Project Part 1

1 | Overview of Indian Retail Sector

The Indian Retail sector is one of the prime contributors

to the economic development of the country. Being one of the fastest growing retail markets

of the world, it accounts for up to 22% of the GDP, with an estimated worth of $450 billion

making it one of the top five retail markets of the world as reported by AT Kearney‘s seventh

annual Globe Retail Development Index (GRDI).

India's retailing industry is essentially owner manned small shops. In 2010, larger format

convenience stores and supermarkets accounted for about 4% of the industry, and these were

present only in large urban centers. India's retail and logistics industry employs about 40

million Indians (3.3% of Indian population).

Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand

retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or

any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic

process.

In November 2011, India's central government announced retail reforms for both multi-brand

stores and single-brand stores. These market reforms paved the way for retail innovation and

competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single

brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism,

both in opposition and in support of the reforms. In December 2011, under pressure from the

opposition, Indian government placed the retail reforms on hold till it reaches a consensus.

In January 2012, India approved reforms for single-brand stores welcoming anyone in the

world to innovate in Indian retail market with 100% ownership, but imposed the requirement

that the single brand retailer source 30% of its goods from India. Indian government

INTRODUCTION


continues the hold on retail reforms for multi-brand stores. IKEA announced in January that

it is putting on hold its plan to open stores in India because of the 30% requirement.

With rising disposable incomes, expansion of stores and supporting economic factors, India's

retail sector is expected to grow to about $ 900 billion by 2014, according to a report by

global consultancy and research firm PricewaterhouseCoopers. The report titled -- Strong and

Steady 2011 -- which provides an outlook for the retail and consumer products in Asia

suggests that retail sales in India, currently estimated at about $500 bn.

It is further expected to reach US$ 1.3 trillion by the year2018 at a CAGR of 10%. As the

country has got a high growth rate, the consumer spending has also gone up and is also

expected to go up further in the future.

The key factors that drive growth in retail industry are young demographic profile, increasing

consumer aspirations, growing middle class incomes and improving demand from rural

markets. Also, rising incomes and improvements in infrastructure are enlarging consumer

markets and accelerating the convergence of consumer tastes. Liberalization of the Indian

economy, increase in spending per capita income and the advent of dual income families also

help in the growth of retail sector. Moreover, consumer preference for shopping in new

environs, availability of quality real estate and mall management practices and a shift in

consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc. also contributes

to the spiral of growth in this sector. Furthermore, the Internet revolution is making the

Indian consumer more accessible to the growing influences of domestic and foreign retail

chains.

In this project report, the focus is on studying the evolution of the Indian retail industry with

focus on various facets of this sector that form a part of its structure.


EVOLUTION

OF INDIAN

RETAIL

SECTOR


The origins of retailing in India can be traced back

to the emergence of Kirana stores and mom-and-pop stores. These stores used to cater to the

local people. Eventually the government supported the rural retail and many indigenous

franchise stores came up with the help of Khadi & Village Industries Commission. The

economy began to open up in the 1980s resulting in the change of retailing. The first few

companies to come up with retail chains were in textile sector, for example, Bombay Dyeing,

S Kumar's, Raymonds, etc. Later Titan launched retail showrooms in the organized retail

sector. With the passage of time new entrants moved on from manufacturing to pure retailing.

Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music, Crossword

in books entered the market before 1995. Shopping malls emerged in the urban areas giving a

world-class experience to the customers. Eventually hypermarkets and supermarkets

emerged. The evolution of the sector includes the continuous improvement in the supply

chain management, distribution channels, technology, back-end operations, etc which would

finally lead to more of consolidation, mergers and acquisitions and huge investments.


TRADITIONAL ERA OF INDIAN RETAIL SECTOR

A market scenario of late 19th century

While barter would be considered to be the oldest form of retail trade. Since independence

retail in India has evolved to support the unique needs of our country, given its size and

complexity”. Haats, Mandis and Melas have always been a part of the Indian landscape. They

still continue to be present in most parts of the country and bring all essential part of the life

and trade in various areas.


Facts about Various Types of Retail Outlet

Types of

Retail outlet

Numerical Facts

Haats

Average Sales per Day-Rs.2.25 lakh

Number of sales outlets per - Haat 300+

Number of Visitors per Haat- 4500+

Average Sales per Outlet-Rs 900

Villages covered by a Haat - 20-50

Melas Annually held (Approx) - 25,000+

Outlets held at every mela at an average - 800+

Average Sales per Mela-Rs 143 Lakh

Mandis At average exists - 6,800 catering to a population of 1.36 Lakh

(Source : CII – Retail Scenario in India – Unlimited Opportunity)

The PDS or the Public Distribution System would easily emerge as the single largest retail

chain existing in the country. The evolution of the public distribution of grains in India has its

origin in the 'rationing' system introduced by the British during World War II. The system

was started in 1939 in Bombay and subsequently extended to other cities and towns. By the

year 1946, as many as 771 cities/towns were covered. The system was abolished post war,

however, on attaining independence, India was forced to reintroduce it in 1950 in the face of'

renewed inflationary pressures in the economy. The system, however, continued to remain an

essentially urban oriented activity. In fact, towards the end of the first five-year plan (1956),

the system was losing its relevance due to comfortable availability of food grains.


PDS was reintroduced and other essential

commodities like sugar, cooking coal, and

kerosene oil were added to the commodity basket

of PDS. There was also a rapid increase in the

Ration Shops (now being increasingly called the

fair price shops or FPSs) and their number went

up from 18,000 in 1957 to 51,000 in 1961. Thus,

by the end of the Second Five Year Plan, PDS

had changed from the typical rationing system to

a social safety system, making available food

grains at a 'fair price' so that access of households to food grains could be improved and such

distribution could keep a check on the speculative tendencies in the market.

The Canteen Stores Department and the Post Offices in India are also among the largest

network of outlets in the country, reaching populations across state boundaries.

The Khadi & Village Industries (KVIC) was also set up post Independence. Today, there

are more than 7,000 KVIC stores across the country. The cooperative movement was again

championed by the government, which set up the Kendriya Bhandars in 1963. Today, they

operate a network of 112 stores and 42 fair price shops across the country. Mother Dairy,

another early started controls as many as 250 stores, selling foods and provisions at attractive

prices. In Maharashtra, Bombay Bazaar, which runs stores under the label Sahakari Bhandar

and Apna Bazaars, runs a large chain of cooperative stores.

In the past decade, the Indian marketplace has transformed dramatically. However from the

1950’s to the 80's, investments in various industries was limited due to low purchasing power

in the hands of the consumer and the government's policies favouring the small-scale sector.

Initial steps towards liberalization were taken in the period from 1985-90. It was at this time

that many restrictions on private companies were lifted, and in the 1990's, the Indian

economy slowly progressed from being state-led to becoming "market friendly"

WE NEED GREATER

COMPETITION AND

THEREFORE, NEED TO

TAKE A FIRM VIEW ON

OPENING UP OF THE

RETAIL TRADE. – Dr. Manmohan Singh,

Prime Minister of India


MODERN ERA OF THE INDIAN RETAIL SECTOR

Modern Retail has seen a significant growth in the past few years with large scale

investments made by Indian corporate houses primarily in Food and Grocery retailing in a bid

to capture the large potential of the USD 300 Billion market. Foreign apparel brands

including luxury brands have set up shop in India through Franchisee/ Joint Venture route

and have expanded rapidly in the last few years. Multi-brand retailing has currently been

banned for foreign investment. For global retailers who have not been seeing large organic

growth, India provides a lucrative market for them to grow their top line and profitability.

Some global retailers are currently operating in India in the cash and carry (wholesale)

format. Few retailers have been designing plans to start their Cash & Carry business to have a

market presence and create brand awareness.


The Indian retail sector is poised to witness a sea change. The recent times have seen a

significant discussion emanating towards allowing 100% FDI in multi brand retailing. This, if

translated to reality, will have a game changing impact on the modern retail sector in India.

To put the large-scale policy change into motion and bring it to actual implementation, it is

imperative for the ruling party to obtain buy-in from the opposition, including the Left parties

and the BJP. Since the retail sector is the second largest employer after agriculture in India,

both these parties have a reservation against opening up of the retail sector to foreign

investment.

MODERN ERA-1990 onwards

The move by the U.P.A. Government, led by the Indian National Congress for FDI in retail

sector (single and multi-brand) has been a contentious issue. In 1991, P.V. Narasimha Rao

Government approached the World Bank for external assistance. The Bank stipulated the

globalization agenda recorded in the „Anderson Memoranda‟ to be followed by India. The

then Finance Minister, Dr Manmohan Singh, adopted it and christened it as “New Economic

Policy”. Rao's major achievement is generally considered to be the liberalization of the

Indian economy. The reforms were adopted to avert impending international default in 1991.

The reforms progressed in the areas of opening up of foreign investment, reforming capital

markets, deregulating domestic business and reforming the trade regime. No denying the fact

that Indian retail industry plays an important role for the economic growth of our country. It

is a sunrise industry. The retail sector is important in Indian economic perspective as it

contributes around 15% of GDP and employs more or less 7% of the labour force. It is the

largest private sector in India and employs a large amount of population after agriculture. It

causes concern when the government takes initiatives to open up FDI in retail sector in the

face of global competition. To be remembered that Indian retail sector is basically of

unorganized nature. The unorganized sector needs to be revived and in this regard the

government has a great role to play.


FDI: Historical Base Concept

Indian National Congress or P.V. Narasimha Rao's government's goals were to reduce the

fiscal deficit, initiate privatization of the public sector and to increase investment in

infrastructure. Foreign Direct Investment (FDI) in the manufacturing sector increased from

40% in the 1950s to over 90% by 1990. The amount of FDI to India grew significantly during

the mid-1940s and reached a peak in 1961. Subsequently, as the Indian Government

introduced the policies for foreign investments in the local manufacturing companies, many

of the foreign companies withdrew from India. Finally, foreign investments started to

increase with the liberalization policies of the government from around 1978.

Foreign investments in India rose sharply from 1991 following the liberalization policies of

the government. The post 1991 foreign trade and investment policies have, however,

substantially increased foreign investments mainly in trading, marketing, business process

outsourcing, clinical services, stock markets and other marketing ventures.

Accordingly, New UPA government did not initially allow FDI in the retail sector.

Thereafter, 51% Foreign Direct Investment (FDI) was permitted in India only through single

brand retailing and FDI up to 100% allowed under the automatic route for cash and carry

wholesale.


THE RETAIL SECTOR OF MODERN ERA

The retail sector in India can be broadly classified into organized and unorganized retail

sectors. Organized retailing refers to trading activities undertaken by licensed retailers i.e.

those who are registered for sales tax, income tax etc. These include the corporate-backed

hypermarkets and retail chains and also the privately owned large retail businesses. It refers

to businesses employing more than 10 persons. Unorganized retailing refers to the traditional

formats of low-cost retailing such as the local kirana shops, paan/beedi shops, convenience

stores, handcart and pavement vendors, owner-managed general stores etc.

Total retail employment in India, both organized and unorganized, account for about 7% of

Indian labour work force currently – most of which is unorganized. Retail sector generates

around 15% of India‟s GDP. According to an estimate, the unorganized retail sector has 97%

presence whereas the organized retail sector accounts for merely 3%. India‟s retail and

logistics industry, organized and unorganized in combination, employs about 40 million

Indians (3.3% of Indian population). The employment in Organized Retail Sector is not

negligible. The engagement of people in this sector during the period from 1992-1993 to

2001-2002 shows the steady increase (excepting the year 2001-02). Table 1 shows the

employment in Organized Retail Sector (1992-93 to 2001-02).

The organized retail market is growing at 35% annually while growth of unorganized retail

sector is pegged at 6%. The typical Indian retail shops are very small. Over 14 million outlets

operate in the country and only 4% of them being larger than 500 sq ft in size. India has about

11 shop outlets for every 1000 people. The retail outlets in India during the period from 1996

to 2001 show the increasing trend. Table 2 shows the growth of the retail outlets in India.


Table 1

Employment in Organized Retail Sector

(1992-93 to 2001-02)

(Figures in lakhs)

YEAR

PUBLIC SECTOR

(WHOLESALE AND

RETAIL TRADE)

PRIVATE SECTOR

(WHOLESALE AND

RETAIL TRADE)

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

1.48

1.61

1.62

1.62

1.64

1.64

1.63

1.63

1.63

1.56

3.00

3.01

3.08

3.17

3.17

3.21

3.23

3.30

3.39

3.35

Source: Central Statistical Organization (July 2004 report)


Table 2

Growth of the Retail Outlets in India

OUTLETS

FOOD

RETAILERS

NON-FOOD

RETAILERS

TOTAL

RETAILERS

1996

1997

1998

1999

2000

2001

2769

2943.9

3123.4

3300.2

3480

3682.9

5773.6

6040

6332.2

6666.3

7055.5

7482.1

8542.6

8983.6

9455.6

9966.5

10534.4

11165

Source: www.economywatch.com and www.ficci.com

http://www.ficci.com/


CONTINUING MOMENTUM

OPPORTUNITY IN INDIA

India’s economy witnessed a GDP growth rate of 7.4% during the fiscal year 2009-10 and is

grew at a rate of 8.5% in 2010-11. With the boom of the service sector and increased

industrial output, the growth pace has spiraled in the last decade. This has set a sustainable

platform for consumerism and rising per capita spend leading to an inclusive growth.

Growing disposable income has led to increasing consumer aspiration, with easy access to

consumer finance lending a source to achieve these aspirations and desires.

The middle class today accounts for c. 47 percent of the total households in the country,

which has rapidly grown over the last decade and is expected to have a similar trend over the

coming years. The Indian consumer today is exposed to a large variety of products from

where they pick and choose till they get the right product at the right price.

7.50%

9.50% 9.70% 9.20%

6.70%

7.40%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

GDP


LEARNING’S IN INDUSTRY

RAPID EXPANSION

Retailers with an aim of having pan-India presence ramped up property at high rentals with

low focus on demographic and consumer research and lack of sufficient back-end support.

Economic slowdown/ tight liquidity position in the market impacted retailers ability to grow

and expand. Retailers evaluated their store network and expansion strategy to adopt a more

conservative approach and negotiated rents with property owners.

