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  1. 1. Retailing in India & Strategic Retail Models Retail Excellence Series
  2. 2. Some Statistics <ul><li>India is the 4th largest economy in the world in Purchasing Power Parity terms (PPP) after USA, China and Japan. </li></ul><ul><li>India’s GDP growth has averaged about 6% per annum in the last 10 years (1994-2004) </li></ul><ul><li>India’s GDP growth forecasts for the years 2005-2010 in between 7% to 8% per annum. </li></ul><ul><li>The private final consumption expenditure in India was estimated at INR 1,690,000 crore (USD 375 billion) during 2003-04. </li></ul><ul><li>The services sector – led by IT, telecom, healthcare, and retailing - accounts for almost 50% of the total GDP. </li></ul>
  3. 3. Some Retail Statistics <ul><li>Retailing, at INR 930,000 (USD 205 billion) crore in 2003-04, accounted for 35% of the GDP. </li></ul><ul><li>Organised retailing at INR 28,000 crore in 2004 is only 3% of the total retail market, but is growing at over 25% per annum. </li></ul><ul><li>It is estimated to be 10% of the market by 2010 at INR 140,000 crore. </li></ul><ul><li>The sector is fragmented with over 12 million outlets and only 4% being larger than 500 sqft in size. </li></ul><ul><li>In comparison there are 0.9 million outlets in USA catering to more than 13 times the market. </li></ul>
  4. 4. A Nation of Small Retailers <ul><li>We are a nation of small shopkeepers with a shop for every 84 people. Over two thirds of the 12 million outlets are located in rural areas. </li></ul><ul><li>Paan-Beedi shops : 3 million plus outlets nationally </li></ul><ul><li>- The Indian version of convenience store (Besides the ubiquitous Kirana store) </li></ul><ul><ul><li>Largest selling format for a few consumer products and beverages </li></ul></ul><ul><li>Weekly Bazaars / Haats / Melas </li></ul><ul><li>- Traditional open ‘Malls’ of India serving 10-50 villages </li></ul><ul><ul><li>Destination for textile, apparel, household, food & grocery for rural and semi-urban Indians </li></ul></ul>
  5. 5. To illustrate : Outlets in Chennai Source : KSA Database So many channels – in the city with the highest share of organized retail Shop Type Number Grocers 13691 General Stores 1911 Chemists / Druggists 2170 Pan/Beedi/Cigarette shops 7395 Hardware Stores 935 Co-op Departmental Stores 86 Private Departmental Stores 174 Others 5762 Total 32125
  6. 6. Total retail market Rs. 9,30,000 crore
  7. 7. Organized retail market Rs. 28,000 crore (3%)
  8. 8. Features of Indian Retailing till date <ul><li>Geographically distributed and diverse market with poor infrastructure </li></ul><ul><ul><li>Inefficient supply chain with many intermediaries </li></ul></ul><ul><ul><li>Distributors have enjoyed a lot of power </li></ul></ul><ul><ul><li>Situation well suited for small convenience stores </li></ul></ul><ul><li>Manufacturing dominated economy; largely a sellers market until recently </li></ul><ul><ul><li>Service sector coming of age only now </li></ul></ul><ul><li>Strong presence of unorganised / small outlets </li></ul><ul><ul><li>Tax avoidance has been endemic </li></ul></ul><ul><ul><li>Barrier for organized retailers to offer convenience & value </li></ul></ul>
  9. 9. Features of Indian Retailing till date <ul><li>Many communities made retailing their family profession for generations </li></ul><ul><ul><li>excellent in service and customization </li></ul></ul><ul><ul><li>largest drawback is scalability and consistency </li></ul></ul><ul><li>Infrastructure for organized trade poor </li></ul><ul><ul><li>business constraints…cost of real estate, multiplicity of taxes, supply chain complexity, power deficits etc </li></ul></ul><ul><li>Mostly under-Capitalized </li></ul><ul><ul><li>Cost of capital has been high </li></ul></ul><ul><ul><li>Not considered an industry yet </li></ul></ul><ul><ul><li>No significant international know-how & best practices available as negligible FDI in this sector </li></ul></ul><ul><li>Many Reasons why big box formats have been slow to emerge </li></ul>
