). These “Mom-and-Pop” stores comprise about 15 million businesses, from
local kirana stores to footwear and apparel shops (Knight Frank 2010). They are usually run
by the owner and one or two assistants. Approximately 95 % of these retail stores are smaller
than 500 square feet (Srivastava 2008). India has the highest number of retail outlets world-
wide, with an average size of 50 to 100 square feet, but the per capita retail space is amongst
the lowest in the world. Many of these kirana stores are located in shopping centres. For 50
years, time has stood still in that “Each shop is typically about ten feet square, so that the pro-
prietor can sit in the middle of the floor and reach his entire stock” (Westfall/Boyd 1960, p.
14). In such stores, there is no self-service for customers.
Organised retail, such as supermarkets and hypermarkets, has steadily gained market share at
rates of about 35 % during the last five years. Organised retail now constitutes a 7.8 % share
of the Indian retail sector (Asipac 2010) and accounted for 783 billion INR (13.5 billion EUR)
in 2007. Apparel, food and grocery dominate organised retailing in India (IBEF 2010a) and
account for circa 49.6 % of the sales. Previous judgments have been very enthusiastic about
the prospects of organised retail, and the sector is expected to increase its share of the total
retail trade to 16 % by fiscal year 2011/2012 (Joseph et al. 2008). However, recent research
only expects organised retail to possess a share of 10.4 % of total retail sales in 2011/2012
(KPMG 2009). In contrast with other emerging countries in Asia, such as China or Vietnam,
with organised retail shares of 18 and 23 %, respectively, India is thought to possess huge
future growth potential (Asipac 2010). The development of organised retail can be captured
quantitatively in several ways. In 1999, there were only three shopping malls in India totalling
one million square feet. Only seven years later, in 2006, malls accounted for 28 million square
feet, and in 2009 this value was 52 million square feet (Knight Frank 2010).
The reason for the low share of organised retail in overall retail sales is the severe restriction
on foreign direct investments (FDI) in retail that were in place until the end of 2005. At pre-
sent, protests against organised foreign and domestic retailers are ongoing. However, it is not
clear what the impact of organised retailers on small retailers might be. Some sources con-
clude the effect of a formal retailer to be a loss of about 23 % of sales within a year for nearby
small shops. However, according to the Indian Council for Research on International Eco-
nomic Relations (ICRIER), total sales returned to their previous level five years after the re-
moval of the restrictions on FDI. Additionally, it was found that only 1.7 % of stores in the
unorganised market close each year, and it is expected that by 2013, unorganised retail busi-
nesses will still account for 85 % of the Indian retail market (Salisbury 2010).
Because the organised retail segment has only a modest market share in India, the develop-
ment of this sector is unique. Table 1 shows how several retail formats developed between
2001 and 2006. It can be seen that the numbers of supermarkets and specialty stores increased
nearly tenfold. Additionally, hypermarkets, which were nonexistent several years ago, now
account for about 10 % of the space of organised retail. Although department stores have also
gained in retail space (+ 540 %), their importance in organised retail has decreased.
In recent months, several Indian retailers were forced to scale back their expansion plans and
close down some stores. For example, Pantaloon, India’s largest retail company, cut its
expansion plans through June 2010 from 4 million to 2 million square feet and has closed 103
of its stores. This consolidation can be interpreted as a consequence of the overly enthusiastic
expansion phase in organised retail stores within the last few years. Nevertheless, it seems
that Indian retailers have learned from the past. Hence, recent press releases have announced a
change of firm policies back to modest expansion after several restructuring programs.
Table 1: Expansion of Organised Retail by Format, 2001 to 2006

2001 2006
Retail format Average No. of Area (in Share of No. of Area (in Share of
size (sq. Stores 1,000 sq. total space stores 1,000 sq. total space
feet) feet) (in %) feet) (in %)

Supermarket/ 1,000 400 400 11.9 4,751 4,751 15.5

convenience store
Hypermarket 40,000 0 0 0.0 75 3,000 9.8
Discount store 1,000 48 48 1.4 1,472 1,472 4.8
Specialty store 800 2,651 2,121 63.3 20,612 16,490 53.7
Department store 30,000 26 780 23.3 166 4,980 16.2
Total 3,125 3,349 100.0 27,076 30,693 100.0

Source: Anonymous (2010).

Sectors of Indian Retail

Food and Grocery

Regardless of the continual rise of the Indian middle class and its new consumer demands for
items in several categories, the Indian retail market is still dominated by sales of food and
grocery, which account for 60 to 75 % of all retail sales (A.T. Kearney 2006). In 2007, sales
of food and groceries accounted for 7,920 billion INR (ca. 135 billion EUR) (Gtai 2009). The
share of total sales comprising food and grocery in organised retail is 11.5 %, meaning that
this segment of Indian retail is mainly driven by unorganised retail stores. This pattern is
reflected in the structure of the consumer shopping basket. In 2003/2004, food and groceries
had a share of 42.1 % of the total consumer expenditures, and no significant changes can be
expected in the coming years. The typical Indian consumer will continue to purchase food and
groceries in small retail stores instead of supermarkets or other organised retail formats.
The overall food and grocery market is expected to grow to 1.6 billion USD over the next five
years (Srivastava 2008). Euromonitor International forecasts that grocery retailing in India will
grow at about 17 % annually between 2009 and 2014, putting it among the fastest grow-ing
markets in the world (Chandran 2010). Organised food and grocery retail in India could nearly
double to 1,750 billion INR (circa 30.2 billion EUR at current exchange rate) by 2015,
representing 11 % of overall food and grocery sales (Tata 2010). Nevertheless, the food mar-
ket strongly depends on the amount of the harvests and on price stability. As mentioned above,
prices for some food categories have increased by up to 20 % per year. As a result, there is
immense political interest in keeping prices for food and groceries low. In addition to subsi-
dies of several food items and selling selected items in PDS stores, some politicians believe
that ongoing liberalisation of the market, such as lifting the buying restrictions for retailers,
can contribute to a more efficient supply of food through better infrastructure and improved
food processing. It is expected that Indian farmers and traders can benefit from the experi-
ences of foreign retailers.

Apparel and Accessories

Behind food and groceries, apparel and accessories is India’s second-largest retail category at
1,313 billion INR (22.6 billion EUR), representing 10 % of the Indian retail market (Gtai
2009). Most sales, 40.2 %, are generated in the men’s category, followed by 34.8 % in
women’s apparel and 25.0 % in children’s apparel and uniforms. Compared with 2006, the
sector has grown by 12.8 %. This is one of the highest growth categories, with a compound
annual growth rate (CAGR) of 12 to 15 % (A.T. Kearney 2008). Apparel is moreover a seg-
ment that is mainly characterised by organised retail, which accounts for 20 % of the total
apparel market (A.T. Kearney 2008; Gtai 2009). In 2007, sales of apparel and accessories in
organised retail stores reached 298 billion INR (5.1 billion EUR) and increased by 35.5 %. In
the coming years, annual growth of apparel and accessories sales in organised retail of 9.5 %
is expected (Srivastava 2008). In sum, the overall share of apparel and accessories in the total
apparel market in India is expected to triple to quadruple and to reach 35 to 40 % by 2013
(A.T. Kearney 2008). The manufacturers of apparel are challenged by customers’ strong store
loyalty. Customers tend to be loyal to specific retailers, such as Shopper’s Stop, Westside or
Pantaloon, instead of to a particular apparel brand. The consequence is an apparel market that
is largely driven by private labels from retailers.

