consulting whitepaper india boarding destination indian retail market 0312-1 (1)

7/31/2019 Consulting Whitepaper India Boarding Destination Indian Retail Market 0312-1 (1)

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India B o ardingD estinatio n- Indian R etail Mark et


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India is a high gro w th eco no m y and the retail m ark et is lik ely to to u ch U S $ 1 .3 trillio n b y 2020,

rank ing it am o ng the to p retail m ark ets in the w o rld. W ith a penetratio n level o f o nly 5 % , there is

signif icant ro o m f o r m o dern retail to gro w . It is ex pected that m o dern retail, w hich is cu rrently

at U S $ 27 b illio n, w ill gro w b y ab o u t 6 tim es to U S $ 1 5 0 b illio n b y 2020 w ith trem endo u s

po tential f o r gro w th acro ss catego ries and segm ents.

L ess- than- co ndu cive F o reign D irect Investm ent ( F D I) regu latio ns have no t deterred leading

retailers lik e W al- Mart, C arref o u r, M ark s & S pencer, a nd McD o nald s am o ng o thers f ro m setting

u p o peratio ns in India. V ery recently , ico nic nam es lik e S tarb u ck s, D u nk in D o nu ts, L V MH Mo t

H ennessy and F rette, have anno u nced plans to enter India. A f ter f u rther o pening o f the single

b rand retailing segm ent , play ers lik e IK E A are actively f inali z ing their plans to start o perati o ns

in India.

Mo dern retail is to day m o re ready to tak e o f f than ever b ef o re. This transf o rm atio n is b eing

driven b y f o u r critical enab ling f acto rs:

1 . R icher and E vo lving C u sto m ers: T he average co nsu m er inco m e in India has b reached the

thresho ld level o f U S $ 1 000 per annu m , b ey o nd w hich, as has b een seen internatio nally ,

there is a spu rt in co nsu m ptio n. Mo reo ver, India has o ne o f the y o u ngest po pu latio ns in the

w o rld w ith co nsu m ers w ho have high aspiratio ns and regard sho pping as a leisu re activity .

2. N ew C o nsu m ptio n H u b s: N ew co nsu m ptio n hu b s are em erging w ith eco no m ic gro w th

perco lating to sm aller cities. B y 2020 there w il l b e aro u nd 200 cities in India w ith a

po pu latio n o f m o re than 0.5 m illio n. S o m e o f these so called sm all to w ns are b u z z ing w ith

actio n and display ing signs o f gro w ing co nsu m erism .

3 . E nab ling E co S y stem : The entire eco sy stem o f real estate, f u nding and vendo rs has evo lved

signif icantly in the last decade and is m u ch m o re capab le o f su ppo r ting retail gro w th in the

f o rm o f m alls, sho pping co m plex es.

4 . S u ppo rting R egu latio n: Altho u gh there is still so m e am o u nt o f u ncertainty o n the F o reign

D irect Investm ent ( F D I) f ro nt, the go vernm ent has sho w n po sitive intent thro u gh pro po sed

f avo u rab le regu latio ns su ch as the intro du ctio n o f the G o o ds and S ervices Tax ( G S T ) and

the o pening u p o f F D I . I t is anticipated that, w ith the g o vernm ent in active co nsu l tatio n

w ith all the stak eho lders, F D I in m u lti- b rand retailing w ill so o n b eco m e a reality .

This transf rm ative j rney f Indian retail ill no t o ccu r w itho t its n set f challenges. The

f o rem o st challenge is that o f capital - the secto r req u ires an investm ent o f U S $ 3 0- 4 0 b illio n in

the nex t 1 0- 1 5 y ears. The seco nd is that o f k no w ho w - o f ho w to estab lish these k inds o f large

b u sinesses. B o th capital and k no w ho w can co m e f ro m internatio nal retailers. Alo ng w ith

do m estic retailers, they can help Indian retail reali z e its tru e po tential.

Execut ive Summary


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E x ecu tive S u m m ary 1

1 . The Indian E co no m y 4

1 .1 H igh G ro w th R ate 4

1 .2 S tro ng F u ndam entals despite S ho rt- term C hallenges 4

1 .3 S i z eab le Mark et f o r Many Internatio nal C o m panies 5

2. Indian R etail Mark et O verview 6

2.1 A U S $ 1 trillio n O ppo rtu nity 6

3 . Mo dern R etail 7

3 .1 O n the G ro w th P ath 7

3 .2 P erf o rm ance versu s P o tential 8

3 .3 C hallenges F acing Mo dern R etail in India 1 0

4 . S napsho t o f O ppo rtu nities 1 1

4 .1 F o o d & G ro cery 1 1

4 .2 Apparel 1 2

4 .3 F o o d and B everages ( F & B ) 1 3

4 .4 C o nsu m er D u rab les and IT ( C D IT ) 1 4

5 . Mo dern R etail in India: R eadiness Indicato rs 1 5

5 .1 R icher and E vo lving C o nsu m ers 1 5

5 .1 .1 L arge C o nsu m er B ase w ith H igher D ispo sab le Inco m es 1 5

5 .1 .2 F avo u rab le D em o graphics 1 6

5 .1 .3 Increasing nu m b er o f Internet u sers 1 6

5 .1 .4 G ro w ing Aspiratio n L evels 1 7

5 .2 E m ergence o f N ew co nsu m ptio n hu b s 1 8

5 .3 P o sitive R egu lato ry N o rm s 1 9

5 .4 S u ppo rtive E co S y stem 1 9

5 .4 .1 E co S y stem 1 9

5 . 4 .2 P rivate E q u ity ( P E ) Investm ents in R etail 20

6 . Ten Things to C o nsider W hile P lanning f o r India 21

Contents


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1.1 High Growth Rate

W ith a G D P o f U S $ 1 .7 trillio n ( 201 0- 1 1 ) , India is to day o ne o f the leading eco no m ies o f

the w o rld w hile in P P P ( pu rchasing po w er parity ) term s, it is already the f o u rth largest

eco no m y glo b ally . The co u ntry has gro w n at an im pressive 7.4 5 % rate b etw een 2000 to

201 1 and w ith stro ng f u ndam ental drivers in place, this gro w th is ex pected to co ntinu e

o ver the lo ng term as w ell.

E ven at a co nservative real gro w th rate o f 6 .5 % ( tak ing into acco u nt 5 % inf latio n) , I ndia

can po tentially triple its G D P to U S $ 4 .5 trillio n b y 2020, in the pro cess o vertak ing so m e

develo ped eco no m ies lik e F rance and G erm any .

The services secto r co ntrib tes to ver 5 0% f India s G P hich is f avo rab le to the

gro w th o f co nsu m erism and the retail secto r in the co u ntry .

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1 . The Indian E co no m y

1.2 Strong Fundamentals despite Shor t-term Challenges

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n

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D espite sho rt term challenges, I ndia s gro w th sto ry co ntinu es to b e f u ndam entally

stro ng given the dem o graphic advantage, lo w im pact o f glo b al eco no m ic trends and

signif icant gro w th po tential acro ss m u ltiple secto rs.

