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Changing Retail Landscape in India
August 16, 2009
Indian Retail – Buoyed by high GDP growth
8.90%9.0%
6.8%6.0%6.0%
5.6%5.2%
6.4%6.6%
5.4%
9.2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail…
Rea
l Gro
wth
Rat
e
Source :Central Statistical Organization (CS0)
August 16, 2009
India Experiencing Rapid Economic Growth
9.4% growth rate makes India the second fastest growing economy in the world
GD
P (
US
$ bn
)
Rea
l Gro
wth
Rat
e
August 16, 2009
Led by Growth in Services Sector
13% 14%
55%
21%
7%6%
21%
37%41%
107%
0%
20%
40%
60%
80%
100%
120%
Tourist Arrivals Passenger CarsSales
CommercialVehicle Sales
Domestic AirPassengers
New Cell PhoneConnections
2005-06
2006-07
% Increase in growth over the previous year
Services sector adding to GDP in a significant manner
August 16, 2009
Driven from Consumption Throughout the 1.1 Billion Population
5-7 million
Super Rich
70 – 80 million
Afford Cars, Private Healthcare & Foreign travel
250 - 300 million
Afford goods like Refrigerators , Scooters & Colour TVs
600-700 million (Generally Rural)Afford simple industrial products
e.g. bicycles , radios , textilesPoverty Line = income less than $ 1/day
Source: McKinsey,
60 % of India’s population are under 24 years
August 16, 2009
With High Private Consumption
GDP US$ 935 billion
Private ConsumptionUS$ 580 Billion
(62%)
Public Spending and Capital Formation
US$ 355 Billion (38%)
Retail US$ 342 Billion
(59%)
Non RetailUS$ 238 Billion
(41%)
Urban (5,100 towns) US$ 154 Billion
(45%)
Rural (6,27,000 villages)US$ 188 Billion
(55%)
Modern retail – US$ 12 billion 8% of urban retail spends
Modern retail Negligible
Food
Apparel
Beverages
Footwear
Consumer durables
Appliances
Stationery
Kitchen utensils
Furniture
Furnishings
Sports goods
Health & Beauty
Personal Care
Jewellery
Timing
Transport
Communication
Recreation
Cultural Services
Education
Rent
Utilities
Other Services
Source: Central Statistical Organization (CS0) and Technopak Analysis Conversion rate: 1 US$ = 40.86 Rs.
August 16, 2009
About US $530 Billion Retail Market by 2012
GDP* US$ 1,450 billion
Private ConsumptionUS$ 870 Billion
(60%)
Public Spending and Capital Formation
US$ 580 Billion (40%)
RetailUS$ 530 Billion
(61%)
Non RetailUS$ 340 Billion
(39%)
UrbanUS$ 252 Billion
(47.5%)
RuralUS$ 278 Billion
(52.5%)
Modern retail – US$ 78 billion 31% of urban retail spends
Modern retail – US$ 9 billion 3% of rural retail spends
Source: Technopak Analysis *All figures are in nominal terms after taking into account inflation
August 16, 2009
Modern Retail – Organized Channels
• The share of organized retail is less than 3% of the total retail market • The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last
five years
85% 81%
55%40% 36% 30%
20% 20% 3%
0%
20%
40%
60%
80%
100%
US Taiwan Malaysia Thailand Brazil Indonesia Poland China India
Traditional Channel Modern Channel
August 16, 2009
.. but Rapid Transformation is Anticipated
Current Size & Future Projections for Indian Retail Market
342 373 408 445 486530
800
12 18 26 39 59 87
200
0100200
300400500600
700800900
2007 2008 2009 2010 2011 2012 2017
US
$ B
illion
Total Retail Organized Retail
And may reach a share of 25% by 2017
August 16, 2009
Weekly MarketsVillage Fairs
Melas
Convenience StoresMom and Pop/Kiranas
PDS OutletsKhadi StoresCooperatives
Exclusive Brand OutletsHyper/Super MarketsDepartment Stores
Shopping Malls
/ Traditional Pervas ive Reach
GovernmentSupported
/ His toric RuralReach
/ Modern FormatsInternational
Evolution of Indian retail
Source ofEntertainment
Neighborhood/Stores Convenience
/ Availability Low / Cos ts
Dis tribution
Shopping/Experience Effic iency
August 16, 2009
Price, concern and typical Indian features are some examples
Adaptation to Local Market – Road for Success
Source: McKinsey Quaterly, winning the Indian consumer, 2005
Chicken hamburger to reach segments that do not eat beef
McDonalds Maharaja Mac
Nokia 1100
Anti dust keypad for dirty roads, anti slip grip for the heat and flash-light in case of electricity shortage
Indian menus with singe touch
Samsung microwaves
Memory backup to compensate for frequent power shortage
Samsung laundry machine
10 milli lt. sachet for less than 5 cents increased the shampoo buying population dramatically
Head & Shoulders
August 16, 2009
Recent Trends
Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc.