Consumer Electronics

With rising disposable income, sales of consumer electronics have increased significantly. In
the fiscal year 2008/2009, consumer electronics were sold with a total value of around 6
billion USD (Alex 2010). Another source, the Brand Marketing India (BMI), forecasts con-
sumer electronic sales of 29.86 billion USD in 2010. The segment is expected to grow further
at an annual rate of 15 to 20 % over the next three years (Alex 2010). The main growth driver
is the low market penetration and low consumer satiation of products such as television and
stereo systems, which are far below the numbers typical of other Asian countries. An impor-
tant part of the consumer electronics industry is mobile phones and accessories, which
accounted for a turnover of 272 billion INR in 2007 (4.7 billion EUR) (Gtai 2009). This group
of products is growing at an annual rate of 25.6 %. The market leaders are Videocon, Croma
(Tata Group), eZone (Future Group), Vivek’s and Reliance Digital. Among them, Videocon is
the key player, with 526 stores across India. E-zone has 36 stand-alone stores and runs 16
shops-in-shops and is aiming for a turnover of 18 crore INR until June 2011. Vivek’s has 35
stores, and Reliance Digital sells in 39 stores while striving for sales of 90,000 crore INR by
2010 (15.5 billion EUR).

Watches, Eyeglasses and Jewellery

The overall returns for watches and eyeglasses amount to 5,300 crore INR (913.8 million
EUR). After the liberalisation in the 1990s, the watch industry saw many manufacturers and a
variety of national and international brands attempting to open up this market. The industry is
expanding by 11 to 12 % per annum. The primary reason for this rate of growth is the low
ownership rate of watches in India. A total of 46 % of the market is organised. The dominant
actor in this line of business is Titan, with a market share of about 65 % in the organised retail
sector. Other players are Maxima, Timex and Citizen (Batra 2010).
Jewellery has a pivotal position within the Indian consumer basket. About 5.9 % of India
residents’ disposable income is spent on jewellery. The total market size is estimated to be
694 billion INR (11.9 billion EUR). Jewellery’s share of total retail sales is nearly 6 %. The
market grew by about 10 % from 2006 to 2007. The leading manufacturer and retailer is the
Gitanjali Group. Gitanjali has over 2,000 retail outlets across India and is in the process of
expanding to Tier II and Tier III cities. The company plans to open 20 new stores by the end
of 2010. In the coming three years, the firm has announced a turnover target of 1,000 crore
INR (172.4 million EUR).

Health and Pharmaceuticals

In 2007, the sales in the health and pharmaceuticals sector totalled 488 billion INR (8.4 bil-
lion EUR) (Gtai 2009). Other sources estimate the market size at around 21,000 crore INR
(3.62 billion EUR). However, the first number seems to be more reliable, as the overall phar-
maceutical market in India is ranked 14th in the world and is expected to have a turnover of 20
billion USD in 2015 (McKinsey & Company 2007). A total of 800,000 stores across India sell
pharmaceuticals. The share of organised retail is 2 %. Over-the-counter (OTC) pharma-
ceutical retailers generate sales of 3.28 billion USD. The OTC sector is predicted to be the
fastest growing retail sub-sector, and BMI forecasts that sales will reach 6.18 billion USD by
2014, an increase of 88.5 % (IBEF 2010a). Nevertheless, India has one of the lowest expendi-
tures per capita for pharmaceuticals in Asia. The largest retailer in this sector is Apollo Phar-
macy, a subsidiary of Apollo Hospitals. This retailer has over 1,000 outlets and is open for
business 24 hours a day. Another important retailer is MedPlus, with nearly 800 stores. Med-
Plus began in 2006 in Hyderabad and has a market share of 30 % of organised pharmacy
retail, with 5,000 employees. The third major player is Guardian Lifecare, with more than 200
stores in 26 cities, of which 90 % are owned and 10 % run via franchise. This retailer plans to
dou-ble its number of stores by the end of 2010 by investing 100 crore INR (17.2 million
EUR). In table 2, we give an overview of selected retail sectors in India.
 Table 2: Summary of Retail Sectors in India

Total market Organised retail Expected growth

Food and 7,920 billion INR (135 billion Organised retail in 2015 will
11.5 % (15.5 billion EUR)
Grocery EUR, 2007) reach 30.2 billion EUR
Apparel and 1,313 billion INR (22.6 billion 1.8 billion USD (20 % of total Organised apparel retail by
accessories EUR, about 10 % of the Indian apparel market, expected to grow 9.5 % p.a. for the next three
retail market) to 40 % in 2013) years

Consumer 6.0 billion USD (2008/2009);

Growth of 15 to 20 % p.a. for
electronics other sources: 29.86 billion USD -
the next three years
in 2010

Pharma- 488 billion INR (8.4 billion EUR); In 2015, market size will be 14.3
2,0 % (168 million EUR)
Ceuticals other sources: 3.62 billion EUR billion EUR
Watches,
53 billion INR (913.8 million EUR
eyeglasses Jewellery: 6 % 11-12 % p.a.
in 2009)
and jewellery

Note: INR: Indian rupees; p.a.: per annum

In all retail segments, firms are confronted with decelerating sales that have resulted in the
closing of stores and restructuring of business operations. The “gold rush” years, when
domestic retailers in particular broadened their networks of stores across India, seem to be
over. Retailers’ response to the crisis was to rethink their business models. Now, several retail
companies increasingly concentrate on strengthening existing operations and assessing
options for growth through consolidation while continuing to innovate. Their first changes
have been to renegotiate their rentals by moving toward hybrid rental models such as revenue
sharing, rationalising store processes, managing working capital, optimising cost structures
and resizing manpower (Bapna 2010; Jones Lang LaSalle Meghraj 2010; KPMG 2009).

The Indian Consumer

Overview – Numbers and Buying Behaviour

Any attempt to classify the typical Indian consumer is exceedingly challenging if not impos-
sible. In few other countries have the living conditions, income and consumption patterns
changed to such an extent in recent years as they have in India. Furthermore, there is probably
no other country in which the differences between regions, classes/castes and generations are
as distinctive. The federal states and regions in India differ significantly in terms of their
stages of development, growth rates, incomes and cultures. Whereas metropolitan areas like
Mumbai and New Delhi are in the midst of a stage of intensifying economic and social mod-
ernisation, states like Uttar Pradesh and Bihar lag behind because of unfavourable political
and social conditions (Bagchi/Kurian 2005). They are “poorhouses”, where incomes are con-
siderably below the Indian average. In most publications, the Indian consumer is segmented
simply by income. However, this approach has often been criticised as too simplistic. We
believe that more valuable insights on Indian consumers can be generated by taking other
variables, such as buying behaviour and brand awareness, into account. Consequently, in a
first step we present characteristics of Indian consumers by income level. In a second step, we
pre-sent generalised findings regarding common buying patterns and consumption behaviours
of the Indian people. To a certain extent, this discussion is entering new territory because
neither the theoretical nor the applied literature is very detailed in its description of the Indian
consumer.
Irrespective of the differences between the various regions in India, the combination of
increasing incomes and a growing population makes the market in general very attractive for
retailers. As mentioned before, the Indian retail market is expected to increase to 590 billion
USD in 2011/2012 (450 billion EUR at current exchange rates). The average spending per
capita is expected to reach 48,632 INR in 2025 (840 EUR in current exchange rates)
(McKinsey Global Institute 2007). Although this number may seem to be quite low, the retail
sector with its low satiation level − especially in new markets − will benefit significantly from
consumers’ rising income and changing needs. The trend is in any case positive. Consumer
spending has grown at an average annual rate of 11.5 % over the past decade. Nevertheless,
the market’s potential should not be overestimated. Similar to circumstances 50 years ago,
Indians still spend a great deal of their incomes on food. This means that there are only small
modifications in their spending patterns so far, as demonstrated by the high demand for daily
products and services. As an example, the consumption of milk increased by 9.4 % to 75.6
litres per person from 2004 to 2008 (PriceWaterhouseCoopers 2009).
However, by analysing the available data, some alterations of the consumption patterns in
India are apparent. In table 3, the per capita sales for non-food retailers are given. The average
spending per capita has increased by 81.4 % to 4,117 INR. Since 1996, the average Indian
consumer spends his/her money preferably in retail formats such as record and video retail,
department stores, home furniture, pharmacies/chemists and apparel retail.
Based on these numbers, we expect fundamental changes in the consumption behaviour of the
majority of Indian consumers only in the long term. Meanwhile, significant changes in pur-
chase behaviours are likely within the emerging middle class, although the majority of the
Indian population will exhibit similar purchase and consumption behaviour as has historically
been observed. Retailers and manufacturers should therefore carefully analyse their respective
markets, including the specific needs of their customers, to adjust their offers and procedures
to changed consumption behaviours. Considering the long history of India and its manifold
traditions and diverse religious commandments, it is reasonable to assume that even the mid-
dle class cannot act absolutely free from the expectations of their family, caste or the society
as a whole. This is not to say that Indian society is not experiencing value shifts that have
consequences for the business world. In fact, a study from 2003 indicates, for example, that
Indian shoppers are more focused on the emotional or entertainment value of shopping than
on its functional value (Sinha 2003). The study moreover showed that Indians search purpose-
fully for information, are willing to switch stores, and talk with friends about their shopping
experiences – as it can be observed in Western countries.

