The Great Indian Retail Circus

October 30, 2008 Category Management Conference – Atlanta rvbalaiyer@gmail.com

Launch of a new format - 2007
 Aug 15, 2007

 Launch of first 200,000 sq ft size hypermarket

 Biggest Indian Private sector company – backing as a brand

 Expectations extremely high – based on track record of company

 Being launched in home state of promoters

 Being launched in a cash rich location – Ahmadabad.

rvbalaiyer@gmail.com The Great Indian Retail Circus - Category Management Conference - Atlanta October 30, 2008 2

Indian Case Study 1 : Travel


Consumer for Travel Services
 As of 2007, domestic flight travel was at about 33 million (3.3 crore) people in India, as per Travel

Agents Association of India, up from 15 million people in 2004-05.

 Today, we have Jet and KF merged + Go Air, Spice Jet and others forming second option . Incumbent

Air India as one entity (AI, IA and Alliance Air).

 Indian railways is the largest railway network in the world under single management, carries the

largest number of passengers (4 billion) in the world.

 Common ticket for rail and bus travelers.

 Royal tourist trains – in many states

 Volvo buses and BMW taxis – common

 Indian tourists taking to foreign destinations

 India wooing Indian tourists !


Indian Case Study 2 :
telecom


Indian Retail Case Study :Telecom
 Pagers – Numeric / Alpha numeric. 1 and 4 line display. (Punwire, Motorola, Easy Call). Bulk

purchase of Movie tickets – pager free ! Sold by weight to institutions. Now a dead product.

 MTNL / BSNL – connection on waiting period. Black market. Proof of address.

 1996 : GSM Mobile outgoing rate $0.90 per min and incoming $0.50. Handsets – few options. Green

and black display and few service providers within location. Roaming rates outrageous.

 1999 : Penetration based pricing starts and TRAI steps in with regulatory acts and license fees.

 Friends and Family offer and other innovative schemes – $ 0.20 outgoing and $ 0.10 incoming.

Handsets in color available in grey market. Festive season purchase – else Duty-free!

 Dec 2002 : CDMA Launched by Reliance Infocomm. $ 0.01 outgoing and incoming free.

 Today – we have lifetime incoming mobile free – just a monthly top up for $0.25 !

 3G awaits launch while iPhone is already a common product with consumers.


Consumer for Telecom Services
 The current world average penetration for the developing

world is 6 lines per 100 people and the average for the

world as a whole is 10 lines per 100 people.

 Nearly 550,000 villages, out of a total of 600,000 villages

in India, are covered by telephone services.

 In India it is roughly 30 lines per 100 people, as of July

2008. There are about 40 million fixed lines and about

334.84 million telephone lines – we are already the

second largest telephone network in the world


Role of Telecom in India now

 All homes in India to be Wi-Fi enabled and literate on use of Internet in India

 Homes in India will come fitted in with telephone lines and number, which is transportable

 Cable TV and broadband connections are built into smart homes

 Robotic devices manage security and essential services

 Internet and Satellite TV is making consumer more accessible to global products


The growing presence of
India


India - a Country of Many Countries
 World’s largest democracy
 10th most industrialized economy
 Strong Macro-economic fundamentals
 Second largest pool of trained human talent
 Liberal trade policy: Fully compatible with WTO & TRIPS,
strong IPR Laws
 Stable capital markets and judicial system
 Young population of over 222 million
 29 States + 6 Union Territories
 Even within each state, tremendous diversity in
customs, traditions, attitudes
 22 official languages and 1600 minor languages and
dialects
 7 major religions
 70% Rural population: India lives in its 600,000+ villages
(< 20,000 population)
 Accounts for more than half of sales of many FMCG
and Consumer Durable products
 35% illiterate, not accessible by mainstream media

Diversity Presents Unique Challenges for Consumer-facing Businesses


Welcome to India
 India is the most diverse country on earth in terms of size, culture, climate, religion. geography,

languages and wealth.

 India was the richest country on earth till the British invasion in the 17th century

 India has the seventh largest land area in the world

 India is the fourth largest economy in the world

 We have 1.15 billion people strong nation with over 70% based in rural areas (July 2008)

 India's GDP is roughly split into 20% agriculture; 20% industry and 60% services.

 Bank deposits in India roughly equal 50% of its GDP - is amongst the highest in the world.

 With over 20 million shareholders, India has the third largest investor base in the world after the

USA and Japan.

