Future of Supermarkets in India

The supermarket sector is witnessing a major corporate push with large domestic retailers and foreign giants establishing chains of supermarkets. India's retail industry, both organized and unorganized, is worth $300 billion at present and is expected to grow to a staggering US$450 - US$500 billion by 2110. A study conducted by Mumbai-based brokerage Edelweiss Capital in February'08 had said that organized retail would form 15% of the retail sales by March 2011 from 4.1% now. But Deloitte's study says that organized retail grew at a scorching pace in 2007, going to 8% of total retail sales from 5% in 2006. As the Indian government continues to reform and liberalize the market, retail giants like UK's Tesco, France's Carrefour and American Wal-Mart are looking to make a foray into the Indian retail market. Wal-Mart has signed a deal with Indian telecom leaders Bharti and is ready to make a dent by end of 2008. But it will not be an easy ride for Wal-Mart, according to Wharton professor of marketing David Bell says "Wal-Mart will have to take a close look at the extent to which they will have to 'customize' their approach to local market conditions. They have had some failures internationally, like in Germany and Brazil, because they under-estimated the extent to which someone else already held their market position for example, Aldi in Germany." But like telecom sector, when the supermarket attains industry status, there would not be many differentiating factors in terms of pricing, layout, variety and service quality. Likewise, once foreign retail giants get established in retail market, each one would carve a separate niche of their own with their own sets of brands and suppliers and would try establishing their own customer base by providing them royalty cards. Big question now is that will entry of all these big supermarket players work in the long run or they will undergo a Lose-Lose situation in the long run. Land in India is at a premium and infrastructural facilities are minimal. Logistically, it is not easy to incorporate different taxation structures and other demographic factors in formation of supply-chain. The absences of retail professionals at mid-level management and shortage of retail educators who can educate form their real experience. All these factors indicate that supermarket retail chains are unlikely to enjoy a high-profit margin in the near future.

Future Trends

Lifestyle International, a division of Landmark Group, plans to have more than 50 stores across India by 201213. Shoppers Stop has plans to invest ` 250 Crore to open 15 new supermarkets in the coming three years. Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million this fiscal to add up to existing 2.4 million sq ft retail space. PRIL intends to set up 155 Big Bazaar stores by 2014, raising its total network to 275 stores. Timex India will open another 52 stores by March 2011 at an investment of US$ 1.3 million taking its total store count to 120. In the first six months of the current fiscal ending September 30, 2009, the company has recorded a net profit of US$ 1.2 million. Australia's Retail Food Group is planning to enter the Indian market in 2010. It has plans to clock US$ 87 million revenue in five years. In 20 years they expect the India operations to be larger than the Australia operations.

The Road Ahead Industry experts predict that the next phase of growth in the retail sector will emerge from the rural markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market share. The total number of shopping malls is expected to expand at a compound annual growth rate of over 18.9 per cent by 2015. According to market research report by RNCOS the Indian organized retail market is estimated to reach US$ 50 billion by 2011.