S everal secto rs have co ntrib u ted to India s gro w th. T his b ro ad b ased gro w th has

pro vided resilience to the eco no m y .

In recent m o nths ( specif ically , du ring Q 3 , F Y 01 2) , gro w th has w o rry ingly slo w ed do w n

w ith the m anu f actu ring and m ining secto rs sho w ing the b iggest slu m p. This slo w do w n

is attrib u tab le to a co m b inatio n o f glo b al f acto rs, h igh inf latio n and po licy delay s. To

co m po u nd m atters, the Indian go vernm ent has so m e f iscal challenges to o verco m e. T he

silver lining ho w ever, is that m o st o f these f acto rs are im pro ving and the go vernm ent

to o is ex pected to im plem ent po sitive po licy changes.

S o u rce: W o rld B ank , E delw eiss

F igu re 1

G D P G ro w th R ates ( % )

20

0

0

0 2006 2007 2008 2009 201 0

B raz il

F rance

India

U nited K ingdo m

C hina

G erm any

J apan

U nited S tates

Indian Economy - High Growth Potent ial


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1.3 Sizeable Market for Many International Companies

n The high gro th and po tential o f the Indian eco no y has attracted m any glo al

co m panies, o f w hich several rank India as o ne o f their critical m ark ets and are m ak ing

serio u s investm ents in the co u ntr y . Many co m panies already derive a signif icant share o f

their b u siness and pro f its f ro m India ( F igu re 2) .

Tab le 1

Sector-wise Growt h in Domestic Product

Sectors CAGR (%)2007-2011

Agricu ltu re, F o restry & F ishing

Mining & Q u arry ing

Trade, tel, Transpo rt andC o m m u nicatio ns

Manu f actu ring To tal

E lectricity , G as & W ater S u pply

C o nstru ctio n

F inance, Ins u rance, R eal E state& B u siness S ervices

Total Domestic Product

0%

7%

8%

S o u rce: R eserve B ank o f India

F igu re 2

S o u rce: Media repo rts

U nilever - F MC G S u z u k i - Au to m o b ile S tandard C hartered - B ank ing

G lo b alS a les:

U S $ 5 8 .7 b n

G lo b alS ales :

U S $ 26 . 8 b n

23

77%

G lo b alS ales :

U S $ 1 6 . 1 b n

20%

0%

N o k ia - Mo b ile

G lo b al

S ales :U S $ 5 8 . 1 b n

L G - D u rab les

G lo b al

S a les:U S $ 4 9 . 4 b n

G lo b al S ales

India S ales


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2.1 A US$ 1 trill ion Opport unity

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n

D riven b y rising co nsu m erism , t he advent o f m o dern retail f o rm ats and the ado ptio n o f

co nsu m er pro du cts, India s retail m ark et is ex pected to cro ss U S $ 1 .3 trillio n b y 2020.

W ith the cu rrent m ark et siz e estim ated at U S $ 5 00 b illio n, this translates to an additio nal

U S $ 8 00 b illio n in the nex t nine y ears. This high gro w th is in stark co ntrast to so m e o f the

m o re m atu re eco no m ies w hich are ex pected to rem ain stagnant o r gro w at an anaem icpace.

It needs to b e no ted that w hile U S $ 1 trillio n is a hu ge o ppo rtu nity , a signif icant part o f

this ( u p to 4 0% ) is the ru ral m ark et w hich m ay no t b e addressab le im m ediately . This

segm ent is highly f ragm ented and m ay no t b e a direct target m ark et in the near f u tu re

f o r m any retailers.

70% o f the gro w th is ex pected f ro m u rb an centres and it w ill b e interesting to w atch the

transf o rm atio n o f the u rb an retail landscape. B y 203 0 the u rb an po pu latio n is ex pected

to do u b le to alm o st 6 00 m illio n peo ple, creating o ppo rtu nities f o r new retail f o rm ats .

2. Indian R etail Mark et O verview

n Acco rding to a stu dy b y the E IU ( E co no m ist Intelligence U nit) , I ndia alo ng w ith C hina

shall drive the gro w th o f the retail indu str y in the AP AC regio n ( F igu re 4 ) .

( N O TE : T he m ark et siz e f o r India the F igu re 4 is dif f erent f ro m the U S $ 1 .3 trillio n m entio ned earlier, a s real gro w th has

b een co nsidered f o r a lik e- to - lik e co m pariso n)

Total Retail Market Size US$ Bill ion

1 200

00

00

0201 1 2020

00

1 3 3 0

S o u rce: TC S Analy sis

F igu re 3

Indias Retail Trade in comparison wit h APAC

1 000 2000 3 000 4 000 5 000

2020 R etail S ales ( U S $ B n) 201 1 R etail S ales ( U S $ B n)

0

India to dr ive APAC growt halong with China

72

2621

1 2711 21 7

000

4 3 9 61 76 6

Thailand

S o u th K o rea

J apan

Indo nesia

India

C hina

Au stralia

F igu re 4

S o u rce: E IU and TC S analy sis

In the next 15 years, India market size would be equivalent t o that of Japan


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3.1 On the Growth Path

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Altho u gh m o dern retail in India is in the early stages o f evo lu tio n, it is transf o rm ing

rapidly . The go o d part is that alm o st all f o rm ats have b een o verw helm ingly accepted b y

co nsu m ers and at the sam e tim e they have b egu n to m ak e eco no m ic sense to retailers.

H o w ever, m o dern retailers have go ne thro u gh a steep learning cu rve.

B y 2020, m o dern retail is ex pected to gro w to ab o u t 1 2% o f the retail m ark et to U S $ 1 5 0

b illio n. G iven the cu rrent lo w penetratio n and the gro w th po tential, m o dern retail w ill

see gro w th acro ss catego ries and f o rm ats.

N o t so co ndu cive F D I regu latio ns have no t deterred leading play ers lik e W al- Mart,

C arref o u r, Mark s & S pencer, Metro , W o o lw o rths, D eb enham s, To m m y H ilf iger, P iz z a H u t

and McD o nalds to set u p their o peratio ns in India ( F igu re 6 ) . V ery recently ico nic nam es

lik e S tarb u ck s, D u nk in D o nu ts, L V MH Mo t H ennessy , F rette, S k echers, E d H ardy ,

Mo ssim o , L o ndo n F o g, E ck o and C andie' s have decided to enter India. Af ter f u rther

o pening o f the single - b rand retailing space, play ers li k e IK E A are actively f inali z ing their

plans.

3 . Mo dern R etail

200

00

0201 1 2020

Size of Modern Retail in India US$ Billion

27

0

S o u rce: TC S Analy sis

F igu re 5

F igu re 6

Category-wise Presence of Major Internat ional Retailers

F ashio n Q u ick S ervice S peciality C ash & C arry

The lo go s are pro perty f their respective co rpo ratio ns.


