Indian Retail Market
Opening more doors
Presented By:-
Pradeept Kumar
Flow of presentation
 The Indian scenario
 Evolution of the FDI policy in
multi-brand retail
 Policy implications
 Pol...
Indian scenario
• The recent wave of reforms Foreign Direct
Investment (FDI)
 Allowing 51 per cent FDI in multi-brand
ret...
Indian Retail Market
424
518
869
0
100
200
300
400
500
600
700
800
900
1000
2010 2012 2015
InBillionUSDs
4
The Indian reta...
Indian Retail Market
5
60%
8%
6%
5%
4%
3%
3%
11%
Retail Market in India
Food and Grocery
Appareal
Mobile and telecom
Food ...
92%
8%
Retail Format
Unorganised Organised
Organised v/s Unorganised
6
33%
11%
11%8%
7%
6%
4%
20%
Organised
Apparel
Food A...
FDI in MBRT
MAY 2010
DIPP discussion
paper on FDI
JUNE 2011
DIPP
circulates
draft to COS
Union
Cabinet
passes 51%
FDI in M...
Policy
Policy draft in November 2011
• No mention of any time lines for
meeting 30% sourcing from
small segment
• No menti...
Implications
• A minimum FDI of USD 100 million and a maximum of 51% stake for
the foreign partner
 Implies that a minimu...
Continue…
• 30% sourcing from small industries
 A minimum of 30% sales from private labels or unbranded
products
• Curren...
Continue…
• Approval from the State Government is mandatory
 18 cities in India satisfies both the conditions
 >50% of e...
FDI in States
12
Existing national players in Mass Grocery
13
0
10
20
30
40
50
60
70
80
90
100
% Store in cities with >1 mn
population
% St...
Stakeholders at Stake
14
• Better choices
• Changes in
consumption
pattern
• Estate constraint
advantage
• Different value...
For Existing Retailers
• Improvement in supply chain
• No restriction on out-sourcing, e-commerce, location of
retail stor...
Macroeconomic Impact
• “Retail capabilities” will be bolstered
• Addresses supply chain constraints – a check on the infla...
Road ahead…..hurdles
Key challenges are high real estate rentals and an uncertain political environment of the country
Ava...
Clarification on certain policy features:
The policy note does not specify whether
investment in back end infrastructure n...
Political Risk:
The largest opposition party in India has
opposed FDI in retail and some of its
leaders have indicated tha...
Infrastructure Challenge:
Roads, ports, electricity are some
of the infrastructure
challenges, which increase the
operatio...
Way ahead……protection of domestic retailers
India is not one market:
• States differs in terms of culture, language, socio...
•On one hand, the policy exposes the domestic retailers to
competition from foreign retailers; while on the other hand, it...
Conclusion
FDI policy for single brand retail has
evolved as the Indian market
becomes more mature and the
political situa...
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Retail in india