MALL MANIA

With the advent of modern retail, property developers and land owners in metro and tier- I

cities started developing malls. As rentals increased, more malls were being built without

much consideration given to customer catchment/ other malls in the vicinity. Retailers

grabbed available stores in the boom period, but this has reversed with the slowdown in 2008

when mall mania started fading away. Property developers have since realised that success of

a mall is not just in developing a property but also in being able to attract footfalls necessary

to facilitate tenants’ business.

FORMATS AND SIZES

In the early years, retailers experimented with multiple store formats and sizes followed by

global peers. This has, however, not yielded the desired results leading to retailers

streamlining their offerings, store formats, reduced store sizes, maintaining lesser SKU’s and

categories for better working capital management and improved profitability.

MANAGING SHRINKAGE

Globally, retail dump and shrink is estimated to be around c. 1 percent of the turnover. In

India, this is estimated to be about c. 3 to 4 percent of the turnover. Lot of efforts and time

have been channelized by retailers and their associates to streamline their processes and

reduce wastage, especially for perishable products, but a significant breakthrough is yet to be

achieved.


TALENT MANAGEMENT

Modern retailers are facing challenges to attract, recruit and retain skilled employees. Players

face stiff competition not just from the other retailers but also from other service industries

due to a huge gap between the demand and supply for skilled employees. Steps have been

initiated by few large retailers for creating a skilled pool of resources by forming an alliance

with educational institutes and designing courses for retail sector.

MANAGING CONSUMER EXPECTATION

Retailers have been expending a lot of their efforts towards generating footfalls with limited

efforts to improve consumer conversion rate. With the global slowdown translating into

declining footfalls, players started revisiting their strategies. Although, they have spent time

and energy in creating an overall shopping experience for their consumer, there still exists a

mismatch between expectancy and delivery.

Structure of Retailers currently operating in Indian Global retailers can operate in India

through a Cash and Carry (Wholesale) model where the retailer can sell to tax registered

businesses. Some of the Cash and Carry operators were working in a JV arrangement with

local businesses having a front end retailing. In view of the above the government has come

out with a rule that Cash and Carry companies cannot have more than 25% of their turnover

coming from group companies.


FORMAT

OF INDIAN

RETAIL

SECTOR


The Indian retail industry is divided into organised and

unorganised sectors. The Indian retail sector is highly fragmented, with a major share of its

business is being run by unorganised retailers like the traditional family run stores and corner

stores. The organised retail however is at a very nascent stage, though attempts are being

made to increase its proportion bringing in a huge opportunity for prospective new players.

The Indian retail industry has experienced high growth over the last decade with a noticeable

shift towards organised retailing formats. The industry is moving towards a modern concept

of retailing. The size of India's retail market was estimated at US$ 435 billion in 2010. Of

this, US$ 414 billion (95% of the market) was traditional retail and US$ 21 billion (5% of the

market) was organized retail. India's retail market is expected to grow at 7% over the next 10

years, reaching a size of US$ 850 billion by 2020. Traditional retail is expected to grow at

5% and reach a size of US$ 650 billion (76%), while organized retail is expected to grow at

25% and reach a size of US$ 200 billion by 2020.

DEVELOPMENT OF RETAIL FORMATS IN INDIA

In chapter 2, we discussed in detail about the evolution of the retail sector of India, from

haats, mandis and melas to the more globalized and liberalized market giving way to big

retail companies that set up hyper marts, malls and other formats of such kind.

In the past decade, the Indian marketplace has transformed dramatically. However from the

1950’s to the 80's, investments in various industries were limited due to low purchasing

power in the hands of the consumer and the government's policies favouring the small-scale

sector. Initial steps towards liberalization were taken in the period from 1985-90. It was at

this time that many restrictions on private companies were lifted, and in the 1990's, the Indian

economy slowly progressed from being state-led to becoming "market friendly".


While independent retail stores like Akbarally's, Vivek's and Nalli's have existed in India for

a long time, the first attempts at organized retailing were noticed in the textiles sector. One of

the pioneers in this field was Raymond's, which set up stores to retail fabric. It also developed

a dealer network to retail its fabric. These dealers sold a mix of fabrics of various textile

companies. The Raymond's distribution network today comprises 20,000 retailers and over

256 exclusive showrooms in over 120 cities of the country.

Other textile manufacturers who set up their own retail chains were Reliance - which set up

Vimal showrooms and Garden Silk Mills, which set up Garden Vareli showrooms. It was but

natural that with the growth of textile retail, readymade branded apparel could not be left

behind and the next wave of organized retail in India saw the likes of Madura Garments,

Arvind Mills, etc. set up showrooms for branded menswear. With the success of the branded

menswear stores the new age Departmental store arrived in India in the early nineties.

This was in a sense, the beginning of a new era for retail in India. The fact that post

liberalisation, the economy had opened up and a new large middle class with spending power

had emerged, helped shape this sector. The vast middle class market demanded value for

money products. The emergence of the modern Indian housewife who managed her home and

work led to a demand for more products, a better shopping ambience, more convenience and

one stop shopping. This has fuelled the growth of departmental stores, supermarkets, and

other specialty stores.

The concept of retail as entertainment came to India with the advent of malls. The

development of malls is now visible not only in the major metros but also in other parts of the

country. The following diagram shows the development of retail formats in India.


TRADITIONAL FORMATS

Itinerant salesman

Haats

Moles

ESTABLISHED FORMATS

Kirana shops

Convenience/Department Stores

Company/Multi Brand Showrooms

PDS/Fair Price Shops

Co-operative stores

Pan/beedi shops

EMERGING FORMATS

Exclusive retail outlets

Hypermarkets

Internal retail

Malls/Specialty Malls

Multiplexes

Rural oriented outlets

Fast food outlets

Service galleries


UNORGANIZED RETAIL

Unorganized retailing, also known as traditional

retailing refers to the traditional formats of low-cost selling, for example, hand cart and

pavement vendors and mobile vendors, the local kirana shops, owner manned general stores,

paan/beedi shops, convenience stores, hardware shop at the corner of your street selling

everything from bathroom fittings to paints and small construction tools or the slightly more

organized medical store and a host of other small retail businesses in apparel, electronics,

food etc. According to a survey by AT Kearney, an overwhelming proportion of the Rs.

400,000 crore retail market is unorganised. In fact, only a Rs. 20,000 crore segment of the

market is organized.

We are known as a nation of shopkeepers with over 12 million, the highest outlet density in

the world in the world with an estimated turnover of $ 200 billion. However a disturbing

point here is that as much as 96 per cent of them are smaller than 500 square feet in area. This

means that India per capita retailing space is about 2 square feet (compared to 16 square feet

in the United States). India’s per capita retailing space is thus the lowest in the world.

Another point to note is that only 8 % of our population is engaged in Retail whereas the

global average is around 10-12%.

Traditional retailing has established in India for some centuries. It is a low cost structure,

mostly owner-operated, has negligible real estate and labour costs and little or no taxes to

pay. Consumer familiarity that runs from generation to generation is one big advantage for

the traditional retailing sector. However this is set to change with the entry of the corporate

sector into the retail domain.

The question that is being discussed, given the corporate onslaught with big bucks and deep

pockets, what will be the impact on the traditional mom and pop store? Will they survive this

or will they fold up and leave the field only to the major organized retail players?

These questions will be discussed in the upcoming section of this chapter.


ORGANIZED RETAIL

The Indian retail industry has experienced high growth over the last decade with a

noticeable shift towards organised retailing formats. The industry is moving towards a

modern concept of retailing. The size of India's retail market was estimated at US$ 435

billion in 2010. Of this, US$ 414 billion (95% of the market) was traditional retail and

US$ 21 billion (5% of the market) was organized retail. India's retail market is expected

to grow at 7% over the next 10 years, reaching a size of US$ 850 billion by 2020.

Traditional retail is expected to grow at 5% and reach a size of US$ 650 billion (76%),

while organized retail is expected to grow at 25% and reach a size of US$ 200 billion by

2020.

Organized retailing refers to the sectors undertaken by

licensed retailers, that is, those who are registered for sales tax, income tax, etc. these include

the corporate retail formats of the exclusive brand outlets, hypermarkets, super markets,

departmental stores and shopping malls.

Even though the share of organized retail in total retail is very small, there are a lot of factors

that are stimulating the share and growth of organized retail market. The driving forces

towards development can be broadly classified into six categories and which is followed by a

discussion on each of the torrential forces.

ECONOMIC DEVELOPMENT

The development of the Indian economy is a necessary condition for the development of the

Indian retail sector. The example of Thailand shows that the impetus to modernization of

retail was provided by the, economic boom in Thailand (Feeny et al, 1996). Development

increases the disposable income in the hands of consumers and leads to an increase in the

proportion of spending on discretionary non- food items. Economic development also

enfranchises new households as potential customers for modern retail and leads to increased

ownership of personal transportation among consumers, which in turn can increase their


willingness to travel longer distances to shop in new format stores. The growth of the

economy can also provide gainful employment to those who would otherwise enter retailing

in areas like hawking, roadside vending and other similar low cost entries into the retail

sector.

Rapid economic development may also positively influence the views of international

retailing companies about the business prospects and investment attractiveness in a country.

A high degree of inflation in the economy is however, not conducive to modernization of the

retail sector. In Brazil, the real progress in retail was noticed only after the stabilization of the

economy and control of inflation (Alexander and Silva, 2002).

Development also has an influence on the regions and cities where modern formats are

initially set up. In the Greek, Thai and Brazilian cases, modern formats initially appeared in

the important cities. This has been noticed in India as well as the modern formats first

appeared in the metros like Delhi, Mumbai and Chennai and the mini metros like Bangalore

and Hyderabad due to the comparatively higher level of disposable incomes available in these

cities.

IMPROVEMENTS IN CIVIC SITUATION

The civic situation includes factors like safety and security in the city and the various

municipal regulations governing the opening, location and operation of stores and the nature

of public transport available. A safe and secure environment will encourage the setting up of

24 hour convenience stores and the operation of shopping plazas and encourage shopping

expeditions for the whole family. The presence of adequate parking facilities or excellent

public transportation will encourage consumers to be more mobile in their choice of store.

City or state regulations on opening or closing hours, rent control laws, availability of

adequate electrical power and regulations relating to licensing will affect both the time

required to set up a new store as well as the cost of store operation and its viability. Many of

the civic factors mentioned above would be dependent on the economic development and

administrative policies in the area. The impact of the civic situation may influence the choice

of the cities, states, zones in which the modernization investments will be made.


CHANGES IN CONSUMER NEEDS, ATTITUDES AND BEHAVIOUR

The growth of modern retail is linked to consumer needs, attitudes and behaviour. Marketing

channels including retailing emerge because they receive impetus from both the supply side

and the demand side. On the demand side, the marketing channel facilitates provides service

outputs that consumers value. These service outputs may include but are not limited to bulk-

breaking, spatial convenience, waiting and delivery time and assortment (Coughlan et al,

2001, pg 30). In Indian retailing, convenience and merchandise appear to be the most

important factors influencing store choice, although ambience and service are also becoming

important in some contexts (Sinha et al, 2002). Modernization will have to address

convenience issues while presenting strong alternatives to the weaknesses of traditional

formats in selection of merchandise available for sale. Modern formats need not be expensive

and can offer lower prices to consumers (Rao, 2001).

.

LOWER PRICES

Lower prices in turn will increase the attractiveness of modern formats and rapid growth in

the preference for purchasing from new format stores. Store ambience includes issues such as

lighting, cleanliness, store layout and space for movement. Modern stores can offer a far

better ambience compared to traditional stores. On the service front, traditional stores

especially kirana stores offer credit and home delivery. These needs will have to be addressed

by new format. Experience from Brazil shows that the combination of entertainment and

shopping provided by some shopping centres is attractive to consumers. This may become

important in India as well because of the limited entertainment options currently available in

cities. While consumer needs, attitudes and behaviour will influence the development in

retail; it is likely that investments in retailing and the creation of new stores offering value

will in turn influence consumers. This appears to have happened in Greece, Thailand and

Brazil.


CHANGES IN GOVERNMENT POLICIES

The Indian government has clarified on a number of occasions that foreign direct investment

will not be permitted in India. Major international retailer organizations will be watching for

signals of policy change especially because China has permitted foreign investment in retail.

In opening up the retail sector, the government may consider various approaches such as

insisting on joint ventures, limiting the foreign stake, or specifying the cities areas where

investment is permitted. Thailand's example shows that in case of joint ventures, the local

partner can play a significant role in the success of the joint venture. The Brazilian experience

shows that local retailing groups can successfully compete against international chains if they

adopt innovations and restructure operations in accordance with market needs. Some policy

protection can be given to consumer cooperatives which have been providing value to their

members and customers. This protection can be in the form of allowing these organizations to

access capital from the local market and operate in a more professional manner. The

government can also play a positive role in simplifying or eliminating the plethora of

regulations governing retailing. Specific laws relating to franchising will also be desirable for

foreign and Indian brand owners to adopt the franchise route in a bigger way.


QUICK

TRIVIA

India has recently allowed 100 percent FDI in single-

brand retail subject to certain sourcing

restrictions but no ownership in multi-brand

retail.

Organised retail, or large chains, makes up about 10 percent of the market, but

is expanding at 20% a year. This is driven by the

emergence of shopping centres and malls, and a middle class of close to

300 million people that is growing at nearly 2% a

year.

India also allows 100% FDI in cash-and-carry, or

wholesale, ventures. Restrictions on foreign investment in front-end retail exist because of

opposition from millions of small shopkeepers who

are valuable vote banks during elections.

The retail sector in the nation of 1.2 billion

people is estimated to have annual sales of

USD 450 billion, with nearly 90% of the

market controlled by tiny family-run shops.


LOCAL COMPANIES

Pantaloon Retail, India's largest listed retailer and part of the Future Group, runs apparel

and electronics stores under its lifestyle brands Central, E-Zone, Hometown. Future also

operates the Big Bazaar hypermarket chain and supermarket brand Food Bazaar.

The group has over 1,300 stores across formats, and occupies a total retail space of 16.5

million square feet in India.