Table 3: Per Capita Retail Sales for Non-food Retailers 1996 and 2001 in INR)

Change in %,
1996 2001
2001 to 1996

Booksellers and stationers 20.49 32.93 +60.71

Pharmacies, chemists and druggists 186.41 344.03 +84.56
Apparel and accessory outlets 545.16 982.93 +80.30
CTNs 109.50 170.05 +55.30
Department stores 4.28 9.53 +122.66
Do-it-yourself, gardening and hardware outlets 39.88 54.26 +36.06
Electrical, electronic and computer outlets 170.95 270.31 +58.12
Home furniture and furnishing outlets 104.22 193.64 +85.80
Jewelers 283.23 242.63 -14.33
Record/video game outlets 9.21 24.08 +161.74
Sporting goods outlets 27.30 39.91 +46.19
Toy Shops 3.37 5.90 +75.07
Other non-food specialists 42.40 66.84 +57.64
Other non-food retailers 823.07 1,498.97 +82.12
Total 2,269.48 4,117.98 +81.45

Source: Euromonitor

Nevertheless, we theorize that Indian consumers are very dissimilar from their Western
counterparts. One difference in the purchasing behaviour of Indian versus Western consumers
is the tendency to hoard purchases in regions where the products need only basic storage, such
as in Gujarat. Several product categories, such as oil, pulses and grains, are purchased only
once a year (Dholakia/Sinha 2005). Retailers must be aware of this phenomenon to obtain
adequate estimates of customers’ true loyalty and of the optimal ordering and stocking proc-
esses. Another difference in purchase behaviour is the expectation that prices are negotiable.
Indian consumers are not accustomed to buying at fixed prices and may become embarrassed
when treated otherwise. The acceptance of buying products without bargaining might take
same time. A third difference from Western shoppers is that Indian shoppers choose stores
based on the products or the brands that they offer. This means that the products instead of the
retailer are in the consideration set of customers. A brand is perceived as a pivotal guarantee
of the quality of a product and also has a flaunt appeal (Wharton 2009). Despite the lack of
detailed data on consumer loyalty, it can be assumed the brand loyalty in India is in general
high. High brand loyalty also results from the fact that consumers enter stores with a prepared
brand shopping list and only buy a different product if their first choice is sold out (Dholakia/
Shinha 2005). Spontaneous purchases are quite uncommon among Indian consumers.
Despite the shift from saving to consuming and spending their disposable incomes, Indian
consumers are still very budget conscious. Both low-income and middle-class Indian consum-
ers prefer to buy only small quantities and search continually for the best value at the cheapest
price. Further, the consumer tends to shop close to his/her home and is unwilling to travel long
distances to purchase basic goods (Salisbury 2010). Shopping trips are seldom taken alone. An
Indian consumer is normally accompanied by another person or by family members. Thus,
intensive discussions about products are common in organised retail stores (Dholakia/ Sinha
2005).
To meet the specific needs of the Indian consumer, several retailers, such as Pantaloon and
Reliance Retail, have established private labels in their product portfolios. Local-based retail-
ers in particular have recognised the potential to acquire and maintain customers with private
labels that correspond with local tastes (Malhotra 2010b). Like Western retailers, Indian
retailers benefit greatly from the margins offered by private labels. Private labels have gross
margins that are 25 to 30 % higher than those of manufacturer brands, which offer gross mar-
gins of 12 to 17 %. This advantage is reflected by the share of private labels in overall sales of
10 to 12 % (Wharton 2009). In sum, the literature on consumer behaviour in India is severely
limited, and existing studies have just begun to identify different customer segments and their
varying attitudes, intentions and behaviours. Therefore, most articles segment Indian
customers by their home region.

Segmentation by Region

As just stated, the conventional approach to segmenting Indian consumers is to differentiate

them according to the geographic regions in which they live. The literature distinguishes Tier
I to Tier IV cities. The Tier I metropolitan cities and Tier II cities account for 44 % of the ur-
ban population. Table 4 shows the categorization of the main Indian cities.
Of all Indian cities, Mumbai has emerged as the country’s biggest consumer market, with
86,140 crore INR (14.8 billion EUR) spent in 2007/2008. Mumbai is followed by Delhi (11.5
billion EUR), Kolkata (9.5 billion EUR), Bengaluru (4.5 billion EUR), Chennai (4.5 billion
EUR), Hyderabad (3.7 billion EUR), and Surat (3.0 billion EUR). This enormous sales poten-
tial demonstrates the necessity for retailers to be present in Tier I cities. A focus on urban cit-
ies may be essential for retailers, given India’s steadily increasing urbanisation level. In 2025,
around 45 % of the population will reside in urban areas, up from 30 % at present. Indian’s
cities will gain 379 million residents in the next 40 years, which is more than the entire cur-
rent US population (Dobhal 2008). This development has been acknowledged by several
retailers that aim to expand into Tier II and Tier III cities. Hence, for retailers, a presence in
Tier I cities is obligatory to build up brand awareness and brand image, but the neglect of
smaller cities can become problematic in the future.

Table 4: Classification of Cities and Towns

Classification Cities

Tier I (major cities, metropolitan areas) Mumbai, Kolkata, Delhi, Chennai, Bengaluru, Hyderabad, Ahmedabad, Pune

Surat, Kanpur, Nagpur, Jaipur, Kochi, Madurai, Patna, Agra, Varanasi, Jabalpur,
Tier II (average-sized cities)
etc.

Tier III (climbers) Amritsar, Allahabad, Gwalior, Jodhpur, Goa, Pondicherry, etc.
Tier IV (small towns) Rothak, Udaipur, Faizabad, Shimla, Gurgaon, etc.

