An introduction to organized retail with an Indian perspective and analysis of the recent proposal to allow FDI in multi brand retail

1. Organized Retail
and FDI
Knowledge Session 1

2. What is organized retail ?
 Branded stores (Usually Part of a chain)
 Modern Infrastructure and Technology
 Self Service
 Types of Organized retail
 Supermarkets & Convenience stores
 Department Stores
 Hypermarkets
 Cash and carry
 Specialty stores
 Single brand Exclusive stores
 Discount Stores/Factory outlets

3. Retail in India
 Organized retail is 6% but growing fast
 Global range:
 2% in Pakistan
 35% Brazil
 55% Malaysia
 85% USA
 Small Unorganized family run retail stores

4. Organized Retail in India
 Future group
 Pantaloon, Big Bazaar, food bazaar, eZone etc
 Reliance
 Reliance Fresh, Trends, Jewels etc
 RPG Spencer's
 Aditya Birla More
 Cash and Carry
 Metro AG, Bharti Wal-Mart

5. Retail and India
 Food and Groceries – 60%
 Clothing and Footwear – 9-10%
 Furniture and Appliances – 5-6%

6. Indian Retail Key Issues
 Low sales per outlet
 Rs 1000 – 1200 per day Rural
 Rs 7000 – Rs 8000 per day Urban
 Low productivity of Labor
 6% of USA levels
 Long Supply chain
 5 to 6 intermediaries Vs 2-3 in USA/Europe
 Inefficient supply chain
 Poor infrastructure – Roads, Storage etc
 Low percentage of processed food

7. Indian Retail Key Issues
 Over regulated industry
 Antiquated APMC restricts farmers choice
 Multiple taxes
 State VAT, Central CST, Octroi etc
 Archaic labor laws
 Regulate shift timings, holidays, contract labor etc
 High Real estate costs
 Cost of real estate in Cities is very high

8. Organized Retail in India
 High potential
 Urbanization and growth of middle class
 Increase in % of working women
 Exposure to modern retail experience (Malls)
 Increased demand for branded/Processed food
 High growth in turnover
 Still on learning curve
 Supply chain, Technology, Mgt practices
 Real estate cost, Manpower quality, theft etc
 Mounting losses

9. FDI in retail
 Current scenario
 100% FDI in Cash and Carry
 51% in Single brand stores
 Proposal
 to allow 100% in Single brand
 and 51% in multi brand retail
 Current Status: on Hold

10. Potential impact
 Infusion of cash for cash Intensive business
 Infusion of technology and practices
 Boost to supply chain and logistics
 Cold storages and processing units
 Will require change in APMC
 Partnership with Indian players
 Local knowledge and global expertise
 Boost to Indian Suppliers
 30% sourcing from Indian SME
 Sourcing from India for global operations

11. Potential impact
 Impact on urban small retailers
 Loss of business and potential closure
 FDI allowed in 51 cities
 Farm to fork
 Better prices for farmers, consumers
 Reduced losses in transport & Storage
 Contract farming
 Technology sharing with farmers

12. Is it a good thing?
 For Farmers
 Should get better prices
 Impact may be limited to Medium/Large farms
 Better seeds, technology and farm practices
 Multiple options for farmers
 Loss of bio diversity
 For Small retailers
 Loss of business, but most will survive
 Impact high in proximity to Modern stores
 Will have to adapt and might need support

13. Is it a good thing?
 For consumers
 Better prices, larger variety, Better shopping exp
 Convenience for Working families
 Would increase consumption expenditure
 Purchase of processed food, impulse items
 For Manufacturers
 30% rule would benefit SME’s
 Large manufacturer’s margins squeezed

14. Is it a good thing?
 Employment
 Loss of unorganized sector jobs at small retail
 Creation of organized sector jobs
 Net Growth in employment if Consumption Inc
 Additional jobs in supply chain/Food processing
 Government
 Higher tax revenues through organized retail
 May boost agri exports from India

15. Conditions Apply
 APMC act needs to be amended
 GST would simplify taxation
 Investment in Roads/infra required etc
 It is long term game
 Don’t expect results in 2-3 years
 Wal-Mart and co will go slow at first
 Politics may still derail the plan
 Opposition states and Some Allies oppose
 The JV’s would not operate in such states