  10. 10. The Changed Retail Landscape
  11. 11. Change in the last decade <ul><li>A few organized retailers to a Rupees 30,000 crore industry </li></ul><ul><li>From 10x6x300 days to now 10x7x365 days </li></ul><ul><li>From unknown companies to Retail companies amongst the top 500 retailers in Asia </li></ul><ul><li>From father-son shopkeepers to several retail rupee billionaires </li></ul><ul><li>From supermarkets to department stores, discount stores, hyper-markets, specialty malls all virtually at the same time </li></ul>
  12. 12. The Change of Guard Post-Liberalization <ul><li>Pre-Liberalization </li></ul><ul><li>- Bata </li></ul><ul><li>- Raymond </li></ul><ul><li>Titan </li></ul><ul><li>Garden </li></ul><ul><li>Vimal </li></ul><ul><li>Bombay Dyeing </li></ul><ul><li>- Canteen Stores </li></ul><ul><li>Co-operative supermarkets </li></ul><ul><li>Post-Liberalization </li></ul><ul><li>Foodworld - Food Bazaar </li></ul><ul><li>Big Bazaar - Giant </li></ul><ul><li>- Subhiskha - Star India Bazaar </li></ul><ul><li>- Shoppers’ Stop - Lifestyle </li></ul><ul><li>- Westside - Globus </li></ul><ul><li>- Pantaloons - Vivek’s </li></ul><ul><li>- Crossword - Planet M </li></ul><ul><li>- MusicWorld - Tanishq </li></ul><ul><li>Wills Lifestyle - Health & Glow </li></ul><ul><li>Ebony - Be </li></ul>Emergence of largely retailers from manufacturer-retailers
  13. 13. Experience in relevant markets justify the sentiment 10-12 years for organized retailing to achieve 20% share
  14. 14. Change Drivers : The Consumer <ul><li>Changing demographics </li></ul><ul><ul><li>A younger earning population, brand conscious </li></ul></ul><ul><ul><li>54% below the age of 25 years </li></ul></ul><ul><ul><li>81% of population below 45 yrs </li></ul></ul><ul><ul><li>More acceptance of new concepts </li></ul></ul><ul><ul><li>Changing aspirations, lifestyle orientation </li></ul></ul><ul><li>More nuclear families with dual income </li></ul><ul><ul><li>High income households has grown by 20% p.a. since 1995 totaling 44 million </li></ul></ul><ul><ul><li>More money to spend and easier financing options </li></ul></ul><ul><ul><li>More positive outlook to spending </li></ul></ul><ul><ul><li>Time poverty : “Convenience over-riding price consideration” </li></ul></ul><ul><li>Lifestyle values </li></ul><ul><ul><li>Global lifestyle : media exposure and overseas travel </li></ul></ul>
  15. 15. Rich (Above $ 4,500) Benefit Maximisers : Own Cars, PCs Consuming ( $900 - $4,500) Cost -benefit optimisers : Have bulk of branded consumer goods, 70% of two- wheelers, refrigerators, washing machine Climbers ( $500 - $900) Cash - constrained benefit seekers :Have at least one major durable (mixer, sewing machine / television) Aspirants ($350 - $500 ) New entrants into consumption : Have bicycles, radios, fans Destitutes ( Less than $400) Hand - to - mouth existence : Not buying Consumer Class Map
  16. 16. The very rich The consuming class The Climbers The aspirants The destitute 1995 -96 2001 - 02 2006 - 07 Income classes across India by size 1.2 (7) 32.5 (186) 44.0 (253.9) 54.1 (312.2) 33.0 (190.4) 2.6 (15) 46.4 (265) 74.4 (429) 33.1 (192) 24.1 (140) 5.2 (30) 75.5 (432) 81.7 (472) 20.2 (117) 16.5 (95) URBAN Million Households (Pop) 4.0 (23) 40.8 (230) 13.7 (77) 0.7 (4) 0.9 (5) 1.9 (11) 26.5 (150) 17.4 (98) 3.9 (22) 2.6 (16) 7.1 (40) 5.3 (30) 0.8 (5) 16.6 (93) 16.8 (94)
  17. 17. Change Drivers : Macro Environment <ul><li>Easy availability of credit </li></ul><ul><ul><li>Banks and financial institutions are lending aggressively </li></ul></ul><ul><ul><li>Cost of funds have come down </li></ul></ul><ul><ul><li>Customers attitude to credit has changed </li></ul></ul><ul><li>Globalisation of MNCs (Retail & brands) </li></ul><ul><ul><li>Lifestyle, Gautier, Shoprite, Marks & Spencer, Metro </li></ul></ul><ul><ul><li>HLL, P&G, Nestle </li></ul></ul><ul><li>Easing of import barriers </li></ul><ul><ul><li>India is importing a large array of ranging from food to furniture </li></ul></ul><ul><ul><li>Ease of restrictions would further accelerate growth </li></ul></ul>
