ZEE RESEARCH GROUP

2011

Retail – Organized vs

Unorganized or co-

existence of Organized &

Unorganized? A Ground Zero Report

Pankaj Sharma

[ T Y P E T H E C O M P A N Y A D D R E S S ]

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INDEX

Myths Truths/Page No

Retail is no big deal in India? India is poised to be the key driver for retail market globally and study after study shows co-existence of organized and un-organized growth./ Page No – (3 – 5)

Organized retail eats up unorganized retail

India’s share of organized retail has just hovered around about 4 per cent despite advent of big corporate in retail sector./ Page No - (6)

Organized global retailers eat up local retail chains including mom and pop stores

China, which brought in global retailers like Wal-Mart in 1996, has just about 20 per cent of organized retail meaning the argument that unorganized retail gets decimated, is fallacious. Page No - (7)

All retail formats are adversely (especially food and grocery) impacted by the advent of organized retail.

The highest CAGR achieved for organized retail in India is 46 per cent plus for personal care segment and about 40 per cent for jems and jewelry, as against food and grocery, which, grew only about 16 per cent./ Page No (8)

Retail-especially organized retail- hurts grievously the macro economy

Retail economy accounted for seven per cent plus share of total employment in 2004-05, and with projections to grow every year, with more and more formats opening up in the retail sector. /Page No. – (9)

Retail in India is a limited activity and when FDI comes it would result in killing business of small time ‘kirana’ stores

Retail in India has grown manifold over the years with both organized (Reliance, Tatas, Future Group, RPG, Aditya Birla Group and Bharti enterprises etc in the fray with full might). Page No. – (10)

India is not ready for organized retail yet!

But a clear pan India appeal shows India is ready to host retail without fear or favor. /Page No – (13)

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Exhibit 1 – Can organize and unorganized retail work together in India?

Myth: Retail is no big deal in India? Where are the numbers that matter?

Truth: India is poised to be the key driver for retail market globally and study after study

shows co-existence of organized and un-organized growth.

Intro Exhibit - India: A case of huge untapped potential!

Source: The Great Indian Bazaar (Organized Retail Comes of Age in India) by Mckinsey &

Company (2008)

The NCAER, study based on its Market Information Survey of Households (MISH), has projected

Indian retail industry to grow to about US$ 590 billion by 2011-12 and further to over US$ 1

trillion by 2016-17.

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Exhibit 1.1 Global Retail Development Index – 2011

Intro Exhibit - As per Global Retail Development Index (GRDI) 2011 high saving and

investment rates; fast labor force growth; and increased consumer spending—make India

for a very favorable retail environment and the 4th spot in the GRD.

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Exhibit 1.2 – Worldwide Growth of Retail Sales

Intro Exhibit - Growth of Retail Sales: Valued currently at $450 billion dollars, Indian

retail is pegged to grow by 5.8 per cent in 2014 at about the same rate as Thailand, and

next only to China (11.7 %) and Vietnam (9.8 %)

Source: Outlook for the retail and consumer products sector in Asia (PWC) - 2011

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Exhibit 2 –Country wise share of organized retail

Organized versus unorganized debate

Myth: Organized retail eats up unorganized retail

Truth: India’s share of organized retail has just hovered around about 4 per cent despite

advent of big corporate in retail sector.

Share of Organized Retail in Selected Countries, 2006

Country Total Retail Sales (US$ bn) Share of Organized Retail (%)

USA 2,983 85

Japan 1,182 66

China 785 20

United Kingdom 475 80

France 436 80

Germany 421 80

India 322 4

Brazil 284 36

Russia 276 33

Korea, South 201 15

Indonesia 150 30

Poland 120 20

Thailand 68 40

Pakistan 67 1

Argentina 53 40

Philippines 51 35

Malaysia 34 55

Czech Republic 34 30

Vietnam 26 22

Hungary 24 30

Source: Planet Retail and Technopak Advisers Pvt. Ltd

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Exhibit 2.1 – Impact of organized retail on unorganized Retail (Case Study – China)

Myth: Organized global retailers eat up local retail chains including mom and pop stores

Truth: China, which brought in global retailers like Wal-Mart in 1996, has just about 20

per cent of organized retail meaning the argument that unorganized retail gets decimated,

is fallacious.

1. FDI in retailing was permitted in China for the first time in 1992. Foreign retailers

were initially permitted to trade only in six Provinces and Special Economic Zones.

Foreign ownership was initially restricted to 49%.

2. Foreign ownership restrictions have progressively been lifted and, and following

China’s accession to WTO, effective December, 2004, there are no equity

restrictions.

3. Employment in the retail and wholesale trade increased from about 4% of the

total labour force in 1992 to about 7% in 2001. The numbers of traditional

retailers were also increased by around 30% between 1996 and 2001.

4. In 2006, the total retail sale in China amounted to USD 785 billion, of which the

share of organized retail amounted to 20%.