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3.2 Performance versus Potential

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Altho u gh m o dern retail has go ne thro u gh a steep learning cu rve, m any indu str y

o b servers f eel that the play ers have no t f u l ly capitali z ed o n the p o tential and that it has

lagged b ehind o ther su nshine secto rs lik e teleco m w ith m u lti- b illio n do llar tu rno ver and

pro f itab le o peratio ns.

Mo dern retail s slo w tak e o f f can largely b e attrib u ted to co m plex m ark et co nditio ns,

less- than- co ndu cive regu latio ns and inadeq u ate inf rastr u ctu re. D espite these

challenges, t he leading play ers have m anaged to cro ss the U S $ 1 b illio n m ark in

tu rno ver. This secto r can ex pect to see the em ergence o f m o re m u lti- b illio n do llar

retailers in 5 - 7 y ears. Mu ch ho w ever, w o u ld depend o n the ex ecu tio n ab ility , capital

availab ility and w herew ithal o f retailers to achieve these nu m b ers. S im ilarly , o n the

pro f itab ility f ro nt, despite challenging co nditio ns, m any retailers have tu rned the co rner

and are no w pro f itab le.

F igu re 7

S o u rce: Indicative L ist b ased o n ( C o m pany Inf o and Media release)

Store Count of Top Retailers

F Y 1 1 S to re C o u ntF Y 1 6 S to re C o u nt

per

aret

s

epart

ents

per

aret

s

ns

er

rales

IT

Appa

rels

tea

r

Msic

it

s

erni

tre

rnish

ing

har

ac

ell

ness

es

eell

er

700

27

0

00

000

27

7000

2

7

000

02

0

700

2

00 0

00

000

0200

E B O s


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Tab le 2

J u b ilant F o o d w o rk s

( D o m ino s)

Arvind B rands

S ho ppers S to p L td.

Madu ra G arm ents

Titan Indu stries L td.

G itanj ali G em s &

J ew ellery

( inclu ding Internati o nal

o peratio ns)

F u tu re G ro u p

( C o re R etail)

Retailer / Brand Segment

Apparel

L if esty le, H o m e,

V alu e R etailing

Apparel & R etail

W atches, E y ew ear

& J ew ellery

G em s & J ew ellery

L if esty le, H o m e,

V alu e R etailing

Revenue2010-11(US$ mn)

CAGR(2007-11)

EBIDTA2010-11(US$ mn)

Profitability(FY2010-11)

70

208

29

02

1 4 6 2

21 01

24 5 2

4 5 % *

23

21

3 1 % *

3 6 % *

3 2 % *

27

7

21

7%

S o u rce: Annu al R epo rts, Investo r P resentatio ns* C AG R repo rted f o r last 3 y ears

S o u rce: A nnu al R epo rts, M edia R epo rts

F igu re 8

Top 3 Indian Retail Groups

2011 Revenues (US$ mn)25 00

2000

1 5 00

1 000

00

0F u tu reG ro u p

R elianceR etail

Tata etailB u siness

24 5 2

1 26 1

1 9 09


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3.3 Challenges Facing Modern Retail in India

The high gro th po tential o f dern retail in India m ay e stif led if so e challenges are no t

addressed adeq u ately .

Capital/FDI:The secto r req u ires a large am o u nt o f capital, w hich is b ey o nd the reach o f

Indian retailers al o ne. W hile the go vernm ent has b egu n lib eraliz ing F D I , i t is f acing

po litical challenges w hich m ay f o rce it to m ak e co m pro m ises. F o r m o dern retail s

po tential to b e realiz ed, India req u ires investm ents to the tu ne o f U S $ 3 0- 4 0 b illio n.

H o w ever, Indian play ers m ay no t b e in a po sitio n to invest this k ind o f capital o n their

o w n. U nless F D I ru les are lib eraliz ed, the gro w th o f m o dern retail co u ld get cu rtailed. The

o ther co ncern is that so m e o f the play ers especially in co nsu m er du rab le/ teleco m / b o o k s

have no t reached stab le b u siness m o dels.

Industry Status:The secto r has no t y et b een given indu str y statu s. In additio n,

co o rdinating w ith several regu lato r y b o dies and dealing w ith a less- than- co ndu cive

regu lato ry enviro nm ent are im pedim ents f o r the gro w th o f the secto r.

Dynamic state of the Industry: The indu str y is in a highly dy nam ic state, w ith

intensif y ing co m petitio n, changing regu latio ns and co nsu m ers w ith rapidly changing

tastes. S o m e o f the recent changes have b een disr u ptive, and retailers need to b e f airly

agile in f ine- tu ning their m o dels to k eep u p. F o r ex am ple, b rick - and- m o rtar retailers in

the b o o k s and the C D IT ( C o nsu m er D u rab les and Inf o rm atio n Techno lo gy ) segm ents are

vu lnerab le to gro w ing co m petitio n f ro m e- co m m erce retailers; they need to redef ine

their b u siness m o dels as so o n as po ssib le to stave o f f co m petitio n. S im ilarly , a large

nu m b er o f sho ppers are no w m u ltichannel sho ppers, and hence retailers m u st q u ick ly

f o rm u late integrated m u ltichannel strategies.

Operational Eff iciencies and Inf rastructure: Indian retailers have a lo ng w ay to go in

term s o f ado pting b est practices o r achieving higher o peratio nal ef f iciencies. F o r

e x am ple, tho u gh invento r y levels are f ar higher co m pared to internatio nal standards,

the ind u str y is still plagu ed b y availab i lity challenges at the sto re f ro nt.

Real Estate: W hile the real estate secto r has evo lved signif icantly o ver the last decade,q u alit y real estate at the right co sts can still b e a challenge.

Ski lls and Workforce Management: S carcity o f indu str y - specif ic sk ills and high attritio n

rates co ntinu e to b e critical challenges f o r the indu str y .

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The o ppo rtu nities f r m dern retail in India ab nd, - acro ss su secto rs and acro ss

f o rm ats. F o o d & G ro cery ( F & G ) w ith a nearly 5 0% share o f w allet is the largest catego ry .

O ther catego ries su ch as Apparel, H ealth & B eau ty , H o m e and D u rab les & Teleco m also

o f f er large o ppo r tu nities w ith signif icant gro w th po tential.

An interesting trend to n o te here is that co ns u m ers are increasingl y p u rchasing m o dern

lif esty le pro du cts and services. Travel, E du catio n and F inancial P ro du cts f o r ex am ple, areso m e o f the em erging catego ries that are gro w ing rapidly and are co m peting f o r a share

o f w allet.

4 . S napsho t o f O ppo rtu nities

4.1 Food & Grocery

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F o o d & G ro cery is the largest retail catego ry and is ex pected to gro w to U S $ 73 0 b illio n

b y 2020. W ithin this, the m aj o r su b - catego ries are C ereals & P u lses ( 3 3 % ) , Milk ( 1 7% ) ,

F ru its & V egetab les ( 1 5 % ) , w hile the share o f pro cessed f o o ds su ch as R eady - To - E at and

R eady - To - C o o k pro du cts is sharply increasing f o r large cities.