  18. 18. Change Drivers - Entry of serious players <ul><ul><li>FDI not fully allowed yet, still several international players </li></ul></ul><ul><li>- Dairy Farm, Singapore (Foodworld) </li></ul><ul><ul><li>Landmark, UAE (Lifestyle) </li></ul></ul><ul><ul><li>Medicine Shoppe, USA </li></ul></ul><ul><ul><li>Metro, Germany (cash & carry) </li></ul></ul><ul><ul><li>Shoprite Hyper, South Africa </li></ul></ul><ul><ul><li>Marks & Spencer </li></ul></ul><ul><ul><li>Benetton </li></ul></ul><ul><li>Indian corporates leading the show </li></ul><ul><li>- Pantaloons </li></ul><ul><li>Trent </li></ul><ul><li>K Raheja Corp </li></ul><ul><li>RPG </li></ul><ul><li>Reliance </li></ul><ul><li>Zee Group </li></ul><ul><li>Nicholas Piramal </li></ul><ul><li>ITC </li></ul><ul><li>Godrej </li></ul><ul><li>Hathway Investments </li></ul><ul><li>Raymond </li></ul><ul><li>Apollo Hospitals </li></ul><ul><li>Many Others testing waters </li></ul><ul><li>-Tatas, Bharti, UB, Jubilant, HLL, Mahindra.. </li></ul>
  19. 19. Other Change Drivers <ul><li>Successful Retail Models </li></ul><ul><ul><li>The last 3 years have seen successful, scalable and profitable retail models in many categories </li></ul></ul><ul><li>Retail Infrastructure </li></ul><ul><ul><li>Extensive investment is taking place from 2004-2007 </li></ul></ul><ul><ul><ul><li>Approx 340 Malls under development at avg investment of US$ 15 million $5.0 Billion </li></ul></ul></ul><ul><ul><ul><li>Brands & Anchor investment $5.0 Billion </li></ul></ul></ul><ul><ul><ul><li>Total Investment $10.0 Billion </li></ul></ul></ul>
  20. 20. Change Drivers - In support <ul><li>Financial institutions upbeat on the sector </li></ul><ul><ul><li>Several Indian & International FIIs setting up specialized division for retail funding </li></ul></ul><ul><li>Government support taking shape </li></ul><ul><ul><li>Infrastructure development </li></ul></ul><ul><ul><li>Policies favouring growth </li></ul></ul><ul><ul><li>Tax and duty structure rationalization (VAT) </li></ul></ul><ul><ul><li>FDI policy? </li></ul></ul>
  21. 21. Growth of Organized Retail 5.0 10.0 15.0 20.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year $ bn 4.2 6.0 7.5 21 Organized – The Next Sunrise Industry <ul><li>Organized retail is projected to grow at the rate of 25-30% </li></ul><ul><li>Estimated to exceed USD 21 bn by the end of the decade </li></ul><ul><li>Contribution to retail sales is likely to rise to 9% </li></ul>25.0
  22. 22. <ul><li>India moving at faster pace towards consumer driven economy </li></ul><ul><li>Demand for competitive goods & services by Indian consumers like global counterparts </li></ul><ul><li>Organized retail can be a major driver of our economy </li></ul><ul><li>It can attract large FDI and FII investments (India ranks # on the 2005 AT Kearney’s Global Retail Development Index) </li></ul>Great growth ahead Industry driven Distributor controls Consumer driven Retailer controls Consumer dictates US UK Germany Japan HK Singapore Taiwan Indonesia Philippines China India Retail Power
  23. 23. Strategy versus Operational Effectiveness Retail Strategy
  24. 24. Operational Effectiveness Performing similar activities better than rivals. Strategic Positioning Performing different activities from rivals or performing activities in different ways . Operational Effectiveness is Not Strategy
  25. 25. Competitive Strategy is about being different . It means deliberately choosing a different set of activities to deliver a unique mix of value. The essence of strategy is in the activities – Choosing to perform activities differently or to perform different activities from rivals. Strategy Rests on Unique Activities