Source: Anonymous

In contrast to the urban cities, India is characterised mainly by its rural regions. About 743
million people live in 138 million households in rural India (Shukla 2010). These households
account for 56 % of India’s incomes, 64 % of expenditures and 33 % of savings (Bijapurkar/
Shukla 2008). Within the last decade, the income per capita in rural areas has grown by 50 %
(Bapna 2010) and is expected to increase further by 3.6 % for two years (McKinsey Global
Institute 2007). The sources of income have changed, and it is assumed that by 2015, the
incomes of every second rural household will shift from agriculture to non-farm sources like
construction or trading (Sharma 2010). As several studies have shown, some parts of the retail
industry are dominated by rural consumer spending. For example, between 2005 and 2008,
colour television sets’ penetration increased by 7 %, packaged biscuits’ by 10 %, and some
categories, such as shampoo, increased their penetration rates by as much as 37 % (Bijapur-
kar/Shukla 2008). The consequence of this booming rural demand can be seen in the follow-
ing example: A 1 % rise in refrigerator penetration over a five-year period would mean that
more than 1.5 million additional refrigerators will be sold.
Retailers are asked to analyse the consumer segments differently because the purchase struc-
ture and consumption patterns differ according to the living situations of particular segments
of consumers. As illustrated above, India can be segmented into two areas – the rural and the
urban. By comparing the distributions of sales, it can be shown that most sales of apparel and
accessories and food are generated in rural areas, whereas entertainment and consumer ser-
vices are preferentially sold in urban regions (see table 5).
The obvious conclusion for retailers is to serve both markets by satisfying the needs of spe-
cific consumers. Our analysis has shown that foreign retailers such as Metro or Wal-Mart are
only present in urban areas of India. To achieve a substantial market share and to operate effi-
ciently, these retailers are, however, asked to expand also to rural regions. In this respect we
can assume that domestic retailers are well positioned by having several stores established in
many different cities across India.

Table 5: Distribution of Sales by Category in %

Rural Urban

Entertainment 33 67
Consumer services 44 56
Durables 50 50
Miscellaneous consumer goods 57 43
Apparel and accessories 61 39
Food 64 36

Source: Srivastava

Consumer Segmentation by Income

Another way to classify Indian consumers is to take the common segmentation by income into
account. The income of the Indian population has changed within the last few years. The
number of very rich households has increased by 500 %, whereas the number of households
earning less then 22,000 INR (380 EUR per year at current exchange rates) has decreased
dramatically (PriceWaterhouseCoopers 2004). As a result, within the last ten years, a large
middle class has emerged in India.
Even with an average income of 1,031 USD per person, India is a country where some of the
wealthiest people in the world live. In 2009, it was home to 52 billionaires, an increase from
27 in 2008. The accumulated wealth of these persons accounts for 276 billion USD, which is
almost one fourth of the Indian GDP (Karmali 2009). However, for generating sales in the
high-end consumer markets and luxury retail, a different consumer group is of higher interest
– the high net worth individuals (HNWI). The growth of that segment reached 17.1 % in 2009,
when its wealth rose by 18.9 % (Capgemini/Merrill Lynch 2010). This high number of
wealthy persons provides a promising background for the luxury market. The Indian luxury
goods market accounted for 14.8 billion USD in 2004/2005 (Anonymous 2007) and is ex-
pected to double in size by 2015 (Saraf 2010). The main jump in sales is expected for the pe-
riod from 2015 to 2025. Nevertheless, major challenges for luxury retailers include finding the
right mix of brands, location, customer service and pricing to attract customers (Saraf 2010).

Table 6 shows the distribution of sales in the luxury market. The main segment is jewellery,
which accounts for 27.6 % of overall sales. In response, several malls in big cities, such as the
Palladium Mall in Mumbai, have specialized in selling only luxury goods, with a product
portfolio of international brands such as Omega, Christian Dior and Bulgari.
.

Table 6: Sales in the Luxury Market in India 2004/2005

Sales, in million USD % of total Per household spent, in USD

Jewellery 4,088 27.6 2,555

Designer apparel 2,368 16.0 1,480
Digital accessories 1,917 12.9 1,198
Time wear 1,253 8.5 789
Cosmetics and skincare 1,139 7.7 712
Footwear 945 6.4 590
Accessories 874 5.9 546
Liquor 862 5.8 540
Fragrances 531 3.6 332
Crystal ware 256 1.7 160
Gourmet foods 250 1.7 157
Intimate wear 221 1.5 138
Tableware 100 0.7 62
Total 14,804.0 9,259.0

Source: Anonymous

The second part of the income pyramid consists of the rising middle class. Figures indicating
the concrete number of people belonging to that segment show poor reliability because there is
no official definition of the middle class. One of the most used approaches is the McKinsey
metric, which considers people with an annual income between 200,000 and 1 million INR
(3,450 to 17,250 EUR) to be members of the middle class. In 2005, 50 million people were
part of that group. In 2025, this customer segment is expected to account for about 41 % of the
Indian population, or 583 million people (McKinsey Global Institute 2007). Another clas-
sification system considers ownership of specific goods, such as a car or scooter, colour tele-
vision, or a telephone, as an appropriate indicator of status. According to that estimation, the
middle class equals approximately 20 % of the population, or slightly over 200 million people.
No matter which metric is used, the Indian middle class is still a minority segment of the In-
dian population. However, this segment is the main target group for most of the retailers in the
organised sector. This finding derives from the observation that this group is growing faster
than the total population and therefore presents attractive business opportunities. The third part
of the pyramid consists of the poor and very poor people who live mostly in rural areas. This
consumer segment is not targeted by organised retail because most of their shop-ping takes
place in kirana stores.

Challenges for Retailers Serving the Indian Consumer

The Indian consumer is quite diverse, and so is the Indian retail market. In view of the broad
ranges of consumer segments and the lack of valid data on purchases and consumption pat-
terns, there are several challenges for retailers in serving Indian consumers. The main chal-
lenges can – in our opinion – be seen in the general access to consumer segments, the dealing
with different segments, the supply of products, and finally the premature anticipation of the
future demand and needs of the consumer.

Challenge 1 – Access to Consumer Segments

The chief obstacle to gaining access to all Indian consumers is the poor infrastructure, i.e., bad
conditions of roads and streets and limited availability of transportation options and logistic
systems. The average transport pace on Indian streets is only 20 to 30 kilometres per hour.
Despite better circumstances in urban regions and the metropolitan cities, the access to con-
sumers there is also complicated because of consumers’ refusal to travel longer distances for
shopping. This factor makes it necessary to locate shops in high-density districts of a town.
One possible solution to this problem could be to offer delivery services. Considering the
small numbers of stores run by domestic retailers, it can be expected that the potential of all
consumers is not already exploited. One cardinal problem in the context of consumer access is
how to build up an adequate supply chain to connect rural stores with distribution centres.
Another vital point is to make sure that consumers can be reached to create sufficient brand
awareness. Here it is important to use different communication channels that are available in
urban as well as in rural India. As described above, Indian consumers select products mainly
from their preferred brands. If a brand is unknown, the purchase probability depends on
whether the desired brand is in stock. Especially for foreign retailers, one crucial success con-
dition in the Indian retail market is to realize that the consumers have a high demand for
products in small sizes. Hence, Western retailers must offer their products in different sizes
than they do in their home countries.