5. Some of the changes which have occurred in China, following the liberalization of

its retail sector, include:

• Over 600 hypermarkets were opened between 1996 and 2001

• The number of small outlets (equivalent to ‘kiranas’) increased from 1.9 million to over

2.5 million

• Employment in the retail and wholesale sectors increased from 28 million people to 54

million people from 1992 to 2001

Source: DIPP

Effect of FDI on Traditional Market in China

Type No. of stores in 1996 No. of stores in 2001

Traditional 1,920,604 2,565,028

Supermarkets 13,079 152,194

Convenience 18,091

Hypermarkets 593

Source: Foreign Direct Investment in Retail – ICICI Bank (2004)

Retail Units of Wal-Mart in China (Started in 1996)

Total Retail Units on October 31, 2011: 352

Walmart Supercenter 235

Sam's Club 6

Neighborhood Market 2

Smart Choice 3

Compact Hypermarket 2

Trust-Mart Hypermarket 104 Source: Website of Wal-Mart

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Exhibit 3 -Growth India Retail - Total vs. Organized

Organized versus unorganized

Myth: All retail formats are adversely (especially food and grocery) impacted by the

advent of organized retail.

Truth: The highest CAGR achieved for organized retail in India is 46 per cent plus for

personal care segment and about 40 per cent for jems and jewelry, as against food and

grocery, which, grew only about 16 per cent.

Indian Retail (Rs. bn)

2003-04 2004-05 2005-06 2006-07 CAGR

2004-07 (%)

1 Food & grocery 7,028 7,064 7,418 8,680 7.3

2 Beverages 212 309 373 518 34.7

3 Clothing & footwear 777 993 1,036 1,356 20.4

4 Furniture, furnishing, appliances and services 512 656 746 986 24.4

5 Non-institutional healthcare 950 972 1,022 1,159 6.9

6 Sports goods, entertainment, equipment &books 212 272 308 395 23

7 Personal care 371 433 465 617 18.5

8 Jewellery, watches, etc. 530 610 655 863 17.7

Total Retail 10,591 11,308 12,023 14,574 11.2

Organized Retail (Rs. bn)

2003-04 2004-05 2005-06 2006-07 CAGR

2004-07 (%)

1 Food & grocery 39 44 50 61 16.5

2 Beverages 11 12 13 16 14.7

3 Clothing & footwear 168 189 212 251 14.3

4 Furniture, furnishing, appliances and services 67 75 85 101 14.8

5 Non-institutional healthcare 14 16 19 24 20

6 Sports goods, entertainment, equipment &books 25 33 44 63 37

7 Personal care 11 15 22 33 46.9

8 Jewellery, watches, etc. 18 24 33 49 40.5

Total Organized Retail 350 408 479 598 19.5

Share of organized retail in Total Retail (%) 3.3 3.6 4 4.1

Source: CSO, NSSO, and Technopak Advisers Pvt. Ltd.

* CAGR – Compound Annual Growth Rate

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Exhibit 4 – Employment through Organized Retail

Myth: Retail-especially organized retail- hurts grievously the macro economy

Truth: Retail economy accounted for seven per cent plus share of total employment in

2004-05, and with projections to grow every year, with more and more formats opening

up in the retail sector.

India’s Organized Sector share in GDP and Employment of Selected Sectors, 1993-94 to

2004-05

Share in GDP (%) Share in Employment (%)

1993- 94

1999- 00

2004- 05

1993- 94

1999- 00

2004- 05

1 Agriculture, forestry, and fishing 28.9 25 18.8 61 56.6 52.1

2 Industry 25.9 25.3 27.5 15.9 17.6 19.4

Of which Manufacturing 15.8 14.8 15.9 11.1 12.1 12.6

3. Services 45.2 49.7 53.7 23.1 25.8 28.5

Of which Trade 11.9 13 14.9 7.7 8.2 8.4

Of which Retail n.a n.a n.a n.a 7.4 7.3

Wholesale n.a n.a n.a n.a 0.8 1.1

Total 100 100 100 100 100 100

Source: CSO and NSSO and Planning Commission.

Exhibit 4.1 - Employment Generation from Retail

Since the retail revolution, the

retail segment has churned out employment opportunities in India. The organized retail segment

particularly has bettered job prospects for the younger generation. According to the survey results

84% of the employees were employed on a fulltime basis and the remaining on contract basis.

Source: Dun & Bradstreet

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Exhibit 5- Retail in India-key pointers

Myth: Retail in India is a limited activity and when FDI comes it would result in killing

business of small time ‘kirana’ stores

Truth: Retail in India has grown manifold over the years with both organized (Reliance,

Tatas, Future Group, RPG, Aditya Birla Group and Bharti enterprises etc in the fray with

full might)

Economic boom lures more retail players into the sector

Out of the companies that responded to this survey, 23% were established before 1990. Players like

Tribhovandas Bhimji Zaveri, Nilgiris, and Bombay Swadeshi Stores, to name a few, have been

successfully operating in the sector for decades. Over the past five decades many of today’s retail

majors like Vijay Sales, Khadim’s, Fabindia, Rhythm House and Apollo Pharmacy made headway

for the sector and mostly operated only in the metros; however, the scenario changed dramatically

post-liberalization.

Source: Dun & Bradstreet India

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Exhibit 6- Key Retailers and their growth in India

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Exhibit 6.1 - Organized Retailers Sales’ Turnover in 2006-07

Subhiksha Trent PRIL ITC Spencer’s Mother Dairy Total

Sales turnover (Rs million) 8,000 4,979 19,336 NA 5,400 27,000 64,715

Sales per sq. ft. (Rs) 13,333 6,036 6,108 NA 7,714 NA 8,298

Total sq.ft. area 600,000 825,000 3,165,000 NA 700,000 NA 5,290,000

Source: ICRIER

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Exhibit 7- Favorite Destination for Retailers in India

Myth – India is not ready for organized retail yet!

Truth – But a clear pan India appeal shows India is ready to host retail without fear or

favor.

Source: Dun & Bradstreet India