India's vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Driven by changing lifestyles, strong income growth and favorable demographic patterns, Indian retail is expected to grow 25 per cent annually.
Modern retail in India could be worth US$ 175-200 billion by 2016. With the economy
booming, competition in the marketplace is fierce. According to 'Retail in India Getting Organized to Drive Growth', a report by AT Kearney and the Confederation of Indian Industry, retail is one of India's fastest growing industries with a 5 per cent compounded annual growth rate and expected revenues of US$ 320 billion in 2007. Rising incomes,increasing consumerism in urban areas and an upswing in rural consumption will fuel this growth to around 7-8 per cent.
KSA-Technopak, a retail consulting and research agency, predicts that by 2010,
organized retailing in India will cross the US$ 21.5-billion mark from the current size of US$ 7.5 billion.
Spread of Organized Retailing in India
Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiri’s as early as 1904, the retail revolution happened with various major business houses foraying into the starting of chains of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. In the Indian context, a countrywide chain in food retailing is yet to be established as lots of Supply Chain issues need to be answered due to the vast expanse of the country and also diverse cultures that are present.
Retail Models in India: Current & Emerging
The Indian food retail market is characterized by several co-existing types and formats.
These are:
1. The road side hawkers and the mobile (pushcart variety) retailers.
2. The kirana stores, within which are:
a. Open format more organized outlets
b. Small to medium food retail outlets
Modern trade – the organized retailers
Within modern trade, we have:
1. The discounter (Subhiksha, Apna Bazaar, Margin Free, Namdhari, Hopcoms)
2. The value-for-money store (Nilgiris)
3. The experience shop (Foodworld, Trinethra, M2S)
4. The home delivery (Fabmart, Fabmall)
While the focus of this note is on modern organized retail trade, we hereunder present insights into the smaller, semi and unorganized retailers.
Hawkers – ‘mobile supermarkets’
The unorganized sector is characterized by the lari-valla vendors (also known as “mobile supermarket”) seen in every Indian bylane and is, therefore, difficult to track, measure and analyse. But they do know their business – these lowest cost retailers can be found wherever more than 10 Indians collect – a rural post office, a dusty roadside bus stop or a village square. As far as location is concerned, these retailers have succeeded beyond all doubt. They have neither village nor city-wide ambitions or plans – their aim is simply a long walk down the end of the next lane. This mode of “mobile retailers” is neither scalable nor viable over the longer term, but is certainly replicable all over India. Most retailing of fresh foods in India occurs in Mandis and roadside hawker parks, which are usually illegal and entrenched. These are highly organized in their own way. However, if you put these hawkers together, they are akin to a large supermarket with little or no overheads and high degree of flexibility in merchandise, display, prices and turnover. While shopping ambience and the trust factor maybe missing, these hawkers sure have a system that works.
Kirana/Grocers/ Provision Stores/Mom-and-Pop Stores
Semi-organized retailers like kirana (mom-and-pop stores), grocers and provision stores are characterized by the more systematic buying – from the mandis or the farmers and selling – from fixed structures. Economies of scale are not yet realized in this format, but the front end is already visibly changing with the times. These stores have presented Indian companies with the challenge of servicing them, giving rise to distribution and cashflow cycles as never seen elsewhere in Asia. The model is very antithesis of modern retail in terms of the buyer (retailer)-seller (FMCG) equations. It is not unknown for MNC leaders to link the supply of one line of products to another slower moving line of products. These retailers are not organized in the manner that they could challenge the power of the sellers, most protests have been in the form of boycotts, which really haven’t hit any company permanently.
Impact of Organized Retail
Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. Though there were traditional family owned retail chains in South India such as Nilgiri’s as early as 1905, the retail revolution happened with the RPG group starting the Foodworld chain of food retail outlets in South India with focus on Chennai, Hyderabad and Bangalore markets, preliminarily. The experiment has reaped rich dividends and the group is now foraying into other territories as well. Owing to the success of Foodworld model of RPG group, several new models such as Trinethra, Subhiksha, Margin Free and others have made their foray into this sector albeit at regional levels. Today the food retail sector in India is about Rupees Ten Lakh Crores (USD 200 billions) of which the organised food retail segment is about 1 per cent and increasing at a pace of over 20% y-o-y.
To be successful in food retailing in India essentially means to draw away shoppers from, the roadside hawkers and kirana stores to supermarkets.
This transition can be achieved to some extent through pricing, so the success of a food retailer depends on how best he understands and squeezes his supply chain. The other major factor is that of convenience shopping which the supermarket has the edge over the traditional kirana stores. On an average a supermarket stocks upto 5000 SKU’s against few hundreds stocked at an average kirana stores.
