Project On Organized Retail In India By Rishikesh (rbs)

Organized Retail in India, Challenges and Prospects

Acknowledgment A task or project cannot be completed alone. It requires the effort of many individuals. I take this opportunity to thank all those who helped me complete this project.

I express my sincere gratitude to Ms. Aditi Dhool for giving us the Opportunity to undergo this project. I further thank his for lending a helping hand when it came to solving my problems related to the project. This project would not have been possible without his valuable time and support.

I also thank Rai business school for an opportunity to undertake Soft skills project at the start of our MBA course which helped us to understand deeply for those topics which are untouched.

This project is an attempt to talk about the Scenario of Retailing and its Operations in India.

Any suggestions to improve are always welcome.

Rishikesh Kuamr, Rai Business School, New Delhi

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Organized Retail in India, Challenges and Prospects

Introduction

India today is the second fastest growing economy of the world after China. Indian economy will grow larger than Britain’s by 2022, Japan by 2032 and by 2050 will become the second largest economy of the world after China. Indian market has become the most lucrative market for retail investment in the world.

Some of the factors which have contributed to the growth of organized retail in India are: increase in the purchasing power of Indians, rapid urbanization, increase in the number of working women, large number of working young population. Today people look for better quality product at cheap rate, better service, better ambience for shopping and better shopping experience.

The Retail industry in India is emerging as one of the most promising industries both in terms of contribution to the GDP as well as in creation of the job opportunities. Starting with the local Kirana and mom and pop stores to the big hypermarkets and supermarkets, The Indian retail is all poised to go to a higher level. An IMAGES-KSA Technopak study released at the KSA Retail Summit 2005 by Mr. Kishore Biyani, managing director of Pantaloon Retail, India’s largest retailer. “The size of the organized retailing market stood at Rs 280 billion in 2004, thereby, making up a mere 3% of the total retailing market. Moving forward, organized retailing is projected to grow at the rate of 25%30% p.a. and is estimated to reach astounding Rs 1000 billion by 2010.

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Organized Retail in India, Challenges and Prospects Further, its contribution to total retailing sales is likely to rise to 9% by the end of the decade,” said Mr. Arvind Singhal, chairman, KSA Technopak.

Driven by the changing lifestyle, augmented disposable income, the need for convenience and the awakened rural market, the future of Retail looks dazzling. In addition, India has been ranked as the most attractive market by the AT Kearney’s Global Retail development index .The index conducts the study on 30 emerging countries on the basis of 25 macro economic and retail specific variable to measure the attractiveness of these markets. Leading global retailers such as Wal-Mart, Tesco and others are keen to enter the Indian retailing industry. The Chicago-based Sara Lee Corporation is planning to enter the Indian apparel market. Dior, the well known watch brand from the Louis Vuitton Moet Hennessy (LVMH) group, is planning to include India among its top 12 world markets.

The Rosy Blue Group, the world's largest diamond manufacturer, is planning to invest Rs 900 million in setting up 40 exclusive Orra diamond jewelry showrooms in India over the next three years. Since foreign direct investment (FDI) in the retailing sector was not permitted as of mid 2005, most global players were opting for the franchisee route. According to the Global Retail Development Index4 of 2005 conducted by AT Kearney, India was ranked #1 among 30 'most attractive' retailing destinations across the globe. Kamal Nath, Union Minister for Commerce and Industry in India, expressed optimism with regard to the retail sector in India. Rishikesh Kuamr, Rai Business School, New Delhi

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Organized Retail in India, Challenges and Prospects In a seminar conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI)5 in February 2005, he said, "The importance of the retail sector in the national economy is not in dispute. All economists have agreed that giving the retail sector a thrust will not only result in boosting the economy, but also that the retail sector has the potential to be leveraged in order to rejuvenate specific targeted sectors, including the rural economy."6

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Organized Retail in India, Challenges and Prospects

What is Retail? The word 'retail' is derived from the French word 'retaillier' meaning 'to cut a piece off' or 'to break bulk'. In simple terms it involves activities whereby product or services are sold to final consumers in small quantities. Although retailing in its various formats has been around our country for many decades, it has been confined for along time to family owned corner shops.

Englishmen are great soccer enthusiasts, and they strongly think that one should never give Indians a corner. It stems from the belief that, if you give an Indian a corner he would end up setting a shop. That is how great Indians retail management skill is considered.

What is Organised Retail?

