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    The Retail Industry

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April 09, 2007

India's vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Driven by changing lifestyles, strong income growth and favourable demographic patterns, Indian retail is expected to grow 25 per cent annually.

Modern retail in India could be worth US$ 175-200 billion by 2016. With the economy booming, competition in the marketplace is fierce. According to 'Retail in India Getting Organised to Drive Growth', a report by AT Kearney and the Confederation of Indian Industry, retail is one of India's fastest growing industries with a 5 per cent compounded annual growth rate and expected revenues of US$ 320 billion in 2007. Rising incomes, increasing consumerism in urban areas and an upswing in rural consumption will fuel this growth to around 7-8 per cent.

KSA-Technopak, a retail consulting and research agency, predicts that by 2010, organised retailing in India will cross the US$ 21.5-billion mark from the current size of US$ 7.5 billion.

Retail space

Retailers in India are the most aggressive in Asia in expanding their businesses, thus creating a huge demand for real estate. Their preferred means of expansion is to increase the number of their outlets in a city, and also expand to other regions, revealed the Jones Lang LaSalle third annual Retailer Sentiment Survey-Asia.

Deutsche Bank's research report on 'Building up India' says India's burgeoning middle class will drive up nominal retail sales through 2010 by 10 per cent per annum. The country may have 600 new shopping centres by 2010.

Food retail

Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth agenda for modern trade formats. Since nearly 60 per cent of the average Indian grocery basket comprises non-branded items, the branded food industry is homing in on converting Indian consumers to branded food.

The mobile revolution

The retail market for mobile phones -- handset, airtime and accessories -- is already a US$ 16.7 billion business, growing at over 20 per cent per year. In comparison, the consumer electronics and appliance market is worth US$ 5.6 billion, with a growth rate that is half of the mobile market.


Kids retail

When it comes to Indian children, retailers are busy bonding--and branding:

  • Monalisa, the Versace of kids is coming to India.
  • Global lifestyle brand Nautica is bringing Nautica Kids.
  • International brand Zapp tied up with Raymond to foray into kids' apparel.
  • Disney launched exclusive chains which stock character-based stationery.
  • Pantaloon's joint venture with Gini & Jony will set up a retail chain to market kids' apparel.
  • Swiss kidswear brand Milou is collaborating with Tirupur-based Sreeja Hosieries.
  • Turner International India Pvt Ltd. will launch Cartoon Network Townsville and Planet POGO--two theme parks designed around its channels--in the National Capital Region.
  • Sahara One Television has also signed a Memorandum of Understanding to source content from Spacetoon Media Group, Middle East's largest kids' entertainment brand for animation and live action content.

Leading the kids' retail revolution is the apparel business, which accounts for almost 80 per cent of the revenue, with kids' clothing in India following international fashion trends. According to research firm KSA Technopak, the branded segment comprises US$ 701.7 million of the total kids' apparel market-size of over US$ 3 billion.

Industry experts say kids' retailing will touch annual growth of 30-35 per cent. Toys, stationary, sportswear, outerwear, tailored clothing, eyewear, watches, fragrance, footwear, theme parks, TV channels… the segment is growing rapidly at 10 per cent per annum. Margins are in the range of 20-25 per cent (for dealers and distributors), while companies enjoy an average gross margin of about 10 per cent.

Agricultural retail

Agriculture across India is heralding the country's second Green Revolution. 14 states, including Maharashtra, Punjab, Andhra Pradesh and Rajasthan amended the Agricultural Produce Marketing Committee (APMC) act this year, along the lines of the Model APMC Act, '02, which allows farmers to sell their produce directly to buyers offering them the best price. Agricultural sectors such as horticulture, floriculture, development of seeds, animal husbandry, pisciculture, aqua culture, cultivation of vegetables, mushroom under cultivated conditions and services related to agro and allied sectors are open to 100 per cent FDI through the automatic route.

  • For its e-Choupal scheme, ITC built internet kiosks in rural villages so farmers can access latest information on weather, current market prices, foods-in-demand, etc.
  • With a US$ 5.6 billion, multi-year investment in agriculture and retail, Reliance Retail will establish links with farms on several thousand acres in Punjab, West Bengal and Maharashtra.
  • FieldFresh, planning to become India's first large-scale exporter of produce, will annually pay farmers over US$ 30,000 to lease land for vegetables, to hire tractors and to pay their workers.
  • Besides a five-year program with the Punjab government to provide several hundred farmers with four million sweet-orange trees for its Tropicana juices by 2008, PepsiCo--with agriculture exports worth US$ 40 million--also introduced farmers to high-yielding basmati rice, mangoes, potatoes, chilies, peanuts, and barley for its Frito-Lay snacks.
  • Export potential and a rapidly growing domestic demand for reliable produce from new supermarket chains is driving change. With 77 per cent of India's population relying on agriculture for a living, improved efficiency and new markets can benefit a large number of people.

International retailers

  • The Australian government's National Food Industry Strategy and Austrade initiated a test marketing food retail in India wherein 12 major Australian food producers have tied up with India-based distributor AB Mauri to sell their products directly at retail outlets.
  • The largest-ever 150-member British business delegation in India committed investments in the areas of food processing, agri retail and manufacturing. It is also likely to press for the liberalisation of sectors like financial & legal services and retail.
  • US-based home delivery and logistics company, Specialised Transportation Inc, will enter the Indian market through a strategic alliance with Patel Retail, a subsidiary of Patel Integrated Logistics.
  • Among other big international players, Wal-Mart has announced its plans for India in partnership with Bharti, Tesco is sure to try again, and Carrefour too might finally find the right partner.

Retail reform

The Government regulations allow 100 per cent FDI in cash and carry through automatic route and 51 per cent in single brand. Besides, the franchise route is available for big operators. Now, the Government also proposes further liberalisation in the retail sector allowing 51 per cent FDI in consumer electronics and sports goods.

The retail road ahead

The Indian retail market is estimated at US$ 350 billion. But organised retail is estimated at only US$ 8 billion. However, the opportunity is huge--by 2010, organised retail is expected to grow to US$ 22 billion. With the growth of organised retailing estimated at 40 per cent (CAGR) over the next few years, Indian retailing is clearly at a tipping point. India is currently the ninth largest retail market in the world. And it is names of small towns like Dehradun, Vijayawada, Lucknow and Nasik that will power India up the rankings soon.