  26. 26. Evolution of Retail Stores in the Developed Countries <ul><li>Small independent stores </li></ul><ul><li>Emergence of chains </li></ul><ul><li>Emergence of mall stores </li></ul><ul><li>Emergence of superstores </li></ul><ul><li>Decline of independents </li></ul><ul><li>Decline of mall stores </li></ul><ul><li>Domination by superstores </li></ul><ul><li>Emergence of online stores </li></ul>
  27. 27. Key Success Factors - Strategy <ul><ul><ul><li>Relevant Value Proposition </li></ul></ul></ul><ul><ul><ul><ul><li>Differentiation or low price based on the customer segment and market </li></ul></ul></ul></ul><ul><ul><ul><li>Choice of Right Format </li></ul></ul></ul><ul><ul><ul><ul><li>The same format may not be relevant to all customer segments or markets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Single format or a mix of formats? </li></ul></ul></ul></ul><ul><ul><ul><li>Choice of location </li></ul></ul></ul><ul><ul><ul><ul><li>Mall or high street or stand alone or a mix of all </li></ul></ul></ul></ul><ul><ul><ul><li>Timing the entry </li></ul></ul></ul><ul><ul><ul><ul><li>It doesn’t pay to be too early or too late </li></ul></ul></ul></ul>
  28. 28. Key Success Factors - Operations <ul><ul><ul><li>Excellence of execution </li></ul></ul></ul><ul><ul><ul><ul><li>The right strategy poorly executed will fail </li></ul></ul></ul></ul><ul><ul><ul><li>The relevant mix of products </li></ul></ul></ul><ul><ul><ul><ul><li>Tailoring the mix to the customer segments and market </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ensuring consistent, high availability </li></ul></ul></ul></ul><ul><ul><ul><li>Space and inventory management </li></ul></ul></ul><ul><ul><ul><ul><li>Ensuring space maximization and inventory optimization </li></ul></ul></ul></ul><ul><ul><ul><li>Vendor partnerships for supply chain effectiveness </li></ul></ul></ul><ul><ul><ul><ul><li>Joint participation is essential for an efficient supply chain </li></ul></ul></ul></ul><ul><ul><ul><li>Trained, effective personnel </li></ul></ul></ul><ul><ul><ul><ul><li>Ensuring the right people for the customer value proposition </li></ul></ul></ul></ul>
  29. 29. In Conclusion
  30. 30. Great future but several challenges to overcome <ul><ul><ul><li>Availability of quality, affordable real estate with good infrastructure </li></ul></ul></ul><ul><ul><ul><ul><li>The right location and Place are critical for success </li></ul></ul></ul></ul><ul><ul><ul><li>Lack of adequate skilled human capital </li></ul></ul></ul><ul><ul><ul><ul><li>Retail lacks talent pool to enable rapid growth. Lack of retail specific educational courses despite huge job opportunities. </li></ul></ul></ul></ul><ul><ul><ul><li>Labour legislation </li></ul></ul></ul><ul><ul><ul><ul><li>Stringent labour laws lead to limited flexibility of operations leading to inefficiencies </li></ul></ul></ul></ul><ul><ul><ul><li>Fragmented & extended supply chain </li></ul></ul></ul><ul><ul><ul><ul><li>Except in industries such as FMCG and automobiles, suppliers lack best practices and supply chain efficiencies </li></ul></ul></ul></ul><ul><ul><ul><li>Differential tax system </li></ul></ul></ul><ul><ul><ul><ul><li>While VAT being introduced will help, there are differential tax rates across the states leading to increased costs and complexities </li></ul></ul></ul></ul>
  31. 31. Benefits of organized retailing <ul><ul><ul><li>Organized retail development has: </li></ul></ul></ul><ul><ul><ul><ul><li>Contributed to the growth of the economy </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Generated employment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Checked inflationary trends </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Given the best to consumers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Not cannibalized existing retailers completely, but has reduced in-efficiencies </li></ul></ul></ul></ul>Consumers, Suppliers, Government and Retailers….all benefit from the revolution