September 09, 2011
The Indian retail industry has scaled impeccable growth over the last decade with an amiable acceptance to organised retailing formats. The industry is maturing towards modern concept of retailing, cornering the conventional unorganised family-owned businesses.
India has been ranked as the fourth most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney, in its Global Retail Development Index (GRDI) 2011.
AT Kearney has also conducted a different study which says that organised retailers should follow hypermarket concept to penetrate through India’s US$ 435 billion industry. According to the report, given the gigantic size of the Indian retail market, it is no surprise that many Middle East retailers, most recently Lulu, have announced their interests to extend their retail operations to India.
The Rs 18,673 billion (US$ 401 billion) Indian retail market entails only 6 per cent of itself as organised retail segment as of 2010, according to Booz and Co (India) Pvt Ltd. Hence, there is a great potential to be explored by domestic and international players.
The Business Monitor International (BMI) India Retail Report for the fourth-quarter of 2011 forecasts that the total retail sales will grow from US$ 411.28 billion in 2011 to US$ 804.06 billion by 2015. The report has underlined factors like economic growth, population expansion, increasing wealth of individuals and rapid construction of organised retail infrastructure as major drivers for the optimistic forecast figures.
According to a research report named ‘Retail Sector in India’ by Research and Markets, 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. The report further highlighted that hypermarkets (currently accounting for 14 per cent of mall space) will witness immense progress in the Indian landscape.
According to a report by research firm CB Richard Ellis India, over 6 million square feet of retail mall space was added across India in the first six months of 2011; primarily due to aggressive expansion by organised retailers.
For instance, Kishore Biyani-controlled Pantaloon Retail added 2.26 million square feet (sq. ft.) of retail space during the fiscal 2011 and booked over 9 million sq. ft of retail space to fructify its expansion plans in future.
Cumulative foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2011 stood at US$ 69.26 million, according to the Department of Industrial Policy and Promotion (DIPP).
Driven by changing consumption patterns, favourable demographics, expanding middle class and greater government support, retailers are eagerly foraying into untapped avenues of Indian markets by making huge investment plans. For instance-
Along with the metros, the retailers are betting big on tier-II and tier-III cities as well.
The rural market in India is attracting focus from all the major retailers in apparel, food & groceries, electronics, consumer durables, supermarkets etc. Some of the retailers looking at the rural markets are discussed below:
In a bid to enhance its rural retail operations, Coromandel International Ltd (flagship of the Chennai-based Murugappa Group), plans to open 200 rural retail stores in the hinterlands of Andhra Pradesh (125) and Karnataka (75). The company operates stores in Andhra Pradesh under the name 'Mana Gromor Centers' and in Karnataka under the name 'Namma Gromor Centers.'
Moreover, Tupperware is planning to increase its rural penetration and enhance its sales force in rural areas .
Bata India Ltd has decided to foray into rural markets for volume growth. The company has developed four new sub-branded products especially for the rural market.
According to a latest report by a leading industry body, online retail segment in India is growing at an annual rate of 35 per cent which would take its value from Rs 2,000 crore (US$ 429.5 million) in 2011 to Rs 7,000 crore (US$ 1.5 billion) in 2015.
Tata Group firm Infiniti Retail, that operates consumer durables and electronics chain of stores under 'Croma' brand, is in the process of tapping net savvy consumers. The company is contemplating on options like cash-on-delivery to make online shopping easier for consumers, even for those who do not use debit or credit cards.
Similarly, the Future Group, that operates a dedicated portal Futurebazaar.com for online sales, has revealed that it is targeting at least 10 per cent of the company's total retail sales from digital medium.
The government has moved a step closer to allow FDI in multi brand retailing in India after the committee of secretaries (CoS) gave its nod to permit 51 per cent of FDI in the sector. The recommendation will now head to the cabinet committee on economic affairs, which will take a final decision on rules to be imposed and the level of FDI to be allowed.
The regulation may soon pave way for foreign players like Wal-Mart, Carrefour and Cheshunt, who have been vying for an opportunity to enter India.
Global consultancy firm PricewaterhouseCoopers (PwC) expects Indian retail sector to be worth US$ 900 billion by 2014 in its report ‘Strong and Steady 2011’.
Food and groceries is considered to be the largest segment in organised retail, followed by apparel, footwear and consumer electronics. “Over the next five years, we expect organised food retail (through convenience stores, supermarkets, and hypermarkets) to grow by over four times from the current US$ 8 billion,” said Raghav Gupta, Principal, Booz and Co.
Exchange Rate Used: INR 1 = US$ 0.021, (as on September 9, 2011)
References: Business Monitor International (BMI), Press Releases, Department of Industrial Policy and Promotion (DIPP), AT Kearney Publication, Media reports