Decoding Market Evolution: RLS 2014
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This document summarizes the evolution of the Indian retail market. It analyzes past trends, current shopping behaviors, and emerging trends that are transforming how and where Indians shop. Key drivers of change include rising GDP and employment, an expanding middle class, urbanization, growing infrastructure, new technologies, increased media reach, the rise of modern trade formats, foreign direct investment in retail, the growth of e-tailing, active brand engagement, rising brand consciousness, and the evolution of traditional trade models.
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Decoding Market Evolution: RLS 2014
- 2. What is evolution? Process of Transformation Analyze the Past Evaluate Trends Decipher the future
- 3. The beauty of evolution
- 4. Evolution of Indian Retail
- 5. How and where Indians Shop Small Kirana Large Kirana Share of Trips Main Shopping Meal for Today Others Chemist Modern Retail Share of Spends Top Up Shopping Emergency Shopping Fancy E-Tailing
- 6. Change Agent: GDP Growth 12% to GDP 8% to Employment
- 7. Change Agent: LSM Shift Seekers and Strivers Aspirers Deprived India getting affluent Rapid increase in middle and upper middle class Opportunities for Brands Opportunity to build new categories
- 8. Change Agent: Non Food & Grocery Spends
- 12. Change Agent: Media Reach
- 13. Change Agent: Modern Trade
- 14. Emerging Trend: FDI in Retail
- 15. Emerging Trend: E-Tailing at Inflection Point
- 16. Emerging Trend: Active Brand Engagement
- 18. Continuing Trend: Evolution of Trade
- 19. Summary
Editor's Notes
- Evolution is specification of an ongoing process of transformationIt is easy to decipher it after it has happened, but not impossible to decipher it as it is happeningWe use the past and the currents we see impacting the present, to decipher what the future will look like
- Every now and then, an unexpected shift or trend causes best laid plans to go waste as either the pace or the direction of evolution changes dramaticallyIn 1894, a paper called Horse Manure Crisis was urgently tabled, where people worried that the rate at which growing affluence in Britain was leading to more horse drawn carriages, the horse dung could soon raise up to the moon. Solutions were sought to solve the horse dung problem, but none was found, not even till today.Of course, it wasn’t necessary, because James Watt invented the Steam Engine and the incidence of horse drawn carriages went down dramatically!
- Indian Retail is evolving at such a rapid pace that any discourse on its evolution is tinged with an after taste of being dated before its completionHUL has been in India for about 80 years now, and we can safely say that the pace of evolution in recent times means that we have seen more change in the past 10 years than the previous 70 put together!
- Before we get on to go through the agents of market evolution in India, lets spend some time in understanding on the how and why of shopping in India.Shopping is part of life as people shop to live though we might believe the other wayIndians undertake a large no. of small trips for food and fmcg with appox one shopping trip per day (27 in the month). The average spend is Rs 137. The also underscores the point that shopping is integral part of household daily routine.But spends are concentrated around main shopping and top up that has more than 2/3rd of spends in 1/3rd of the total trips. Depending on what trip people take they chose their shopping channel. So, bulk of the small trips go to small kirana while Large Kirana and MT are overindexed on main shopping mission. Understanding the shopping purpose is the key to get the shopper proposition right for a retailer. The next door shopkeeper understands that and hence continues to do well.
- With 12% contribution to GDP and 8% contribution to the employment, the story of Indian Retail can not be separated from the story of India.The rapid growth witnessed in the country was the originator of several other trends which have shaped Retail immeasurably
- With the economy taking off on to a higher growth trajectory, the LSM composition of Indian households shifted from an usual pyramid to a diamond, with a huge chunk of new movers into the LSM 5+ Category, opening up opportunities for many brands and categories to rapidly increase both penetration and consumptions.While LSM 5+ has moved from 25% of the urban population to 57% in 2004-9, LSM 8+ has moved 4.5% to 11.5% of the population. In absolute terms the LSM 8+ HH have tripled in five years with CAGR of 25% against a CAGR of 21% for LSM 5-7 and overall 3.4% for the total urban households. This means that in by 2013 LSM 8+ would become 25% of the urban population, implying a rapidly ballooning upper middle class amenable to consume more.We daily witness this change. In our sinks the liquid handwash is now omni present in upper middle class homes, which wasn’t the case 5 years back. Simultaneously by building handwashing habit in rural we are not only protecting lives but also increasing bar soap consumption.
- As people get affluent the spending shifts from Food & Grocery, which constituted 70% share of shopper wallet more towards the space of health, beauty, consumer electronics and entertainment . This also explains the rapid growth in channels like Chemist and Fancy, that were earlier specialist channels dealing in limited FMCG products but are now stocking 35% more FMCG category and SKUs than they were doing some 5 years back
- Today India has 42 cities with population of more than a million. It is expected to go up to 68 cities by 2030. This would have 6 mega cities with populations of 10 million plus and 13 cities with more than 4 million residents. Urbanization will be accompanied by a 3 to 7 fold increase in total GDP and a 4 to 8 fold increase in urban GDP in every state by 2030.McKinsey global institute projects that the population of India’s cities will increase from 340 million in 2008 to 590 million by 2030—40% of India’s total population i.e. we will witness over the next 20 years an urban transformation the scale and speed of which has not happened anywhere in the world except in China.Jawaharlal Nehru National Urban Renewal Mission(JNNURM) . JNURM has identified 63 cities that would lead urbanization trend in the country. Similarly MGI has also identified 19 city clusters/corridors covering 57 cities that would act like magnets for urbanization.Also 20 cr rural Indians who live in the proximity of the India’s 70 largest city would benefit from spread of urbanization and have an estimated 10 to 20% higher monthly incomes than the rural average.With the lines between Urban & Rural sharply blurring due to rapid Urbanization and expanding Urban agglomerates it provides great opportunity for marketers and retailers to physically reach a greater proportion of population and income through focused approach. Also the windfall capital gains due to land price hike would add to the wealth here. Access to urban centres and high media penetration would lead to consumption behaviours that are “urban” in nature.