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Organized Retail in India, Challenges and Prospects

The Indian Retail industry is divided into the organized and the unorganized sector. The unorganized sector mainly includes the local Kirana store and the mom and pop stores. The organised sector includes the big companies like the RPG, Pantaloons and the foreign players like addidas, Reebok, McDonalds and Pizza hut. Most of the Indian Retail industry is characterized by an unorganized market but the growth of the organised sector in the past few years has been incredible. Noting that organised retail market is growing at the rate of 40%, Northbridge Capital said that faster growth rate would be maintained in the next three years, especially with the entry of major global players and Indian corporate houses. The organized retail in India has been divided into various categories like Jewellery and Watches, Catering and services, Furniture & furnishing, Footwear, Consumer durables, food & grocery, Clothing & Textile, Mobile handsets, Books, music & gifts etc. The market share categorization is Although there are abundant factors that drives retailing in India but the challenges for the retailers are also numerous

The Facts

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Organized Retail in India, Challenges and Prospects

Retailing in more developed countries is big business and better organized that what it is in India. Report published by McKinsey & Co. in partnership with Confederation of Indian Industry (CII) states that the global retail business is worth a staggering US $ 7 trillion. The ratio of organized retailing to unorganized in US is around 80 to 20, in Europe it is 70 to 30, while in Asia it comes to around 20 to 80.

In India the scenario is quiet unique, organized retailing accounts for a mere 5% of the total retail sector. Although there are around 5 million retail stores in India, 90% of these have a floor space area of 500 sq.ft. or less. The emergence of organised retailing in India is a recent phenomenon and is concentrated in the top 20 urban towns and cities.

The Reason

This emergence of organized retailing has been due to the demographic and psychographic changes taking place in the life of urban consumers.

Growing number of nuclear families, working women, greater work pressure, changing values and Lifestyles, increased commuting time, influence of western way of life etc. have meant that the needs and wants of consumers have shifted from just being Cost and Relationship drive to Brand and Experience driven, while the Value element still dominating the buying decisions.

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Organized Retail in India, Challenges and Prospects

Global Scenario of organized retail

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Organized Retail in India, Challenges and Prospects Retail stores constitute 20% of US GDP & are the 3 rd largest employer segment in USA. China on the other hand has attracted several global retailers in

recent

times. Retail sector employs 7% of the population in

China. Major retailers like Wal-Mart & Carrefour have already entered the Chinese market. In the year 2003, Wal-Mart & Carrefour had sales of US $ 70.4 Crore & US $ 160 Crore respectively.

The global retail industry has traveled a long way from a small beginning to an industry where the world wide retail sales is valued at $ 7 x 10 5 Crore. The top 200 retailers alone accounts for 30 % of the worldwide demand. Retail turnover in the EU is approximately Euros 2,00,000 Crore and the sector average growth is showing an upward pattern. The Asian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06.

On

the

global

Retail

stage,

little

has

remained

same

over

the

last decade. One of the few similarities with today is that Wal-Mart was ranked the top retailer in the world then & it still holds Other

than

Wal-Mart's

dominance,

there's

a

that

little

distinction.

about

today's

environment that looks like the mid-1990s. The global economy has changed, consumer demand has shifted & retailers' operating systems today are infused with far more technology than was the case six years ago.

Organized retail in India

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Organized Retail in India, Challenges and Prospects The Indian organized retail industry is valued at about $300 billion and is expected to grow to $427 billion in 2010 and $637 billion in 2015. Retail Market India today is the second fastest growing economy of the world after China. Indian economy will grow larger than Britain's by 2022, Japan by 2032 and by 2050 will become the second largest economy of the world after China. Indian market has become the most lucrative market for retail investment in the world. Some of the factors which have contributed to the growth of organized retail in India are: increase in the purchasing power of Indians, rapid urbanization, increase in the number of working women, large number of working young population.

Today people look for better quality product at cheap rate, better service, better ambience for shopping and better shopping experience. Organized retail promises to provide all these. The Industry The various formats of organized retail are: Hypermarkets: They store products of multiple brands comprising food items and non-food items. Supermarkets: These are self service stores selling food and personal care products. E.g.: Subhiksha. Departmental stores: Retails branded goods in non-food categories. E.g.: Shoppers Stop. Specialty Chains : These stores focuses on a branded product or a product category. E.g.: Bata Convenience stores: These are small self service outlet located in crowded urban area. Malls: A huge enclosures which has different retail formats. e.g.: Nucleus Key players in organised retail are: Pantaloon Retail: It was started by Kishore Biyani- India's largest retailer. The various formats of pantaloon retail are: Pantaloons, Big Bazaar, Food Bazaar, Central etc. RPG Retail: Its various formats are: Food

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Organized Retail in India, Challenges and Prospects World, Music World, Health & Glow, Spencer's Tata Retail (known as TRENT): Its various formats are: CromaWestsideStar India Bazaar K Raheja Corp. Group: Shoppers' Stop, Hypercity, Crossword, InOrbit Mall Reliance Retail Job Opportunities: Retail accounts for 8% employment in the country. In the next 2 years the sector is set to provide 2.5 lakh job opportunities.

