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Overview Of
Indian Retail Industry (July 08)
4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India Tel: +91-40-23430203-05, Fax: +91-40-23430201, E-mail: [email protected]
In June 2005, the retail industry employed 2.9m people. This equates to one in nine, or 11%, of
the total UK workforce, according to the Office for National Statistics (ONS). UK retail sales
were approximately $522.6 billion in 2005 (ONS). Retail is often seen as a stepping-stone for
entrepreneurs to start up in other business sectors. The sector is expected to see the creation of
270,000 new jobs till 2012, with 31% of these managerial/professional levels.
Tesco PLC is a British-based international grocery and general merchandising retail chain. It is
the largest British retailer by both global sales and domestic market share with profits exceeding
£2 billion. In 2008, the company overtook German retail giant Metro AG to become the world's
third largest retailer, the first movement among the top five since 2003. Tesco operates a "good,
better & best" policy for its products, encompassing several product categories such as food,
beverage, home, clothing, Tesco Mobile and financial services.
J Sainsbury plc is the parent company of Sainsbury's Supermarkets Ltd, commonly known as
Sainsbury's, a chain of supermarkets in the United Kingdom. The group also has interests in
property and banking. The group has an estate worth about £8.6 billion (March 2007). According
to Taylor Nelson Sofres rankings published in January 2008, Sainsbury's market share was
16.4% compared to Tesco's 31.5%, ASDA's 16.7% and Morrison's 11.4%.
2.4.3 Germany
Consumption makes
a significant portion
of German GDP
and the increasing
retail sales could act
as an indicator of
domestic demand.
High or rising retail
sales may spur
German
consumption, translating into economic growth. Germany’s GDP is estimated at US$2.63 trillion
in 2006, an increase of 1% against 2005. Germany’s retail market is the third largest in the world
having total estimated retail sales of US$393.87 billion in 2006. Like in the US, the discount
stores drive the growth of retail market in Germany.
Major Players:
Table 2.4: The Top Four Players in Germany by Revenue in 2006
Company US$ billion Metro AG 84.75 ALDI Einkauf 42.98 Rewe Handelsgruppe 50.70 Schwarz Group 42.57
Metro AG: is a diversified retail and wholesale/cash and carry group based in Germany. It has
the largest market share in its home market, and is one of the most globalised retail and
wholesale corporations. In English it often refers to itself as Metro Group. According to a 2008
report by Deloitte Touche Tohmatsu, Metro is Europe's third largest retailer, after Tesco of the
UK and Carrefour of France. If Metro's cash and carry operations, which are its largest division,
are not counted as retail, it also ranks behind Tesco, and possibly a few other European retailers.
The cash and carry division's page on the company's official English language website states that
the company is the, "World market leader in the wholesale business", implicitly excluding the
cash and carry division from the retail sector.
Figure 2.3: Retail Sales in Germany (2000 - 2006)
330340350360370380390400
2001 2002 2003 2004 2005 2006
Sale
s in
US$
bill
ion
0.00.51.01.52.02.53.0
Gro
wth
%
Retail Sales in US$ billion % Growth
Source:: E&Y Report, Cygnus Research
ALDI Einkauf: is a discount supermarket chain based in Germany. The chain is made up of two
separate groups, ALDI Nord ("North" - operating as ALDI MARKT) and ALDI Süd ("South" -
operating as ALDI SÜD),
which operate
independently from each
other in specific market
boundaries. The Aldi group
operates about 7,600
individual stores
worldwide. A new store
opens every week. Aldi
Nord is responsible for the
markets in Belgium, the Netherlands, Luxembourg, France, Spain, Portugal and Denmark. Aldi
Süd caters to the markets of Austria, the United Kingdom, Ireland, the United States, Australia,
Switzerland and Slovenia.
2.4.4 Japan
Japan is the world’s second largest retail industry and it is highly fragmented with a majority of
stores run by small businessmen. Japan’s GDP reached US$4.22 trillion in 2006, by registering
a growth rate of 2.1% in 2005 and the consumer demand makes up around 55% of GDP. It was
estimated that the Japanese retail industry will reach US$1.43 trillion in 2006, registering a
growth rate of 8% in 2005. Deregulation in Japan over the last decade has led to its long
recessionary climate to restructure the retail and distribution sector by opening up the economy
to foreign retailers. The problems faced by foreign retailers in Japan include the reluctance of
suppliers to deal with the foreign interlopers and inability to satisfy the expectations of the
Japanese consumers.