F & G retailing is o ne secto r that co u ld po tentially b enef it the m o st f ro m the interventio n

o f internatio nal retailers, du e to the capital req u irem ents and the co m plex ity invo lved in

its retailing. C o m petitio n f ro m m o m - and- po p and lo cal k irana sto res alo ng w ith high real

estate and l o gistics co sts are the m ain challenges f acing m o dern C o nvenience sto res.

In the F & G catego ry , H y perm ark ets and C ash & C arry segm ents are po ised f o r signif icant

gro w th. There are also signif icant o ppo rtu nities f o r G o u rm et/ P rem iu m and D eep

D isco u nt f o rm ats.

The F G catego ry ers the b enef its o f large scale retailing, hich is o f interest to

internatio nal play ers. H o w ever, to realiz e its po tential they sho u ld b e prepared to invest

in develo ping their su pply chain, and sho u ld also b e ab le to o verco m e o ther India-

speci f ic challenges s u ch as po o r inf rastr u ctu re and restrictive state level po licies

go verning agricu ltu ral pro du ce.

Tab le 3

Category-wise Market Size, US$ bill ion

S o u rce: N S S O C o nsu m er E x penditu re R epo rt

Categories Total Market2011

F o o d & G ro cery 3 1 0 73 0 6 .0

Apparel 4 0 1 3 0 5 .0

F o o tw ear 8 25 3 .0

C o nsu m er D u rab le, IT, Teleco m 3 5 1 3 0 5 .0

F u rnitu re & F u rnishing 20 6 0 1 .5

F o o d & B everage 1 0 3 0 2.0

H ealth & B eau ty 25 75 1 .0

J ew ellery & W atches 3 0 8 5 2.5

Miscellaneo u s 22 6 5 0.5

To tal 00 0 26 .5

Total Market2020

Morden Retail2011


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4.2 Apparel

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The apparel m ark et is ex pected to reach U $ 0 b illio n b y 2020, ith the m aj r

catego ries b eing m ensw ear ( 4 3 % ) , w o m en s w ear ( 3 7% ) , and k ids w ear ( 20% ) .

A large po rtio n o f w o m en s w ear is co ntrib u ted b y ethnic w ear.

A trend to n o t ice is that Indian co nsu m ers are rapidl y u pgrading their cl o thing cho ices.

F u r ther, su b - specialty and niche catego ries lik e sm art casu als, party w ear, evening w ear,

f o rm al ethnic w ear and spo rtsw ear are gro w ing rapidly .

This is the m st evo lved catego ry ithin Indian retailing, and f rm ats lik e departm ent

sto res, specialty f o rm ats and ex clu sive sto res are w ell develo ped. U nlik e in F & G o r C D IT,

m o st o f the retailers in this catego r y are pro f itab le. A large nu m b er o f internatio nal b rands

lik e To m m y H ilf iger, W rangler, L evis, and Mango are repo rtedly do ing su ccessf u l b u siness.

Ty pically , internatio nal play ers have entered the Indian m ark et thro gh the licensing o r

f ranchising ro u te. H o w ever, lately , so m e internatio nal retailers have b egu n to tak e o n a

larger o peratio nal ro le b y changing their m o de o f o peratio n to j o int ventu res o r b y

b u y ing o u t the share o f Indian partners.

There are o ppo rtu nities acro ss all su segm ents spanning the m ass, af rdab le,

prem iu m , su per prem iu m to the lu x u ry co ntinu u m . W hile the lu x u ry segm ent is still

nascent in India and is a m ark et f o r f u tu re, the prem iu m and su per prem iu m segm ents

already co nstitu te ab o u t 25 % o f the m ark et.

Tab le 4

S o u rce: TC S R esearch

Category Snapshot

C u rrent Mark et S iz e U S $ b illio n 3 1 0

E x pected Mark et S iz e b y 2020- U S $ b illio n 73 0

C u rrent Mo dern Trade P enetratio n 2%

H o t O ppo rtu nities H y perm ark ets, C ash& C arry

and D eep D isco u nts

Key Players

P lay er P o sitio ning Tu rno ver ( U S $ m illio n)

F u tu re V alu e R etail L o w - Mid 1 5 3 6

S pencers Mid 4 4 5

AB R L ( Mo re) Mid 3 70

S P AR P rem iu m 3 0

R eliance F resh Mid 5 5 8

Tab le 5


Category Snapshot

C u rrent Mark et S iz e U S $ b illio n 4 0

E x pected Mark et S iz e b y 2020- U S $ b illio n 1 3 0

C u rrent Mo dern Trade P enetratio n 1 3 %

H o t O ppo rtu nities D epartm ent S to res, W esternand E thnic, W o m en w o rk w ear

Key Players


S ho ppers S to p P rem iu m 4 3 0

Madu ra G arm ents P rem iu m 4 00

L if esty le Mid 29 3

R eliance Trends Mid 73

Arvind B rands P rem iu m 9 8


15/28

4.3 Food and Beverages (F&B)

n

n

n

n

n

The F B ark et is ex pected to gro w to $ 0 b illio n b y 2020. To day , the landscape is

do m inated b y f u ll service restau rants ( f ine - dining and casu al) and q u ick service

restau rants ( Q S R s) .

W hile the o verall F & B m ark et siz e is gro w ing b y 1 1 % , m o dern retail penetratio n is aro u nd

20% w hich is gro w ing b y 20- 25 % per annu m . N o tab ly , m u ch o f the gro w th is

co ncentrated o n the to p tier cities w ith Tier 2 and Tier 3 cities still relatively u ntapped.

The Indian m ark et is ty pically divided into vegetarian ( ) and no n- vegetarian (

restau rants. F ast f o o d f o rm ats co ntrib u te to ab o u t 4 7% o f the m ark et w hile f u ll service

restau rants co nstitu te 24 % . F o o d co u rts are ex pected to gro w b risk ly at 3 5 - 4 0% . There is

a sco pe f o r gro w th in the f o o d pro cessing indu stry .

C o nsu m ers are increasingly w illing to spend, and high dispo sab le inco m es are co ntrib u ting

to w ards prem iu m isatio n, the internatio nalisatio n o f the Indian palette as w ell as to the

high prevalence o f eating o u t. In additio n, catering services are b eco m ing po pu lar.

W hile m any internatio nal b rands lik e McD o nalds, D o m ino s and P iz z a H u t have already

m ade a f o ray into India, a ho st o f o thers lik e B erry lite, C i G u sta and Mu f f in B reak are

lining u p to co m m ence o peratio ns. S o m e co m panies are also lo o k ing to ex pand thro u gh

acq u isitio ns o f do m estic b rands.

