Indian retail
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Indian retail

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Indian retail Indian retail Presentation Transcript

  • Foreign Direct Investment in Retail February 23, 2004
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • Retailing
      • World’s largest private industry
        • US$ 6.6 trillion sales annually
    • 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
    An overview Retailing: An overview *www.etretailbiz.com/dec2002
    • 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)
    • Fortune 100
      • 9 Retailers
      • Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’
    An overview Retailing: An overview *Fortune List of world’s top companies **Euromonitor India Retail Survey
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
  • Weekly Markets Village Fairs Melas Convenience Stores Mom and Pop/Kiranas PDS Outlets Khadi Stores Cooperatives Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls Traditional/Pervasive Reach Government Supported Historic/Rural Reach Modern Formats/ International Evolution of Indian retail Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency
    • Informal retailing Sector
      • Typically small retailers.
      • Evasion of taxes
        • Difficulty in enforcing tax collection mechanisms
      • No monitoring of labor laws
    • Formal Retailing Sector
      • Typically large retailers
      • Greater enforcement of taxation mechanisms
      • High level of labor usage monitoring
    Indian retail Evolution of Indian retail
    • 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
    Indian retail Categories of Indian retail
    • Modern Format retailers
      • Supermarkets (Foodworld)
      • Hypermarkets (Big Bazaar)
      • Department Stores (S Stop)
      • Specialty Chains (Ikea)
      • Company Owned Company Operated
    • Traditional Format Retailers
      • Kiranas: Traditional Mom and Pop Stores
      • Kiosks
      • Street Markets
      • Exclusive /Multiple Brand Outlets
    Indian retail Classifying Indian retail
    • Hypermarket
      • Big Bazaar
      • Giants
      • Shoprite
      • Star
    • Department store
      • Lifestyle
      • Pantaloons
      • Piramyds
      • Shoppers Stop
      • Trent
    • Entertainment
      • Fame Adlabs
      • Fun Republic
      • Inox
      • PVR
    Indian retailers Large Indian retailers
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • 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
    Indian consumer The changing Indian consumer † From Euromonitor Retail Survey
    • The urban consumer
      • Getting exposed to international lifestyles
      • Inclined to acquiring asset
      • More discerning and demanding than ever
    • 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
    Indian consumer The changing Indian consumer *Data from NCAER
    • 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 2003-2008
      • Sales from large format stores would rise by 24-49%**
      • Formal and modern format retailing would enjoy rapid growth
    Anticipated growth Anticipated growth *From ICICI Retail Report **From Euromonitor Retail Survey
    • Low domestic competition
      • Because of fragmented nature of industry
    • Lack of exposure to global best practices
      • Low entry barriers for unorganized retailing
      • Moderate entry barriers for organized retailing
    • Wholesale system under-invested leading to 20-40% wastage
    • Non level playing field issues
      • Wide differences in treatment of small and large retailers
    Industry dynamics Industry dynamics
    • Highly distorted real estate market
      • Pro-tenant laws
      • Zoning laws
        • Zoning laws also vary from state to state
      • Non-availability of government land, and fragmented private holdings makes it difficult for retailers to acquire land
        • Government is largest property owner in country
        • Urban Land Ceiling act is archaic
      • Stamp Duty and registration charges at high levels. Also vary from state to state
    RE issues Real estate issues
    • Growth determining factors
      • Government Policy
      • Infrastructure development
      • GDP growth
      • Employment generation and job creation
        • In several new sunrise industries
        • Implies greater purchasing power
    Growth factors Growth factors
    • India ranked 5th in the Global A.T Kearney Retail Development Index
      • Second only to China in Asia
      • Least saturated of all global markets studied
      • The least competitive of all global markets studied
        • Implies lower barriers of entry for global players
        • Considering tremendous market size, excellent potential for foreign players
    • India ranked 3 rd in the Global A T Kearney FDI Confidence Index in 2004
      • Improved from Rank 6 in Year 2003
    Advantage India The Indian advantage
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • 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 Retail not permitted FDI in Indian retailing
    • Metro Group of Germany
      • Cash-and-carry wholesale trading
      • Proposal faced strong opposition
    • 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
    Current FDI FDI in Indian retailing
    • 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
    How they are present 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
    • Wholesale trading
      • Cash and Carry operations
      • 100% FDI permitted
        • Metro Cash n Carry
    How they are present International retailers in India: Strategies
  • Agenda Retailing : An overview Indian retail FDI in Indian retailing Why FDI ? How FDI ? Incentives for FDI Case study : Chinese retail Recommendations
    • 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
    Benefits of FDI 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
    • 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
    Benefits of FDI Why FDI?
