51% 55% Rural India 42% Urban IndiaOn average in 2004, Indian consumers spent about 51 per cent of their total expenditure on food; inrural areas, that figure was about 55 per cent and in urban areas it was 42 per cent according to theNational Sample Survey (Planning Commission 2004).
Most Indians are very price sensitive. Any pressure on prices, especially for food, gets the immediateattention of policymakers. For example, the onion crisis in the summer of 1998 paved the way for theexit of the ruling government at that time (Desai 1999).The emergence of organized retail undoubtedly gives consumers a wider choice of goods, moreconvenience, and a better shopping environment, among other benefits. This is feasible becauseorganized retail can take several formats, from small neighbourhood stores in densely populated citieswith high real estate prices to large air-conditioned malls in the periphery where real estate is cheaper.Organized retail can appear small but spread in all local markets, providing the convenience of aneighbourhood kirana store but with procurement on a mass scale that keeps prices low and providesgreater variety. With a reasonably long history of organized retail, the United States has shown thatmany organized retailers have been able to hold retail prices down, especially for mass-consumptiongoods. Fishman (2006) shows that retailers like Wal-Mart have held the US inflation rate down by atleast one percentage point (normal inflation hovers around 2–4 per cent). The success of such retailersto hold the price line comes largely from their efficient national and global sourcing and scaleeconomies. In India, given a very large price-sensitive population, holding the price line for a largemass of consumers could be a great boon to consumer welfare.
Impact on Unorganized Retailers Impact on Consumers• Unorganized retailers in the vicinity of organized retailers • Consumers have definitely gained from organized retail onexperienced a decline in their volume of business and profit in multiple counts.the initial years after the entry of large organized retailers. • Overall consumer spending has increased with the entry of• The adverse impact on sales and profit weakens over time. the organized retail.• There was no evidence of a decline in overall employment in • While all income groups saved through organized retailthe unorganized sector as a result of the entry of organized purchases, the survey revealed that lower income consumersretailers. saved more. Thus, organized retail is relatively more beneficial• There is some decline in employment in the North and West to the less well-off consumers.regions which, however, also weakens over time. • Proximity is a major comparative advantage of unorganized• The rate of closure of unorganized retail shops in gross outlets.terms is found to be 4.2 per cent per annum which is much • Unorganized retailers have significant competitive strengthslower than the international rate of closure of small that include consumer goodwill, credit sales, amenability tobusinesses. bargaining, ability to sell loose items, convenient timings, and• The rate of closure on account of competition from home delivery.organized retail is lower still at 1.7 per cent per annum.• There is competitive response from traditional retailersthrough improved business practices and technologyupgradation.• A majority of unorganized retailers is keen to stay in the Impact on Intermediariesbusiness and compete, while also wanting the next generation • There is some adverse impact on turnover and profit ofto continue likewise. intermediaries dealing in products such as, fruit, vegetables,• Small retailers have been extending more credit to attract and apparel.and retain customers. • Over two-thirds of the intermediaries plan to expand their• However, only 12 per cent of unorganized retailers have businesses in response to increased business opportunitiesaccess to institutional credit and 37 per cent felt the need for opened by the expansion of retail.better access to commercial bank credit. • Only 22 per cent do not want the next generation to enter• Most unorganized retailers are committed to remaining the same business.independent and barely 10 per cent preferred to becomefranchisees of organized retailers.
Impact on Farmers Impact on Manufacturers • Farmers benefit significantly from the option of direct sales to • Large manufacturers have started feeling the competitive organized retailers. impact of organized retail through price and payment • Average price realization for cauliflower farmers selling pressures. directly to organized retail is about 25 per cent higher than • Manufacturers have responded through building and their proceeds from sale to regulated government mandi. reinforcing their brand strength, increasing their own retail • Profit realization for farmers selling directly to organized presence, ‘adopting’ small retailers, and setting up dedicated retailers is about 60 per cent higher than that received from teams to deal with modern retailers. selling in the mandi • Entry of organized retail is transforming the logistics industry. • The difference is even larger when the amount charged by This will create significant positive externalities across the the commission agent (usually 10 per cent of sale price) in the economy. mandi is taken into account. • Small manufacturers did not report any significant impact of organized retail.Direction 1Future of food and grocery retail experience in India :Getting organized retail to grow in Indian market on the basis of understanding of strengths of unorganizedsector (e.g. kirana stores know the beat of consumer, they have advantage of location accessibility – can weunderstand these advantages for consumer and integrate it with organized retail?)
Direction 2 Can we relook this process of payment and retail invoice/ bills from a customer’s point of view? Apps like Moneybook, Birdy etc. aim to do the same thing but most of them look like they are meant for business users, can we find a more home based purchases, managing everyday transactions – quick and hassle free, with not a lot of technology involvedShopping DiaryClockwise from the top: Movie ticket, things I buy using my credit card, my bankstatement, electricity bill
Online Retail in India (Inforgraphic file attached)Direction 3 :Understanding the scope of online retail in India, perceptions related to it, what is acceptable as onlinepurchase and what needs to be purchased only from a shop, inhibitions related to mobile/ onlineshopping.
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