Tab le 6

S o u rce: N R AI, Media R epo rts

Category Snapshot


E x pected Mark et S iz e b y 2020- U S $ b illio n 3 0


H o t O ppo rtu nities F o o d co u rts in S ho pping Malls,o f f ices, m edical institu tio ns &travel term inals, Q S R B rands

Key Players


J u b iliant F o o dw o rk s L td. ( D o m ino s) Mid- P rem iu m 1 70

S peciality R estau rants P vt. L td P rem iu m 3 5 *

D evy ani Internatio nal L td ( Y u m B rand) Mid- P rem iu m 25 0*

AB C TL ( C o f f ee R etailing b u siness) Mid- P rem iu m 23 0*

N iru la s Mid 25 *

* E stim ates


16/28

4.4 Consumer Durables and IT (CDIT)

n

n

n

n

n

The C IT m ark et is ex pected to reach U $ 0 b illio n b y 2020. The m aj r catego ries in

this segm ent are C o nsu m er D u rab les ( 5 6 % ) and Mo b ile P ho nes ( 26 % ) .

The retail landscape in this segm ent co prises ex clu sive sto res, large m lti- rand

o u tlets ( MB O s) and e- co m m erce play ers.

C o m panies lik e L G and S o ny have ex panded their b rand sho ps rapidly . This has given

them the du al advantage o f b rand presence and higher b argaining po w er w hile

nego tiating w ith m o dern retailers.

E - co m m erce retailers lik e L etsb u y .co m have do ne w ell and have ex panded this channel

w ith b elo w - m ark et prices and su perio r cu sto m er ex perience. Am az o n is ex pected to

m ak e a f u ll f o ray into the co u ntry w henever new F D I ru les allo w ing m u lti- b rand retail

co m e into play .

The large f rm at MB s lik e C ro a, eZ ne and N ex t are still try ing to estab lish

them selves. H igh real estate co sts, l o w er m argins and the threat f ro m e- co m m erceretailers are pu shing them to inno vate b y o pening sm aller sto res lik e C ro m a Z ip,

increasing the w idth o f ass o rtm ent b y adding access o ries and private lab els and

i m pro ving service levels.

Tab le 7


Category Snapshot


E x pected Mark et S iz e b y 2020- U S $ b illio n 1 3 0


H o t O ppo rtu nities Mu lti C hannel, S to res su ppo rted b yS ervice C enters, E x change driven

sto res f o r sm aller & sem i u rb an centers

Key Players


C ro m a Mid- P rem iu m 3 4 5

N ex t Mid- P rem iu m 3 3 5

V ij ay S ales Mid 28 0

R eliance D igital Mid- P rem iu m 270

E z o ne Mid- P rem iu m 1 6 0


17/28

Mo dern retail in India is f inally po ised f o r a tak eo f f driven largely b y f o u r critical enab ling

f acto rs:

R icher and E vo lving C o nsu m ers

N ew C o nsu m ptio n H u b s in Tier 2/ 3 C ities

E nab ling E co S y stem

S u ppo rting R egu latio n

n

n

n

n

5 . Mo dern R etail in India:R eadiness Indicato rs

5.1 Richer and Evolving Consumers

The average dispo sab le inco e in India has b reached the thresho ld level o f $ 000 per

annu m , b ey o nd w hich, a s has b een seen internatio nally , t here is a spu rt in co nsu m ptio n.

Mo reo ver, India has o ne o f the y o u ngest po pu latio ns in the w o rld w ith co nsu m ers w ho have

high aspiratio ns and regard sho pping as a leisu re activit y .

5.1.1 Large Consumer Base wit h Higher Disposable Incomes

The average inco e level in India is ex pected to gro w at 6 % real gro th rate) , arate w hen a natio n b egins to gradu ate f ro m su b sistence to lif esty le spending.

The retailers target segm ents the m iddle inco e gro p and ab ve ( see S eek ers,

S trivers and G lo b al inco m e levels in F igu re 1 0) is lik ely to gro w to 4 0% o f the to tal

po pu latio n o f the co u ntry b y 2025 .

n

n

1

Richer & Evolvi ng

Consumers

n L arge C u sto m er b ase w ith

higher dispo sab le Inco m e

n F avo u rab le D em o graphics

n Increasing nu m b er o f

Internet u sers

n G ro w ing Aspiratio n L evels

3

Positi ve Regulatory

Norms

n F o reign D irect

Investm ent

n G o o ds and S er vices Tax

2

New Consumpt ion Hubs

n G eo graphy

MODERN

RETAIL

GROWTH

4

Support ing Eco System

n R eal E state

n V endo rs and S o u rcing

n

P rivate E q u ityInvestm ents


F igu re 9


18/28

F igu re 1 0

S o u rce: McK insey G lo b al Institu te & N C AE R( F igu res are ro u nded to nearest integer and m ay no t add to 1 00)

5.1.2 Favourable Demographics

India s dem o graphic dividend is stro ngly y o u th o riented. It has o ne o f the y o u ngest

po pu latio ns in the w o rld, w ith a m edian age o f 25 y ears. 6 0% o f the po pu latio n

to day is b elo w the age o f 3 0 y ears, and this percentage is ex pected to rem ain the

sam e o ver the nex t decade.

B y 2020, the nu m b er o f peo ple in the w o rk ing age po pu latio n in India is ex pected to

gro w b y m o re than 4 7 m illio n.

n

n

5.1.3 Increasing number of Internet users

There are 1 20 m illio n internet u sers in the co ntry , and this nu er has gro n o ver

3 0% Y - o - Y . In additio n, to w ns w ith a po pu latio n o f less than 0.5 m illio n have a

co m b ined u sage o f m o re than 6 0% , w hich is m o re than the to p eight m etro s pu t

t o gether.

n

Share of Population (in %) in Various Income Brackets

H o u seho ld Inco m eb rack et in Tho u sandIndian R u pees, 2000

P o pu latio n( in m illio ns)

n G lo b als ( > 1 000)

S trivers ( 5 00- 1 000)

S eek ers ( 200- 5 00)

Aspirers ( 9 0 - 200)

D eprived ( < 9 0)

n

n

n

n

1 9 9 5 2005 201 5 E 2025 E

9 28 1 1 07 1 278 1 4 29

2% 1 % 1 % 2%

0%

2%

22%

Tab le 8

Median Age (Years)

S o u rce: U N P o pu latio n D ivisio n, Median f ertility variant 201 0- 21 00 & N C AE R

Country 2005 2010 2015 2020

U nited S tates 3 6 3 7 3 7 3 8

J apan 4 3 4 4 4 6 4 8

C hina 3 2 3 4 3 6 3 8

G erm any 4 2 4 4 4 6 4 7

B raz il 27 29 3 1 3 3

India 23 25 26 28


19/287

5.1.4 Growing Aspiration Levels

India s po pu latio n o f high net w o rth individu als ( H N W I) has m o ved into the w o rld s

to p 1 2, j u st b ehind Italy and B raz il. It is po ised to m o re than triple b y 201 5 . India is

nex t o nly to U S A and C hina in the nu m b er o f b illio naires per co u ntry . A F o rb es repo rt

su ggests that 4 % o f the w o rld s b illio naires are Indians.