The types of jobs available in retail are: Retail sales, Store management, Stock management, Supply chain management, warehousing and operations. In organised retail the frontliners like shop floor executives, sales executives etc are in great demand. The frontliners have to directly communicate with the customers. The other jobs are for store managers, store planners, cashiers, stockists, logistics, operations, distribution, marketing, finance, HR, IT etc. Good communication skill, high interpersonal skills, convincing power, positive attitude and ability to handle stress is a prerequisite for these jobs. Fresh graduates who want to make career in retail can easily fill these jobs. Stock planners, Operations, logistics, cashiers have to deal with the numbers daily. Besides having good communication skills they also require numerical and analytical ability.

Bharati retail is planning to invest $2.5bn by 2015 which will create employment opportunity for 60,000 people. Bharti Resources, a learning and development solutions subsidiary of Bharti Group, has tied-up with Global Retail School (GRS) to groom graduates and undergraduates in retail management and other sectors. They will provide 3-month and 6-month certificate courses for Rs 30,000 and Rs 15,000 respectively in Retail Sales

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Organized Retail in India, Challenges and Prospects and Marketing, Retail Visual Merchandising and Space Planning, Retail Supply Chain Management, for creating frontend manpower professionals. Indeed it is a fact that organised retail in India is all set to grow at an stupendous pace

Indian organized retail market is growing at a fast pace due to the boom in the India retail industry. In 2005, the retail industry in India amounted to Rs 10,000 billion accounting for about 10% to the country's GDP. The organized retail market in India out of this total market accounted for Rs 350 billion which is about 3.5% of the total revenues.

Retail market in the Indian organized sector is expected to cross Rs 1000 billion by 2010. Traditionally the retail industry in India was largely unorganized, comprising of drug stores, medium, and small grocery stores. Most of the organized retailing in India have started recently and is concentrating mainly in metropolitan cities.

The growth in the Indian organized retail market is mainly due to the change in the consumers behavior. This change has come in the consumer due to increased income, changing lifestyles, and patterns of demography which are favorable. Now the consumer wants to shop at a place where he can get food, entertainment, and shopping all under one roof. This has given Indian organized retail market a major boost.

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Organized Retail in India, Challenges and Prospects Retail market in the organized sector in India is growing can be seen from the fact that 1500 supermarkets, 325 departmental stores, and 300 new malls are being built. Many Indian companies are entering the Indian retail market which is giving Indian organized retail market a boost. One such company is the Reliance Industries Limited. It plans to invest US$ 6 billion in the Indian retail market by opening 1000 hypermarkets and 1500 supermarkets.

Pantaloons is another Indian company which plans to increase its retail space to 30 million square feet with an investment of US$ 1 billion. Bharti Telecoms an Indian company is in talks with Tesco a global giant for a £ 750 million joint venture. A number of global retail giants such as Walmart, Carrefour, and Metro AG are also planning to set up shop in India. Indian organized retail market will definitely grow as a result of all this investments.

Indian organized retail market is increasing and for this growth to continue the Indian retailers as well as government must make a combined effort.

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Organized Retail in India, Challenges and Prospects

North India:3035% of total market retail South India: 15-20% of total market size organized retail

East India: 1015% of total market size organized retail

West India: 25-30% of total market organized retail

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects

Executive Summary

The real GDP is expected to grow at 8-10 per cent per annum in the next five years. As a result, the consuming class with annual household incomes above Rs. 90,000 is expected to rise from about 370 million in 2006-07 to 620 million in 2011-12. Consequently, the retail business in India is estimated to grow at

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Organized Retail in India, Challenges and Prospects 13 per cent annually from US$ 322 billion in 2006-07 to US$ 590 billion in 2011-12. The study shows:

•

The unorganized retail sector is expected to grow at about 10 per cent

per annum with sales rising from US$ 309 billion in 2006-07 to US$ 496 billion in 2011-12. •

Given the relatively weak financial state of unorganized retailers, and

the physical space constraints on their expansion prospects, this sector alone will not be able to meet the growing demand for retail. •

Hence, organized retail which now constitutes a small four per cent of

total retail sector is likely to grow at a much faster pace of 45-50 per cent per annum and quadruple its share in total retail trade to 16 per cent by 2011-12. • This represents a positive sum game in which both unorganized and organized retail not only coexist but also grow substantially in size. • The majority of unorganized retailers surveyed in this study, indicated their preference to continue in the business and compete rather than exit.

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Organized Retail in India, Challenges and Prospects

KEY CHALLENGES:

1) Economic slowdown: –

With economic slowdown hitting most of the economies, the organized retail sector in India is also witnessing a hold back. Most of the major retail giants have either postponed their ideas of expansion and are afraid of undertaking any new big projects. Although most of the companies have already taken an initiative to make their way in the rural market and others are also planning to do the same but due to the economic turmoil, this effort seems to have taken a back seat.

1) LOCATION:

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Organized Retail in India, Challenges and Prospects

"Right Place, Right choice" Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customer’s store choice. Locations decisions are harder to change because retailers have to either make sustainable investments to buy and develop real estate or commit to long term lease with developers. When formulating decision about where to locate, the retailer must refer to the strategic plan:

* Investigate alternative trading areas. * Determine the type of desirable store location * Evaluate alternative specific store sites

2) MERCHANDISE:

The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising consists of activities involved in acquiring particular goods and services and making them available at a place, time and quantity that enable the retailer to reach its goals. Merchandising is perhaps, the most important

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Organized Retail in India, Challenges and Prospects function for any retail organization, as it decides what finally goes on shelf of the store.