Future has for long been linked to France's Carrefour for a partnership in hypermarkets. It is

recently sold controlling stake in its flagship clothing brand Pantaloon to bring down its high

debt.

Second-ranked Reliance Retail is part of Reliance Industries, India's largest listed group

headed by Mukesh Ambani, India's richest man. Reliance Retail operates 1,300 stores across

neighbourhood stores, supermarkets, hypermarkets and lifestyle stores.

It has said it doesn't plan to partner with any global retailer.

Shoppers Stop, part of the K Raheja Group which operates in real estate, has about 265

stores across brands and formats including 12 Hypercity hypermarkets.

It operates 4.58 million square feet of retail space and its loss-making Hypercity is open to

partnerships with foreign groups.

Trent, part of the sprawling Tata Group, operates 106 stores across formats and runs the

Westside range of apparel stores, and hypermarkets under Star Bazaar. It signed a franchisee

agreement with Tesco Plc under which Star Bazaar shops use the British firm's supply chains

and infrastructure.

Aditya Birla Retail is the unlisted retail arm of India's telecoms-to-cement conglomerate

Aditya Birla Group, headed by Kumar Mangalam Birla, r nked the seventh-richest Indian by

Forbes in March 2012.

The company operates around 500 supermarket and hypermarket stores under the More

brand. It has said it will evaluate partnerships with global firms.


MAJOR FOREIGN COMPANIES

Wal-Mart Stores Inc has a cash-and-carry operation with Indian partner Bharti

Enterprises, the parent of leading mobile provider Bharti Airtel, and will add 12-15 new cash-

and-carry stores this year to its 17 existing stores.

Tesco, Britain's largest retailer, has a tie-up with Trent's Star Bazaar hypermarket chain.

Tesco is also looking to enter the wholesale market through the tie-up.

Germany's Metro AG operates 11 wholesale stores in India. The company plans to open 5

cash-and-carry stores every year.

Carrefour has 2 cash-and-carry stores in India. The world's No 2 retailer has been seeking

a local partner to enter the hyper or supermarket sectors.

Organised sector has boosted the economy, even though it accounts for only 4-5% of the total

retail sector. With adoption of various formats and divisions in the organised sector, and with

more liberalized economic policies encouraging huge investments by international retail

giants, the Indian retail sector will soon become the biggest contributor to the economic

growth of the country. However, this transition is not going to be smooth with presence of

issues that pose as a deterrent to the development of this sector. All these issues will be

discussed in detail in the upcoming sections. Let us now have a look at the formats and major

players of the organised retail sector.

The size of India's retail industry is expected to more than

double to $1.3 trillion by 2020, led by an estimated 25

percent average annual growth in organised retail if

overseas investment is permitted in the sector, an industry

body has said.


FORMAT AND MAJOR DIVISIONS

The Indian retail industry is categorised into different retail formats on the basis of the retail

operation. The formats are basically defined on the basis of the size of the outlet, the pricing

strategy followed, the type of merchandise sold, and also the location. Given below is a list

of formats on the basis of the above-mentioned characteristics:

HYPERMARKETS

Hypermarkets are big-box formats with an average size that ranges between 60,000-120,000

square feet, and they stock multiple lines of products such as food and grocery, general

merchandise, sports goods, and apparels. Hypermarkets are mammoth outlets that are fewer

in number but cater to a larger area (3-5 kilometres). HyperCITY, Big Bazaar, RPG

Spencer’s and Shoprite Hyper are some major players in this format.

SUPERMARKETS

The average size of supermarkets range from 10,000-30,000 square feet. They are a smaller

version of hypermarkets that holds multiple lines of merchandise but is limited in number

when compared with supermarkets. Supermarkets are spread across the city, are greater in

number, but cater to a smaller area (1-2 kilometre). Foodworld, Food Bazaar and Spinach

are some major players in this format.

CONVENIENCE STORES

Convenience stores offer easy purchase experience through easily accessible store locations.

The stores are basically small in size (500-3,000 square feet), which allows quick shopping

and fast checkouts. Subhiksha and Reliance Fresh are some major players in this format.

CASH-AND-CARRY OUTLETS

Cash-and-carry outlet is strictly not a retail format, but considering the business dynamics it

follows it can qualify for a retail format. In a retail business usually a consumer has to

purchase one or more products but under this format, the consumers have to buy a minimum

volume of products or value specified by the cash-and-carry retailer. In this format the

buyers are basically small retailers or catering service providers who purchase in bulk

quantities. This stores’ size ranges from 100,000 square feet to 300,000 square feet. At


present, Metro is a major player that falls under this format. Wal-mart’s alliance with Bharti

and Tesco’s with Trent will also come under the cash-and-carry format.

DISCOUNT STORES

The focus of these stores is to offer merchandise at a price that is lower than the market

price, and to gain profit from volumes. These stores keep merchandise mainly on the basis

of its saleability. Usually these are no-frill stores with simple surroundings and less service.

Big Bazaar and Subhiksha are some famous examples.

SPECIALTY STORES:

These stores usually ‘specialise’ in one line/category of merchandise. As these stores are

concerned with only one type of merchandise, they are able to offer a wider range of

products at a lower price. Examples: Next and Vijay Sales.

DEPARTMENT STORES

These stores are typically lifestyle stores where most of the merchandise constitutes

apparels and products other than food and grocery. These stores offer high quality service to

consumers. These stores stock lesser merchandise than other formats since the merchandise

is stored in a presentable manner. Notable examples are Shoppers Stop, Westside, Trent,

and Globus.

CATEGORY KILLERS:

Many major retail chains have adapted small specialty store concepts and have expanded

themselves to create large specialty stores. These expanded, large speciality stores are

known as ‘category killers’. Ezone, which specialises in electronics, and Staples, which

specialises in office stationery, are examples of category killers.



MAJOR DIVISIONS

Organised retail can be segmented in two ways - segmentation by verticals and by channels.

Verticals are segmented on the basis of the type of merchandise offered; similar

merchandise can be clubbed together to form a vertical, for instance food and grocery.

Channels are the means through which retailers sell their merchandise; for example, store

channels of retailing that comprise different formats like hypermarkets, supermarkets and

department stores and non-store formats like online retailing, vending and kiosks.

FOOD AND GROCERY

In 2007, the food and grocery segment was valued at Rs 7,920 billion, and it enjoyed a

dominant market share of 62% in the total Indian retail sector; however, there was a

completely opposite scenario in the organised retail segment. The food and grocery segment

is the second-largest in the organised retail and has an 11.5% share that is valued at Rs 90

billion.

Initially this segment grew at a slow pace due to the presence of an established retailing

system led by kirana stores, a highly-fragmented food supply chain, and the lack of a

developed food processing industry. Nilgiri was one of the earliest retailers that started a

chain or stores in different parts of the country. However, the growth of Nilgiri’s stores was

limited as it was challenged by a weak supply chain and an under-developed food

processing industry. Post-liberalisation, organised retailers saw a renewed opportunity in the

food and grocery segment.

FEW FOOD AND GROCERY RETAILERS

Food Bazaar

PRIL ventured into food retailing with Food Bazaar in Apr 2002. Initially it was a part of

Big Bazaar but later on it started operating as a standalone outlet in addition to being a part

of Big Bazaar. The store offers a wide range of fruits, vegetables, FMCG products and

ready-to-cook products. It uses a concessionaire model for wet groceries, and it sources

staples from APMC or farmers (where the state permits). Food Bazaar attracts high footfalls

due to innovative initiatives like live-grinding, live bakery, fresh juice corner etc.


In Aug 2007, the store ventured into another retail format that served the food and grocery

segment called the KB Fair Price shop. This store is modelled on the concept of low-frills

neighbourhood store of 1,000-1,600 square feet. The Fair Price store follows a pricing

model that is 20% lower than the prevailing market price.

More

Aditya Birla Retail Ltd forayed into the retail business in 2006 by acquiring Trinethra

Super Market Ltd, the south-India based retail chain. In May 2007, the company launched

its own brand of stores called More in Pune. The supermarket store has a minimum size of

2,500 square feet and offers fruits, vegetables, staples, personal care, general merchandise,

pharmacy, poultry and dairy products.

Reliance Retail

Reliance Retail Ltd, a subsidiary of Reliance Industries Ltd, has an aggressive plan to

expand its retail network across India. It entered the food and grocery segment in November

2006 through its convenience store format Reliance Fresh. The store offers a range of fruits,

vegetables, personal care, home care and kitchen utensils. It focuses on building a strong

relationship with the agri-business value chain and sources directly from wholesalers.

FASHION AND ACCESSORIES

Fashion and accessories is the largest category in organised retail and had a 38.1% share

valued at Rs 298 bn in 2007. In terms of total retail, this category held the second position

with a 9.5% share valued at Rs 1,313 bn. The segment has driven the retail boom in India

and has opened many opportunities for large as well as global retailers to enter the segment.

Despite the high rental, many global retailers like Gas, Gucci, Levi’s, Benetton, Marks and

Spencer have opened their stores in India, and also have plans to increase their presence.

The men’s wear segment had the highest share of 40.2% in the Rs 1,313-billion fashion and

accessories market in 2007 while the women’s category accounted for 34.8%, followed by

the kids wear and uniform category at 24.9%. Demand in the branded apparel segment is

increasing as consumers are upgrading to premium brands due to changing preferences. The

premium segment has seen the fastest growth in value owing to the rising preference for

formals at Indian workplaces, the new offerings from international brands, and the


increasing willingness on the part of consumers to pay a premium for quality. The apparel

retailers are also pushing themselves to the accessories segment to attract more customers.

FEW FASHION AND ACCESSORIES RETAILERS

Pantaloons

The first Pantaloon store was opened at Gariahat in 1997 in 8,000-square-feet area. Over the

years, the store has undergone several transitions. When it was launched, the store mostly

sold external brands. Gradually, it started retailing an eclectic mix of external brands as well

as private labels. Initially, it positioned itself as a family store targeted across age and

gender groups but later it shifted its focus towards being a fashion store and gave more

emphasis on the youth. As on Dec 2008, Pantaloons had around 44 stores spread across

major cities in India.

Shoppers Stop

Shoppers Stop is one of the largest retailers in India. It primarily caters to the lifestyle

segment and offers customers both domestic and international brands. The store recently

revamped its branding by introducing a new symbol. Shoppers Stop has lifestyle retailing as

its core housing brand across categories like apparels and accessories. The store operated at

26 locations in 12 cities as on Dec 2008.

Koutons

Koutons Retail is a leading manufacturer of readymade and fashion wear brand. It was

established as Charlie Creation Pvt Ltd in 1991 for manufacturing and exporting garments.

Later in 1998 Koutons was established to provide affordable men’s wear to the masses.

Koutons also entered the women’s segment in Apr 2008 by launching its brand Les Femme,

which caters to young women in the 16-34 years age group and includes apparels like t-

shirts, partywear, lycra, semi-formal shirts, denims, capri pants etc. Koutons has also

launched its brand Les femme for women & Koutons Junior for kids. Few renowned brand

of Koutons are: Koutons men’s wear, Les Femme, Koutons Junior and Charlie Outlaw.


FOOTWEAR

In 2007, the footwear segment had a 1.1% share in the total retail market and was valued at

Rs 160 billion while it had a 9.9% share in the organised market and was valued at Rs 77.5

billion. In the same year the organised footwear market recorded a fantastic growth of 49%

over 2006 while the overall retail market grew by just 16.4%. The changes in consumer

behaviour and attitudes reflected in the increasing demand for newer styles and different

types of footwear. The market currently offers many brands that cater to every target

segment. The Indian footwear market is moving at a brisk pace presently to cater to the

domestic demand. Moreover, the influx of international brands is inducing the otherwise

price-conscious customers to shell out more bucks for their favourite brands.

The footwear market is experiencing a changing consumer preference for casual and

younger style due to media penetration and due to the increasing awareness about

international trends and lifestyle. There already are a large number of players, both

domestic and international, in the semi-formal, formal and casual segment but the casual

segment dominates the Indian footwear market with a 75% share. Branded sports wear is

also growing at a faster rate than the other segments and the key players in this segment are

Adidas, Reebok, Nike, Puma et al.

FEW FOOTWEAR RETAILERS

Reebok

In 1995, Reebok forayed into the Indian retail market. Today Reebok is one of the

frontrunners in the Indian sportswear industry. Reebok’s offerings include apparels,

footwear and fitness equipment and products. Its footwear offerings are mostly in the

trainers and sneakers segment. Reebok recently has introduced its new lifestyle vertical

Reebok Classic.

Bata

Bata India is one of the most well-known and largest footwear retailers in India. The

retailer manufactures and markets different types of footwear that includes rubber, canvas,

leather, and plastic footwear. It markets footwear under the brand names of North Star,

Power, Ambassador, Marie Claire besides dealing in international brands like Dr Scholl and


Hush Puppies. Bata has a strong distribution network structure of wholesalers and

distributors.

Khadim’s

Khadim’s forayed into footwear retailing in 1993 and is one of the most renowned retailers

in east India. Khadim’s markets its own products besides few others and specialises in

women’s and children’s footwear. The retailer has a presence in multi-brand outlets

(MBOs) across the country in addition to its own exclusive outlets.

HOME AND OFFICE IMPROVEMENT

In 2007, the home and office-related retail segment was valued at Rs 455 billion in the total

retail market while it was valued at Rs 50 billion in the organised retail market. In the same

year the segment had a 6.4% share in the organised retail. Home and office improvement is

another important segment of the organised retail as people have started spending more on

discretionary items. Presently the segment is growing at an impressive rate. Due to the

salary hikes and rise in the double-income households, the lifestyle needs of the young and

flourishing India are surging and consequently, consumers are going for renovation of their

homes. The concomitant rise in investments in furniture, home accessories and furnishings,

has added to the segment’s boom.

FEW HOME AND OFFICE IMPROVEMENT RETAILERS

Godrej Lifespace

On Apr 1, 2003, Godrej & Boyce Manufacturing Company Ltd launched a new retail

division. The division was established to present a new concept in retailing by displaying

and selling under one roof the Godrej range of home and office furniture, appliances,

security equipment and locks. Later in 2005, the showrooms were branded as Godrej

Lifespace Stores.