Though with excellent potential, India poses a complex situation for a retailer, as this is a Country where each State is a mini-Country by itself. The demography’s of a region vary quite distinctly from others. In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. Hence we may find more of regional players and it would take enormously long time before nation wide successful retail chains emerge. This is the main reason as to why the successful retail chains in the country today operate at regional segments only and are not aiming at nation wide presence, atleast for the time being.
Food and grocery retailing is a tough business in India with margins being very low, and consumers not dissatisfied with existing shops where they buy. For example,
the next-door grocery shopkeeper is smart and delivers good customer service, though
not value.
As of now, while Chennai has about five organised food and grocery retail chains, other big cities such as Delhi, Bangalore, and Mumbai average only two-three such chains. Almost all food retail players have been region-specific as far as geographical presence is concerned in the country. To illustrate with examples, the RPG Group's FoodWorld, Hopcoms, Nilgiris, Margin Free, Giant, Varkey's and Subhiksha, all of which are more or less spread in the Southern region; Sabka Bazaar has a presence only in and around Delhi; names such as Haiko and Radhakrishna Foodland are Mumbaicentric; while Adani is Ahmedabad-centric. Industry topography in India is such that spreading presence across cities is a tough call. As pointed out by many experts, organised food and grocery retailing chains going national requires significant investments. Retailing within this sector is not just about the front-end, but involves complex supply chain and logistics issues as well.
The trend and mindset of the present retailer chains in India can be best understood by studying FoodWorld as an example, which came in first in the food and grocery retailing sector. The chain has no plans to venture beyond the Southern region just yet. Current plans are to focus on the Southern markets and achieve saturation. The intention is that by 2005, they could look at the other regions. We will look more into it in detail in later part of this report.
Subhiksha, a Chennai based discount chain, too wants to be the principal store of purchase for at least 40 per cent of all consumers living within 500-750 meters of the store, that is, within walking distance. This makes the point very clear that the strategy among most existing retail chains of various formats is to completely saturate the markets where they are already established players and then move on to virtually untouched areas where the challenge of sourcing resources and extending their supply chain model to best suit the size and expanse of the market would be a challenging task.
Meanwhile, the RPG group plans to take its new formats such as Giant Hypermarkets national over the next three years. Grocery is a large component of this format, but not the only one. To elaborate on the hurdles of going pan-Indian, fundamentally, the way a basic grocery retailing model works is that the high set-up costs in terms of setting up buying/ distribution infrastructure is gradually amortised over a larger number of stores.
Given that organised retail has been registering growth rates of approximately 40 per cent over the last three years, it is expected to grow to about Rs 35,000 crore in 2005, and close to Rs 70,000 crore in 2010. If projections were to be made considering the current trends in food retailing in India, some years down the line, food and grocery stores will become dominating trade partners for the food industry, which, in turn, will be forced to offer special discounts and trade terms for them to get the shelf space in such stores.
Also, once established, in-store label brands will become a real threat to the industry as manufacturers will have to compete with the store label brands that are generally very price-competitive. As for the spread geographically, strong chances stand that the major chains would spread to the next grade of cities in the country over the next 5 years or so and then progressively start covering every corner of the country. Most chains have already started developing their own unique supply chains that would suit their needs precisely. Replicating the success stories of the big names of the Western nations may still be a distant dream for Indian food and grocery retailers, but at least the winds are blowing in the direction of growth.
Food retail
Food dominates the shopping basket in India. The US$ 6.1 billion Indian foods industry, which forms 44 per cent of the entire FMCG sales, is growing at 9 per cent and has set the growth agenda for modern trade formats. Since nearly 60 per cent of the average Indian grocery basket comprises non-branded items, the branded food industry is homing in on converting Indian consumers to branded food.
Meat Retail
The present level of various types of meat and poultry products is estimated to be about 2.3 million tonnes as per the FAO's estimate. However, the estimates of the Indian statisticians are about 1.4 million tonnes per year. This difference of estimates between FAO and Indian statisticians is perhaps due to slaughter of animals and processing of meat outside the recognized slaughter houses. Approximately 70% of the Indian population consumes meat and/ or poultry products. The growth rate of meat is estimated to be about 10%.
Of the total production, the percentage of meat produced from different sources are: cattle and buffaloes - 40%; Sheep and goat - 26%; poultry 17%; pig - 16%; and others - 1%.However, slaughter rates in relation to the population of the animals are: 1.45% in case of cattle; 3.45% In case of buffaloes; 32.5% In case of sheep; 35.58% in case of of goat; 26.21% In case of pigs. The poultry meat production Is gaining ground in the country.
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