Challenge 2 – Dealing with Different Consumer Segments

In India, several languages, cultures and traditions have coexisted for centuries. Retailers have
to know these languages to be able to launch adequate advertising campaigns that can be
understood by the targeted consumers. Furthermore, they must bear in mind the specific fea-
tures of the various local cultures to design successful private labels. In general, knowledge of
the local conditions is very decisive in any attempt at gaining a realistic idea of the needs of
Indian consumers, which is especially true in view of particular religious habits. One survey
found that the annual planning of sales and customised seasonal activities based on geography
and regional festivals is still at a nascent stage (KPMG 2009). Besides this requirement, there
are very probably customer groups that have different expectations of the quality of products
and retail services. These groups might include Westernized customers who have travelled
around the world or worked in other countries and are therefore familiar with different levels
of product quality and retail services.
Challenge 3 – Supply of Products
Given the lamentable state of the infrastructure and the character of the value chain structure,
it is quite clear that the optimal implementation of a supply chain is a pivotal step for domes-
tic and foreign retailers that could be determinant for any market entry and market expansion
strategy. Retailers in India suffer from miserable roads, an antiquated railroad network, regu-
lar interruptions of the electricity and water supplies as well as inadequate supplier storage and
processing facilities. Other reasons for the bad supply chain are small farms, outdated
processes, inconsistent governmental policies and incoherent tax regulations in different fed-
eral states. The consequences are manifold. Retailers have to face long transportation times,
losses of products or high efforts to guarantee the quality of the goods. For example, the loss
as a result of poor post-harvest management, including the lack of storage possibilities, is
estimated to amount to 11 billion USD (Chandran 2010). Several retailers have started uncon-
ventional activities to deal with the various insufficiencies of the supply chain. Wal-Mart buys
vegetables directly from farms, builds toilets to prevent soil contamination and teaches farm-
ers about transplanting, nutrient management and the use of low-cost innovations to get a
higher yield (Chandran 2010). Furthermore, Wal-Mart builds distribution centres to supply its
stores within a radius of 200 km to keep products fresh (Bajaj 2010). The firm also sends its
trucks every day to collect freshly picked vegetables and fruits in plastic cases and deliver
them to the processing centre. In addition to the infrastructure, the structure of the value chain,
which has not been refined over the last 50 years, is a serious challenge. One cause for the
insufficiencies can be seen in the so-called mandi-system of many wholesalers and middle-
men. Consequently, the supply chain of goods is excessively long (Robinson 2007). As a
result, the prices for several goods are high, whereas the quality is often low. In response,
foreign retailers especially have begun to buy directly from the producers. For example, Metro
has convinced several Indian federal states to reform their legislation to allow retailers to
purchase directly from farmers.

Challenge 4 – Anticipating Future Demand and Needs of Consumers

Over the last few decades, Western countries have experienced the gradual fragmentation of
their societies, values, norms and lifestyles. For firms, the segmentation of consumers into
manageable clusters is therefore much more difficult than it used to be. It is quite plausible to
suppose that a changing of lifestyles will also occur in India. However, up to the present, the
consumption behaviour of the Indian consumers has not changed substantially. In fact, slight
modifications can only be noticed in some consumer segments. In this respect, it is compli-
cated to foresee in what ways consumer attitudes in India might develop. With a view to the
increasing environmental problems in India, for example, it will be crucial to offer environ-
mentally friendly products and to establish sustainable production, transportation and con-
sumption patterns (Kumar/Managi 2009). One approach might be to avoid allowing Indian
consumers to become accustomed to the Western style of waste production. In addition, the
prediction of whether most Indian consumers will focus more on price or on service and con-
venience is of paramount importance. At the moment, there is a chance for retailers to build
up value propositions for the middle class instead of singularly pursuing everyday-price dis-
counts. However, the latest reorganisation of some domestic retailers has increased the pres-
sure to lure customers with discounts. We therefore expect that retailers in India will finally
decide to go the same price-fixated way as retailers have in industrialised countries. A further
aspect is the anticipation of the course of private consumption expenditures. Although the
content of the consumption basket has only marginally changed in the last years, some prod-
uct categories – especially consumer electronics – have shown increased sales. In this context,
several questions arise: How will the consumption basket for consumer segments look in ten
years? Will jewellery still have such a high significance for Indians? Will consumer electron-
ics, such as smart phones and electronic readers, receive higher status at the expense of other
categories? Will the purchase of daily products such as cosmetics become more important, as
in industrialised countries? It can be taken for granted that some product categories will
increasingly win customers’ attention; the question is only when. It is crucial for retailers to
answer these questions as soon as possible to start or accelerate necessary innovation proc-
esses.

Selected Retail Formats in India

Department Stores
As presented in table 1, between 2001 and 2006, the number of department stores increased
from 26 to 166. Although the floor space also increased from 780,000 to 4,980,000 square
feet, department stores’ share of organised retail space decreased. This finding does not indi-
cate that department stores are in their maturing phase – the loss of market share is only
driven by the tremendous growth of the other retail formats. In the coming decades, depart-
ment stores will be an important retail format. Their broad product portfolio and location in
shopping malls are highly attractive for consumers. In table 7, we present an overview of the
main department stores in India.

Table 7: Overview of Indian Department Stores

Department Store Company Name Number of Outlets Sales in million INR, 2003/2004

Westside Trent Ltd. 15 1,555

Lifestyle Landmark Group 7 2,400
Globus R Raheja 7 1,100
Pantaloon Reliance Retail 16 2,500
Ebony DS Group 8 820

Source: PriceWaterhouseCoopers.
Shopping Malls
Today, there are approximately 150 malls in India. The first malls were opened in 1999, and
since then this retail format has gained tremendous interest. Mall development activity is
being pursued aggressively across all metropolitan areas and high-growth cities, with signifi-
cant investments upcoming. Indian malls with multiplexes, food courts and playgrounds for
children have become destinations for family outings (Srivastava 2008). These attributes drive
the attractiveness of the mall market, which is expected to grow at an annual rate of 35 to 40
% until 2013. Experts believe that customers become accustomed to this mall shopping
culture. Most of the metropolitan cities are considered to have great potential for supporting
additional malls (Srivastava 2008). However, several retail authorities estimate that only 20 to
25 % of all malls are profitable, indicating a consolidation process in the future. It is predicted
that only 50 % of the malls built in 2010 will survive (Singh/Sharma/Nayar 2010).
The main causes for this outlook can be seen in the short visit time: 75 % of consumers visit a
mall for one to three hours (Srivastava 2008), and Indians prefer to buy clothes in small shops
selling local brands. Department stores account for only 6 to 9 % of the total purchases of
apparel (Anonymous 2007). In addition to the more common malls that serve the Indian mid-
dle class, luxury malls such as UB City in Bengaluru and DLF Emporio in Delhi are well
positioned. Because of increased competition, several innovations in the mall market have
arisen. One innovative mall format is the so-called “Wedding Mall”. Wedding malls stock the
complete range of wedding product offerings, from apparel to jewelry. Another innovation is
“Village Malls” with revamped fair price shops to cater to the changing needs of local popula-
tions. The government of Gujarat has spearheaded one such initiative, with 512 “Village
malls” launched in the state and further plans for 508 more (IBEF 2010b).

Online Retail
The online retail business in India is relatively young, mostly as a result of the low penetra-
tion rate of desktop and laptop computers in India. Hence, domestic retailers have only
recently started to introduce online platforms. For example, one of the biggest Indian retailers,
the Future Group, opened its first internet store in 2006. Consequently, in fiscal year
2002/2003, only 1.3 billion INR (22.4 million EUR) were generated by online trade. For
2005/2006, sales are estimated to be 11.8 billion INR (Ossola-Haring/Raveendran 2008). In
2008, average online expenditures per customer rose by 42 % to 3,442 USD (Malhotra 2010a).
Major online retailers are Rediff.com, Ebay.in, Indiatimes, Futurebazaar.com, Lifespace and i-
choose. Futurebazaar.com, which began its online business four years ago, has revamped its
online business portfolio and expects sales of 10 billion INR (172.4 million EUR) by the end
of 2012. For the future, it might be worthwhile for retailers to investigate Indian consumers’
intentions of purchasing via mobile phones. Because of India’s high numbers of mobile
phones and their low costs for the user, shopping via mobile phone could be an interesting
business area.