 More nuclear families with dual incomes and a positive outlook towards spending


Rise of Indian Consumerism
 On Akshaya Trithiya day in the year 2007, shops in Southern India sold 70,000 kgs of gold, equivalent

of the jewellery demand of the whole world for 78 days ! (www.anygoldnow.com, WGC, 2007)

 India will become the worlds fifth largest consumer market by 2025

 During this period

 291 million people will rise above poverty to sustainable lifestyles

 Indian middle class will swell from 50 million to 583 million

 Per capita consumption however will remain a modest $1065

 Spending patterns will evolve from Food and Apparel to Categories such as Wellness, Electronics,
Education and Recreation Services

 Increasing spending power and per capita income

 62% of consumption will remain in urban areas

 India leads the list on the Global Retail Development Index (GRDI) by A.T.Kearney, 2007

 New age Indian Youth – modern, well informed – but still entrenched in Indian value systems and very
highly price sensitive.
McKinsey & Co “ The Golden Bird”


Indian Consumption Pie

Private consumption of close to $370 Billion

Source: NAS 2004, Govt of India

Retail – as we understand
it


The Retail Operating Model
F
F I
O N
O A
W N
T
E H W C
E L
L O E E
L I
L M A
E F
N E
C E R
E
A T S
S
PLAN P R T
S
F P O L
O A N E
O R I
BUY MOVE SELL E C
D
L S

SUPPORT


Introduction to Indian Retail
 India is the 4th largest economy in the world in purchasing power parity (PPP) after US, China, Japan

 We are a nation of small shopkeepers with a shop for every 84 people

 Retail sector is fragmented with over 13 million outlets. Only 4% larger than 500 Sq Ft.

 Only 30% in urban areas. Provides employment to 18 million people, second to agriculture !

 Top 10 cities account for 96% of total organised retail, which is just a mere 4% of overall revenues

 Over 3 million plus paan-beedi shops across the country

 Traditional open malls serving 10-15 villages – weekly bazaars, melas and haats

 Family run stores for generations – excellent in customized services but unable to scale up

 The first serious department store in India was founded in 1994 . Launch of Organized Retail !

 Reliance Retail has launched 5 formats, 12 speciality stores & 200,000 people on board in 2 years

 RR has inked Joint Ventures -Office Depot, Avery Dennison Corp, Marks and Spencer's, Boots etc.

 Big-Bazaar recently celebrated the fastest rollout of hypermarkets – 101 of them across India in 7
years, measuring 5 million sq ft.

 Speciality malls – wedding malls in Kerala as a case.
Indian Retail Industry will be worth US $ 427 billion by 2010

Challenges for Retail in
India


Gaps in Current Organized Retail
 Lack of formats catering to consumers
convenience requirements especially “All
Under One Roof” format
 Absence of single trusted player with pan-
India presence
 Negligible investment in supply-chain
infrastructure.
 Sole focus on front-end with minimal back-
end linkages
(DC, logistics, cold chain, vendor &
farmer development, etc.)
 Inconsistent availability, quality & pricing
 Transactional approach, minimal focus on
customer service over the life-cycle

Need for a Pan India Player

Supply Chain – redefining retail
economics be available at the right time, in the right quantity and at the right price
The right products must

 Home Delivery : Kirana stores deliver $0.50 worth goods within 15 mins.

 Home-Office Model : Dabba Wallas

 B2B System works : Dhobi Ghats

 Amul is the largest food brand in India and world's Largest Pouched Milk Brand with an annual
turnover of US $1050 million (2006-07). Currently Amul has 2.6 million producer members with milk
collection average of 10.16 million liters per day. (2.68 million US gallons or 10.73 million quarts)

 Courier : Hanuman / Angadias versus DHL, FedEx, UPS and TNT

 We have DHL, FedEx, UPS and TNT – but they have improvised on Angadias.

 The largest consumer network of railways in the world – Indian Railways

 Highways of global standards required – with express clearances and check nakas

 Indian road network is the second largest in the world, with 3.3 million kms of road network.

 Distributors and intermediaries control market suited for convenience stores.

 The need to leverage technology for seamlessness between multiple trade partners


Mumbai Dabbawallahs – A Six Sigma Certified
Process

 Carry and deliver freshly made food from home in lunch boxes to office workers

 According to a recent survey, there is only one mistake in every 6,000,000 deliveries


Mumbai Dhobhi Ghat
No laundry receipts and no complicated databases on computers, yet my clothes are
delivered to me the next day, in near perfect condition through the efficient young dhobi

And all this is possible due to those little black marks made on the garments at the time of
collection. So at the end of a long working day, you don't have to bother with trivialities like
'laundering and ironing clothes'.