Major Players:
Table 2.5: Top Four Players in the Germany by Revenue in 2006
Figure 2.4: Retail Sales in Japan (2000 - 2006)
0
500
1000
1500
2000
2001 2002 2003 2004 2005 2006
Sal
es in
US
$ bi
llion
-10.0
0.0
10.0
20.0
30.0
40.0
Gro
wth
%
Retail Sales in US$ billion % Growth
Source: E&Y Report, Cygnus Research
Company US$ billion Ito Yokado 12.84 Aeon Co 37.54 Daiei Inc 14.5 Uny Co 10.3
Source: www.hed.msu.edu
Note: For Aeon & Uny FY05 has been taken
ITO YOKADO: is a Japanese General Merchandise Store, part of Seven & I Holdings Co. The
group has expanded to China, where they formed a joint venture with Wangfujing Department
Store and China Huafu Trade & Development Group Corp. to open one of five stores in Beijing.
Currently 9 stores exist in Beijing and 3 more in Chengdu with plans to expand elsewhere. In
addition to food (more than half of total sales), the stores sell apparel, household goods, and
more. Ito-Yokado is second only to rival AEON with nearly 12% of Japan's superstore market.
(AEON's share is just over 14%). Formerly a holding company for businesses that included
banks, convenience stores, and restaurants, Ito-Yokado is now a subsidiary and the core
operating company of Japan's largest retail conglomerate Seven & I Holdings's domestic
superstore business.
AEON Co: Formerly known as JUSCO AEON Co Ltd is the largest retailer in Japan. Through
ownership, joint ventures, and investments, AEON controls approximately 4,000 stores
worldwide. Under the AEON corporate umbrella are 460 JUSCO superstores, 2,600 Mini Stop
convenience stores, 665 supermarket stores, and 1,900 AEON Welcia drug stores. The company
owns 60% of the women's apparel chain. Customers prefer to shop at AEON because they
believe there is no better source for their daily necessities that so thoroughly addresses very real
concerns for product reliability and food safety. Its private-brand TOPVALU products are
carefully selected with all of these customer needs in mind, to support a healthy, worry-free and
enjoyable lifestyle. The brand encompasses 2,400 products in the food, clothing, recreational,
house wares and home-furnishing sectors. For nearly 10 years, AEON has worked to bring the
full force of its buying power and cost efficiency to TOPVALU products so as to deliver
consistently low prices at an unswervingly high level of quality.
2.5 Growth Drivers
According to the research and analytics firm, A.T. Kearney, with high GDP growth, fall in
unemployment, high disposable income and a huge unorganised retail sector is a potential gold
mine for major retailers of the world such as Wal-Mart, Carrefour, Tesco and others. However,
retail is not the same in emerging markets. Different economic, social and political factors create
a need to reinvent marketing and operation strategy. Demographics and income levels create a
diverse set of requirements that may challenge existing business models and value chain
strategies. Since 2001, 90 new markets have been entered by more than 49 global retailers, but at
the same time in 2005, 17 retailers left markets. Some factors which have fuelled growth in
global retail industry are discussed below.
2.5.1 GDP growth The US economy, which is more than US$11 trillion, is the largest in the world. Japan’s
economy which is at around US$4.22 trillion is the second largest in the world, followed by
Germany and UK. In fast growing economies the GDP is mainly driven by consumption, which
in turn is affecting the retail growth. The GDP is increasing at a faster pace, thereby leading to
change in standard of living towards higher side. This change demands better quality of goods
and services. That’s why countries like India and China are also giving boost to the retail
industry. Many formats of retail industry are now being accepted.
Table 2.6: GDP Average Annual Growth (2004 – 2008) Country China India Malaysia Thailand Singapore Annual Growth % 8.4 7.2 5.4 5.3 5.2 Source: Global Economic Outlook IMF
2.5.2 Consumers’ Desire for Something Unique
Consumer’s desire for something new drives the retail industry. Companies are getting more
focused on giving consumers something new and unique to survive in this mature industry.
Today’s consumer is extremely selective and if the retailer wants his business to grow profitable
he must meet the specific needs of the consumer. The departments at the retailing industry are
adopting new technologies to help their employers collect better information from the customers
to predict consumer demand patterns.