Main Indian Market Players and their Characteristics

Future Group
India’s largest retailer, the Future Group, was founded in 1987 under the name Manz Wear
Private Limited. In the fiscal year 2009/2010, the consolidated turnover increased by 27.6 %
to 9,786.9 crore INR (1.7 billion EUR). The consolidated annual profit was 76.4 crore INR
(13.2 million EUR). Its principal formats include Pantaloon, a department store chain; Big
Bazaar, a hypermarket chain; and Food Bazaar. The company operates over 16 million square
feet of retail space, has more than 1,000 stores in 73 cities in India and employs over 30,000
people. A considerable 30 % of its turnover is generated by its private labels (Malhotra
2010b). The company established a joint venture with the US office stationary retailer Staples
in 2006, running nine outlets in India. Another agreement exists with Celio, a French fashion
retailer. Celio plans to increase its store numbers to 24 exclusive outlets and 70 shop-in-shop
outlets by January 2011. For 2013, Celio plans to open 150 stores across India.
Pantaloon Retail runs multiple retail formats in the value and lifestyle segment. Since the
opening of its first store in 1997, Pantaloon has – in terms of financial size – raced to the fore-
front. With turnover of 87 million USD, it became the country’s largest public limited retail
giant (Srivastava 2008). At present, Pantaloon has 48 stores. In the wake of the global finan-
cial crisis, Pantaloon has decided to slow down its expansion plans. Big Bazaar has 134 stores
in 78 cities and a total retail area of over four million square feet (Balakrishnan 2010). The
chain markets over 160,000 products in various segments, like apparel and accessories, elec-
tronics, toys and games and home and kitchen appliances. Big Bazaar reported a turnover of
3,600 crore INR in 2008/2009. For fiscal year 2010/2011, Big Bazaar aims to expand the
chain to 300 supermarkets, with a target turnover of 13,000 crore INR (2.2 billion EUR)
(Anonymous 2009). Food Bazaar, a supermarket chain launched in 2002, now has 185 stores.
The total annual turnover is 250 to 500 crore INR (43-86 million EUR). In 2006, the Future
Group introduced their online retail section, futurebazaar.com. The online retailer, whose
product portfolio ranges from consumer electronics to home and kitchen appliances and home
furnishings, expects a turnover of around 1,000 crore INR in the next 18 to 24 months.

Reliance Retail
Reliance Retail Limited (RRL) is a subsidiary company of the Reliance Group, which gener-
ated over 4,000 crore INR (690 million EUR) in sales in the fiscal year 2009/2010. Reliance
Retail is the country’s second largest retailer by revenue. Some of the retail formats of Reli-
ance are Reliance Fresh, Reliance Hypermart, Reliance Digital, and Reliance Brands. Food
and groceries account for 65 % of Reliance Retail’s overall sales. Within the last few years,
the firm has undergone significant expansion and has opened more than 940 stores (Salisbury
2010). However, Reliance could not escape the negative consequences of the global financial
crisis and has therefore closed several stores and fired 30,000 employees (Bapna 2010). At
present, Reliance Retail has 660 stores in just under 100 cities. Even now, the firm does not
operate profitably and needs monetary assistance from the holding company in the amount of
total 5,200 crore INR (897 million EUR). In fiscal year 2008/2009, the firm accumulated a
loss of around 20 crore INR. In 2009/2010, Reliance again reported a net profit of 18.22 crore
INR (3.1 million EUR). Nevertheless, according to Reliance managers, the lean times seem to
be over, and they plan to add 3,000 to 4,000 stores across all retail formats over 3-4 years.
Reliance Retail also plans to enter the wholesale business sector by opening three outlets by
the middle of 2011. They aim to challenge foreign cash-and-carry retailers such as the Ger-
man Metro Group. A subsidiary of Reliance Retail, Reliance Brands, which was set up in
2007, aims to deepen its cooperation with foreign brands, such as Diesel, Zegna and Timber-
land, by enhancing their store presence. Reliance also cooperates with the British retailer
Marks and Spencer by operating 17 stores in India (IBEF 2010b) and plans to increase its
retail presence in India. The target is 50 stores in the next three years. Another cooperation
exists with the UK-based toy retailer Hamleys, which has announced plans to open 20 toy
stores across the country in the next seven years with a capital expenditure of 150 crore INR
(Anonymous 2010). The British retailer’s role is to give support in store design, staff training
and supplying products.

Trend Ltd.
The Tata Group, founded about 150 years ago, is one of the biggest companies in India. The
group’s turnover in fiscal year 2008/2009 was 70.8 billion USD. The holding company oper-
ates in several lines of business, such as information systems and communications, engineer-
ing, energy, chemicals and consumer products. Tata’s retail subsidiary is Trent Ltd., which
was established in 1998 and has its headquarters in Mumbai. Trend Ltd. accounts for sales of
9.7 billion USD and runs the Westside stores, which offer clothes, footwear and accessories,
furnishings, art objects and a range of home accessories (Srivastava 2008). In addition to
Westside, Trent Ltd. also runs Star Bazaar (hypermarket chain), Landmark (books and music)
and Croma (consumer electronics). Under the label Westside, Trent runs 41 stores in 23 cities.
The store sizes vary between 8,000 and 34,000 square feet. Star Bazaar is the hypermarket
chain of Trent and was launched in 2004 in Ahmedabad as an exclusive franchise format with
the British retailer Tesco. Star Bazaar runs seven stores in Mumbai, Chennai, Bengaluru and
Ahmedabad. The store sizes vary between 50,000 and 75,000 square feet. In August 2010,
Trent reported plans to invest 275 crore INR (47.4 million EUR) for opening 50 stores by
fiscal year 2013/2014.
Under the label Landmark, which came to Trent in 2006, books and music are sold. Landmark
commenced its operations in 1987 in Chennai. In 2008, Landmark's revenues were expected
to be around 240 crore INR (41.4 million EUR). Currently, Landmark runs 16 stores in India,
ranging in size from 12,000 to 45,000 square feet. In addition to these stand-alone stores,
Landmark sells at eight hotel book stores and six airport stores. Via Croma, Trent sells con-
sumer electronics and durables. Croma is run by Infiniti Retail Limited, a 100 % subsidiary of
Tata Sons, and therefore is not directly managed by Trent Ltd. The retailer generated a turn-
over of around 1,000 crore INR (172.4 million EUR) in 2009/2010 and currently has 49 out-
lets in nine cities under the brands Croma Megastores and Croma Zip. Croma stores are be-
tween 15,000 and 20,000 square feet in size. In the current financial year, Croma has launched
three stores every month. Infiniti foresees Croma to become a 100-store chain with a turnover
of 3,000 crore INR by 2012. The Australian retailer Woolworths Ltd. provides technical sup-
port and strategic sourcing facilities to the stores from its global network.
Trent operates a joint venture with the Spanish retailer Inditex, which has three Zara stores in
India. The stores span 1,500 square feet, and the price range of Zara clothes is 990 to 8,990
INR, which should appeal to the upper middle class. The Inditex group is eager to expand, but
their first goal is to understand customers’ needs and to find appropriate locations because of
the Indian habit of transferring the image of a location to the brand image. The main challenge
for Zara is thought to be India’s slow adoption of non-ethnic and casual clothing (i.e., West-
ern wear). The ethnic wear market for women is almost three times larger than the Western
wear market. Trent also operates franchise retail with Italian fashion label Sisley (Benetton
Group). The first such store was opened in New Delhi in 2006. In India, Benetton generated a
turnover of more than 100 million USD in 2009. The objective for the next four to five years
is to earn 250 million US dollars by expanding to Tier III cities.