Store design : Biggest challenge for organized retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design.
Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs.
Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.
Recent changes:
Unorganized : Vast majority of the twelve million stores are small "father and son" outlets
Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest.
Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)
Traditionally three factors have plagued the retail industry:
August 16, 2009
Recent Trends … ..
August 16, 2009
Retail Market not limited to metros but widely across India
• The classic ”skimming” strategy in the metros is not longer sufficient
– 100 cities strategy• Over 250 large size shopping malls
are currently under construction• Leading cities 2030 are
forecasted to be– Mumbai– New Delhi– Chandigarh
New Delhi
Bangalore
Mumbai
Chennai
Kolkata
Ahamabad
HyderabadPune
Above 10 Mn inhabitants
Above 4 Mn inhabitants
Above 2 Mn inhabitants
Above 1 Mn inhabitants
Kanpur
Lucknow
Jaipur
Nagpur
Coimbatore
Bhopal
Madurai
Kochin
Varanasi
Visakhapatnam
Patna
Indore
Surat
Vadodara
Ludhiana
August 16, 2009
Drivers for Indian Retail
High Income Opportunities
Changing Attitude International Exposure
Necessities to Lifestyle
•Service Sector: creating
new jobs.
•Working Population in
2010 will 70%
•IT Industry: increasing
professional
opportunities
•Rising Salary levels
•MNCs entering India
and homegrown
companies going global
•From Save to Spend
•High disposable
income family
structures on a rise
•Nuclear Families
•DINKS (Double
Income No Kids)
•Multi income families
•International travel
•Exposure to global
trends
•Highest Growth in
outbound tourists in
the world
•Shift of expense
basket from basics
to lifestyle products
•Increased spend on
Apparel, personal
care, entertainment
•Easy Bank credit
boosts retail
Customer value drivers are continuing to fragment as a result of changing demographics & value systems
Consumption expenditure is 60 % of India’s GDP
Market & Government
•Easing out on
Import barriers,
Government
sponsorship taking
shape (FDI Policy,
Tax and Duty
structure, Subsidies)
•Fluid retail
Segments
•M-Commerce & e-
Commerce boosts
retail
August 16, 2009
Global Heavyweights in Indian Retailing
Convenience and SupermarketFood & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.
Birla
Multi format and Multi CategoryFood & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.
Reliance
Multi brand retail chainSourcing agreement for Consumer durables and Foods under brand name CROMA
Tata-Woolworths
Cash and carryGlobal Sourcing of Office equipments across various businesses
Staples Inc – Pantaloon Retail
Multi Channel propositionsFranchising the Argos concept under the terms of the arrangement, Argos will be providing its brand, catalogue and multi-channel expertise and IT support
Home Retail Group plc - Shopper's Stop Ltd and Hypercity Retail India Private Ltd
HypermarketsFood and groceries, FMCG, apparel and electronics Carrefour-Landmark
Hypermarkets, Supermarkets and Convenience
Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles.