3) PRICING:

Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change.

4) TARGET AUDIENCE:

"Consumer the prime mover" "Consumer Pull", however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom.

5) SCALE OF OPERATIONS:

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Organized Retail in India, Challenges and Prospects

Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India.

6) The Retail Environment:-

The foreign retailers who considered India as a gold mine, till a few years back, have now started rethinking about their plans for entering the market. The ever increasing terrorist activities have added on to the economic slowdown. First of all, the government regulations on the foreign entry in retail (51 % in single brand retailing and 100 % in cash and carry format) along with the economic slow downs and terrorist activities has forced most of the companies to reconsider about their plans of entering Indian retail industry.

7) Disorganized supply chain network:–

Along with economic slow down, a disorganized supply chain is also standing in the way of organised players to tap the rural markets and expand their operations. An efficient supply chain network enables the

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Organized Retail in India, Challenges and Prospects company to reduce the cost as well as manage the demand of its customer. Without an efficient supply chain, it becomes almost impossible for these companies to provide better product assortments across the country effectively with minimum cost. Therefore, an under developed supply chain network has also been hindering the scaling of the retail operations since a long time.

8) Technology hurdles: -

.An effective IT system is very crucial for the success of the supply chain which supports the retailing operations but as compared to the developed countries, India is incompetent in installing and managing an effective IT system especially in the rural areas which has been a trouble for the Indian Retailers since a long time.

9) Lack of utilities:–

Most of the metro cities are equipped with all the facilities and requirements of the modern businesses but the inadequate utilities like transport system, power, telecommunication, water, internet facilities etc. in the other part of the countries has also pushed the retailers one step back in sustaining the retail operations in a widespread geographical location. Although relevant steps have been taken over the past few years to make these facilities available in

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Organized Retail in India, Challenges and Prospects all parts of the country but this endeavor needs an acceleration to match the growth of the zooming industry.

10) Location planning: –

Location is considered as one of the most important ingredients for the success of a retail business. But because of the fluctuating cost of the real estate in the country, a higher stamp duty as compared to the other countries and the zoning laws, a dilemma has been created over the land use for the commercial purposes. The Retailers are finding it very difficult to first of all select a location which is found to be the most appropriate for their operations and then to cope up with the fluctuating costs of land and paying a high stamp duty which adds on to their investment and reduces their margin.

11) Unproductive human resource: –

The retail industry has been creating a lot of employment and a major chunk of the population has been engaged in the retail industry but looking at the tough working conditions in retail i.e. long working hours, no weekends and festival holidays, it becomes very difficult to hire people who can create a bottleneck for the success. In the aura of optimizing the cost, the companies are also neglecting the training needs of the newly hired people which is also a major factor for reducing the efficiency of the human resource.

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Organized Retail in India, Challenges and Prospects

12) The presence of a grey market: –

In most of the cities, the dominance of the grey markets has been acting as a threat to the big retailers. By selling the product at a cheaper rate, they are shifting the consumer perception from the focus on quality to a focus on price.

Retailing in India: the present scenario

The present value of the Indian retail market is estimated by the India Retail Report to be around Rs. 12,00,000 crore($270 billion) and the annual growth rate is 5.7 percent. Retail market for food and grocery with a worth of Rs. 7,43,900 crore is the largest of the different types of retail industries present in India. Furthermore around 15 million retail outlets help India win the crown of having the highest retail outlet density in the world.

As can be clearly seen, retailing in India is superior than those of its contenders. Retail sector is a sunrise industry in India and the prospect for growth is simply huge. There are many factors that have stimulated the rise of

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Organized Retail in India, Challenges and Prospects the shopping centers and multiplex-malls in a jiffy. Some of them can be listed as follows:

1) Rise in the purchasing power of Indians- the rise in the per capita income in the last few years has been magnificent. This has led to the generation of insatiable wants of the upper and middle class. The demand of new as well as second hand durables has risen throughout the country thus providing the incentive for taking up retailing.

2. Favorable to farmersretailing has helped in removing the middlemen and has thus enhanced the remuneration to farmers. This is a new revolution in the agricultural sector in India and will go a long way in amending the condition of agriculture, a major concern among policy makers.

3. Use of credit- a typical Indian is most conversant with using credit cards than carrying money. This has led to a shift of the consumer base towards supermarkets and make the payments in the form of credit.