Aditya Birla Group

Worldwide, the Aditya Birla Group operates in more than 20 countries and has generated
turnover of 29 billion USD. In 2007, the group started its retail activities with the acquisition
of a South Indian-based supermarket chain and is now operating as Aditya Birla Retail Lim-
ited in the food and grocery retail sector. Its retail format for supermarkets and hypermarkets
is “more”, which is India’s second largest supermarket chain. Within a few years, the group
has opened 650 supermarket stores in 155 cities in 12 states. Aditya Birla Retail Limited also
felt the effects of the financial crisis in recent years, and in 2009 about 120 stores were closed.
Although only 70 % of its stores are profitable, the firm plans to get back on its expansion
path by investing 1,500 crore INR (258.6 million EUR) in creating 1,000 stores by 2015. In
fiscal year 2009/2010, its revenue was 1,130 crore INR (194.8 million EUR), and the firm
employed more than 11,000 people. The company aims to achieve turnover of 8,000 crore
INR by 2015. Seeking higher profitability, the Aditya Birla Retail Limited has increased its
private label portfolio. Currently, the retailer has more than 400 products under its private
labels (Malhotra 2010b). Private labels for food are more, Feasters, Kitchen's Promise, and
Best of India. In 2010, the private labels accounted for 19 % of the annual turnover, and the
objective of the firm is to increase this share to 30 % within the next three years.

Bharti Retail
Bharti Retail Ltd. is a wholly-owned subsidiary of Bharti Enterprises, which is mostly known
because of the market power of Bharti Airtel and its 100 million customers in India. Com-
pared with other Indian retailers, Bharti entered the retail market in India in 2008. The retailer
runs its own stores under the label “Easyday”. These stores are owned by Bharti and supplied
by US retailer Wal-Mart. Currently, there are about 59 Easyday supermarket and hypermarket
stores in India, mostly in the North. The sales numbers of Bharti Retail are unknown. Despite
its late market entry, Bharti Retail has strengthened its position and plans to further expand by
investing about 2.5 billion USD over the next five to six years to add about 10 million square
feet of retail space (IBEF 2010b). For the wholesale retail format, Bharti has plans to add 10
to 15 cash-and-carry outlets over the next three years. The prospects for Bharti Retail are
somewhat difficult to evaluate, but the frequent press releases indicate slowed expansion of
Bharti Retail. Bharti Enterprises seems to have several deficiencies in retail expertise

RPG Enterprises

Similar to Reliance, RPG Enterprises is one of India's largest industrial conglomerates and
includes more than twenty companies across eight business sectors, with a total turnover of
17,000 crore INR (2.9 billion EUR). The main retail subsidiaries of RPG are Spencer’s Retail
and Music World. Additional specialty retail formats are Food World (an alliance with Dairy
Farm International), Health & Glow (cosmetics, health products and medicines) and Giant
(hypermarkets).
Spencer’s Retail Limited is one of India’s largest and fastest growing multi-format retailers
with 220 stores, including 30 large-format stores across 35 cities in India. In fiscal year
2009/2010, Spencer’s Retail had a turnover of 1,000 crore INR (172.4 million EUR). The
stores total about 900,000 square feet. The average sales per square foot per month were more
than 800 INR, indicating a good performance (Paul 2010). The company runs two retail for-
mats. Spencer's hyper stores are destination stores more than 15,000 square feet in size. The
merchandise includes fruits and vegetables, groceries, meat, fish, garments, fashion accesso-
ries and consumer electronics. Spencer's stores are neighborhood stores ranging from 1,500 to
15,000 square feet in size. These stores stock the necessary range and assortment of fruits and
vegetables, FMCG non-food, staples and frozen foods and cater to the daily and weekly top-
up shopping needs of the consumer. In 2009, Spencer’s Retail opened four to five store units
and was expecting to add 15 big box stores in 2010 while expanding its trading area and
investing approximately 20 million USD (A.T. Kearney 2010). The firm plans to invest about
30 crore INR (5.2 million EUR) this fiscal year to increase its number of stores, including 30
to 35 new stores for the Beverly Hills Polo Club brand. Since 2009, RPG Enterprises has
operated a joint venture with the US bakery café chain Au Bon Pain and plans to open ten
cafes in Bengaluru itself and another 40 across South Indian cities.

Other Indian retailers

The Indian organised retail landscape is mainly characterised by small and local operating
retailers. Because of the broad range of small retailers, we present some selected firms. The
retailer Shopper’s Stop was established in 1991 with its flagship store, Shopper’s Stop, by the
K. Raheja Group. The firm is a strong domestic competitor, with 1.9 million square feet of
retail space across 88 stores in 12 cities. In 2008/2009, the firm had revenue of 1,578 crore
INR (272.1 million EUR), indicating growth by 30 % relative to the previous year. To reach
the sales goal of 1,800 crore INR in 2009/2010, the firm is looking to expand its total retail
space to 3.5 million square feet in the next four years. Shopper’s Stop plans to invest 500
crore INR to introduce 40 new stores across the country.
The discount retailer Vishal Retail began with a tiny apparel store in Kolkata in 1986. In
2009/2010, the turnover decreased by 16 % to 1,105 crore INR (190.5 million EUR) from
1,323 crore INR a year earlier. Vishal Retail, with 730 crore INR (125.9 million EUR) in debt,
closed more than two dozen of its stores and warehouses in 2009 and plans to close an addi-
tional twelve stores (Salisbury 2010). Hence, Vishal Retail is in the midst of a corporate debt
restructuring. Other Indian retailers that will not be discussed here are Liberty Retail, Adani
Enterprise and Vivek’s.

International Retailers in India

Overview
As the saturation of Western retail and consumer markets has continued, market entry into
emerging countries such as India has become an interesting option. Attracted by the huge
growth rates of the Indian retail market, many retailers have entered the market or even
planned expansion. However, market entry via FDI is heavily restricted despite the first steps
to liberalise the system in 2006. Foreign retailers are only allowed to open single-brand stores
(51 % ownership) and to operate wholesale retail (100 % ownership). On the other hand, the
operation of multi-brand stores is still restricted and requires a domestic partner. This
arrangement has resulted in several collaborations. The first international retailer to enter the
Indian retail market was the German Metro Group with its wholesale format Cash & Carry in
2003. The US retailer Wal-Mart and the British retailer Tesco followed with their wholesale
retail divisions. Apart from these big companies, several foreign retailers in apparel and fash-
ion retail such as Adidas, Nike, Zara and Oviesse are present in the Indian retail market. As
the former chapter showed, the Indian retail market is dominated by domestic market players
with many more stores than the Western retailers. In this chapter, we will briefly present the
main foreign retailers operating in India, which are the Metro Group, Wal-Mart, Tesco and
Carrefour, which intended to enter the market in 2010.

Metro Group
The German retailer Metro Group was the first foreign retailer to begin wholesale retail in
India. In 2003, the firm opened two distribution centers in Bengaluru and now serves more
than 150,000 businesses there. Both cash-and-carry markets have grown by 30 % per year. In
2006, they realized sales of 65 million EUR by selling 16,762 different products, mostly from
Indian production (Kazim 2006). At present, Metro operates five cash-and-carry markets in
India (two outlets in Bengaluru and one each at Hyderabad, Kolkata and Mumbai). Future
plans for serving the Indian market include adding six more wholesale stores in Punjab (A.T.
Kearney 2010). Following the needed minimum of 20 outlets to break even in India, Metro
Cash & Carry plans to open 40 to 50 outlets in the long run. By the middle of 2011, it is
planned to open two wholesale distribution centers at Zirakpur and Ludhiana. In addition, two
distribution centres at Patiala and Jalandhar are intended to be launched by the end of 2011.
The Metro Group currently has no formal plans to start an end-consumer retail business in
India.