Home Stop

Home Stop is one of the premium home improvement stores that offers a wide range of

merchandise. It stocks various national and international brands that cover all the home

needs like home décor, furniture, bath accessories, draperies and health equipment. Home


Stop currently operates three Home Stop stores, one each in Mumbai, Bangalore and New

Delhi.

Home Town

Home Solution Retail (India) Ltd (HSRIL), a subsidiary company of Pantaloon Retail, is

designed to cater to the home furnishing and improvement market. The format is designed

as a one-stop destination that offers a complete range in consumer electronics, furniture and

other home products. HSRIL operates five retail formats: Collection-i, Furniture Bazaar,

Electronics Bazaar, Home Town and e-zone.

ELECTRONICS

In 2007, the electronics segment had a 4% share in the total retail segment and was valued

at Rs 575 billion while it had a 9.1% share in the organised electronic retail segment valued

at Rs 71 billion. The electronics market has seen a proliferation of brands and product

categories in recent years. All international brands from Japan, Korea, the US, Europe and

China have been launched in India and have been trying to build a pan-India dealer

network. The lifestyle category has seen higher growth in India on the back of changing

consumer preferences and a consumption boom.

FEW ELECTRONIC RETAILERS

eZone

eZone is an electronics specialty retail format from HSRIL by Kishore Biyani-led Future

Group. The first eZone store was launched in 2006 in Indore and was followed with a

second one in Bangalore. eZone offers a range of personal products like computers, laptops,

handy cams, MP3 players and mobile phones, entertainment products like plasma/LCD, flat

TVs, home theatre systems, DVD players, and stereosystems, home products like

refrigerators, air conditioners, washing machines and microwave ovens, among other

kitchen appliances.

Viveks

In 1965, B A Lakshmi Narayana Setty founded Vivek’s in a 200-square-feet-shop in

Chennai. Today Viveks is one of the largest consumer electronics and home appliances

retail chains in India. Viveks Ltd is a public limited company that runs two retail brands –


Viveks and Jainsons. The store was transformed into a public company from a family-run

company when 14 stores of Jainsons were bought over in 1999. Later on in 2001 two stores

of Premier and in 2002 Spencers Super Store were purchased. Viveks has recently absorbed

Spencer’s into the Premier brand. Viveks grew from three stores in 1995 to more than 35

stores as on Dec 2008.

CATERING SERVICES

In 2007, the catering service in organised retail showed a tremendous growth of 44.7% over

the previous year. It was valued at Rs 713 billion in the total retail market and at Rs 57

billion in the organised retail market. The catering services market is divided into fast food,

cafes and restaurants and others. India is a buoyant market for this segment with over a

billion people with different food habits, religious festivals, and various regions. Each

region has its own traditional food, dietary habits and its own food specialities. In recent

times many international food chains have entered India, which has made this segment more

dynamic and its growth, fast-paced. The key growth drivers of the segment in India are: the

changes in Indian demographics, young working population, nuclear families, rise in

double-income household etc.

FEW CATERING SERVICE RETAILERS

Yum! Restaurants

Yum! Restaurants is present in India through its brands Pizza Hut and KFC. In 1995, KFC,

which mainly serves chicken products, set foot in India. After taking into account the

vegetarian population of India, KFC recently modified its menu and launched a vegetarian

fare, which now constitutes 40% of the product categories. Pizza Hut entered India in 1996

and as on Dec 2008, there were 147 Pizza Hut and 45 KFC stores across 35 and 14 cities,

respectively.

McDonald’s

McDonald’s is a 50:50 joint venture partnership in India between McDonald’s Corporation

(USA) and two Indian businessmen. Hardcastle Restaurants Pvt Ltd owns and operates

McDonald’s restaurants in West India while Connaught Plaza Restaurants Pvt Ltd owns and

operates these food outlets in the North.


Café Coffee Day

Café Coffee Day is a division of India’s largest coffee conglomerate Amalgamated Bean

Coffee Trading Company. Café Coffee Day sources coffee from 5,000 acres of estates and

is the second-largest coffee shop in Asia. It has ventured into formats such as music cafes,

book cafes, highway cafes, lounge cafes, garden cafes and cyber cafes.

TELECOM

In 2008 the telecom market in India was worth Rs 272 billion and had a 1.8% share in the

total retail market while it had a 3.4% share in the organised retail segment and was valued

at Rs 27 billion. The mobile and accessories segment exhibited tremendous growth in 2007.

The Indian telecom sector emerged as the second-largest wireless network in the world after

China with the recent spate in number of wireless subscribers.

FEW TELECOM RETAILERS

The Mobile Store

The Mobile Store, promoted by the Essar Group, is one of the country’s largest mobile

retailers. It’s a one-stop mobile solution shop that offers telecom products like mobiles,

accessories, mobile connections and recharges, mobile bill payments, handset repairs,

handset exchange, music and gaming devices and DTH, all under one roof, in a world-class

shopping ambience. The shop had more than 1,300 stores spread across 200 cities as on Dec

2008.

MobileNXT

Bangalore-based MobileNXT Teleservices Pvt Ltd has a pan-India presence and operates in

the following three major retail formats: standalone stores, store-within-a-store, and

enterprise stores. This store is eyeing a pan-India network and hence has initiated a tie-up

with Shoppers Stop, Star Bazaar, Mega Mart, and Landmark stores, for setting up store-

within a- store in their outlets across the country. As on Dec 2008, the company was

operating more than 36 stores that were spread across major cities in India.


PHARMACEUTICALS

In 2007, the pharmaceuticals market had a 3.5% share and was valued at Rs 488 billion in

the total retail market; however, its share in the organised retail market accounted for

merely 2.0% share at Rs 15.4 billion during the same period. The organised pharmaceutical

retailer is known to implement innovative concepts and global standards to provide

customers with an experience that is completely different from what an unorganised retailer

offers.

FEW PHARMACEUTICAL RETAILERS

Apollo Pharmacy

In 1983, Apollo Pharmacy, a division of Apollo Hospital Enterprise Ltd, entered retailing

by opening up its first store in Chennai. The retailer also took initiatives to provide

medicines to the rural regions by tying up with ITC’s e-choupal and Godrej Aadhaar.

Apollo has also started expanding through the franchise route. It has recently launched a

new concept, NurseStation, at its pharmacy outlets, where the nurses are available to attend

the patients at their houses, or refer them to an Apollo Clinic nearby. As on Dec 2008,

Apollo was operating at over 890 outlets across the country.

MedPlus

In 2006, MedPlus Health Services Private Ltd was incorporated in Hyderabad to cater into

the health care segment. The company has established a large number of pharmacy outlets

chain across major cities in various states of the country, and are majority of those are

spread across four southern states. It has over 600 pharmacy outlets spread across 63 cities/

towns in the country.

BEAUTY AND WELLNESS

In 2007, the beauty and wellness segment grew at a tremendous rate of 65% over the

previous year in the organised retail market. Its share in the total retail market, however,

was just 0.3% and was valued at Rs 46 billion. In the organised market, the segment showed

tremendous growth due to the rise in service sector employment.


FEW BEAUTY AND WELLNESS RETAILERS

Reliance Wellness

In Oct 2007, Reliance Retail Ltd, owned by Mukesh Ambani, entered the beauty and

wellness segment by opening its first store at Hyderabad. This store offers a wide range of

products under the health foods, personal care, healthcare, and pharmaceuticals categories.

Himalaya Drugs

The Himalaya Drug Company operates both exclusive retail outlet formats and shop-within-

a-shop outlets. The stores offer an entire range of Himalaya drugs from pharmaceuticals,

personal care, to baby care and animal healthcare products at competitive prices. The

company emphasises on service, trained personnel and a quality shopping experience in

their stores. Himalaya has also launched its online shopping website to make all its products

conveniently available to its customers 24/7 and to reach a wider market, where its stores

are not present.

JEWELLERY

In 2007, jewellery retail was worth Rs 694 billion and accounted for 5% of the total retail

market. In the organised retail market, jewellery retail merely had a 2.9% share at Rs 23

billion. In the same year jewellery retail in the organised retail market recorded high growth

of 36.9% over 2006 as compared with 15.3% recorded in the total retail market.

FEW JEWELLERY RETAILERS

Gitanjali

Gitanjali Gems Ltd (GGL) is one of the largest, integrated diamond and jewellery

manufacturer and retailer in India. It sources rough diamonds from primary and secondary

source suppliers in the international market, cuts and polishes the rough diamonds and

exports the diamonds to its international markets. GGL sells diamonds and other jewellery

through retail operations in India as well as in international markets. Its brand extensions

include Gili, Asmi, Sangini, D’Damas, Giantti, Nakshatra, Collection G, Gold Expressions,

Vivah Gold & Kiah.


Tanishq

In mid-1990s Titan Industries Ltd - promoted by the TATA Group - entered jewellery

retailing through Tanishq. Tanishq has set up production and sourcing bases by researching

the jewellery crafts of India. Its factory, located at Hosur, Tamil Nadu, is spread across

135,000 square feet and is equipped with all modern machinery and latest equipment. As on

Dec 2008, there were 115 Tanishq stores spread across major cities in India.

Reliance Jewels

Reliance Retail Ltd entered jewellery retailing by opening its first store in Bangalore. The

company aims to make Reliance Jewels a one-stop destination that offers consumers a wide

range of gold and diamond jewellery.

TIMEWEAR

In 2007, the Indian watches market enjoyed a 2.9% share in the overall organised retail

market as compared with merely 0.3% in the total retail market. The market size of the

watch market was valued at Rs 44 billion in the same year. The size of this market has

expanded due to the changes in consumer preference and the growing market for

international watches in India. International players like Tag Huer, Rado, Omega, Rolex

have even signed up Indian celebrities as brand ambassadors to tap the market.

FEW TIMEWEAR RETAILERS

Citizen

Citizen has 38 exclusive outlets in 27 cities across India. The Exclusive Branded Outlets

(EBOs) called First Citizen house the latest international range of Citizen Watches and

display over 800 different watches. Besides, Citizen Watches are also available at Lifestyle,

Shoppers Stop and more than 250 Citizen Corners (MBOs) across the country.

Titan

Titan is one of the largest manufacturers of watches in India. It offers product ranges that

include the flagship brand Titan, Edge, Fastrack, Nebula, Raga, Steel, Regalia, Flip, Sonata,

which is available in Titan and exclusive Sonata stores. As on Dec 2008, there were 245

exclusive Titan showrooms (World of Titan) across 122 Indian cities in India.


BOOKS, MUSIC AND GIFTS

Books, music and gift retailing were the earliest segments that witnessed a consolidation of

business into organised formats. The combined share of this segment was 1.1% of the total

retail market at Rs 164 billion in 2007. Organised retailers like Planet M, Music World, and

Landmark dominated the music segment. Archies, a prominent gift retailer, has a presence

on both high streets as well as in malls.

The books and publishing business continues to thrive due to greater literacy levels and

rapidly growing middle class and higher middle class population, English-speaking middle-

class population. Moreover, new format chains like Crossword, Landmark, Oxford, and

now, Odyssey, that fit into the leisure aspirations of people, are located conveniently, and

offer an ambience conducive to browsing and book buying. As a result, the segment has

been growing further.

Crossword

Crossword was established in Oct 1992, is India’s leading bookstore chain and a wholly-

owned subsidiary of Shoppers Stop Ltd. The company sells books and other products under

the Crossword brand. Crossword sells a wide variety of products like magazines, CD

ROMs, music, stationery and toys apart from books. Crossword provides customers with

cafes, reading tables and cloak facilities at each of its outlets. Crossword customers can also

shop for books using dial-a-book, fax-a-book and email-a-book facilities offered by the

company. Its other services include gift vouchers, apart from the return, exchange & refunds

policy being followed by the company. Crossword bookstores are presently located in

Mumbai, Bengaluru, Ahmedabad, New Delhi, Pune, Nagpur, Vadodara, Kolkata, Chennai,

Jaipur and Hyderabad.

ENTERTAINMENT In 2007, the entertainment segment was worth Rs 456 billion and

had a 3.2% share in the total retail industry. This segment has been driven by the increasing

base of young population in India, whose entertainment needs has been surging with the

influx of malls and multiplexes that provide leisure retail, gaming, and cinema. Players in

the segment are likely to gain greater market share as the consumers spend on entertainment

is increasing. PVR cinemas, Fun Cinemas, Inox are the major players in the entertainment

retailing space.



KEY PLAYERS

SUBHIKSHA Subhiksha was the retail venture of the Chennai-based, Vishwapriya Group.

The Subhiksha Trading Services discount chain was launched in 1997.

SUBHIKSHA MODEL: High Volume and Low Margin Model

This model focused on Small sized functional stores locating in high population

density areas with close proximity to each other.

PRODUCT MIX: Fresh Fruit and Vegetables, grocery, pharmacy and mobile

phone.

CHALLENGES Faced in balancing in mad expansion plan and in deciding

demand prone product mix.

Today Subhiksha is no more in the market but it played vital role in

popularizing modern retail in India.


PANTALOONS Pantaloon Retail India Limited is flagship of Future Group of Companies,

based at Kolkatta. The group is incorporated by Mr. Kishore Biyani. PRIL is

the first retail store in hypermarket format. The group is recognized as multi

format retailers.

PRIL MODEL: One stops shopping model

Under one roof you can get vast range of merchandise with over 2, 50,000

SKUs.

PRODUCT MIX: Branded and Private label apparel, Personal care

products, leather products, Books, Music, Toys, Consumer durables, Home

Furnishing, Food and Grocery.

PRICING STRATEGY: Maximising on Gross margin

CHALLENGED FACED: MRP Laws, Rising Real estate Price,

Unavailability of Land.


RELIANCE FRESH Reliance Fresh is the venture of Reliance Industry Limited in foods and

vegetables. It is first modern retail enterprise in food sector which has

potential of approx $500bilion market. It is one of the best examples of

agribusiness industries which boost economic integration in rural areas

and villages.

RELIANCE FRESH MODEL: Farms to forks model is adopted to

operate business. Small and medium size stores vary from 1500 sq ft. to

3000 sq ft.

PRODUCT MIX: Fresh fruit and vegetables, staples, FMCG and Dairy

products.

PRICING STRATEGY: Disintegrates intermediary and reduce cost of

fresh produce. Reliance fresh is focusing on value to customer.