4. Comfortable Atmosphere-

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Organized Retail in India, Challenges and Prospects a visit to a retail store appears to be more soothing for the generation-Y. People and kids prefer to shop in an air conditioned a tech savvy manner. The retail industry is the second largest employer in India. It currently employs about 7 percent of the total labor force in India. Finance Minister P. Chidambaram's recent statement “salaries ought not be legislated” is a welcome move as most of the organized retail is in private hands. However only about 4.6% of the total retail trade is in organized sector. It generates about Rs.55,000 crore ($12.4 billion). The major and minor players desperately need to work hard in this direction so that next time the figures look more decent. The government must also make an attempt to ameliorate the situation as political instability and infrastructure namely power and roads are the major roadblocks in the path of smooth functioning of the market.

Retail Vs Organized landscape in India

Retailing in India is emerging as one of the largest industries, with a total market size of USD 320 billion in 2006 and growing at a healthy CAGR of 5 per cent till date. Rising incomes and increased con sumerism in urban areas along with an upswing in rural consumption will further fuel this growth to around 7-8 per cent. This driver is further illustrated in the statistic (Fig. 1.1) that the percentage of people in urban areas in India has been growing steadily to reach 29 per cent from just 17 per cent fifty years ago.

In addition, India has been ranked as the most attractive market for global retailers to enter now, according to A.T. Kearney's Global Retail Development Index

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Organized Retail in India, Challenges and Prospects

Fig. 1.1

(GRDI) for 2006 (Fig. 1.2). The GRDI is conducted annually to follow the attractiveness of top emerging markets for retail. For the past five years, A.T. Kearney has helped retailers prioritize their global development strategies by publishing the GRDI. The Index ranks 30 emerging countries based on more than 25 macroeconomic and retail-specific variables.

Many factors contribute to India being the most attractive retail target market. A stable democracy provides an economic and social background that comforts big international organizations. On the economic front, the country has seen over 7% GDP growth for the last few years, driving increasing prosperity and consumerism. A look at India's demographics further lends credibility to the retail story. India's consumer market today encompasses over 400 million people with rising disposable incomes. Population shifts towards urban areas and income shifts towards higher income classes are key factors driving consumerism. Also higher incomes are now in the hands of a younger population with lesser dependencies. This implies Fig. 1.3

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Organized Retail in India, Challenges and Prospects

more income available for spending rather than for savings and investment. Can any retailer now afford to miss this story?

Another important factor announcing India's signifcance for retailers is the current optimal stage of readiness within India for retail and for the entry of retailers.

Retail markets worldwide have been observed to progress through four stages as they evolve from an emerging to a mature market, usually over the course of 5 to 10 years (Fig. 1.3). These stages are defined as:

1.

Opening: A market that is just beginning its modern retail story, in all

major cities. 2.

Peaking: A market that is developing quickly and is ready for modern

retail. 3.

Declining: A market that is still big and growing, but space for new

entrants is getting tighter.

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Organized Retail in India, Challenges and Prospects 4.

Closing: A market having small window of opportunity for new entrants;

such markets generally have a very high penetration of modern retail.

The above figure shows that key Asian economies, viz. India and Vietnam are in the peaking phase, while China has just tipped into declining. This means that the next one to three years are the best time for foreign retailers to enter India. They cannot wait for the government to set things in order. While the government has announced some benefits for foreign retailers by allowing them to own up to 51 per cent of a single brand retail company, the relaxed regulations do not extend to retailers that sell a variety of brands. India's government seems to be on a gradual but definite path towards allowing foreign retailers into the country. And when it takes the final steps, the peak time to enter will quickly pass, giving retailers that enter now a distinct edge. Different global retailers are

Fig. 1.4

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Organized Retail in India, Challenges and Prospects in talks to identify the best mode of entry in India – we believe it is time for them to enter, through means allowed by the Indian government. Already domestic retailers and conglomerates are venturing into retail, e.g. Reliance and Birla, to stake out ground in the emerging market prior to the entry of international players. International retailers should adopt the strategy undertaken by the likes of Metro and Tesco in starting to test the market conditions and initializing the process for an imminent deep dive. Because if they wait any longer, they may see a repetition of the China story where many retailers missed the bus, as the market saturated before they could get their acts together.

Given the attractiveness of the Indian market for retailit is no wonder that retailing already accounts for 39 per cent of India's GDP, which is quite a significant proportion if compared with other developed and developing economies. However the proportion of retailing which is in the organized sector is still a very small portion, with penetration at 6 per cent (Fig. 1.4).

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Organized Retail in India, Challenges and Prospects

Organized retail itself has been growing at a freneticpace and this growth is expected to continue at a blistering rate of approximately 35 per cent per annum till 2010.

