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June, 2011

Retail: Brief Overview

The Indian retail sector is highly fragmented with more than 90 per cent of its business being carried out by traditional family run small stores. This provides immense opportunity for large scale retailers to set-up their operations – a slew of organized retail formats like departmental stores, hypermarkets, supermarkets and specialty stores are swiftly replacing the traditional formats dramatically altering the retailing landscape in India.

India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearney’s report published in June 2010.

Retail – Market Size

The total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015, according to the BMI India Retail report for the third quarter of 2011. Robust economic growth, high disposable income with the end-consumer and the rapid construction of organised retail infrastructure are key factors behind the forecast growth. Along with the expansion in middle and upper class consumer base, the report identifies potential in India’s tier-II and tier-III cities as well. The greater availability of personal credit and a growing vehicle population providing improved mobility also contribute to a trend towards annual retail sales growth of 12.2 per cent.

Indian retail sector accounts for 22 per cent of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment.

Rural Retailing on a High

Rural retailing enjoys an intense focus from big brands.

Future Group and Godrej Agrovet's joint venture (JV) in rural retailing, 'Aadhar', is all set for a revamp. The group promoter Kishore Biyani has revealed that the JV is planning to come up with wholesale distribution centers across different districts and franchisees would be rolled out to local entrepreneurs who would have a better understanding of the concerned area. They would be able to source the products from these wholesale centers and then sell it in their villages. The alliance operates stores in Gujarat, Maharashtra, Haryana and Punjab and mainly sells wheat and paddy apart from daily need products. The company also provides farmers with solutions to problems regarding their agricultural output, which includes what kind of crop can they plant and when, along with techno-commercial suggestions to help them give a better output.

Meanwhile, Rajkot based Champion Agro Ltd is planning to come up with single window shopping facility for farmers. The company already has 35 agri-retailing outlets in the Saurashtra region, and is expected to open around 400 outlets at a taluka level across Gujarat by 2016. It will open 50 new outlets by the end of 2011with an investment of US$ 3.3 million. The overall investment planned is between US$ 66.7 – US$ 88.94 million.

On similar lines, Vadodara based ACIL Cotton Industries is all set to come up with around 40 outlets of 'ACIL Krishi Store' in Gujarat. Of these, four outlets got operational in April - May 2011. As for 2011, ACIL has decided to focus on the Gujarat market. ACIL stores will sell all types of seeds, fungicides, fertilisers, micronutrients.

Also, FMCG and retail giants are making good use of technology to reach out to rural India. From low-cost handsets to tablet PCs, the Indian FMCG and retail sector is latching on to technology and applications to reach out to rural India.

For instance, Marico is using mobile technology innovatively to arm its field representatives in their procurement process. The IT team at Marico developed a mobile-based application for Nokia 5235 series handsets. The company gave these GPS-enabled phones to 120 of its field representatives, with mapped routes. This helped the agri-representative to get the exact route and also saved on time. The mobile application can also get real-time data from farmers. Pictures of crop and soil taken from the camera are used for monitoring progress of contract farming, seed information and weather condition. Since the data is available online, this also helps the company analyse and take decisions quickly.

Meanwhile Hindustan Unilever Ltd (HUL) is experimenting with tablet PCs in its attempt to increase its rural reach. It has been able to reach to 500,000 outlets in a year’s time. According to Nitin Paranjape, managing director, HUL, “We put all the villages on an IT map. The name of the village, its total strength, nearest distributors available, whether it has a school, a hospital, a primary health centre, all of this was mapped. We used this information to determine the opportunity the village presented to us.