    • Manpower and skill development
      • Through retail training and
      • Greater managerial talent inflow from other countries
    • Tourism Development
      • A strong retailing sector boosts tourism as seen from the experience of Singapore and Dubai
    • Investment in whole supply chain
      • Improved product basket from India for exports
    • Long term benefits
      • Up-gradation of agriculture
      • Development of efficient small and medium size industries
    Benefits of FDI Why FDI?
  • Benefits to the government
    • Increase employment levels
      • FDI would result in market growth and expansion
      • Employment generated at various levels
        • Increased consumer demand implies employment generation across the value chain
      • Does not need very high skill sets
        • Needs high school graduates and other similar skill levels
        • Currently this is a majorly unemployed demographic group
      • Boom in employment
        • Similar to job generation in ITES industry
        • On a much larger scale
        • But new jobs comparatively lower down the value chain
    Benefits to govt. Benefits to the government
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • FDI should be allowed in stages
      • Initial stages: 26% FDI
      • Establishment Phase: 49% FDI
      • Mature Phase: 100% FDI
    • 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
    How FDI ? How FDI ? 2 yrs 2 yrs 2 yrs
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why and why not FDI ? How FDI ? Case study : Chinese retailing Recommendations
    • FDI permitted in 1992. 40 foreign retailers have secured approval
      • Retail sales have grown@13.5% CAGR since FDI was permitted
    • FDI initially restricted to 6 major cities (including Beijing, Shanghai and Guangzhou) and SEZs
    • Foreign ownership initially restricted to 49%
    • US$ 22 bn of FDI attracted, 3.6% of total FDI
      • In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around 30% of our total FDI in 2003)
    • Current restrictions on FDI will be phased out over 5 years as condition of WTO entry
    Chinese retailing Case study : Chinese retailing
  • 7 8 8 0 8 5 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 75 150 225 300 375 US$ bn Total wholesale and retail trade
    • Retail sales grew @ 19.6% CAGR for the next 4 years after the introduction of FDI in 1992
    Years FDI in retail allowed
  • China: The effect of FDI
    • Modern formats have grown after FDI
    • But so have traditional players
    593 Hypermarkets 18,091 Convenience 152,194 13,079 Supermarkets 2,565,028 1,920,604  Traditional No. of stores in 2001 No. of stores in 1996 Type
  • Employment in retailing is increasing Source : China Statistical Yearbook 2001
    • Walmart
      • Entered Chinese market in 1996
      • Has 43 stores in 19 cities as on date
      • Had sales of US$ 704 mn in 2003
      • Has employed more than 20,000 people
      • Has paid taxes of US$ 111 mn in total*
    • Carrefour
      • Has 54 stores as on date
      • Had sales of US$ 1.6 bn in 2003*
    Chinese retailing Case study : Chinese retailing Source : company websites
    • Strong evidence in favor of FDI
      • FDI improves the entire size of the industry
        • Retailing in China has grown at a compound rate of 15% per annum after FDI inflow
      • Employment growth
      • Evolution of modern formats
      • Local players can survive and even beat foreign competition
        • Need for a strong retailing industry in India
      • Scale is the key to success for local retailers
    Lessons from China Lessons from China
  • Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? Case study : Chinese retail Recommendations
    • Grant industry status to retail
    • Permit FDI in Retail in phases
    • Invest in supply chain infrastructure
    • Ease distribution – infrastructure creation, octroi
    • Ensure single window clearance for retail chains
    • Organize market for real estate
      • Ensure proper rent laws
      • Enforce zoning laws and city development plan
      • Increase land supply
    • Ensure flexibility of labor laws
    Recommendations Recommendations
    • THANK YOU