Changing Retail Landscape in India

Indian Retail Buoyed by high GDP growth

10% 9% 8%
Real Growth Rate

9.0%

9.2% 8.90%

6.4% 6.6% 5.4% 5.2% 5.6% 6.0% 6.0% 6.8%

7% 6% 5% 4% 3% 2% 1% 0%

Source :Central Statistical Organization (CS0)

Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail
15 October 2012

India Experiencing Rapid Economic Growth

14,000 12,000
GDP (US$ bn)

13,245 10.7%

12.00% 10.00% 8.00%

Real Growth Rate

9.4% 10,000 8,000 6,000 4,367 4,000 2,630 2,000 China India Russia Brazil UK Japan US 916 979 1,068 3.7% 2.8% 2,374 2.3% 2.0% 2.00% 0.00% 4.00% 6.7% 6.00%

9.4% growth rate makes India the second fastest growing economy in the world
15 October 2012

Led by Growth in Services Sector

% Increase in growth over the previous year

120% 107% 100%

80% 55% 2005-06 40% 21% 20% 13% 14% 6% 0% Tourist Arrivals Passenger Cars Sales Commercial Vehicle Sales Domestic Air Passengers New Cell Phone Connections 7% 37% 21% 41% 2006-07

60%

Services sector adding to GDP in a significant manner

15 October 2012

Driven from Consumption Throughout the 1.1 Billion Population

5-7 million Super Rich 70 80 million Afford Cars, Private Healthcare & Foreign travel 250 - 300 million Afford goods like Refrigerators , Scooters & Colour TVs 600-700 million (Generally Rural) Afford simple industrial products e.g. bicycles , radios , textiles

Poverty Line = income less than $ 1/day

60 % of Indias population are under 24 years

15 October 2012

Source: McKinsey,

With High Private Consumption

GDP US$ 935 billion Food Apparel Beverages Footwear Consumer durables Appliances Transport Retail US$ 342 Billion (59%) Non Retail US$ 238 Billion (41%) Communication Recreation Cultural Services Urban (5,100 towns) US$ 154 Billion (45%)
Modern retail US$ 12 billion 8% of urban retail spends

Private Consumption US$ 580 Billion (62%)

Public Spending and Capital Formation US$ 355 Billion (38%)

Stationery
Kitchen utensils Furniture Furnishings Sports goods Health & Beauty Personal Care Jewellery Timing Rural (6,27,000 villages) US$ 188 Billion (55%)
Modern retail Negligible

Education Rent Utilities Other Services

Source: Central Statistical Organization (CS0) and Technopak Analysis Conversion rate: 1 US$ = 40.86 Rs.
15 October 2012

About US $530 Billion Retail Market by 2012

GDP* US$ 1,450 billion

Private Consumption US$ 870 Billion (60%)

Public Spending and Capital Formation US$ 580 Billion (40%)

Retail US$ 530 Billion (61%)

Non Retail US$ 340 Billion (39%)

Urban US$ 252 Billion (47.5%)

Modern retail US$ 78 billion 31% of urban retail spends

Rural US$ 278 Billion (52.5%)

Modern retail US$ 9 billion 3% of rural retail spends

*All figures are in nominal terms after taking into account inflation

Source: Technopak Analysis

15 October 2012

Which Makes Indian Retail an Attractive Market

India tops the Global Retail Development Index

15 October 2012

Modern Retail Organized Channels

The share of organized retail is less than 3% of the total retail market The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last five years

100% 80% 55% 60% 40% 20% 0% US Taiwan Malaysia Thailand Brazil Indonesia Poland China India 85% 81% 40% 36% 30% 20% 20% 3%

Traditional Channel

Modern Channel

15 October 2012

.. but Rapid Transformation is Anticipated

Current Size & Future Projections for Indian Retail Market

900 800 700 600 500 400 300 200 100 0 800

US$ Billion

342

373

408

445

486

530

200 12 2007 18 2008 26 2009 Total Retail 39 2010 59 2011 Organized Retail 87 2012 2017

And may reach a share of 25% by 2017

15 October 2012

Evolution of Indian retail

Historic/Rural Reach Traditional/Pervasive Reach Government Supported Modern Formats/ International

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls

PDS Outlets Khadi Stores Cooperatives

Convenience Stores Mom and Pop/Kiranas

Weekly Markets Village Fairs Melas

Source of Entertainment

Neighborhood Stores/Convenience

Availability/ Low Costs / Distribution

Shopping Experience/Efficiency

15 October 2012

Adaptation to Local Market Road for Success

Samsung microwaves McDonalds Maharaja Mac Samsung laundry machine

Nokia 1100 Memory backup to compensate for frequent power shortage Anti dust keypad for dirty roads, anti slip grip for the heat and flashlight in case of electricity shortage

Indian menus with singe touch Head & Shoulders

Chicken hamburger to reach segments that do not eat beef

10 milli lt. sachet for less than 5 cents increased the shampoo buying population dramatically

Price, concern and typical Indian features are some examples

15 October 2012

Source: McKinsey Quaterly, winning the Indian consumer, 2005

Recent Trends
Traditionally three factors have plagued the retail industry: Recent changes:

Unorganized : Vast majority of the twelve million stores are small "father and son" outlets Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc. Store design : Biggest challenge for organized retailing to create a customer-pull environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design. Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

15 October 2012

Recent Trends ..