- Even as improved Infrastructure improved Quality of Life, with road connectivity improving Mobility and making Urbanization possible, it has resulted in stress on existing Urban infrastructure, thereby reducing mobility within the agglomerates and retaining relevance for channels of accessibility. Cost of doing business in base metros would go up due to infrastructure bottlenecks and the tier 2 and 3 towns presents a key opportunity in terms of higher growths. We have noticed that between 2008 and 2012 no. of shopping trips in urban India are consolidating due to high inflation and stress on time in larger metros where daily commute time has gone up by 30%.
- Often one of the biggest influences on any evolution, the advent of technology particularly proliferation of mobile phones, then internet, then smart phones and the increasing penetration of Television each caused a seismic shift in the shopper interaction with brands and point of sale. The result is a more evolved and informed shopper whose definition of value is also evolving. The definition of a “good deal” is different even between a lower middle class housewife and her college going young daughter so does there preferred channel of shopping.
- Due to explosion in digital media channels the marketers now have the opportunity to customize the message for every individual consumer. However, it also poses a challenge as it is leading to rapid fragmentation of media channels. In this context both instore as well as E commerce become important as they integrate purchase channel with communication channel.
- The advent of Modern Retail, followed by Modern RTM Formats in Cash & Carry and the rapidly increased penetration of Organized Retail caused shopping to become an experience rather than a transaction and with huge assortment under one roof, cornered a good chunk of the Main Shopping missions and mission like special offers and treat for myself leading to newer category adoption and increased category consumption.
- The advent of FDI in Single & Multi Branded Retail will drive expansion of Modern Retail more and more into Tier III & IV cities, bringing the shopping as an experience concept to the doorstep of more shoppers and activating several category needs and shopping missions. The question is when and not if this would take off in India as this is going to be crucial in creating an efficient supply chain back bone in the country. We expect this to really take off post elections.
- E-Tailing will do to the industry in the next 5 years what Modern Trade has done in the last 15 years.Companies and Channels alike will have to evolve from a selling approach or activation at a sales channel to also doing sales at a predominantly consumer interaction and activation channels
- Consumers ability to filter out unwanted brand intrusions are at an all time high with advent of DVRs and Digital, and will only increase at a rapid paceBrands will have to work hard to engage with consumers where they want, how they want and in store will become one of the most critical channels for active brand interaction and engagement. Hence we see category management and joint marketing plans with retailers as an essential means to fire up consumption leading to synergistic same store growths.
- In the Indian shopper decision hierarchy brands are the top most purchase driver. Hence it is incumbent on both marketers as well as retailers to serve the shopper by giving her the brand access as that leads to store loyalty through a satisfied shopper who would otherwise go to another store to buy her favorite brand.
- India is an unique position where the growth story is such that all channels can grow in tandem for at least another 20 yearsHowever, Traditional Retail will have to react to the changing scenario on a war footing and those retailers who are willing to change and evolve will be more successful than the othersThe Small Kirana will retain relevance through accessibility for Top Up Shopping Mission but should evolve its layout to allow for greater shopper interaction with Categories to emerge with greater share of wallet via activating newer shopping missions like Meal For Today & Treat for myselfThe Large Kirana will have to evolve look, feel and amenities to match Modern Retail experience while adding Value Added Services like Home Delivery, Credit, Loyalty Programs etc as they fight to retain the Main Shopping Missions and capture a share of the other missionsThe Wholesale will consolidate or fragment basis local response to Cash & Carry. Where Wholesalers move to add Value Added Services like Credit, Delivery and increase Assortment, apart from retaining rate competitiveness on predominantly unbranded categories, Wholesale will see a consolidation. Where Wholesalers retain relevance only through reach and local knowledge, Wholesale could see a further fragmentation.Modern trade retailers will also have to constantly keep on redefining themselves as when the newness of the format fades and price comparing becomes the order of the day what is the USP that differentiates two MT retailers operating in the same suburban catchment?
- Indian Retail has evolved at a rapid pace over the last 10 years and the pace of evolution shows no signs of slowing downAll channels will continue to grow together but each channel needs to undergo a specific set of changes to match the changing needs of their shoppersFDI in Retail could spur the growth in Modern Retail, while E-Tailing is going to be the next big thing in the industryConsumers will have a rising Brand Consciousness, reach will no longer be enough as consumers will more likely swap stores rather than brandsWith consumer ability to filter unwanted information on a rise, brands need to find a way for consumers to engage with them, and in-store will assume increased importance in this scenario.