Retail as a whole can be broken into categories,depending on the type of products serviced. For India, food and groceries form the biggest category in the retail pie (Fig. 1.5), accounting for close to 70%. However this category has the lowest organized retail penetration of 1%, which is indicative of the greater opportunity available for organized retail and also explains why so many retailers have plans for this category in the pipeline. In comparison,

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Organized Retail in India, Challenges and Prospects footwear and clothing segments boast the highest penetration of organized retail, as international brands like Nike, Reebok and Levis had started setting up shop almost a decade ago. This segment may see further activity,

Key issues in the way of retail growth in India:-

An analysis of the retail landscape across India highlights ten key issues that hinder development of the sector. Since these issues can be pertinent for the retail sector specifically or for the overall Indian industry, they were rated based on their importance for the retail sector and the Indian industrial sector. The origin of these issues and hence their ownership lies with different stakeholders. Therefore, these issues were also rated based on the extent to which government and industry could control them. A 2 x 2 matrix was subsequently created which used the two dimensions to segment the issues. The issues were then classified into four categories: Generic infrastructure issues - These are environmental challenges faced by the Indian industry as a whole and some of the issues like underdeveloped supply chain are critical for retail sector. Fig. -

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects

Generic policy issues - They are issues affecting the industrial sector that are shaped by government policies. Some of these issues like real estate hurdles can have significant impact on the growth of the retail sector Specific infrastructure issues- Issues that are specific to the retail sector and are also controlled by it comprise this category. Since the retail industry can affect these issues, they are very critical from the industry perspective. Specific policy issues - Retail sector specific policies like sector incentives fall into this category.

The key issues are outlined below: Underdeveloped Supply Chain

-

The

country

lacks

quality

logistics

infrastructure which hinders scaling up of retailing operations. Inadequate Utilities - Lack of basic infrastructure like power, transport and communication

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Organized Retail in India, Challenges and Prospects creates difficulty in sustaining retail operations across the large geographical spread of country. IT Infrastructure Hurdles - Reliable IT infrastructure is important for managing modern supply chains which are the backbone of any retailing business and India faces a clear problem in this area as the non-urban areas have limited IT infra structure. Real Estate Hurdles

- Archaic laws prevent the much needed growth in

real estate development, which is imperative for retail growth.Taxation Hurdles - The tax structure in India is still complex and evolving, creating challenges for retailers.

Inadequate Human Resources - There is hardly any systematic effort to train manpower for the retail sector, which can create a bottleneck for growth. Limited Consumer Insights

- There is limited knowledge about the

consumer behavior due to limited market research conducted on the huge population in towns and rural areas. Insufficient Government Incentives

- Government is yet to create any

major sector specific policies to boost the retail sector. Policy Related Hurdles - The policy environment in India is complex, creating challenges

for

growth

and

establishment

of

new

business.Generic

infrastructure issues

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Organized Retail in India, Challenges and Prospects Supply chain, utilities and IT infrastructure hurdles are generic infrastructure issues that will be addressed by the natural evolution of the industry. Supply chain is a key bottleneck for retail sectorgrowth. There are multiple benefits of proper cold storage facilities. Inadequate Utilities

Inadequate Utilitiesstructure in roads, rail and ports. We also have a highly fragmented trucking industry and absence of reliable, national service providers. Accordingly supply chain management (SCM) systems have very low penetration. India also lacks national level distribution networks and hubs. Fragmented supplier network in rural areas lead to multiple levels of product handling. Also consumer product companies are more focused on front end distribution and hence the distribution model is more robust in urban areas with high consumer concentration. While studying Indian states, we found there are no standard best practices in India -Maharashtra and Tamil Nadu have the best road and rail network in India respectively, while West Bengal has the maximum cold storage capacity in India. Globally, a better logistics infrastructure is sustained through road maintenance and capacity utilization of the rail network and this is particularly true in developed countries like the US. There are also several specialized refrigerated

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Organized Retail in India, Challenges and Prospects

Consumer of organized retail

The Indian consumer has undergone a remarkable transformation. Just a decade or two ago, the Indian consumer saved most of his income, purchased the bare necessities and rarely indulged himself. Today, armed with a higher income, credit cards, exposure to the shopping culture of the west and a desire to improve his standard of living, the Indian consumer is spending like never before. Organized retail with its variety of products and multitude of malls and supermarkets is fueling his addiction. His new mentality, in turn, is fueling the growth of organized retail in India.

Young Shoppers

India’s population is young, very young (See Exhibit 6 for India’s bottomheavy age pyramid and Exhibit 7 for age-data for the populations of several countries). Most consumers have grown up with television, the internet, and have been exposed to the standards of living and consumer culture abroad.

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Organized Retail in India, Challenges and Prospects This generation is also making money at a younger age and lots of it, thanks to call centers and other avenues of employment opening up that cater to students in college and schools. As a result they are ready to spend most, if not all of their income on apparel, accessories, and electronics.

Higher Incomes

Liberalization of the country’s economy has brought a number of employments opportunities. With the entry of a number of multinationals and the expansion of domestic corporations, job prospects in the country are looking up. As a result, incomes and consumption are projected to increase rapidly over the next couple of years (See Exhibit 8 for the personal disposable income and Exhibit 9 for the private consumption per head in India). This sets the stage for a very exciting and promising retail market in the future.