D u e to the gro w th in the H N W I segm ent, w o rld- class lu x u ry is w ithin reach o f

Indians. They are increasingly display ing aspirati o ns f o r w o r ld - class pr o d u cts and are

pu rchasing lu x u r y item s su ch as cr y stal, vintage spirits, art and also go ing o n

ex clu sive and ex o tic ho liday s. The lu x u ry car m ark et in India has gro w n at a C AG R o f22% o ver the last three y ears ( 2008 - 09 to 201 0- 1 1 ) and has w itnessed the entry o f

b rands lik e B MW , Au di, J agu ar, P o rsche and L and R o ver. Au di and B MW have

strengthened their dealer net w o r k s co nsidera b l y . Mini m etro s and s m aller cities are

also sho w ing an increased appetite f o r lu x u ry car b rands a tier 2 city lik e Indo re

no w has the largest Mercedes B enz sho w ro o m in the co u ntry !

India s lu x u ry w atch m ark et w as an estim ated U S $ 3 3 3 m illio n in 201 0- 1 1 , w ith b rands

lik e R o lex , O m ega, R ado , C artier, P iaget, B regu et, J aeger L e C o u tu re, and G irard

P erregau x b eing highly so u ght af ter.

In apparel and accesso ries, t ho u gh b rands lik e L o u is V u itto n, G u cci and B u rb erry

have a presence in India, the l u x u r y sho ppers pre f er to sho p o verseas. Af f o rdab le f ast

f ashio n seem s to have greater po tential, w ith b rands lik e Z ara seeing co nsiderab les u ccess.

Indians are b eco m ing increasingly tech- savvy , and p u rchased 3 00, 000 ta b lets in

201 1 . W hen the ipho ne 4 S w as no t lau nched in India in the f irst tw o stages, there

w as deep disappo intm ent.

n

n

n

n

n

Web Penetration in India

P o pu latio n less than0.5 m illio n

To p 8 Metro s

P o pu latio n b etw een0.5 - 1 m illio n

O ther Metro s

7%

29

0%

20%

0% 20% 4 0% 6 0%

201 1

2006

F igu re 1 1

S o u rce: Icu b e R epo rt, 201 1


20/28

5.2 Emergence of New consumption hubs

N ew co nsu m ptio n hu b s are em erging and eco no m ic gro w th is perco lating to sm aller cities.

B y 2020 there w ill b e aro u nd 200 cities in India w ith a po pu latio n o f m o re than 0.5 m illio n.

S o m e o f these so called sm all to w ns are b u z z ing w ith actio n and display ing signs o f

gro w ing co nsu m erism .

Aro u nd 6 5 % o r 1 200 m illio n Indians w ill reside in u rb an areas b y 205 0. This w ill lead to

rapid gro w th in ex isting cities, and the em ergence o f new to w ns.

B y 205 0, 1 29 cities in India w ill have a po pu latio n o f 1 to 5 m illio n. In co m pariso n, E u ro pe

has m erely 3 4 su ch cities to day .

The nu er o f ega- cities ( po pu latio n ab ve 5 illio n) ill also see a signif icant

increase, rising to 1 0 b y 2021 and 3 6 b y 205 1 .

n

n

n

F igu re 1 3

S o u rce: G o ldm an S achs E co no m ic R esearch,http: / / w w w .city m ay o rs.co m

2001 201 1 2021 205 1

0

00

25 0

200

0

00

0

0

74

0

20

0

29

Number of Cit ies based on Populat ion

0.5 Mn - 1 Mn 1 Mn - 5 Mn Mo re than 5 Mn

F igu re 1 2

Snapshot of Global Luxury Brands In India

S o u rce: C apgem ini: W o rld W ealth repo rt 201 1 ,K o tak W ealth & C R IS IL R esearch, C II- ATK earney


The lo go s are pro perty their respective co rpo ratio ns.


21/28

5.3 Positive Regulatory Norms

Altho u gh there is still so m e am o u nt o f u ncertainty o n the F D I f ro nt, t he go vernm ent has

sho w n po sitive intent thro u gh pro po sed f avo u rab le regu latio ns. There are at least tw o

f avo u rab le regu latio ns w hich are ex pected to b e im plem ented sho rtly , and are ex pected tob e gam e changers f o r the indu stry :

G o o ds and S ervices Tax ( G S T ) : O nce im plem ented G S T is ex pected to signif icantly b o o st

the su pply chain ef f iciencies o f retailers, as w ell as sim plif y o peratio ns, redu ce o perating

co sts, l o w er the o verall tax o u tf lo w and m ay b e also im pro ve sto ck availab ility .

F o reign D irect Investm ent ( F D I) : It is ex pected that the G o vernm ent w ill o pen F D I in

m u lti- b rand retail this y ear itself , a lb eit w ith so m e riders. This w ill b e a b ig b o o n f o r the

indu stry ; no t o nly w ill it enco u rage f ence sitters to invest in India b u t w ill also enco u rage

inc u m b ent internati o nal retailers to start investing m o re aggressively .

B elo w are so m e o f the vario u s m o des o f entry f o r f o reign retailers : -

n

n

n

5.4 Support ive Eco System

The entire eco sy stem f real estate, nding and vendo rs has evo lved signif icantly in the last

decade and is m u ch m o re ready to su ppo rt retail gro w th than ever b ef o re .

5.4.1 Eco System

The last decade has seen the rapid develo pm ent o f the necessary eco sy stemreq u ired to su ppo rt the gro w th o f the retail secto r. A large nu m b er o f m alls

/ sho pping centres are b u rge o ning acro ss the c o u ntry . An interesting f act is that 6 0 %

o f the new sto res are in m alls as the ex isting high streets / m ark ets do no t have

eno u gh ro o m to ex pand. G iven the ex pected gro w th rate and the space req u ired,

India needs several m o re tho u sands o f sq u are f eet o f q u ality retail space.

n

Tab le 09

C ash & C arry

L icense

S ingle- B rand R etail

F ranchising

J o int V entu re

Mu lti- B rand R etail

Modes of Ent ry Explanation

1 00 percent

F D I allo w ed

L icense f o r retail to b e

given to Indian partner

5 1 percent F D I

allo w ed so f ar.

R ecently increased

to 1 00%

C o ntract w ith

Indian F ranchisee

J V and tie- u ps o f

internatio nal retailer

w ith an Indian partner.

B ack end investm ents

can b e m ade b y the

internatio nal retailers.

U nder C o nsideratio n

P ro po sed- 5 1 percent

Examples of International Entrants



22/2820

n The gro th o f dern retail has led to increased so phisticatio n o f the vendo rs as

w ell, as they are no w b etter eq u ipped o peratio nally . Many have u pgraded their

sy stem s and pro cesses in o rder to m eet the req u irem ents o f their clients. To day ,

internatio nal retailers lik e Mark s & S pencer, P u m a and B enetto n so u rce a su b stantial

part o f their m erchandise lo cally .