CHALLENGED FACED: Political Interface and people movements

against the retail giant at various places.


VISHAL MEGAMART Vishal Mega mart is established in 1986 in Kolkatta. The group is

conglomerate today having 180 showrooms across the country. Vishal is

one of the fastest retail groups in India. The outlets cater to almost all

price range.

VISHAL MEGAMART MODEL: Small format models at the time of

initial phase in tier I and tier II cities and later on converted into

hypermarket model, focusing on lower middle income group.

PRODUCT MIX: House Hold merchandise, groceries, Footwear, toys,

home furnishing, mobile phones, watches, toiletries items.

PRICING STRATEGY: Price suits to every targeted customer.

CHALLENGES: Managing the expansion plans with supervising

demands of consumers and keeping economic of scale high.


COUPON MALL It is retail arms of Prateek Life Styles. It came in existence in late 2007 in

Bangalore. The group is focusing upon middle class segment with big

discount.

COUPON MALL MODEL: One stop model targeting tier II and III cities.

PRODUCT MIX: Apparel, Jewellery, luggage, home furnishing.

PRICING STRATEGY: Big Brand, big discount.

CHALLENGES FACED: It will take time to position the brand in the mind

of customer.


TRENT Trent is a flagship company of Tata Group established in 1998.The

Company having four retail dimensions in life style (WESTICIDES),

Hypermarket Chain (STAR BAZAR), BOOKS AND Music Chain

(LANDMARK) and a complete family fashion store (FASHION YATRA.).

TRENT MODEL: Multiple Format Model : Trent Limited was the first

company in India to position itself as an in-house single brand store in

garments and household accessories. The firm's business model follows the

acquisition route with a strategy to get a jump start and take advantage of

the already experienced manpower, infrastructure, front-end property, and

gained knowledge.

PRICING STRATEGY: The Westside clothing line is generally conceived

to be slightly expensive compared to other brands

CHALLENGES: Lack of Trained manpower, Attrition Rate.


GLOBUS It has been launched by Rajan Raheja Group in January 1998.Started from

Indore and 24th the new one at Nagpur, journey is continue with a mission

to democratize fashion and be 'the' iconic youth fashion brand in India. The

store aims to create deep connections with the Indian youth through

inspiring product design, signature store experiences and compelling

marketing. The concept of the Privilege Club which is the best way to ensure

100% card to benefit ratio is the unique selling proposition of the store.

PRODUCT MIX: apparel for men, women, kids and accessories - work

wear, campus wear, club and lounge dressing and genres Western, Indian

and mix-n-match. A well matched sizing ensures a good fit for the Indian

silhouettes.

PRICING STRATEGY: Amazing Price suited to every YOUTH.

MODEL: Department Store. At present the group is venturing into specialty

stores.

CHALLENGES FACED: Managing the expansion plans with supervising

demands of consumers and keeping economies of scale high.


MOTHER DAIRY Mother Dairy was established in 1974 with a view of making liquid milk

available to city consumers. It is set up by National Dairy Development Board

under first phase of operation flood programme. Mother Dairy also markets

dairy products such as ice cream, dahi, lassi, butter cheese dairy whitener,

Dhara range of edible oils and Safal of fresh fruit and vegetables frozen

vegetables and fruit juices.

MOTHER DAIRY MODEL: Mother Dairy follows cooperative models.

This model directs the formation of federation, by the help of village level

societies and district level unions, whose prime responsibilities is the

marketing of milk and milk products.

PRICING STRATEGY: Mother dairy ensures that farmers get market price

by offering quality produce and also provide the produce to the consumers at

reasonable prices through minimizing costs.

CHALLENGES FACED: Company is facing competition from other

organised retailers and increased imports. The quality of milk, low yields,

falling cattle health are some major challenges faced by company.


IMPACT OF ORGANISED RETAIL

There has been a huge growth in organized retail in India since 2002-03 and this is associated

with the growth in the economy and the attendant rise in consumption spending. Organized

retailing has begun to tap the enormous market but its share indeed is small. A number of

large business houses have entered the retail business with very ambitious expansion plans.

Big foreign retailers are also keen to invest in India but their entry depends on changes in the

government’s FDI policy regarding retailing. Organized retailing played a significant role in

the present-day developed countries during their period of high growth. Since the early

1990s, it is also contributing substantially to the

growth of developing countries. In India,

organized retail is poised to make a mark in the

near future. This chapter deals with some of the

major implications of modern retailing for the

country. It also presents the results of the all-

India survey of unorganized retailers,

consumers, and intermediaries on the impact of

modern retailing.

ADVANTAGES

LINK WITH AGRICULTURE

Indian agriculture is in the midst of a grave

crisis with its growth rate steadily falling to just

2.5 per cent per annum during 2000-07, as against an annual growth rate of 4.2 per cent

during the 1980s and 3.2 per cent during the 1990s. Among the reasons for the secular

downtrend of this sector are: (a) low level of investment in the sector of just below 2 per cent

of GDP (Economic Survey 2006-07, p. 176) for the past decade and a half; (b) inability to

bring a larger share of land under irrigation in the past ; (c) lack of any significant

breakthrough in yields for the last few decades; and (d) the dismal state of rural

infrastructure, such as power, roads, transport, marketing, etc.

“Organized retailing brings many

advantages to producers and also to

urban consumers, while also providing

employment of a higher quality.

Organized retailing in agricultural

produce can set up supply chains, give

better prices to farmers for their produce

and facilitate agro-processing industries.

Modern retailing can bring in new

technology and reduce consumer prices,

thus stimulating demand and thereby

providing more employment in

production.”


While the industrial and services sectors are largely free from the controls of the license raj,

agriculture remains constrained by a series of restrictions from input supply and production to

marketing and distribution.

The problem in agriculture is reflected to a certain extent in the operation of the APMC Acts

in various states and union territories. The APMC Acts were originally intended to protect

farmers from exploitation by intermediaries and traders by ensuring that they receive

reasonable prices and timely payment. Over a period of time, the government regulated

markets failed to function the way they were intended to and farmers felt exploited with a

lack of transparency in the pricing, weighing, bagging and payments for their produce. The

various intermediaries in the system from the village trader, who acts as a consolidator,

commission agent, wholesaler, sub-wholesaler, etc have been appropriating a large part of the

final price in the form of margins and commissions. The transactions at various stages

involved huge wastages estimated at 5-7 per cent for food grains and 25-30 per cent for fruit

and vegetables (Annual Report 2006-07, Ministry of Agriculture, Department of Agriculture

and Cooperation). These factors inflate the final price to the consumer by nearly three times

what the farmer receives, and the farmer’s realization of one-third of the final price compares

poorly with two-thirds in most other countries.

A number of states and union territories have taken steps to amend their respective APMC

Acts based on the model law on agricultural marketing prepared by the Department of

Agriculture and Co-operation under the central government. These amendments, among other

things, provide for the setting up of private markets and yards, direct purchase centres,

promotion of public-private partnership (PPP) in the management and development of

agricultural markets in the country.

Organized retail will result in a complete revamp of the agricultural supply chain in the

country. A recent study by CRISIL has estimated a current annual total loss of about Rs.

1,000 billion in the agricultural supply chain, 57 per cent of which is due to avoidable

wastage and the rest due to avoidable costs of storage and commissions (CRISIL Research,

June 2007). Organized retailers have already started procuring fruit and vegetables from

farmers directly bypassing the various intermediaries who add more costs than value to the

food chain. They are investing heavily on logistics in the form of centralized warehousing

and distribution centres, transport and cold storage, either directly or through engaging third

party logistics companies. They are also employing a large number of unskilled workers for


sorting, grading, packaging and labelling. All these will enhance farmer’s realizations,

improve quality of products at the shop and reduce the ultimate consumer price.

LINK WITH MANUFACTURING

The Planning Commission had identified four sectors as the major employment generating

sectors for the Eleventh Plan period, 2007-12. They were: (i) food processing industry; (ii)

textiles and clothing; (iii) tourism; and (iv) construction. Of these sectors, all except tourism

are getting a fillip with the growth of organized retail.

It is particularly the small and medium industry (SMI) sector which will gain advantages

with the emergence of organized retailers by becoming their suppliers.

Modern retail will catalyze the development of the SMI sector in the country. Organized

retail’s link with exports comes through foreign players. International retailers look for

sources around the world and a country in which they operate becomes a source for their

global sales. Some of the international retailers that have plans for India in the future have

already developed suppliers in the country and have started exporting from India. For

example, Wal-Mart exported an equivalent of US$ 600 million, and IKEA about 380 million

euro from India in 2006-07.

IMPACT ON GROWTH AND PRODUCTIVITY

Organized retail has the potential to lift the Indian economy to higher levels of productivity

and growth. In the context of the United States, a McKinsey Global Institute study indicated a

contribution by the retail sector of nearly one-fourth of the rise in productivity growth from

1987-95 to 1995-99. In India, organized retail will raise productivity and growth by pulling

up the current lagging sectors, such as agriculture, food-processing industry, and textiles.

Besides, in order to meet the rapidly growing demand for retail space, construction of real

estate is taking place at a fast pace. It is interesting to note that construction has been one of

the fastest-growing segments of India’s GDP in recent years, recording an average annual

real growth of about 13 per cent during 2003-07.


With regard to agriculture, organized retailing will work with farmers to: (i) improve yields

by enabling them to obtain quality input supplies; (ii) adopt superior farm technology and

practices; and (iii) access timely credit at reasonable rates. Organized retailing will offer the

farmer an alternative market which is more transparent, and less time consuming. It will

provide prompt payment, avoid margins for unproductive intermediaries, and ensure

remunerative prices.

As regards manufacturing, SMIs particularly in food-processing, textiles and clothing will get

a tremendous boost by producing for the big organized retail companies and will grow along

with the organized retail business. The tie-up with organized retail will drive these industries

to become more efficient in order to meet the stringent delivery conditions of the retail

market. Private labelling is the creation of brands in the name of modern retailers. It has

already begun in India in the food and grocery, and apparel segments and is expected to

expand rapidly. Small-scale manufacturers will be the major beneficiaries of private labels.

In short, organized retailing will remove various inefficiencies that characterize the present

Indian distribution system, which in turn will provide better price for the farmers and

suppliers on the one hand, and lower prices for consumers, on the other.

IMPACT ON EMPLOYMENT AND PRICES

Employment in India is distributed in a skewed manner towards agriculture. Though the share

of agriculture (including forestry and fishing) in GDP came down from 28.9 per cent in 1993-

94 to 18.8 per cent in 2004-05, its share in employment remained huge, coming down

gradually from 61 per cent to 52.1 per cent during the same period. The strength of workforce

engaged in agriculture had been about 201 million in 2004-05. This is, in fact, a reflection of

the lack of employment opportunities in the non-agricultural sectors. The industry’s share in

employment went up from 15.9 per cent in 2003-04 to 19.4 per cent in 2004-05 which is

somewhat better than the rise in its share in GDP from 25.9 to 27.5 per cent during the same

period. The share of services in GDP rose sharply from 45.2 per cent in 1993-94 to 53.7 per

cent in 2004-05 but its share in employment grew somewhat slowly from 23.1 per cent to

28.5 per cent during the same period. Within the services sector, the share of trade (both retail

and wholesale included) in GDP rose from 11.9 per cent in 1993-94 to 14.9 per cent in 2004-

05, but its share in employment grew marginally from 7.7 per cent to 8.4 per cent during the


same period. The trade sector, particularly retail, is predominantly the unorganized “mom-

and-pop” shops.

The growth of organized retail will enhance the employment potential of the Indian economy.

While providing direct employment in retail, it will drive the growth of a number of activities

in the economy which in turn will open up employment opportunities to several people. This

includes the small manufacturing sector especially food-processing, textiles and apparel,

construction, packing, IT, transport, cold chain, and other infrastructure. It may adversely

affect employment in unorganized retail and the trade intermediaries associated with the

traditional supply channels but the additional jobs created will be much higher than those that

are lost.

An important point to be noted is that while the jobs that organized retail displaces are the

low-end, low-quality, underproductive ones, the new jobs created are the high quality,

productive ones. It also generates a number of jobs for unskilled labour for the tasks of

sorting, grading, labelling, etc.

Organized retail’s direct purchase from farmers and other suppliers compresses the supply

chain and eliminates a large number of intermediaries and hence can offer consumers a lower

price than the traditional channels. This has a subduing effect on inflation in the economy.

Besides inflation, high volatility of prices of certain essential commodities, such as onions,

sugar, tomatoes is an essential feature of the Indian economy. The spread of retail can

mitigate price volatility of essential commodities by making them available throughout the

year.

IMPROVEMENT OF GOVERNMENT REVENUES

Another significant advantage of organized retailing is its contribution to government

revenues. Unorganized retailers normally do not pay taxes and most of them are not even

registered for sales tax, VAT, or income tax. Organized retailers, by contrast, are corporate

entities and hence file tax returns regularly. The growth of organized retail business will be

associated with a steady rise in tax receipts for the central, state, and local governments.


FDI IN

INDIA


Capital flows in the form of Foreign Direct Investment (FDI)

have been widely believed to be an important source of growth in recent years. FDI is the

process whereby residents of one country (the source country) acquire ownership of assets for

the purpose of controlling the production, distribution and other activities of firm in another

country (the destination country). According to the International Monetary Fund’s Balance of

Payment Manual, FDI is an investment that is made to acquire a lasting interest in an

enterprise operating in an economy other than that of the investor, the investor’s purpose

being to have an effective voice in the management of the enterprise. It usually involves

participation in management joint-venture, transfer technology, and expertise. There are two

types of FDI: inward foreign direct investment and outward foreign direct investment

resulting in a net FDI inflow (positive or negative) and “stock of foreign direct investment”

and outward foreign direct investment, which is the cumulative number for a given period.

FDI excludes investment through purchase of shares.