Wal-Mart
At the Indian retail market, the US retailer Wal-Mart is present in wholesale retail under the
name “Best Price Modern Wholesale”, which started in Amritsar in 2009, and in end-
consumer retail, both in cooperation with the Indian conglomerate Bharti. This cooperation
began in summer 2007. The joint venture runs under the firm name Bharti Wal-Mart and now
has 800 employees. Both companies operate retail stores under the name Easy Day grocery
stores. Sales numbers of these stores are unknown. Wal-Mart provides back-end support for
the Easy Day stores. Wal-Mart has invested heavily to enter the Indian market. A total of 11
million USD have been spent on lobbying since the joint venture agreement was signed in
August 2007 (A.T. Kearney 2010). In wholesale retail, Wal-Mart operates two stores in Pun-
jab. The stores offer an assortment of more than 6,000 food and non-food items. More than 90
% of these goods and services are sourced locally. Bharti Wal-Mart plans to open 10 to 15
wholesale cash-and-carry facilities and to employ approximately 5,000 people by March 2012.
To strengthen their cooperation, in summer 2010, both firms launched the second Bharti Wal-
Mart Training Centre in New Delhi to bridge the shortage of skilled workers for their whole-
sale and end-consumer retail operations. Their first training center is situated in Amritsar
(Punjab). Bharti Wal-Mart also runs the so-called “Mera Kirana” program, in which small
retailers such as kirana stores get support in managing their inventory and are educated about
safe food handling and customer retention. With the liberalisation in 2006, Wal-Mart
announced optimism for operating in India. However, in more recent years, the business came
under pressure and the potential expansion became doubtful. Again in summer 2010, Wal-
Mart announced that it was highly confident about its own potential to open hundreds of new
stores if FDI is relaxed.

Tesco
In 2008, the British retailer Tesco announced an initial investment of up to 60 million GBR in
the cash-and-carry business over the first two years. For several years, Tesco planned the
market entry for own-run Tesco stores. The first wholesale store is expected to open at the end
of 2010. Currently, Tesco has a joint venture with Tata’s Trent to support the operations of the
hypermarket Star Bazaar. Tesco also suffered from the global financial crisis and has con-
sequently focused on its core business in Europe. Although Tesco reported a 10.4 % jump in
profits for the last year, its prospects of becoming a strong wholesale retailer are expected to
be low. Competitors such as Metro and Wal-Mart – while not the strongest themselves –
occupy better positions in India then Tesco does. One advantage might be the representation
of Tesco brands in the Star Bazaar stores.

Carrefour
The French retailer has planned its market entry in India for nearly a decade. Carrefour held
talks with Bharti Enterprises Ltd., Wadia Group, and the real estate firms DLF Ltd. and MGF
Ltd. to determine the opportunities of the market. In other areas in Asia, Carrefour is present
with a total of 625 stores, but it now intends to exit from markets such as Singapore (2 stores),
Malaysia (19 stores) and Thailand (40 stores) to focus on markets where it has a leading posi-
tion (Thomas/Azhar 2010). Nothing is known about the reasons behind the long negotiations
with different Indian retailers. Other options for market entry in the past included the acquisi-
tion of a majority in Spencer’s Retail Ltd, but the management of Spencer’s Retail declined at
the beginning of 2010 (Paul 2010). This summer, Carrefour opened the first wholesale store in
Seelampur in Delhi, with a size of 60,000 square feet and a stock of nearly 30,000 articles.
According to Carrefour officials, the firm is still exploring options to directly sell to Indian
consumers. One option could be the recently discussed cooperation with the Future Group.
The Future Group plans to open between 150 and 300 Carrefour-branded franchise hypermar-
kets in the next five years (Bailay 2010). Carrefour has not commented on this information.
Particularly because of its exit from some Asian countries, the broad market entry of Carre-
four to India is somewhat uncertain and seems to have no future.
Other Foreign Retailers and their Expansion Strategies
In addition to the mentioned expansion strategies of the main foreign retailers that are focused
on wholesale or cooperation with Indian retailers, there is an interesting development of
smaller retailers, particularly in the apparel sector. Only a handful of international retailers
publicise their strategies for expansion to India. Hence, compiling a market overview is chal-
lenging. In summary, compared with the size of the Indian market, the number of stores and
the presence of foreign retailers are small. Nevertheless, within the last twelve months, sev-
eral retailers have announced plans to enter the Indian retail market or to open stores soon.
European retailers are in the forefront to expand to India. The Italian fashion retailer Oviesse
has recently proclaimed its intention to cooperate with Brandhouse Retail in the joint venture
of Brandhouse Oviesse by investing 150 crore INR (25.9 million EUR) to open 190 stores in
the coming five years. The first ten stores will be opened by March 2011. Table 8 gives an
overview of the expansion strategies of selected foreign retailers in India.

Table 8: Expansion Strategies of Foreign Retailers in India

Retailer Category No. of new stores By year

Rosebys Home Furnishing 500-700 2012

Adidas Sportswear 600 2009
Oviesse Apparel & Accessories 190 2015
Jockey Apparel 100 unknown
Samsonite Travel bags 50 2010
Miss Sixty Apparel 32 2014
Lifestyle (Landmark) Apparel 25 2012
Swatch Watches 10-15 2010
Raymond Well Premium Watches 10 2012
Admiral Sportswear 10 2010
Cucine Lube Kitchen Furnishing 9 2011
S. Oliver Apparel 2 2010

Source: adapted from Jones/Lang/LaSalle/Meghraj

Summary and Outlook

Within the last decade, the Indian retail market has shown remarkable development from a
closed market to a sector of the economy that is partially open for FDI. The outlook for the
Indian retail market is in general still encouraging because it is driven by a high growth rate of
the GDP, increasing incomes for large subsets of the population, a rising and consumption-
prone middle class and the sheer size of the country, with 1.2 billion people. When retail was
opened for FDI in 2006, foreign firms were allowed to run retail businesses 100 % in the
wholesale segment and to hold a share of 51 % in single-brand stores. Although these changes
are important, Western publications tend to ignore the fact that the Indian retail sector is
mostly dominated by unorganised retail firms, which account for 94 to 97 % of total sales.
Additionally, it is often overlooked that the organised retail industry is driven by the engage-
ment of domestic retailers that are mostly subsidiaries of the big Indian industrial conglomer-
ates (Reliance Group, Aditya Birla Group, Bharti Enterprises). With this fact in mind and in
view of the various problems that complicate the endeavours of the domestic retailers in India,
it is fair to assume that foreign retailers have to face even more serious challenges in the
attempt to organise sustainable market operations in the Indian retail market. Whereas domes-
tic retailers are already going through a phase of advanced learning, the foreign retailers must
first develop a comprehensive notion of all of the difficulties that accompany market entry. At
present, foreign retailers have a small share of the retail business in India.
Despite the ambitious expansion plans of retail stores and wholesale operations, they may find
it very challenging to defend and broaden their market positions. A main problem in estimat-
ing the best location, identifying promising customer segments and forecasting competitors’
actions is the great lack of trustworthy and usable information about the market. Also, Indian
retailers are not very reliable in reporting their sales and store numbers over the years. Overall,
the stable democracy, which provides a predictable framework for investments, the steady
growth of the GDP and its related rising disposable incomes, and the advantageous demo-
graphics of the Indian population, has been helpful in the development of the Indian retail
market. Particularly, if the weaknesses of the infrastructure and the lack of knowledge in sup-
ply chain management, customer insights and management are resolved, the trends observed in
Indian retail can be expected to continue and accelerate.