Tab le 1 0

F ab india

K im ay a F ashio ns

F lipk art

S py k ar J eans

C atm o ss

R etai l / S pecialt y

R estau rants P vt. L td

C o f f ee D ay reso rts

and ho tels

L illip u t Apparels

Company Investor

P rem j i invest

F rank lin Tem pleto n P rivate

E q u ity S trategy

Tiger C apital and

Accel P artners

Avigo C apital

S aif P artners

K o hlb erg K ravis R o b erts

and C o . and S tandard

C hartered

E verst o ne ( B ain capital)

DateAmountin US$Million

Mar 201 2 25

S o u rce: Indu stry R esearch

J u ly 201 1

J an 201 2

April 201 1

May 201 0

April 201 0

April 201 0

2

0

.6

3 5 .5

200

8 5 .5

5.4.2 Private Equit y (PE) Investment s in Retail

The gro ing su ccess o f the retail secto r has attracted m any investo rs, ith m ix ed

resu lts. L ib eraliz ing f o reign institu tio nal investm ent no r m s in retail secto r can attract

greater investm ents.

n

S o u rce: C B R E R epo rt, IMAG E S F & R R esearch

F igu re 1 4

Growing Number of Malls in India

N u m b er o f Malls

00

00

00

200

0201 0- 1 1 201 2- 1 3 201 5 - 1 6

0

28 0

71


23/2821

1. India has grown consistent ly at about 8% per annum over the last 5-7 years. However

the growth is likely to drop to 6.7% this year. What are Indias future prospects?

O U R V I E W

The slo do n o f the Indian eco no y ay e attrib ted to a co inatio n o f glo al

f acto rs, h igh inf latio n and so m e po licy delay s; the m anu f actu ring and m ining secto rs

have b een particu larly hard hit. S o m e o f these f acto rs have sho w n signs o f easing.

O ptim istically speak ing, t he slo w do w n m ay b e a b lessing in disgu ise, i f it f o rces the

go vernm ent to accelerate ref o r m s. Indian retail has a stro ng gro w th po tential if the

right po licies are f o rm u lated and ex ecu ted.

Mo st eco no m ists, ho w ever, b elieve that there m ay b e a co ntinu ed slo w do w n in

gro w th and it w ill b e dif f icu lt to m aintain the 8 % + gro w th rate, g iven the f iscal

pressu re o n the go vernm ent. H o w ever, even if gro w th slo w s do w n to 6 - 7% , India w ill

still b e o ne o f the f astest gro w ing eco no m ies o f the w o rld.

2. The Indian retail sector is predicted to be a tri ll ion dollar opportuni ty by 2020. How

realistic is this prediction and how much of this is actual ly addressable?

O U R V IE W

The f ndam ental drivers o f the Indian retail secto r, su ch as the y ng co nsu er

b ase, the gro w ing G D P and the appetite f o r lif esty le pro du cts / services are ex trem ely

ro b u st. Mo st o f these drivers w ill ho ld tru e in the lo ng term as w ell. W e theref o re

think that the f igu re o f U S $ 1 trillio n is realistic and achievab le b y 2020. E ven no w ,

b rands lik e K raf t F o o ds derive alm o st 25 % o f their Asian sales f ro m India.

H o w ever, f o r m o st internatio nal retailers, it w o u ld b e reaso nab le to ex clu de the ru ral

m ark et in their calcu latio ns, at least f o r the tim e b eing ( The ru ral m ark et is ex pected

to co nstitu te 3 0- 4 0% o f the to tal m ark et b y 2020) .

3 . W hat are the cu rrent F D I regu latio ns and w hat are the vario u s m o des o f entry into the

Indian retail secto r? W hat is the statu s o f regu latio ns o n m u lti- b rand retailing? W hat are

so m e o f the challenges?

O U R V IE W

U ntil no w , the F D I regu latio ns w ere f airly restrictive, and 1 00% F D I w as allo w ed o nly

in w ho lesale retailing. R etailers lik e Metro and C arref o u r have entered the co u ntr y

thro u gh this ro u te. F D I w as also allo w ed in the b ack end, w hile the f ro nt end co u ld b e

accessed thro u gh investm ent w ith a lo cal partner ( s ) via the f ranchising o r the j o int

ventu re ro u te. McD o nalds, f o r ex am ple, has tw o m aster f ranchisee agreem ents in

India. L icensing is ano ther ro u te w hich b rands lik e Arro w and G ant have tak en toenter the Indian m ark et. H o w ever, t he secto r is no w b eginning to o pen u p, w ith the

f o llo w ing steps:

S ingle B rand R etailing: The Indian go vernm ent has recently allo w ed 1 00% F D I

( u p f ro m 5 1 % earlier) in single b rand retailing, a s lo ng as 3 0% o f the go o ds are

so u rced f ro m lo cal S ME s ( sm all & m ediu m enterprises) .

Mu lti B rand R etailing: The go vernm ent is ex pected to allo w F D I in m u lti b rand

retail as w ell, as early as in 201 2 itself . . This w o u ld b e f o r cities w ith a po pu latio n

o f m o re than 1 m illio n; t here are 5 9 su ch cities at present in India.This m o ve has

the po tential o f transf o rm ing the indu str y . C ertain pro visio ns o f the regu latio n,

su ch as m inim u m investm ents in the b ack end, are no t y et f u lly clear, h o w ever.

4. Is it true that real estate costs in India are high in relation to revenue productivi ty? Howare retailers managing it?

O U R V IE W

The retail real estate secto r has go ne thro gh a signif icant transf rm atio n in the last

decade. F o r w ant o f w ell- planned high streets/ strip m all, Indian retailers, b y and

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6 . Ten Things to C o nsider W hileP lanning f o r India


24/28

large, are dependent o n m alls/ sho pping centres f o r their e x pansio n re q u irem ents.

This had led to hu ge dem and f r real estate, leading to steep rentals, hich w ere

o f ten u nrealistic in relatio n to the revenu e po tential.

H o w ever, o ver a perio d o f tim e, reality has su nk in, and several m o dels haveem erged w herein rentals are charged as a percentage o f revenu e , s u b j ect to a

m inim u m gu aranteed am o u nt. At the sam e tim e, m alls aro u nd the co u ntry are

increasingly b eco m ing per f o rm ance driven and are tak ing o w nership f o r driving the

f o o tf alls.

W e anticipate that rental f lu ctu atio ns w il l co ntinu e, depending o n the dem and and

su pply situ atio n.

5. Is it t rue that Indian consumers are price sensit ive? What are some of the factors to

keep in mind whi le deciding the pricing and product mix strategy?

O U R V IE WAs describ ed earlier in this repo rt, the average Indian co nsu m er in m o dern retail is

y o u ng and is getting richer, w ith gro w ing aspiratio ns f o r m o dern lif esty le

pro du cts / b rands and services.