FDI POLICY IN INDIA

Foreign Investment in India is governed by the FDI policy announced by the Government of

India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The

Reserve Bank of India (RBI) in this regard has issued a notification, which consists of

Foreign Exchange Management (Transfer or issue of security by a person resident outside

India) Regulations, 2000. This notification has been amended from time to time.The Ministry

of Commerce and Industry, Government of India is the nodal agency for monitoring and

reviewing the FDI policy on continued basis and changes in sectoral policy/sectoral equity

cap. The FDI Policy is notifiedthrough Press Notes by the Secretariat for Industrial

Assistance (SIA), Department of Industrial Policy andPromotion (DIPP). The foreign

investors are free to invest in India, except few sectors/activities, where prior approval from

the RBI or Foreign Investment Promotion Board (FIPB) would be required. According to

Deloitte report on Indian retail market, the major FDI policy decisions taken by the

Government of India from 1991 to 2010 are shown below.


FDI policy decision of India since 1991

The government in a series of moves has opened up the retail sector slowly to FDI. There

were initial reservations towards opening up of retail sector arising from fear of job losses,

procurement from international market, competition and loss of entrepreneurial opportunities.

To evaluate the impact of international players on domestic markets, in 1997 FDI in cash and

carry (wholesale) with 100 percent ownership was allowed. In 2006, 51 percent investment in

a single brand retail outlet was permitted. Since then retailing through franchisee route has

been explored by several global brands. Discussions were carried out by the government

since 2008 to allow 100 percent FDI in single brand and 51 percent in multi brand retailing,

but did not succeed due to fierce opposition from its then allies and Left (Communist) party

and also from the local trade associations.

LIBERALIZATION

Indian economy opened up

FDI to 51% allowed under the

automatic route in select priority sectors.

FDI up to 100% allowed

under the automatic route in

Cash & Carry (wholesale)

FDI up to 51% allowed with

prior government approval

in single brand retail

Government mulled over

the idea of 100% FDI in

single brand retail and

50% in multi brand retail

Government proposing to

allow FDI in multi brand

retail

1991

1997

2006

2008

2010


ROLE OF FDI POLICY IN RETAILING

The clauses of the policy are as follows: FDI, (a) up to 100 percent for cash and carry

wholesale trading and export trading allowed under the automatic route. (b) Up to 51 percent

with prior Government approval (i.e., FIPB) for retail trade of ‘Single Brand’ products,

subject to Press Note 3 (2006 Series) and (c) is not permitted in Multi Brand Retailing in

India before 2011. As far as FDI in retailing is concerned they are made available through

different forms in the existing Indian retail Industry. They are as follows:

Franchise Agreement: This is the easiest route to come in to the Indian Market. In

franchising and commission agents’ service, FDI is allowed with the approval of the Reserve

Bank of India under the FEMA. This is the most usual made for entrance of quick food

bondage opposite a world. Apart from fast food chains like Pizza Hut, KFC, player such as

Nike, Marks & Spencer have entered the Indian market through franchise agreement.

Cash And Carry Wholesale Trading: 100 percent FDI is allowed in wholesale trading

which involves building of a large distribution infrastructure to assist local manufactures.

This is the route through which large international retailers such as Germany’s Metro AG

cash and carry, Carrefour cash and carry from France have entered the Indian market.

Strategic Licensing Agreements: Some foreign brands give exclusive licenses and

distribution rights to Indian companies. Through these rights, Indian companies can either

sell it through their own stores or enter in to shopin- shop arrangements or distribute the

brands.

Manufacturing and Wholly Owned Subsidiaries: The foreign brands such as Nike,

Reebok, Adidas, etc., that have wholly – owned subsidiaries in manufacturing are treated as

Indian companies and are, therefore, allowed to do retail. These companies have been

authorized to sell products to Indian Consumers by franchising, internal distributors, existent

Indian retailers, own outlets, etc. For instance Nike entered through an exclusive licensing

agreement with Sierra enterprise but now has a fully owned subsidiary, Nike India Private

Limited.


FDI SINGLE BRAND RETAIL

FDI in Single brand implies that a retail store with foreign investment can only sell one

brand. For example, if Adidas were to obtain permission to retail its flagship brand in India,

those retail outlets could only sell products under the Adidas brand and not the Rebook brand,

for which separate permission is required. If granted permission, Adidas could sell products

under the Reebok brand in separate outlets. It is possibly expected to have 100% FDI in

single brand retail as per the government agenda. Additionally, the question on whether

cobranded goods (specifically branded as such at the time of manufacturing) would qualify as

single brand retail trading remains unanswered.

FDI IN MULTI BRAND RETAIL

The government has not allowed Multi Brand Retail in India before November 2011; FDI in

Multi Brand Retail implies that a retail store with foreign investment can sell multiple brands

under one roof. On 24th November2011, Congress, the ruling party, made an announcement

that India will allow foreign groups to own up to 51 per cent in “multi-brand retailers”. It

further announced that the single brand retailers can own 100 percent of their Indian stores,

up from the previous cap of 51 percent. The interests of indigenous suppliers have also been

considered. The government announced that both multi-brand and single brand stores in India

will have to source nearly a third of their goods from small and medium-sized Indian

suppliers. All multi-brand and single brand stores in India must confine their operations to

53-odd cities with a population over one million, out of some 7,935 towns and cities in India.

It is expected that these stores will now have full access to over 200 million urban consumers

in India. Multi-brand retailers must have a minimum investment of US$100 million with at

least half of the amount invested in back end infrastructure, including cold chains,

refrigeration, transportation, packing, sorting and processing to considerably reduce the post

harvest losses and bring remunerative prices to farmers. The opening of retail competition

will be within India’s federal structure of government.


FOREIGN DIRECT INVESTMENT ACROSS DIFFERENT SECTORS IN

INDIA – AN OVERVIEW

In India, FDI is allowed various sector like Hotel and Tourism, Power, Private Banking,

Insurance sector, Telecommunication, Business Process Outsourcing. Overviews of details of

various sectors are follows:

HOTEL AND TOURISM: Hotels include restaurants, beach resorts and business ventures

providing accommodation and food facilities to tourist. Tourism would include travel

agencies, tour operators, transport facilities, amusement, sports and health units. 100 per cent

FDI is permitted for this sector through the automatic route.

TRADING: For trading companies 100 per cent FDI is allowed for Exports, Bulk Imports

and Cash and Carry wholesale trading.

POWER: For business activities in power sector like electricity generation, transmission and

distribution other than atomic plants, the FDI allowed is up to 100 per cent.

DRUGS AND PHARMACEUTICALS: For the production of drugs and Pharmaceuticals a

FDI of 100 per cent is allowed, subject to the fact that the venture does not attract compulsory

licensing, does not involve use of recombinant DNAtechnology.

PRIVATE BANKING: FDI of 49 per cent is allowed in the Banking sector through the

automatic route provided the investment adheres to guidelines issued by RBI.

INSURANCE SECTOR: For the Insurance sector, FDI allowed is 26 per cent through the

automatic route on condition of getting license from Insurance Regulatory and Development

Authority (IRDA).

TELECOMMUNICATION: For basic cellular, value added services and mobile personal

communications by satellite, FDI is 49 per cent. For ISPs with gateways, radio-paging and

end to end bandwidth, FDI is allowed up to 74 per cent. But any FDI above 49 per cent

would require government approval.

BUSINESS PROCESS OUTSOURCING: FDI of 100 per cent is permitted provided such

investments satisfy certain prerequisites.


NRI'S AND OCB'S: They can have direct investment in industry, trade and infrastructure up

to 100 per cent equity is allowed in the following sectors: 34 High Priority Industry Groups,

Export Trading Companies, Hotels and Tourism related Projects, Hospitals, Diagnostic

Centres, Shipping, Deep Sea Fishing, Oil Exploration, Power, Housing and Real Estate

Development, Highways, Bridges and Ports, Sick Industrial Units, Industries Requiring

Compulsory Licensing, Industries Reserved for Small Scale Sector.

FDI AND REAL ESTATE-A KPMG REPORT A development that is perceived to be a game changer for the retail business in India will

depend a lot on retailers' adaptation to local tastes and preferences.

'Better late than never' - so has been the action from the recent reform measures the

Government of India has undertaken. The much-awaited FDI policy for multi-brand retail has

passed the hands of the Government and now the reaction of global retailers is awaited.

Before we can analyse the potential impact of FDI in multi-brand retail, it is important to

reflect on some of the important features stated in the policy.

According to Government of India's notification on 20 September 2012, 51 percent FDI in

multi-brand retail is permitted, subject to certain conditions. Some of the top conditions cited

are as follows:

State acceptance: The stores may be set up in those states which allow FDI in multi-brand

retail under this policy. Such stores will be subject to compliance with applicable state laws

and regulations.

Minimum investment: The minimum amount that a foreign investor has to invest is USD

100 million.

Backend investment: At least 50 percent of the total FDI brought in shall be invested in

'backend infrastructure' within three years of the first tranche of FDI. 'Back-end

infrastructure' includes capital expenditure on all activities, excluding that on front-end units;

for instance, it includes investment made towards processing, manufacturing, distribution,

quality control, design improvement, packaging, logistics, storage, ware-house, and


agriculture market produce infrastructure, among others. Expenditure on land cost and rentals

will not be counted for purposes of backend infrastructure.

Procurement: At least 30 percent of the procurement of manufactured/processed products

purchased shall be sourced from 'small industries' globally, with investment in plant and

machinery not exceeding USD 1 million.

Location: Retail sales outlet may be set up in cities with populations of more than 1 million,

according to the 2011 Census and may also cover an area of 10 kilometres around the

municipal/urban agglomeration limits of such cities. Only 53 cities in India qualify under this

criterion.

Agricultural produce: First right of procurement lies with the Government.

KPMG in India is optimistic about the development

These conditions clearly indicate an opportunity for global retailers to harness the vast

potential of Indian markets. Meanwhile, from the economy's standpoint, investments in

backend infrastructure and local sourcing are expected to create an efficient supply chain and

boost small-scale industries. Additionally, the development is likely to generate increased

employment opportunities in rural centres, where backend infrastructure is expected to be

laid; in urban centres a front-end shopping unit will likely generate employment

opportunities.

However, what remains to be seen is whether it will be simple for a global retailer to simply

invest money and apply global best practices to initiate operations in India. Traditionally,

retail has been a difficult terrain for most global retailers. Whenever global retailers have

ventured out of their base country, their chances of success have reduced considerably. For

example, Wal-Mart had to wind up its operations in Germany and South Korea; similarly,

Best Buy had to retreat from China.


There are several success stories as well, however. British retailer Tesco has been extremely

successful in South Korea due to its localization strategy3. The prevalence of the Indian retail

market’s unorganised nature is among the biggest factors perceived to attract foreign retailers

such as Wal-Mart, Tesco, Carrefour and IKEA4. Similar logic has attracted a large number of

Indian corporate houses to venture into retail operations. But most of these companies, which

have around a decade of operating experience, are yet to devise a suitable business model.

One of the important factors cited for the viability of retail business is the availability of real

estate at affordable prices and at suitable locations. Major Indian cities with retail penetration

have witnessed a considerable increase in rentals in the last five years. Additionally, the

majority of the primary Indian cities are crunched to provide quality and quantity of real

estate to the likes of global retailers. Such constraints suggest a joint venture or joint-

development kind of model with developers or land owners. To negate the effect of rising

rentals, one entry approach that may find flavour with global retailers is scouting for stressed

retail assets at an appropriate location.

The other important real estate play here is the creation of backend infrastructure, which

suggests investments in assets such as cold storage and warehouses. Presently, very few

players in India operate cold-storage chains or warehouses.

An interesting opportunity may be generated in such a situation, where foreign retailers are

likely to approach developers to create and own backend infrastructure.

The indirect impact of investment in multi-brand retail is also expected to generate additional

demand for residential real estate. In the wake of limited data points for retail, when

investments in 1,000 square feet of office space are made, the result would be to create seven

new jobs, of which five are expected to purchase residential apartments5.

The ability of global retailers to manage and sustain operations will, to a large extent, depend

on the availability of an appropriate financing vehicle. Globally, retail assets follow a real

estate investment trust (REIT) model to access finance. In the Indian context, REITs and real

estate mutual funds (REMFs) have been discussed in the past without any logical outcome.

However, it is a possibility that retail investments may attract the attention of decision makers

in future.


Thus, foreign retailers are likely to adopt a measured approach initially for 18– 24 months.

This may also be perceived as an ‘experimentation phase,’ where retailers increasingly seek

local knowledge and try to evolve a scalable business model.

PROSPECTS OF FOREIGN DIRECT INVESTMENT – SOME ISSUES

Attracting foreign direct investment has become an integral part of the economic

development strategies for India. FDI ensures a huge amount of domestic capital, production

level and employment opportunities in the developing countries, which are major steps

towards the economic growth of the country. FDI has been a booming factor that has

bolstered the economic life of India but on the other hand it is also being blamed for ousting

domestic inflows. The incorporation of a range of well-composed and relevant policies will

boost up the profit ratio from Foreign Direct Investment higher. Some of the prospects of FDI

in India are discussed as follows:

ECONOMIC GROWTH: This is one of the major sectors which will enormously

benefit from foreign direct investment. A remarkable inflow of FDI in various industrial units

in India will boost the economic life of country.

TRADE: Foreign Direct Investments have opened a wide spectrum of opportunities in the

trading of goods and services in India both in terms of import and export production.

Products of superior quality are manufactured by various industries in India due to greater

amount of FDI inflows in the country.

EMPLOYMENT AND SKILL LEVELS: FDI has also ensured a number of

employment opportunities by aiding the setting up of industrial units in various comers of

India.

LINKAGES AND SPILL OVER TO DOMESTIC FIRMS: Various foreign

firms are now occupying a position in the Indian market through Joint Ventures and


collaboration concerns. The maximum amount of the profits gained by the foreign firms

through these joint ventures is spent on the Indian market.

CAPITAL AVAILABILITY: FDI is comprised of capital that an outside investor is

willing to place (and risk) within a local region. Conditions in the global capital markets and

general economic environment play a role in determining the flow of FDI. A thriving global

economy, capital markets and business environment create large swaths of investable capital,

a portion of which is converted to FDI.

COMPETITIVENESS: Attractiveness as a destination for investment capital rests on its

development of infrastructure, resource availability (physical and labor), productivity and

workforce skills and the development of the business value chain. The level of maturation of

these elements can make India more attractive for FDI relative to other nations.