Services at Home
The dhobi is just one of the many visitors an average Bombay household gets - all those friendly faces that keep you busy answering your
doorbell through the day - the dudhwala (milkman), the paperwalla (newspaper boy), the bhajiwalli (vegetable grocer), the machiwali
(fisherwoman), the jamadar (garbage-collector), the watchman (security at the main gates), the phoolwaali (flower seller ), the maali (gardener
- not in all cases) and the kaam waali bai (maidservant).


Governance
 FDI : Foreign Direct Investment permitted only for single brand – 51%

 Economy : Credit Ratings, Economic Performance, Inflation, GDP

 Legislation : Weights & Measures, VAT, Octroi, MOP.

 Real Estate : Fragmented ownerships, Transfer processes, Registration, Duty

 Taxation : Favors small traders /businessmen. Tax holidays for cold chains, agri, flora, aqua

 Labor Laws : Shops & Establishment Act, Working rules /timings, Sons of Soil

 Banking : Credit Cards, EMI rules, Interest Rates – centrally governed.

 Funds : Funds are easier to come by now, cost of funds reduced, credit not a taboo

 Political Risk : Sons of soil, local language issues, State leadership & opposition

 Trade : Ease of restrictions for import. Commodities Exchange – to benefit the farmer

 Infrastructure : $10 billion being invested in malls and brands

Indian retail contributes to 11% to GDP of which organized retail is only 3%


Anti-Counterfeiting

Making Enforcement more Effective

 Copyright Registration : Cumbersome FIR procedures – infringers escape

 Follow-up by Authorities : Need to check entire chain and syndicate of infringers

 Collaboration with FDA : Verification of drugs and cosmetics for licenses issues

 Weights and Measures : Ensure provisions of packaged commodities rules are followed

 Bring all Stakeholders : Member companies, government agencies, consumer bodies,

regulatory and the law enforcers


Technology
 POS : Manual billing, Self service checkouts, Kiosks, Apple Inc experience

 Systems : IT Literacy and competency among the staff at shop floor

 ERP System : Lack of understanding versus ignorance of importance

 Data Alignment : For complete customer loyalty & advocacy

 RFID Tags : Inventory Tracking & Reducing Shrinkage

 Store Connectivity : WANS / VPN’s – helping stores access information – realtime basis

 Bar Coding : Stock Management and Demand Forecasting

 Retail Exchanges : World Wide Retail Exchange for B2B transactions

 Learning Systems : LMS, Web 2.0 elements like blogs, chats, wikis, web/podcasts, peer learning

Certification on Systems & Processes for Retail


The Talent Pipeline
 Audience : India is 79.9% literate and the median age is 25.1 years

 Education : Willing to pay for education – as a matter of dignity

 Institutions : Government, municipal, corporation, state board, central board

 Certification : Education in Retail, Competency Matrix and Certification Standards

 Respect : Embarrassment of shop floor duty, Indian Matrimony market

 Hygiene : Working hours,

 Security : Late shift working for ladies, Cultural / Gender biases & issues

More than 2 million people to be hired and trained – directly by Retail value chain.

Expected consumption of education will be around $127.9 Billion by 2025


Exceeding expectations every-time !
 Customer experience forms the core of a successful retail strategy
 Customers are willing to spend more time in stores and malls
 Up-sell and bundled-sale leading to higher ATV
 Higher repeat purchase
 Trust and Loyalty factor

 Positive word of mouth and advocacy
 Makes customer less price conscious

 Competence and professionalism of sales and service staff
 Aesthetics of stores and hygiene factors – by people and environment

 Quality of purchase, consumption and maximize applications
 Store designs aligned to consumer patterns and needs

 All round win-win for producer-retailer-consumer and all touch-point enablers

Indian consumer is welcoming – but is seeking an enriching experience


Who will win ?


Who will win ?
 Those who are willing to adapt and adopt

 Long term investment and thinking

 Quick to scale and subject matter expertise (SME)

 Unique World class experience – products and processes

 Data Alignment and Accuracy

 Willing to welcome new-to-bracket into the brand and store

 Work hard and with rigor towards customer loyalty

 Train and retain staff

 Blend of products, processes and strategies for each market size

 Innovative marketing and shop floor events and communication

Indian consumer is welcoming – but is seeking an enriching experience


India is on the verge of a great achievement in economic history

It will transform itself from the desperately poor nation of 1985

No longer dependent on vagaries of subsistence of agriculture and monsoons

We will be a nation with a diverse, service led economy and the worlds second-largest middle class by 2025

This is an attractive market for both Indian and multinational companies

Such a historic shift will bring with it stresses and dislocations and inevitably some will be left behind

But the transition will enable millions of Indian households to realize their dreams of a better life.


The Great Indian Retail Circus

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