The price sensitivity aspect has perhaps b een ex aggerated. Indian co nsu ers are

rapidl y evo lving and are w illing to spend m o re if the y can f ind val u e. The

pheno m eno n is clearly visib le acro ss catego ries ( e.g. co nsu m er du rab les, f ashio n etc)

w here the m ark et leader is no t a price w arrio r. The lu x u ry m ark et is already

b eginning to attract m o st o f the leading internatio nal b rands.

H o w ever, it m ay b e w o rthw hile to u se lo w er price po ints, especially w hen

intro du cing new pro du cts o r co ncepts. Ano ther po int to b e no ted is that given the

early stages o f co nsu m erism , the average transactio n valu e m ay b e lo w er inco m pariso n to m o re m atu re m ark ets.

6. We keep hearing that one needs to localize the retai ling format for India. What kinds of

changes are required? Additionally how does the complexity and diversity among various

regions/states impact the format?

O U R V IE W

Y es, a retailer m u st def initely try to f u lly u nderstand the co nsu m ptio n and sho pping

hab its o f Indians b ef o re deciding o n the retailing f o rm at to ado pt. There are so m e

stark dif f erences in sho pping hab its b etw een India and m o re m atu re m ark ets. In

F & G , f o r ex am ple, a signif icant po rtio n ( nearly 3 0% ) o f sho pping is still do ne o n a

w eek ly / daily b asis; c o nvenience sto res theref o re play an im po r tant ro le. In additio n,

pro du ct siz es as w ell sto re siz es are f ar sm aller than in m ark ets lik e the U S . Ano ther

interesting ex am ple is that the w estern su perm ar k ets o perate o n a self - service

f o rm at w hich m ay no t b e su ccessf u l if lau nched in its o riginal f o rm b ecau se o f the

availab ility o f cheap lab o u r in India. H ence it is advisab le to change the f o rm ats

so m etim es to su it the needs o f the Indian cu sto m er.

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In additio n, a retailer w ill have to cu sto m ise the pro du ct m ix to m eet the lo cal

req u irem ents in vario u s states/ cities. S u ch variatio ns co u ld b e as high as 20- 3 0% ,

and m ay need the develo pm ent o f lo cal vendo rs. S im ilarly the pricing and

co m m u nicatio n strategy m u st also b e su itab ly f o rm u lated.

7. What are some of the hot opportunities in retail?

O U R V IE W

O ppo rtu nities are actu ally spread acro ss catego ries and f o rm ats. B arring apparel and

f o o tw ear, the penetratio n o f m o dern retail in India is less than 1 0% . W hile all the

catego ries sho w ex citing po tential, F o o d & G ro cery is the b iggest m ark et and has

b een least penetrated b y m o dern retail.

O ne interesting trend to n o te is that w hile pers o nal ado rnm ent has ca u ght the f anc y

o f the Indian co nsu m ers, ho m e ado rnm ent is no w b eginning to catch u p. W e ex pect

to see m o re actio n in this segm ent as w ell.

8. What has been the sourcing strategy for international retailers operating in India? Is

the vendor base in India well developed? What type of duty structure exists in India?

O U R V IE W

Apparel

The vendo r b ase in India is q ite w ell develo ped, given that India is a large ex po rter

o f apparel. W hile m any internatio nal f ashio n retailers im po r t a signif icant po rtio n o f

their sto ck this attracts im po r t du ty in the range o f 3 5 % , hence m any have increased

their lo cal so u rcing in o rder to stay co m petitive. Mark s & S pencer so u rces m o re than

5 0% lo cally and aim s to raise this to 70% , w hile P u m a so u rces clo se to 8 0% o f its

clo thes lo cally , and B enetto n so u rces its entire range lo cally . V er y recently the

go vernm ent has allo w ed du ty - f ree im po rt ( f o r 4 8 apparel pro du cts) f ro m

B angladesh, creating ano ther co st e f f ective o ptio n f o r retailers.

Furniture

Mo st pro du cts so ld b y internatio nal retailers are im po rted. The du ty is 3 5 % .

Food & Grocery

In F & G , m o st go o ds are so u rced lo cally , w ith 20% o f the m erchandise f ro m the lo cal

regio n w here the sto re is lo cated. R etailers are pu tting their tim e and m o ney into

u pgrading sm all and m ediu m siz ed su ppliers to m eet their so u rcing req u irem ents.

9. India is a large country. Which cities or geographies should one concentrate on, andwhat should be the roll out plan?

O U R V I E W

N early 70% o f the Indian po pu latio n resides in ru ral areas. H o w ever, the actio n in

m o dern retail is essentially f o cu sed o n large u rb an cities. The u rb an po pu latio n is

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ex pected to do u b le b y 203 0 to 6 00 m illio n. C u rrently there are ab o u t 1 5 0 cities w ith

a po pu latio n o f o ver 0.5 m illio n, 5 9 cities w ith a po pu latio n aro u nd 1 m illio n and 9

w ith a po pu latio n o f o ver 5 m illio n.

Mo st retailers start w ith large cities lik e D elhi, Mu m b ai, B angalo re, C hennai andH y derab ad, and then ex pand to l o w er tier cities. These s m aller cities are increasingly

b eco m ing new co nsu m ptio n hu b s du e to lo cal indu strial gro w th and a gro w ing

appetite f o r m o dern lif esty le pro du cts.

10. At an overall level, what are the key things to keep in mind?

O U R V IE W

India is a very e x citing, dy nam ic and challenging m ar k et. In the l o ng term it can

pro ve to b e an ex cellent so u rce o f revenu e f o r internatio nal retailers, as it is no w f o r

co nsu m er du rab le/ pro du ct co m panies lik e L G , S am su ng, K raf t F o o ds and U nilever.

Internatio nal retailers sho u ld tak e a lo ng term view w hen draw ing u p their India

plans and plan to gro w w ith the m ark et. They m u st realise that m any o f the f o rm ats

that w o rk in the parent co u ntry m ay no t w o rk here and m ay have to b e su itab ly

m o dif ied. F u rther, the f o rm ats / pro du ct m ix m ay have to b e f u rther f ine tu ned to

m eet regio nal req u irem ents.

S electing the right Indian retail partner can help su b stantially , as the latter can

pro vide lo cal m ark et and co nsu m er u nderstanding.

Indian co nsu m ers are q u ick ly b eco m ing m u ltichannel sho ppers, so retailers w o u ld

do w ell to pro actively f o rm u late integrated and seam less m u ltichannel strategies.

There are a nu er o f challenges w ith regard to inf rastru ctu re, cu ltu re and

regu latio ns; h o w ever these are no t insu rm o u ntab le, b u t can b e stu died, u ndersto o d

and an appro priate actio n plan develo ped.

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About Tata Consul tancy Services Ltd (TCS)

www.tcs.com

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About GCPs Retail & CPG Practice

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