15 October 2012

Retail Market not limited to metros but widely across India

The classic skimming strategy in the metros is not longer sufficient 100 cities strategy Over 250 large size shopping malls are currently under construction Leading cities 2030 are forecasted to be Mumbai New Delhi Ahamabad Vadodara Chandigarh

Ludhiana New Delhi Lucknow Varanasi Patna

Jaipur Kanpur Indore Bhopal Nagpur Pune Hyderabad Visakhapatnam Kolkata

Surat Mumbai

Bangalore Chennai Kochin Coimbatore Madurai

Above 10 Mn inhabitants Above 4 Mn inhabitants Above 2 Mn inhabitants Above 1 Mn inhabitants

15 October 2012

Drivers for Indian Retail

High Income Opportunities Changing Attitude International Exposure Necessities to Lifestyle Market & Government

Service Sector: creating new jobs. Working Population in 2010 will 70% IT Industry: increasing professional opportunities Rising Salary levels MNCs entering India and homegrown companies going global

From Save to Spend High disposable income family structures on a rise Nuclear Families DINKS (Double Income No Kids) Multi income families

International travel Exposure to global trends Highest Growth in outbound tourists in the world

Shift of expense basket from basics to lifestyle products Increased spend on Apparel, personal care, entertainment

Easing out on Import barriers, Government sponsorship taking shape (FDI Policy, Tax and Duty structure, Subsidies) Fluid retail Segments M-Commerce & eCommerce boosts retail

Easy Bank credit boosts retail

Consumption expenditure is 60 % of Indias GDP

Customer value drivers are continuing to fragment as a result of changing demographics & value systems
15 October 2012

Global Heavyweights in Indian Retailing

Joint Ventures Bharti-Walmart (with $2.5 Billion investment by Bharti) Carrefour-Landmark Product Range Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles. Food and groceries, FMCG, apparel and electronics Retail Formats Hypermarkets, Supermarkets and Convenience Hypermarkets

Home Retail Group plc Shopper's Stop Ltd and Hypercity Retail India Private Ltd Tata-Woolworths

Franchising the Argos concept under the terms of the arrangement, Argos will be providing its brand, catalogue and multi-channel expertise and IT support Sourcing agreement for Consumer durables and Foods under brand name CROMA

Multi Channel propositions

Multi brand retail chain

Staples Inc Pantaloon Retail Reliance

Global Sourcing of Office equipments across various businesses Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles. Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.

Cash and carry

Multi format and Multi Category

Birla

Convenience and Supermarket

15 October 2012

Format Definition
Formats Description
A large superstore, combining a supermarket and departmental store, offering full lines of grocery and general merchandise all under one roof

Key categories retailed

Food, groceries, apparel, furnishings, consumer durables

Typical size Sq.ft.

15,000-100,000

Example

Hyper markets

Big Bazaar, Hypercity, Spencer, Star India Bazaar, Vishal Megamart

Super markets

A large self service outlet offering food and household goods

Food, groceries, medicines

3,000-15,000

FoodWorld, Trinethra, Subshiksha, Food baazar

Convenience stores

Small size, easily accessible stores offering a quick shopping, fast check out experience and extended working hours

Food, groceries, medicines

500-2,000

In&Out, Trinethra, Subhiksha, traditional stores

Departmental stores

A large self service outlet offering a variety of merchandise

Apparel, Jewellery, watches, fashion accessories, footwear, furniture, furnishings

10,000-50,000

Shoppers Stop, Lifestyle, Pantaloon, Westside

Category killers

Large speciality stores focussed on one or a few categories of merchandise, offering a wide selection at low prices

Electronics, office supplies, apparel

20,000-100,000

Best Buy Circuit City, Staples

15 October 2012

Format Definition (Contd.)

Formats Description
Warehouse style large stores, offering goods in bulk at discount prices to members

Key categories retailed

Food, groceries

Typical size Sq.ft.

100,000 +

Example
Metro cash and carry, Costco, Sams Club

Warehouse clubs

Single brand outlets

Retail outlet offering products of a single brand

Apparel, footwear, tyres, food services, furniture

1,000-5,000

Nike, Adidas, Colourplus, McDonalds, Gautier, Gucci, TBZ

Multibrand speciality stores

Retail outlet offering multiple branded products belonging to a single category class

Footwear, apparel, electronics, books

1,000-20,000

Planet Sports, Planet Fashion, Crosswords

15 October 2012

Organizing Retail in India-Challenges

Heterogeneous market Product offerings in different stores across the country will be very different

No standard mode of operation across formats

Market not mature (has to be validated) Infrastructure will bring about logistical challenges Though, improvements in road networks, power supply are underway

Retail Challenges

Trained employees with understanding of retail business are inadequate compared to the needs of organized retail
Barriers to Entry High taxes, bureaucratic clearance process and labour laws High cost of real estate

though over 600 malls are to come up all over the country by the next 4 years
Indian retailers are deeply entrenched, are expanding and building on logistics and technology initiatives

15 October 2012

At ground level .
Processes

Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment, Lean supply chain JIT inventory, flow through warehouse Evolving processes in Supply chain & merchandising Global Best Practices not adopted High disposable income Changing consumer preferences 28 states, 100+ religion, 250+ festivals Supply chain not reliable. Cold storage infrastructure evolving Outsourced transportation Low level automation in warehouses Little or no collaboration between vendor & retailer Low fill rates from vendors Highly localized assortments leading to relationship with multiple vendors Complex trading contracts and off invoice discounts Multiplicity of disparate Systems & Data Formats No architecture roadmap Base ERP and home grown POS solutions. Low investments in store systems No investments in planning & optimization technologies
15 October 2012

Consumer

Infrastructure

Supplier/ Vendor

Current IT

The Way Ahead

India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats Many strong regional and national players emerging across formats and product categories Most of these players are now gearing up to expand rapidly after having gone through their respective learning curves Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers The Shopping Mall formats are fast evolving Partnering among Brands, retailers, franchisees, investors and malls Improved Infrastructure
In view of a compressed evolution cycle, retailers need to simultaneously address issues of speed, Execution and efficiency

15 October 2012

Thank You