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Retail environment in India

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Retail in india

  1. 1. Indian Retail Market Opening more doors Presented By:- Pradeept Kumar
  2. 2. Flow of presentation  The Indian scenario  Evolution of the FDI policy in multi-brand retail  Policy implications  Political landscape  Road ahead
  3. 3. Indian scenario • The recent wave of reforms Foreign Direct Investment (FDI)  Allowing 51 per cent FDI in multi-brand retail  Organized retail, 8 % of the total retail market, will grow much faster than traditional retail.  Various estimates put the share of organized retail as 20 per cent by 2020. 3
  4. 4. Indian Retail Market 424 518 869 0 100 200 300 400 500 600 700 800 900 1000 2010 2012 2015 InBillionUSDs 4 The Indian retail industry has experienced growth of 10.6% between 2010 and 2012 and is expected to increase to USD 750-850 billion by 2015
  5. 5. Indian Retail Market 5 60% 8% 6% 5% 4% 3% 3% 11% Retail Market in India Food and Grocery Appareal Mobile and telecom Food Service Jewellery Consumer Electronics Pharmacy Others Largest segment is of Food and Grocery
  6. 6. 92% 8% Retail Format Unorganised Organised Organised v/s Unorganised 6 33% 11% 11%8% 7% 6% 4% 20% Organised Apparel Food And Grocery Mobile And Telecom Consumer Electronics Food Service Apparel Retail is most organised
  7. 7. FDI in MBRT MAY 2010 DIPP discussion paper on FDI JUNE 2011 DIPP circulates draft to COS Union Cabinet passes 51% FDI in MBRT 7 AUG 2011 COS approved DIPP NOV 2011 MOC release press note for proposed FDI
  8. 8. Policy Policy draft in November 2011 • No mention of any time lines for meeting 30% sourcing from small segment • No mention of e-commerce • Only cities with population more than one million Policy notified in September 2012 • 5 year window was allowed to investors to achieve the 30% sourcing for the first time • Retail trading through e- commerce channel has been prohibited for companies with FDI in MBRT • In States / Union Territories not having cities with population exceeding 1 million, retail stores are allowed in large cities of the State’s choice 8
  9. 9. Implications • A minimum FDI of USD 100 million and a maximum of 51% stake for the foreign partner  Implies that a minimum of INR 1000cr investment from both the parties is required • 50% of the inflows in the backend infrastructure for the first three years • For Existing players: Mass Grocery - Manufacturing : Own processing centres for private label brands - Warehousing: Own distribution centres with cross dock facility -IT infrastructure: For Inventory management -Logistics: Own subsidiaries 9
  10. 10. Continue… • 30% sourcing from small industries  A minimum of 30% sales from private labels or unbranded products • Current Sourcing Practices:  From private labels : High margins  Direct sourcing from producers to economize on price and increase the margins • Only cities with more than one million population  Only 53 cities in India qualify under this condition 10
  11. 11. Continue… • Approval from the State Government is mandatory  18 cities in India satisfies both the conditions  >50% of existing retail stores in the states are not supporting  Access to significant markets  Limited cities – Limited markets - Reduces economy of scale • E-commerce not permissible 11
  12. 12. FDI in States 12
  13. 13. Existing national players in Mass Grocery 13 0 10 20 30 40 50 60 70 80 90 100 % Store in cities with >1 mn population % Store in cities with >1 mn population 0 5 10 15 20 25 30 35 40 45 50 % Store in cities with population >1mn & states supporting % Store in cities with population >1mn & states supporting
  14. 14. Stakeholders at Stake 14 • Better choices • Changes in consumption pattern • Estate constraint advantage • Different value proposition by both the retail forms • Large retailers- large markets • Reduce role of middlemen • Better price realization • Access to large markets Farmers SME segment Consumers Traditional retail
  15. 15. For Existing Retailers • Improvement in supply chain • No restriction on out-sourcing, e-commerce, location of retail store, investment in infrastructure, etc. 15
  16. 16. Macroeconomic Impact • “Retail capabilities” will be bolstered • Addresses supply chain constraints – a check on the inflatory pressures • Increased productivity and distribution efficiency • Use of higher technology in farming, storing, packaging – to address the supply side inflatory pressures • Hope for the future:  Traditional retails will survive on flexible credit option and convenient shopping locations  Saturation in urban markets will push retailers drive towards the bottom of the pyramid 16
  17. 17. Road ahead…..hurdles Key challenges are high real estate rentals and an uncertain political environment of the country Availability of Retail Space: Hypermarkets requires >60,000 sq. ft. and departmental stores >20,000 sq. ft. of space High rental cost: Its been quoted to be around 300-400 basis points higher than international rentals. Rents in prime properties have increased by 50 per cent in just three years. rentals comprise approx. 40 per cent of total cost of sales in the retail sector. 17
  18. 18. Clarification on certain policy features: The policy note does not specify whether investment in back end infrastructure needs to be a fresh investment or if foreign companies can buy stakes in already established backend infrastructure. Red Tape – Getting various government approvals: Entry of a multi-brand MNC retailer in the retail sector would fall under the approval route. 18
  19. 19. Political Risk: The largest opposition party in India has opposed FDI in retail and some of its leaders have indicated that they will scrap the policy if their party comes to power. •A political change in state and central governments puts a lot of political risk on investment in retail. Skilled Manpower: One of the major challenges is the availability of skilled manpower; any foreign retailer planning to enter India will have to face similar challenges. 19
  20. 20. Infrastructure Challenge: Roads, ports, electricity are some of the infrastructure challenges, which increase the operational cost of the retail chain. Currency Fluctuation: In the past three months, the dollar/INR exchange rate has fluctuated by approx. 8 per cent. This may put considerable currency risk on any foreign investment in India. 20
  21. 21. Way ahead……protection of domestic retailers India is not one market: • States differs in terms of culture, language, socio-economic development etc. • Different spending power results in different customer segment even within a state. • Makes it imperative to customize their offerings to suit regional Indian tastes. Real Estate Choice: Real estate choice at prime location and reasonable rentals is also critical. This is especially true for a multibrand retailer, which requires a large retail space. Private Label brand: To meet the policy guidelines on sourcing and to have better margins, foreign retailers would need to cultivate relationships with local manufacturers to drive strong private label brand. 21
  22. 22. •On one hand, the policy exposes the domestic retailers to competition from foreign retailers; while on the other hand, it seeks to safeguard them through a slew of protective measures. •FDI in multi-brand retail is a state subject and as per the policy, • e-commerce is not allowed as an alternate channel as it can serve the customer beyond the physical location of the store. •Restriction on foreign retailers from conducting multibrand retail in towns with population less than one Million & domestic retailers should now focus their efforts to expand their retail footprint. Way ahead……. for domestic retailers 22
  23. 23. Conclusion FDI policy for single brand retail has evolved as the Indian market becomes more mature and the political situation more stable. Similarly, FDI policy for multibrand retail or its implication on the business may also evolve in future. 23

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