Bharti-Walmart (with $2.5 Billion investment by Bharti)
Retail FormatsProduct RangeJoint Ventures
August 16, 2009
Format Definition12
Formats Description Key categories retailed
Typical size Sq.ft.
Example
Hyper markets
A large superstore, combining a supermarket and departmental store, offering full lines of grocery and general merchandise all under one roof
Food, groceries, apparel, furnishings, consumer durables
15,000-100,000 Big Bazaar, Hypercity, Spencer, Star India Bazaar, Vishal Megamart
Super markets
A large self service outlet offering food and household goods
Food, groceries, medicines 3,000-15,000 FoodWorld, Trinethra, Subshiksha, Food baazar
Departmental stores
A large self service outlet offering a variety of merchandise
Apparel, Jewellery, watches, fashion accessories, footwear, furniture, furnishings
10,000-50,000 Shopper’s Stop, Lifestyle, Pantaloon, Westside
Category killers
Large speciality stores focussed on one or a few categories of merchandise, offering a wide selection at low prices
Electronics, office supplies, apparel
20,000-100,000 Best Buy – Circuit City, Staples
Convenience stores
Small size, easily accessible stores offering a quick shopping, fast check out experience and extended working hours
Food, groceries, medicines 500-2,000 In&Out, Trinethra, Subhiksha, traditional stores
August 16, 2009
( .)Format Definition Contd12
Formats DescriptionTypical size Sq.ft.
Example
Single brand outlets
Retail outlet offering products of a single brand
Apparel, footwear, tyres, food services, furniture
•1,000-5,000 Nike, Adidas, Colourplus, McDonalds, Gautier, Gucci, TBZ
Multibrand speciality stores
Retail outlet offering multiple branded products belonging to a single category class
Footwear, apparel, electronics, books
•1,000-20,000 Planet Sports, Planet Fashion, Crosswords
Warehouse clubs
Warehouse style large stores, offering goods in bulk at discount prices to members
Food, groceries •100,000 + Metro cash and carry, Costco, Sam’s Club
Key categories retailed
August 16, 2009
Retail Challenges
Organizing Retail in India-Challenges
• Heterogeneous market
– Product offerings in different stores across the country will be very different
– No standard mode of operation across formats
– Market not mature (has to be validated)
• Infrastructure will bring about logistical challenges
– Though, improvements in road networks, power supply are underway
• Trained employees with understanding of retail business are inadequate compared to the needs of organized retail
• Barriers to Entry
– High taxes, bureaucratic clearance process and labour laws
• High cost of real estate
– though over 600 malls are to come up all over the country by the next 4 years
• Indian retailers are deeply entrenched, are expanding and building on logistics and technology initiatives
August 16, 2009
Processes
• Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment, Lean supply chain – JIT inventory, flow through warehouse
• Evolving processes in Supply chain & merchandising• Global Best Practices not adopted
Consumer
Infrastructure
• High disposable income• Changing consumer preferences• 28 states, 100+ religion, 250+ festivals
• Supply chain not reliable. Cold storage infrastructure evolving• Outsourced transportation• Low level automation in warehouses
Supplier/Vendor
Current IT
• Little or no collaboration between vendor & retailer• Low fill rates from vendors• Highly localized assortments leading to relationship with multiple vendors • Complex trading contracts and off invoice discounts
• Multiplicity of disparate Systems & Data Formats• No architecture roadmap• Base ERP and home grown POS solutions. Low investments in store systems• No investments in planning & optimization technologies
At ground level … .
August 16, 2009
The Way Ahead
• India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats
• Many strong regional and national players emerging across formats and product categories
• Most of these players are now gearing up to expand rapidly after having gone through their respective learning curves
• Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers
• The Shopping Mall formats are fast evolving
• Partnering among Brands, retailers, franchisees, investors and malls
• Improved Infrastructure
In view of a compressed
evolution cycle, retailers need to
simultaneously address issues of speed,
Execution and efficiency
Thank You