Indian retail industry

Structure, Drivers of growth, Key challenges

Profile of Retail Industry in India

Unorganized, fragmented and challenging Retails sales in India amount to $ 180 billion and account for 10-11 % of GDP Indian retail comprises of about 14 million outlets and largest retail outlet density in the world Most of these stores have basic offerings and fixed prices and lack good ambience These stores are highly competitive due to lower land and labour prices They also save tax as they belong to the small scale industry sector

Challenges in Indian Retail Industry

High real estate cost Capital availability Legal frameworks (timings, utilization of part-time employees, varying sales tax & octroi tax rates) Human resources Supply-chain development & management Intense competition

Prospects in Indian Retail Industry

Changing lifestyle Increase of disposable income Increasing customer expectations Shift in focus on value, convenience, variety and better shopping experience Multiplicity of suppliers leading to increase in bargaining power of retailers

Structure of Indian Retail Industry

Size Indian retail trade increased from Rs. 2200 billion Rs. 3300 billion an annual increase of 20% Industry consists of largest number of outlets in the world There are about 14 million operational retail outlets 32% of these are in the urban areas and they are likely to grow by 1 million per annum FMCG stores account for nearly 75% of these retail outlets Very large stores of more than 800 sq. ft. area constitute only 4% of the total stores 96% of the stores are small with an average area of less than 500 sq. ft. Indias per capita retailing space is lowest in the world Average retailing space is 29.4 sq. m. per outlet About 40% of high income urban population account for 20-25 largest cities with a population of over 1 million

Structure of Indian Retail Industry

Food & Non-food Distribution
Food sales constitute a high proportion (62.5%) of total retail sales Food sales accounted for about 63% of supermarket sales and 60% of convenience store sales Largest food retailers were independent grocers. They also accounted for 66% of the food outlets Food retailing is generally a small scale business in India. They are mostly small, independent family owned grocery stores Fresh foods are less expensive than processed foods and are also the preferred form Food outlets are growing @ 8.5% every year and account for over Rs. 7000 billion. A need for frozen processed food is emerging due to increasing employment of women in India

Structure of Indian Retail Industry

Food & Non-food Distribution
Non-food sales are valued at over Rs, 4000 billion Average retail sales per non-food outlet has reached Rs. 0.5 million and deptt. Stores recorded highest average retail sales with Rs. 176 million Non-food items include cosmetics, toiletries and household cleaning products. Retail stores including supermarkets have also retailing a spectrum of products used by consumers in their everyday lives

Sectoral Classification of Indian Retail Industry

Retail sector can be classified into three categories based on their future growth potential Ready to go Shape/ adapt Wait and watch

Sectoral Classification of Indian Retail Industry

Ready to go comprises of several sub-categories in which determined retailers can build positions immediately This is a highly attractive sector because ease of sourcing, proliferation of products and consumer acceptance have reached a level that permits exploitation of size and range. This includes dry groceries (grains, cereals, packaged food, toiletries , household products etc.

Sectoral Classification of Indian Retail Industry

Shape/ adapt It includes fresh groceries, womens clothings, do it yourself products, fast food and furniture. It is a challenging category as retailers in this categories must invest substantially to shape the supply chain and persuade consumers to change their buying behaviour.

Sectoral Classification of Indian Retail Industry

Wait and watch It comprises undeveloped sectors that provide no immediate opportunity for retailers. Pharma products and retail liquor products are examples of such sector. Low levels of OTC drug phe stringent and varying regulations of alcohol and complicated regulations make pharma chains unattractive. Liquor retailing is not expected to take off because of stringent regulations in each Indian state purchases

Consumer Readiness & Supply-chain Sophistication in 3 Product Categories

High
Electronics Dry Groceries Sports Clothing

Consumer readiness

Ready-to-go Mens Apparel Pharma product Shape/ Adapt Do-it-yourself Books, Music Furniture

Fresh Groceries
Wait & Watch Liquor Retail

Personal care Product

Low

Supply-chain sophistication

High

Sectoral Classification of Indian Retail Industry

Infrastructure India is poised to become the biggest consumer markets in the world About 30% of these customers live in cities Categorization in terms of megamalls, medium and small stores Malls are increasing is the most attractive segment iin retail.

Human Resource
Retail industry engages about 10% of labour force of India 90% are regular employees

Employment in retail sector increased from 28.6 million in 1996 to 39.3 million in 2001
However there is a dearth of trained manpower

Drivers of Growth
There are 5 main values sought by shoppers Spending pattern Customer expectations Consumer lifestyle Changing attitude Increased spending by rural consumers

Key Challenges
The Kiranas practising CRM, long hours, one-stop shopping, credit, home delivery, prompt redressal of grievances High Costs for Organized Sector vis--vis traditional retailing Lease, manpower cost, energy cost, working capital costs, capital expenses Specialization stores specialized in a specific area Subhiksha, Mark & Spencer's etc. Correct Merchandise Mix FoodWorld started with 6000 SKUs but has cut down to 3500. Every retailer wants to have high value, high margin, fast moving products. But it does not happen always Strong IT Support, Poor Infrastructure and Industry Status