No Money, No Problem

The finance sector has already seen a huge expansion. Unlike a decade ago, credit cards and short-term loans have become easily accessible and have contributed to the emergence of a consumer culture in India. Credit card rewards schemes, flexible financing options and all the other common lures

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Organized Retail in India, Challenges and Prospects are tempting the Indian consumer to shop. With loans for everything from a home to an automobile freely available, the Indian consumer can start spending on big-ticket items that were traditionally within his reach only after years of savings. Urbanization

Growing urbanization is also responsible for the changing consumer psyche12. As urbanization spreads beyond the major cities, it converts the local population from net savers to net spenders. This is consistent with what has been observed in developing countries like Thailand, Malaysia and developed countries like U.S.A and the U.K.

Food retail in India

Though with a population of a billion and a middle class population of over 300 millions organized retailing (in the form of food retail chains) is still in its infancy in the Country.India has been rather slow in joining the Organized Retail Revolution that was rapidly transforming the economies in the other Asian Tigers. This was largely due to the excellent food retailing system that was established by the kirana (momand-pop) stores that continue meet with all the requirements of retail requirements albeit without the convenience of the shopping as provided by the retail chains; and also due to the highly fragmented food supply chain that is cloaked with several intermediaries (from farm-processor-distributorretailer)

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Organized Retail in India, Challenges and Prospects resulting in huge value loss and high costs. This supplemented with lack of developed food processing industry kept the organized chains out of the market place. The correction process is underway and the systems are being established for effective Business-to-Business (farmer-processor, processorretailer) solutions thereby leveraging the core competence of each player in the supply chain.

Fig-

Spread of Organized Retailing in India

Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly

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Organized Retail in India, Challenges and Prospects different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiri’s as early as 1904, the retail revolution happened with various major business houses foraying into the starting of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets,preliminarily. In the Indian context, a countrywide chain in food retailing is yet to be established as lots of Supply Chain issues need to be answered due to the vast expanse of the country and also diverse cultures that are present.

Retail Models in India: Current & Emerging

The Indian food retail market is characterized by several co-existing types and formats. These are:

1. The road side hawkers and the mobile (pushcart variety) retailers. 2. The kirana stores (the Indian equivalent of the mom-and-pop stores of the US), within which are: a. Open format more organized outlets b. Small to medium food retail outlets.

Modern trade – the organized retailers

Within modern trade, we have:

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Organized Retail in India, Challenges and Prospects

1. The discounter (Subhiksha, Apna Bazaar, Margin Free) 2. The value-for-money store (Nilgiris) 3. The experience shop (Foodworld, Trinethra) 4. The home delivery (Fabmart)

While the focus of this note is on modern organized retail trade, we hereunder present insights into the smaller, semi and unorganized retailers.

Hawkers – ‘mobile supermarkets’

The unorganized sector is characterized by the lari-galla vendors (also known as “mobile supermarket”) seen in every Indian bylane and is, therefore, difficult to track, measure and analyse. But they do know their business – these lowest cost retailers can be found wherever more than 10 Indians collect – a rural post office, a dusty roadside bus stop or a village square. As far as location is concerned, these retailers have succeeded beyond all doubt. They have neither village nor city-wide ambitions or plans – their aim is simply a long walk down the end of the next lane. This mode of “mobile retailers” is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of fresh foods in India occurs in Mandis and roadside hawker parks, which are usually illegal and entrenched. These are highly organized in their own way. Hawking of food products, cooked food and

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Organized Retail in India, Challenges and Prospects FMCG products is a very interesting model of retailing. Much has been written about these roadside “malls” – from social security issues to their nuisance value. However, if you put these hawkers together, they are akin to a large supermarket with little or no overheads and high degree of flexibility in merchandise, display, prices and turnover. While shopping ambience and the trust factor maybe missing, these hawkers sure have a system that works.

Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores are characterized by the more systematic buying – from the mandis or the farmers and selling – from fixed structures. Economies of scale are not yet realized in this format, but the front end is already visibly changing with the times. These stores have presented Indian companies with the challenge of servicing them, giving rise to distribution and cashflow cycles as never seen elsewhere in Asia. The model is very antithesis of modern retail in terms of the buyer (retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link the supply of one line of products to another slower moving line of products. These retailers are not organized in the manner that they could challenge the power of the sellers, most protests have been in the form of boycotts, which really haven’t hit any company permanently.

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Organized Retail in India, Challenges and Prospects

SWOT ANALYSIS:

A SWOT analysis of the Indian organized retail industry is presented below: STRENGTH:

1. Retailing is a "Technology-intensive" industry. It is technology that will help the organized retailers to score over the unorganized retailers. Successful organized retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and ultimately save cost. Example: Wal-Mart pioneered the concept of building competitive advantage through distribution & information systems in the retailing industry. They introduced two innovative logistics techniques – cross-docking and EDI (electronic data ennterchange)

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Organized Retail in India, Challenges and Prospects 2. On an average a super market stocks up to 5000 SKU's against a few hundred stocked with an average unorganized retailer. This will provide variety in products (required breadth & depth for consumers)

3. As a consequence of high volumes, procurement will be direct from the Manufacturer. Hence, merchandise can be offered at lower costs.