REGULATORY ENVIRONMENT: When a national government enacts and

enforces rules and policies aimed at favouring state entities at the expense of privately held

firms, such an environment can be detrimental to initiatives that aim to attract FDI.

POLITICAL AND ECONOMIC STABILITY: Political and economic stability

can facilitate an influx of FDI. Stability represents predictability and the opportunity for

enterprises to gain better foresight into the future.

LOCAL INDIAN MARKET: The most glaring aspect of India is the sheer size of its

population and market, and the prospects for growth that result from this size. The ability of

enterprises backed by foreign capital - to sell to a sizeable local market makes India an

attractive destination for FDI.

EXPORT-FRIENDLY POLICIES: The Business friendly environment can play a

major role in deciding whether to invest in India, especially for enterprises that have a large

portion of their anticipated market shares located outside of the local market. In efforts to

create a more business-friendly environment, regional and international free trade agreements

are typically initiated by market-progressive governments as reasonable mechanisms for

inducing economic activity and growth.

EFFICIENT SUPPLY CHAINS: Highly fragmented supply chains coupled with

infrastructure issues and the vast geographical spread of the Indian market pose huge


challenges to the retailers. Indian retailers have to enhance their supply chains to succeed in

the cost conscious market. Segments such as food and grocery have to cope with very highly

unorganized supply chains. Also, the rising customer expectations would necessitate supply

chains with quick reaction times.

ABILITY TO PENETRATE RURAL MARKET: The urban area has been the

focus of Organised Retail which has led to increased competition. Rural India is home to 72

Crores consumers across 6 lakh villages. 17% of these villages account for 50 % of the rural

population as well as 60 % of rural wealth. Hariyali Kisan Bazaars (DCM) and Aadhars

(Pantaloon-Godrej JV), Choupal Sagar (ITC), Kisan Sansars (Tata), Reliance Fresh, and

others such as the Naya Yug Bazaar have already ventured into the retail market.

LEVERAGING TECHNOLOGY: The Organized Retail layers have to leverage IT

and technology to sustain business growth through innovation and differentiation. A numbers

of retail players like DLF Retail, Khadims, and Diamexon Diamonds have expanded their

SAP footprints to simplify business processes, reduce costs and adapt to the changing

industry landscape. GPS and RFID technology can help in logistics and inventory

management.

CUSTOMIZED SOLUTIONS: The Indian retail market is very heterogeneous in

nature. The dynamics for various segments change with the geography and other cultural

factors. The challenge for the retailer is to keep this heterogeneous nature of the target market

in mind and to balance it with other issues like economies of scale.

INVESTING IN RETAIL BRAND (STORE BRAND): A strong retail brand is a

critical success factor. The retailers should invest in brand building activities which would

help them in attracting new customers as well as retaining the existing ones. The strong retail

brand will allow the retailers to push through “private labels “which would strengthen their

bottom line.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM): The retailers have

to come up with innovative CRM activities to retain their customer base and to add on to

their brand value. CRM activities like loyalty programs have been received well by the

customers in the past.


EFFECTS OF FDI ON VARIOUS STAKEHOLDERS

IMPACT ON FARMING COMMUNITIES

A supermarket revolution‖ has been underway in developing countries since the early 1990s.

Supermarkets (here referring to all modern retail, which includes chain stores of various

formats such as supermarkets, hypermarkets, and convenience and neighbourhood stores)

have now gone well beyond the initial upper- and middle-class clientele in many countries to

reach the mass market. Within the food system, the effects of this trend touch not only

traditional retailers, but also the wholesale, processing, and farm sectors.

When supermarkets modernize their procurement systems, they require more from suppliers

with respect to volume, consistency, quality, costs, and commercial practices. Supermarkets‘

impact on suppliers is biggest and earliest for food processing and food-manufacturing

enterprises, given that some 80% of what supermarkets sell consists of processed, staple, or

semi-processed products. But by affecting processors, supermarkets indirectly affect farmers,

because processors tend to pass on the demands placed on them by their retail clients.

Supermarket chains prefer, if they are able, to source from medium and large processing

enterprises, which are usually better positioned than small enterprises to meet

supermarkets‘requirements. The rise of supermarkets thus poses an early challenge to

processed food microenterprises in urban areas.

By contrast, as supermarkets modernize the procurement of fresh produce (some 10–15% of

supermarkets‘food sales in developing countries), they increasingly source from farmers

through ―specialized and dedicated wholesalers‖ (specialized in product lines and dedicated

to modern segments) and occasionally through their own collection centres.

Where supermarkets source from small farmers, they tend to buy from farmers who have the

most non-land assets (like equipment and irrigation), the greatest access to infrastructure (like

roads and cold chain facilities), and the upper size treacle of land (among small farmers).

Where supermarkets cannot source from medium- or large-scale farmers, and small farmers

lack the needed assets, supermarket chains (or their agents such as the specialized and

dedicated wholesalers) sometimes help farmers with training, credit, equipment, and other


needs. Such assistance is not likely to become generalized, however, and so overtime asset-

poor small farmers will face increasing challenges surviving in the market as it modernizes.

When farmers enter supermarket channels, they tend to earn from 20 to 50% more in net

terms. Among tomato farmers in Indonesia, for example, net profit (including the value of

own labour as imputed cost) is 33–39% higher among supermarket channel participants than

among participants in traditional markets.

Farm labour also gains. But supplying supermarket chains requires farmers to make more up-

front investments and meet greater demands for quality, consistency, and volume compared

with marketing to traditional markets.

SUPPORT FOR RETAIL REFORMS

In a pan-Indian survey conducted over the weekend of 3 December 2011, overwhelming

majority of consumers and farmers in and around ten major cities across the country support

the retail reforms. Over 90 per cent of consumers said FDI in retail will bring down prices

and offer a wider choice of goods. Nearly 78 per cent of farmers said they will get better

prices for their produce from multi format stores. Over 75 per cent of the traders claimed

their marketing resources will continue to be needed to push sales through multiple channels,

but they may have to accept lower margins for greater volumes.

FARMER GROUPS

Various farmer associations in India have announced their support for the retail reforms. For

example:

Shriram Gadhve of All India Vegetable Growers Association (AIVGA) claims his

organization supports retail reform. He claimed that currently, it is the middlemen

commission agents who benefit at the cost of farmers. He urged that the retail reform must

focus on rural areas and that farmers receive benefits. Gadhve claimed, "A better cold storage

would help since this could help prevent the existing loss of 34% of fruits and vegetables due

to inefficient systems in place." AIVGA operates in nine states including Maharashtra,

Andhra Pradesh, West Bengal, Bihar, Chattisgarh, Punjab and Haryana with 2,200 farmer

outfits as its members.


Bharat Krishak Samaj, a farmer association with more than 75,000 members says it

supports retail reform. Ajay Vir Jakhar, the chairman of Bharat Krishak Samaj, claimed a

monopoly exists between the private guilds of middlemen, commission agents at the sabzi

mandis (India's wholesale markets for vegetables and farm produce) and the small

shopkeepers in the unorganized retail market. Given the perishable nature of food like fruit

and vegetables, without the option of safe and reliable cold storage, the farmer is compelled

to sell his crop at whatever price he can get. He cannot wait for a better price and is thus

exploited by the current monopoly of middlemen. Jakhar asked that the government make it

mandatory for organized retailers to buy 75% of their produce directly from farmers,

bypassing the middlemen monopoly and India's sabzi mandi auction system.

CASE STUDIES OF HOW VARIOUS MNC‘S ARE HELPING FARMERS

CASE 1.PEPSICO INDIA HELPING FARMERS IMPROVE

YIELD AND INCOME

The company‘s vision is to create a cost-effective, localized agro-supply chain for its

business by:

Building PepsiCo‘s stature as a development partner by helping farmers grow more

and earn more.

Introducing new high-yielding varieties of potato and other edibles.

Introducing sustainable farming methods and practising contact farming.

Making world-class agricultural practices available to farmers and helping them

raise farm productivity.

Working closely with farmers and state governments to improve agro sustainability

and crop diversification.

Providing customized solutions to suit specific geographies and locations.

Facilitating financial and insurance services in order to de-risk farming.

THE JOURNEY SO FAR

Where stand today, at a glimpse:

Today PepsiCo India‘s potato farming programme reaches out to more than 12,000

farmer families across six states. We provide farmers with superior seeds, timely

agricultural inputs and supply of agricultural implements free of charge.

We have an assured buy-back mechanism at a prefixed rate with farmers. This

insulates them from market price fluctuations.

Through our tie-up with State Bank of India, we help farmers get credit at a lower

rate of interest.

We have arranged weather insurance for farmers through our tie-up with ICICI

Lombard.

We have a retention ratio of over 90%, which reveals the depth and success of our

partnership


In 2010, our contract farmers in West Bengal registered a phenomenal 100% growth in

crop output, creating in a huge increase in farm income.

The remarkable growth has resulted in farmers receiving a profit between Rs.20, 000–

40,000 per acre, as compared to Rs.10000–20,000 per acre in 2009.

CASE 2. BHARTI WALMART INITIATIVE THROUGH DIRECT FARM

PROJECT

Corporate Social Responsibility (CSR) initiatives in Bharti Walmart are aimed at

empowerment of the community thereby fostering inclusive growth. Through our

philanthropic programs and partnerships, we support initiatives focused on enhancing

opportunities in the areas of education, skills training and generating local employment,

women empowerment and community development.

In conjunction with the farmers‘development program in Punjab, community-building

activities have been implemented in village, Haider Nagar. Due to lack of sanitation

facilities, households tend to use the farm fields, thereby affecting yields and impacting

the produce that is being supplied to stores. In order to improve the yields

and the community‘s way of life, we are working on the issues of Sanitation and Biogas,

Education, Awareness Building and Health and Hygiene.

Education: 100% children enrolled in formal education program. Children‘s group had

been formed to discuss children issues. All the nonschool going children had been given

non-formal basic education required to mainstream them in the government schools. A

sanitation block has been constructed, hand pump has been installed and school uniforms

have been donated to create a better learning environment for children. Fifteen students

have been mainstreamed back in school.

Health and Hygiene: A dispensary has been started in Haider Nagar to help people avail

medical facilities in the village itself. Nearly 2000 patients have availed the dispensary

facilities. Twenty Community Dustbins have also been installed in the village to bring

about a change in the living conditions of the people and to provide them garbage free

environment.

Sanitation and Biogas: Ensured that 100% households have toilets in the village. Eighty

Bio Gas plants have been installed to help people conserve gas energy and utilize the

waste generated from their cattle and toilets; thus making the environment healthier.

Waste Management: Twenty Community Dustbins have been installed in the village to

bring about a change in the living conditions of the people and to provide them garbage

free environment thus ensuring a healthier living.


IMPACT ON TRADITIONAL MOM AND POP STORES

The main question being raised is whether the traditional mom and pop stores will survive

and co-exist or leave the field for major organized retail players?

The answer could be a co-existence. The major advantage for the smaller players is the size,

complexity and diversity of our Indian Markets. If we look at the organized retail players,

most of them have opened shop in the Metros, Tier 1 and Tier 2 towns. Very rarely do we

find organized players in the rural areas and we have more than 70% of the population living

in the rural areas. There are a multitude of reasons being floated around to prevent the

liberalisation of the FDI norms for Indian retail:

Primary among these is the concern regarding the kirana stores as well other locally

operated Mom and Pop stores being adversely affected by the entry of global retail

giants such as Walmart, Carrefour and Tesco. As these brands would come with

advanced capabilities of scale and infrastructure in addition to having deep pockets, it

is argued that this would result in the loss of jobs for lakhs of people absorbed in the

unorganised sector.

Fears have also been raised over the lowering of prices of products owing to better

operational efficiencies of the organised players that would affect the profit margins

of the unorganised players.

Instability surrounding the political arena with a number of scams of varying

magnitudes doing the rounds has also led to a sense of uncertainty among foreign

investors.

Many Industry experts though, feel that the reservations against the introduction of Multi-

Brand retail are mostly misplaced. The successful deployment of 100%FDI in China is a case

in point. Partial FDI in retail was introduced in 1992 in China. Subsequently, in December

2004, the Chinese retail market was fully opened up to utilise the enormous manpower and

wide customer base available that has led to a rapid growth of the sector. Today, its retail

sector is the second largest (in value) in the world with global retailers such as Walmart, 7-

Eleven and Carrefour comprising 10% of the total merchandise.


Multi-brand retail, if allowed, is expected to transform the retail landscape in a significant

way:

o Firstly, the organised players would bring in the much needed investment that

would spur the further growth of the sector. This would be particularly

important for sustenance of some of the domestic retailers that don‘t have the

resources to ride out the storm during an economic slump such as the case

with Vishal, Subhiksha and Koutons, which couldn‘t arrange for funds to

sustain their growth.

o The technical know-how, global best practices, quality standards and cost

competitiveness brought forth through FDI would augur well for the domestic

players to garner the necessary support to sustain their growth.

o Indian has also been crippled by rising inflation rates that have refused to

come within accepted levels. A key reason for this has been attributed to the

vastly avoidable supply chain costs in the Indian food and grocery sales which

has been estimated to be a whopping US$ 24 Bn. The infrastructure support

extended to improve the backend processes of the supply chain would enable

to eliminate such wastages and enhance the operational efficiency.

o FDI in multi-brand retail would in no way endanger the jobs of people

employed in the unorganised retail sector. On the contrary, it would lead to the

creation of millions of jobs as massive infrastructure capabilities would be

needed to cater to the changing lifestyle needs of the urban Indian who is keen

on allocating the disposable income towards organised retailing in addition to

the local kirana stores. These stores would be able to retain their importance

owing to their unique characteristics of convenience, proximity and skills in

retaining customers. Also, these would be more prominent in the Tier-II and

Tier-III cities where the organised supermarkets would find it harder to

establish themselves.


FDI in multi-brand retail is therefore a necessary step that needs to be taken to propel further

growth in the sector. This would not only prove to be fruitful for the economy as a whole but

will also integrate the Indian retail sector with the global retail market.

Contrary to the above view,

Traditional retailing has been established in India for many centuries, and is characterized by

small, family-owned operations. Because of this, such businesses are usually very low-

margin, are owner operated, and have mostly negligible real estate and labour costs.