2.5.3 Increased Spending on IT by Retailers According to SearchCIO.com, a recent survey shows that IT spending by mid market retailers
worldwide will grow from US$22 billion in 2004 to US$31 billion in 2009, an annual compound
growth rate of 7%. The survey found that mid market retailers will spend US$161m on ERP and
supply chain management software in 2005 alone. Investments in customer relationship
management (CRM), wireless networking and web hosting are expected to reach US$679m by
the end of 2005 and grow to US$946m by 2009, a 9% compound annual growth rate
2.5.4 Online shopping
While retail stores remain the dominant shopping channel, the Internet is the only channel that is
increasing the number of respondents that shop online. The 24-hour availability and better
selection online increased considerably as a factor in shopper's decision to shop online. Online
shopping growing as a sales channel reveals that price is declining as a driver of online sales.
2.5.5 Looking East for Growth
Southeast Asia, Central Europe, Russia and China markets are attracting retailers. It is not that
China is the cheapest place to do the business but it’s because of its vast market size and
population. China opened its gates for the foreign retailers when it joined WTO in 2001. It also
offered tax incentives to foreign retailers, traders and wholesalers for operating in special
economic zones.
2.5.6 Technology It’s a fact that technology has helped a lot in retail boom. But as the technology has evolved into
a huge dimension as well as the acceptance of the latest technology by the retailers, it led the
boom of the retail industry. For example, if an individual enters into huge retail outlet, he first
thinks the size of retail outlet. Previously, any retail outlet is to operate in a small room, whereas,
now it’s been turned into huge retail complex. Retail outlet is equipped with RFID technology,
which helps in reduction of theft. Almost all the latest retail format is having “bar-scanner”,
which is directly connected with the computer, very much helpful in retail outlet in the payment
counters. Bar scanning while use of the UPC (Universal Product Code) in product labelling has
almost become a necessity with the advent of optical scanning technology in the retail market
industry. CCTV (Close circuit television) is also helping the global retail industry a lot. In every
part of the world, CCTV is installed in huge retail outlet, thereby reducing and controlling the
theft in the store. The database of the products are saved in the computers, it have had the
information about which product is where, how much is the price, what amount of quantity is
there in the retail outlet. Security mechanism installed at the entrance of the store helps in
maintaining the security standard of the retail outlet.
2.5.7 Growth of Private Labels
Private labels are products manufactured for sale under a specific retailer brand. They are often
designed to compete with branded products, offering customers a cheaper alternative to national
brands. Though the public is generally used to see them as low-cost imitations of branded
products, private labels have overcome this reputation and achieved significant growth in recent
years. Private labels offer several benefits to both retailers and customers. For retailers, margins
on private label goods are an average of 10% higher than those on similar branded products.
Customers benefit from the lower prices, which are often significantly less than those of national
brands. This combination, while beneficial to retailers and consumers, can put substantial
pressure on the manufacturers of branded goods, who have to compete with their own customers.
For instance, Tesco in Europe has a range called the Tesco Finest Line, which sells only
premium products at premium prices. It also has Tesco Value Line, which is cheaper and
competes with Tesco Finest Line. Tesco’s Finest Chocolate sells at 50% premium over, say,
Cadbury’s. Similarly, its yogurt sells at more than 50% premium over Danone and other yogurts.
2.6 Recent Trends and Developments
The retail market has experienced a significant change in recent years. By the early 1980s the
regional mall
shopping had
begun to lose
shares to other
retail forms.
Changes
continue today,
requiring
developers,
retailers and
service
providers to
create new type of stores to stay competitive. Developing countries are showing more rapid
growth potential. A. T. Kearney did a study in which Global Retail Development Index (GRDI)
was calculated. While calculation four factors were considered: Country Risk (25%), Market
Attractiveness (25%), Market Saturation (30%) and Time Pressure (20%). The bracketed figures
indicate the weight age given to the factors. India came at top with a GRDI score of 92, followed
by Russia and China with score of 89 and 86 respectively as shown below.
2.6.1 Radio Frequency Identification (RFID) technology
Radio-frequency identification (RFID) is an automatic identification method, relying on storing
and remotely retrieving data using devices called RFID tags or transponders. An RFID tag is an
object that can be applied to or incorporated into a product, animal, or person for the purpose of
identification using radio waves. Some tags can be read from several meters away and beyond
the line of sight of the reader.
RFID technology is going to reduce costs, optimise supply chain processes and improve
productivity and profits. Countries like the US, UK and Japan are leading the way in deploying
Source: AT Kearney Report 2007
Figure 2.5: Global Retail Development Index (GRDI)2007
0
20
40
60
80
100
Indi
a
Rus
sia
Chi
na
Viet
nam
Ukr
aine
Chi
le
Latv
ia
Mal
aysi
a
Mex
ico
Saud
i Ara
bia
GR
DI S
core
RFID technology, though China is expected to close the gap by 2009. The benefits that RFID