Retail Ppt

Challenges & Opportunities in Indian Retail Industry

Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ?

FDI in Indian retailing

Retailing: An overview

An overview

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Retailing  World’s largest private industry US$ 6.6 trillion sales annually

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Indian retailing  Largest employer after agriculture 8%* of population  Highest outlet density in world Around 12 mn outlets  Still evolving as an industry Long way to go

Retailing: An overview 

Wal-Mart  Topmost global Fortune 500 company(3 Consecutive Years)  Annual Sales of over US$ 250 bn  India’s two largest retail player turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop)

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Fortune 100  9 Retailers  Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’

An overview

Evolution of Indian retail Historic/Rural Reach

Traditional/Perva sive Reach

Government Supported

PDS Outlets Khadi Stores Cooperatives

Weekly Markets Village Fairs Melas Source of Entertainmen t

Modern Formats/ International

Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls

Convenience Stores Mom and Pop/Kiranas

Neighborhood Stores/Convenie nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie ncy

Evolution of Indian retail 

Indian retail 

Informal retailing Sector  Typically small retailers.  Evasion of taxes  Difficulty in enforcing collection mechanisms  No monitoring of labor laws

tax

Formal Retailing Sector  Typically large retailers  Greater enforcement of taxation mechanisms  High level of labor usage monitoring

Categories of Indian retail 

Indian retail 

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Corporate Houses  Tatas: Tata Trent  RPG group: Food World, Health and Glow, etc  ITC: Wills Life Style  Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc. Dedicated brand outlets  Nike, Reebok, Zodiac etc Multi-brand outlets  Vijay Sales, Viveks etc Manufacturers/ Exporters  Pantaloons, Bata, Weekender

Classifying Indian retail 

Modern Format retailers  Supermarkets (Foodworld)  Hypermarkets (Big Bazaar)  Department Stores (S Stop)  Specialty Chains (Ikea)  Company Owned Company Operated

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Traditional Format Retailers  Kiranas: Traditional Mom and Pop Stores  Kiosks  Street Markets  Exclusive /Multiple Brand Outlets

Indian retail

Large Indian retailers 

Hypermarket    

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Department store 

Indian retailers

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Big Bazaar Giants Shoprite Star Lifestyle Pantaloons Pyramids Shoppers Stop Trent

Entertainment    

Fame Adlabs Fun Republic Inox PVR

The changing Indian consumer 

Indian consumer

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Greater per capita income  Increase in disposable income of middle class households  20.9%* growth in real disposable income in ’99-’03. Growing high and middle income population  Growing at a pace of over 10%* per annum over last decade Affordability growth  Falling interest rates  Easier consumer credit  Greater variety and quality at all price points

The changing Indian consumer

Indian consumer

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The urban consumer  Getting exposed to international lifestyles  Inclined to acquiring asset  More discerning and demanding than ever

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No longer need-based shopping  Shopping is a family experience Changing Mindset  Increasing tendency to spend  Post Liberalization children coming of age 100 mn 17-21 year olds*. Tend to spend freely. Greater levels of education

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Challenges in the Industry Low domestic competition

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Because of fragmented nature of industry

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Lack of exposure to global best practices  Low entry barriers for unorganized retailing  Moderate entry barriers for organized retailing

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Wholesale system under-invested leading to 20-40% wastage

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Non level playing field issues  Wide differences in treatment of small and large retailers

Industry Challenges

Challenges……

issues

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Real Estate Costs

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Supply Chain Inconsistency

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Poor Infrastructure

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Lack of Skilled Manpower

Opportunities 

Anticipated growth

Market size  Current market size is roughly US$ 286 bn*  96% of the 12 Million stores are less than 500 Sq. ft.  Forecast Growth rate for the retailing industry is roughly 8.3% for 20032008  Sales from large format stores would rise by 24-49%**  Formal and modern format retailing would enjoy rapid growth

Growth factors

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Growth factors

Growth determining factors  Government Policy  Infrastructure development  GDP growth  Employment generation and job creation In several new sunrise industries Implies greater purchasing power

The Indian advantage

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Advantage India

India ranked 1st in the Global Kearney Retail Development Index India

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Russia

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China

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A.T

THE SIZE OF THE OPPORTUNITY Products

Total Retail

Organised

Organised

Rs. Billion

Retail

Retail as %

Rs. Billion

of Total

Food & Grocery

6422

50

1

Textiles & Apparel

980

185

19

Jewelry & Watches

554

30

5

Consumer durables

415

43

10

Pharmaceuticals

364

10

3

Home Solutions

351

32

9

Books, Music & Gifts

115

15

13

Others

1159

111

10

10360

476

5

Total

FDI in Indian retailing 

FDI in Retail not permitted

Current Indian FDI Regime  FDI not permitted in retail trade sector, except in:  Private labels  Hi-Tech items / items requiring specialized after sales service  Medical and diagnostic items  Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator)  For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

FDI in Indian retailing

Current FDI

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Metro Group of Germany  Cash-and-carry wholesale trading  Proposal faced strong opposition

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Entities established prior to 1997  Allowed to continue with their existing foreign equity components.  No FDI restrictions in the retail sector pre-1997  Foodworld  51:49 JV between RPG and Dairy Farm International,  Leading food retailer in India now  Mc Donalds

International retailers in India: Strategies 

How they are present 

Franchise  International company gives name and technology to local partner. Gets royalty in return  In case master franchise is appointed for region or country, he has right to appoint local franchisees Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango Manufacturing  Company sets up Indian arm for production  Bata India. It also has right to retail in India

International retailers in India: Strategies 

Distribution  International company sets up local distribution office  Supply products to Indian retailers to sell  Also set up franchised outlets for brand Swarovski, Hugo Boss

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Wholesale trading  Cash and Carry operations  100% FDI permitted  Metro Cash n Carry

How they are present

Why FDI?   

Benefits of FDI

Improve competition Develop the market Greater level of exports due to increased sourcing by major players  Sourcing by Wal-Mart from China improved multifold after FDI permitted in China  Similar increase in sourcing observed for Metro in India  Provides access to global markets for Indian producers

Why FDI? 

Investment in technology Cold storage chains solve the perennial problem of wastage  Greater investment in the food processing sector technology  Better operations in production cycle and distribution 

Benefits of FDI

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Better lifestyle Greater level of wages paid by international players usually  More product variety  Newer product categories  Economies of scale to help lower consumer price  Increased purchasing capacity of consumers 

How FDI ? 

How FDI ? 

FDI should be allowed in stages  Initial stages: 26% FDI

2 yrs

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Establishment Phase: 49% FDI 2 yrs

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Mature Phase: 100% FDI

2 yrs

FDI policy  No incentives needed to attract FDI  Market size and potential are sufficient inducers  No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements

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