Moreover, they also pay little by way of taxes. Consumer familiarity that runs from

generation to generation is one big advantage for the traditional retailing sector. It is often

said that the mom-and-pop store in India is more like a father-and-son enterprise.

Such small shops develop strong networks with local neighbourhoods. The informal system

of credit adds to their attractiveness, with many houses “running up a tab” with their

neighbourhood kirana store, paying it off every fortnight or month. Moreover, low labour

costs also allow shops to employ delivery boys, such that consumers may order their grocery

list directly on the phone. These advantages are significant, though hard to quantify. In

contrast, players in the organized sector have to cover big fixed costs, and yet have to keep

prices low enough to be able to compete with the traditional sector. Getting customers to

switch their purchasing away from small neighbourhood shops and towards large scale

retailers may be a major challenge. The experience of large Indian retailers such as Big

Bazaar shows that it is indeed possible. Anecdotal evidence of consumers who return from

such shops suggests that the wholesale model provides for major bargains – something Indian

consumers are always on the lookout for.

The other major challenge for retailers in India, as opposed to the US, is the storage setup of

households. For the large-scale retail model to work, consumers visit such large stores and

return with supplies likely to last them for a few weeks.

Having such easy access to neighbourhood stores with whom, as discussed above, it is

possible to have a line of credit and easy delivery service, congested urban living conditions

imply that few Indian households might be equipped with adequate storage facilities.

In urban settings, real estate rents are also very high. Thus opportunities in this sector are

limited to those retailers with deep pockets, and puts pressure on their margins. Conversely


for retailers looking to set up large stores at a distance from residential neighbourhoods may

struggle to attract consumers away from their traditional sources of groceries and other

products.

IMPACT ON CONSUMERS AND EXISTING SUPERMARKETS

Supermarkets tend to charge consumers lower prices and offer more diverse products and

higher quality than traditional retailers—these competitive advantages allow them to spread

quickly, winning consumer market share. In most countries supermarkets offer lower prices

first in the processed and semi processed food segments.

Only recently, mainly in the first- and second-wave countries have supermarket prices for

fresh fruits and vegetables been lower than traditional retailers‘ (except in India). The food

price savings accrue first to the middle class, but as supermarkets spread into the food

markets of the urban poor and into rural towns, they have positive food security impacts on

poor consumers. For example, in Delhi, India, the basic foods of the urban poor are cheaper

in supermarkets than in traditional retail shops: rice and wheat are 15% cheaper and

vegetables are 33% cheaper.

Existing Indian retail firms such as Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and

ShopRite support retail reform and consider international competition as a blessing in

disguise. They expect a flurry of joint ventures with global majors for expansion capital and

opportunity to gain expertise in supply chain management. Spencer's Retail with 200 stores in

India, and with retail of fresh vegetables and fruits accounting for 55% of its business claims

retail reform to be a win-win situation, as they already procure the farm products directly

from the growers without the involvement of middlemen or traders. Spencer‘s claims that

there is scope for it to expand its footprint in terms of store location as well as procuring farm

products. Foodworld, which operates over 60 stores, plans to ramp up its presence to more

than 200 locations. It has already tied up with Hong Kong-based Dairy Farm International.

With the relaxation in international investments in Indian retail, India‘s Foodworld expects its

global relationship will only get stronger.


CHALLENGES OF FOREIGN DIRECT INVESTMENT – SOME ISSUES

The foreign direct Investment attracts global retail giants like Wal-Mart, Carrefour, Tesco

and metro AG to enter into the Indian retail market. There are various challenges that the

companies have to meet and handle properly to succeed in the competitive market are

discussed as follows:

SUPPLY CHAIN

The president of Indian and the former Finance Minister Shri Pranab Mukherjee had in his

2010-11 budget speech said “the second element of the strategy relates to reduction of

significant wastages in storage as well as in the operations of the existing food supply chains

in the country. This needs to be addressed.”India is the seventh largest country (land mass:

3.2 million sq. kms.) with varying climatic conditions over the country. Taste and preferences

of people vary strongly all across the country. Catering to people in 35 states and union

territories is equivalent to catering to people in 35 countries, leading to complexities in

merchandise/ inventory management. Infrastructure has been developing at a rapid pace over

the past decade but has still a significant ground to cover; the planned expenditure of US$ 1

trillion in the 12th five year plan will help bridging this gap. There exists a need for retail to

concentrate on developing a strong back-end support especially for perishable products to

help reduce wastages which is estimated to be at 40 percent of national produce.

CHANNEL CONFLICTS

Globally, retailers maintain a direct relationship with their suppliers. Due to the complex

taxation structure and geographic spread of the country, most FMCG companies have

developed regional distribution and redistribution network. Cutting out the distribution

network will hurt operating structures of distributors, who as an industry body in the past

have opposed FMCG companies selling directly to retailers. There exists a need for a retailer

to work closely with the suppliers in an attempt to shorten the supply chain network resulting

in saving time and money.


LOCATION AND RENTAL

Finding the right location with the right rental for stores has been a challenge for all retailers.

Rent forms a large portion of the total expenditure (6 to 11 percent of the revenue) in

retailer’s income statement and can more often than not convert a profitable store into loss

making. The challenge for a retailer would be to find the right location for their stores either

in malls or as a standalone store to be able to generate enough footfalls. A retailer could

evaluate option of setting up a property development/ management arm that would be able to

source/ develop stores at lower rentals.

UNIQUE INDIAN CUSTOMER

The Indian consumer experiencing modern retail has now warmed up to this idea. Buying

habits have still not changed, where people prefer to buy most of the fruits and vegetables on

a daily basis. The Indian consumers have a strong preference for freshly cooked food over

packaged food mainly attributed to dietary patterns, poor electricity supply, low penetration

of refrigerators and a family structure where one of the primary roles of the housewife is

feeding the family. There is also an impact on the basket size because of non-availability of

personal transport facilities, due to which the consumers prefer to buy smaller quantities from

stores conveniently located near their homes.

REGULATORY

Currently, indirect taxation structure is complex in India with varying tax rates, multiplicity

of taxes and multiple tax enforcement authorities. Goods and Service Tax likely to be

implemented in 2011 will replace a host of levies like excise, sales tax, value-added tax,

entertainment tax and luxury tax. This is likely to have an impact on the supply chain model

and cost structure of distributive trade, followed by consumer packaged goods companies.

Opening a new store requires a lot of licenses, which have to be obtained from different

government departments leading to considerable lead time in opening up of the stores. A

push has been made by existing retailers to get the government to have a single window

clearance for getting all the licenses at one place to speed up the process.


PRIVATE LABELS

Private labels enable retailers to offer products at a better price point attracting footfalls to the

store. This in turn, not only translates to better margins by cutting out middlemen but also

enhances retailers bargaining power with supplier. Penetration of private labels in emerging

markets is expected to be about 6% of retail sales which in India is estimated to be about 10 –

12%. The concept is still at a very nascent stage in India given the age of modern retail in

India. Few players have introduced private labels in the category of Food & Grocery,

Apparels, Consumer Durables etc. but reservations still exists towards acceptance of these

products with the Indian consumer. Private labels offering competitive pricing proposition

has helped to generate interest and a slow but steady acceptance from the Indian consumer.


MAJOR GLOBAL PLAYERS

WAL-MART

Wal-Mart Stores, Inc., branded as Wal-mart since 2008 and Wal-Mart before then, is an

American multinational retailer corporation that runs chains of large discount department

stores and warehouse stores. The company is the world's third largest public corporation,

according to the Fortune Global 500 list in 2012. It is also the biggest private employer in the

world with over two million employees, and is the largest retailer in the world. Wal-Mart

remains a family-owned business, as the company is controlled by the Walton family who

own a 48% stake in Wal-Mart.

Wal-Mart’s investments outside North America have had mixed results: its operations in the

United Kingdom, South America and China are highly successful, whereas ventures in

Germany and South Korea were unsuccessful. Sensing huge opportunities, Wal-Mart entered

the Korea but adopted different strategies. Wal-Mart attempted to penetrate the Korean

market by building stores in distant areas where land prices were low, replicating the US

strategy of smaller-city store build-up. It had only 16 stores in all of Korea with just one in

the Seoul metropolitan area and could not achieve economies of scale. The company

expected the Korean consumers to drive to its stores for price shopping as

American consumers do. However, this location strategy did not match well with the Korean

consumers’ lifestyle and shopping habits. They prefer to buy smaller units on a more frequent

basis and to have accessibility to a store within walking distance. As a result, Wal-Mart faced

serious challenges in implementing its core competence in South Korea. Moreover, it could

not enjoy its buyer power in the local vendor market and had no control over its Korean

supply chain and procurement. Eventually, it packed its bags in 2006.


Wal-Mart in India

Bharti Wal-Mart Private Limited is a joint venture between Bharti Enterprises, one of India's

leading business groups with interests in telecom, agri-business, insurance and retail, and

Wal-Mart, the world’s leading retailer, renowned for its efficiency and expertise in logistics,

supply chain management and sourcing. The joint venture is establishing wholesale cash-and-

carry stores and back-end supply chain management operations in line with Government of

India guidelines. Under the agreement, Bharti and Wal-Mart hold 50:50 stakes in Bharti Wal-

Mart Private Limited. The first Wholesale Cash-and-carry facility named "Best Price Modern

Wholesale" Opened in Amritsar in May 2009 and subsequently in Zirakpur (Near

Chandigarh), Jalandhar, Kota, Bhopal, Ludhiana, Raipur, Indore, Vijaywada, Meerut, Agra,

Lucknow, Jammu, Guntur, Aurangabad , Bathinda and Amravati.

Bharti Wal-Mart strives to improve the quality of life for employees, customers and

communities through various interventions and the Direct Farm Program is one of them.

Benefit to farmers:

7-10% higher price to farmers than what they get from Mandi

3-4% incentive for the quality of the produce farmers deliver to Bharti Wal-Mart

based on customer requirement

Expert advice on better crop planning and management

Efficient crop calendar management aimed at catching early and late seasons for

better prices

Opportunity to maximize and improve income by offering better quality

Benefit to stores & customers:

Fresh produce

Local source

Consistent quality

Safer food

Value for money

Lower cost compared to open market buys


CARREFOUR

It is an international hypermarket chain headquartered in Boulogne Billancourt, France, in

Greater Paris. It is one of the largest hypermarket chains in the world (with 1,395

hypermarkets at the end of 2009, the second largest retail group in the world in terms of

revenue and third largest in profit after Wal-Mart and Tesco). Carrefour operates mainly in

Europe, Argentina, Brazil, China, Colombia, Dominican Republic, United Arab Emirates and

Saudi Arabia, but also has shops in North Africa and other parts of Asia, with most stores

being of smaller size than hypermarket or even supermarket. Carrefour means "crossroads" in

French. Previously the company head office was in Levallois-Perret, also in Greater Paris.

Carrefour in India

The Carrefour Group announces the opening of its first cash & carry store in India in New

Delhi under the name "Carrefour Wholesale Cash & Carry.” With a sales area of 5200 m2,

this store located east of New Delhi in the Shahadra neighbourhood will offer more than

10.000 SKUs in food and non-food to professional businesses, institutions, restaurants and

local retailers. This opening is in line with the group's strategy to be present in major

emerging markets that offer significant expansion and medium- and long-term growth

opportunities.


TESCO

It is a British multinational grocery and general merchandise retailer headquartered in

Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues

(after Wal-Mart and Carrefour) and the second-largest measured by profits (after Wal-Mart).

It has stores in14 countries across Asia, Europe and North America and is the grocery market

leader in the UK (where it has a market share of around 30%), Malaysia, the Republic of

Ireland and Thailand.

Tesco in India

Tesco has had a limited presence in India with a service centre in Bangalore, and outsourcing.

In 2008 Tesco announced their intention to invest an initial £60m ($115m) to open a

wholesale cash-and-carry business based in Mumbai with the assistance of the Tata Group.

The global service operations of Tesco HSC are involved in creating and executing strategic

initiatives for Tesco retail stores worldwide. These strategic initiatives cover the IT, Business,

Financial, Commercial and Property aspects, among others, of Tesco operations. The

operations cover all internal and external platforms that drive Tesco's business, making it one

of the world's most preferred retail stores. Tesco is the first major international retailer to

have a fully-owned support centre in India. We are dedicated to make the Tesco experience

better for over 60 million customers worldwide, simpler for over 500,000 employees and

achieve cost-efficiencies.


IKEA

IKEA is a privately held, international home products company that designs and sells ready-to

assemble furniture such as beds, chairs, desks, appliances and home accessories. The company is

the world's largest furniture retailer. Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad,

The first IKÉA store was opened in Älmhult, Småland in 1953, while the first stores outside

Sweden were opened in Norway (1963) and Denmark (1969). The stores spread to other parts of

Europe in the 1970s, with the first store outside Scandinavia opening in Switzerland (1973),

followed by Germany (1974). Things were going so well for the company, that in 1973, the

company's German executives accidentally opened a store in Konstanz when they had meant to

open one in Koblenz. Later that decade, stores opened in other parts of the world, including Japan

(1974), Australia and Hong Kong (1975), Canada (1976) and Singapore (1978). IKEA further

expanded in the 1980s, opening stores in France & Spain (1981), Belgium (1984), the United

States (1985), the United Kingdom (1987) and Italy (1989) among other areas. The company

expanded into more countries in the 1990s and 2000s. Germany, with 44 stores, is IKEA's biggest

market, followed by the United States, with 37. At the end of 2009 financial year, the IKEA

group had 267 stores in 25 countries.

Swedish furniture home accessories IKEA is planning to enter India with a Euros 1.5 billion

(around Rs 10,500 crores) investment in a single-brand retail venture. In the first phase it plans to

set up 25 stores with an investment of Euros 600 million (around Rs 4,200 crores) in opening 25

stores. The company has already sought government permission to set up a 100% Indian venture

and has also promised to increase its sourcing from the country. In these stores companies are

permitted to stock goods from one brand only. The entry also comes with the stipulation that at

least 30% of the products have to be sourced from Indian micro, small and medium enterprises - a

major area of concern for IKEA until recently.


Project Part 1

Documents

retail reforms

retail industry

singlebrand retail

retail innovation

retail sales

retail outlets

indian retail market

indias retail sector