Weakness:

1. Less Conversion level: Despite high footfalls, the conversion ratio has been very low in the retail outlets in a mall as compared to the standalone counter parts. It is seen that actual conversions of footfall into sales for a mall outlet is approximately 20-25%. On the other hand, a high street store of retail chain has an average conversion of about 50-60%. As a result, a standalone store has a ROI (return on investment) of 25-30%; in contrast the retail majors are experiencing a ROI of 8-10%

2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandise mix for the mall outlets. Since the stand-alone outlets were established long time back, so they have stabilized in terms of footfalls & merchandise mix and thus have a higher customer loyalty base.

Opportunity:

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Organized Retail in India, Challenges and Prospects 1. The Indian middle class is already 30 Crore & is projected to grow to over 60 Crore by 2010 making India one of the largest consumer markets of the world. The IMAGES-KSA projections indicate that by 2015, India will have over 55 Crore people under the age of 20 - reflecting the enormous opportunities possible in the kids and teens retailing segment.

2. Organized retail is only 3% of the total retailing market in India. It is estimated to grow at the rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010. 3. Percolating down : In India it has been found out that the top 6 cities contribute for 66% of total organized retailing. While the metros have already been exploited, the focus has now been shifted towards the tier-II cities. The 'retail boom', 85% of which has so far been concentrated in the metros is beginning to percolate down to these smaller cities and towns. The contribution of these tier-II cities to total organized retailing sales is expected to grow to 20-25%. 4. Rural Retailing: India's huge rural population has caught the eye of the retailers looking for new areas of growth. ITC launched India's first rural mall "Chaupal Saga" offering a diverse range of products from FMCG to electronic goods to automobiles, attempting to provide farmers a one-stop destination for all their needs." Hariyali Bazar" is started by DCM Sriram group which provides farm related inputs & services. The Godrej group has launched the concept of 'agri-stores' named "Adhaar" which offers agricultural products such as fertilizers & animal feed along with the required knowledge for effective use of the same to the farmers. Pepsi on the other hand is experimenting with the farmers of Punjab for growing the right quality of tomato for its tomato purees & pastes.

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Organized Retail in India, Challenges and Prospects

Threats:

1. If the unorganized retailers are put together, they are parallel to a large supermarket with no or little overheads, high degree of flexibility in merchandise, display, prices and turnover.2. Shopping Culture: Shopping culture has not developed in India as yet. Even now malls are just a place to hang around with family and friends and largely confined to window-shopping. 3. Cultural Variation leads to variation in merchandise in India at different geographical locations.

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Organized Retail in India, Challenges and Prospects

RESEARCH DESIGN & METHODOLOGY A research design is the detailed blueprint used to guide a research study towards its objectives. The process of designing a research study involves many interrelated decisions. The most significant decision is the choice of research approach, because it determines how the information will be obtained. To design something also means to ensure that the pieces fit together. The process of research design makes it possible for a researcher to understand the process to be applied to continue the research. The research can be categorized into different research design :• • •

Exploratory Research Design Descriptive & Diagnostic Research Design Experimental Research Design

Since this research is related to the “ORGANIZED RATAIL IN INDIA-CHALLENGES & PROSPECTS.” So, I will put emphasis on Descriptive Research Design. ANALYSIS OF DATA I collected secondary data for my research. I collected information from yellow pages, books and magazines. Special care is required in collecting secondary data one of which is that the data must be collected from more than one source. This improves accuracy and efficiency of research formulation.

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Organized Retail in India, Challenges and Prospects

Bibliography: •

Newman J. Andrew & Cullen Peter, “ Retailing- Environment & Operations” Thomson Asia Pte. Ltd, Singapore

•

Vedamani G. Gibson, “ Retail Management- Functional Principles & Practices”, Jaico Publishing House

•

Pradhan Swapna, “ Retail Management- Text & Case Tata McGraw Hill Publishing Co. Ltd

•

Kotler Philip, Lane Kevin, Koshy Abraham, Jha Mithileshwar, “ Marketing Management- A South Asian Perspective”, Dorling Kindersley{India}Pvt. Ltd

References: • www.pdfcoke.com • www.logsiamag.com • www.scmr.com • www.indianmba.com • www.fibre2fashion.com Rishikesh Kuamr, Rai Business School, New Delhi

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Organized Retail in India, Challenges and Prospects • • • • • • • • • •

www.viaworld.in www.expresscomputeronline.com www.valuenotes.com www.nitine.blogspot.com www.indianretail.co www.omretail.com www.naukrihub.com www.etretailbiz.com www.euromonitor.com www.indianbusiness.nic.in

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Organized Retail in India, Challenges and Prospects

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Organized Retail in India, Challenges and Prospects Neha Singhal [email protected]

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