india: tapping into the world’s most promising consumer · pdf fileindia: tapping into...

India: Tapping into the World’s Most Promising Consumer Market

Leon NicholasPrincipal, Consumer Goods & Retail

Copyright © 2007 Global Insight, Inc.

0.1

1.6

2.7

3.1

0.4

1.8

2.9

2.7

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

0 to 19

20 to 39

40 to 59

60+

2007 to 20122003 to 2007

India Population Size and Growth Forecast

CAGR, Millions

388.9334.220 to 39

0 to 19

40 to 59

60+

Millions

470.2459.7

248.0193.9

107.583.0

20122003


2.7

7.7

2.4

2.4

10.0

7.2

0.0 2.0 4.0 6.0 8.0 10.0 12.0

$0 to 40K

$40 to 80K

$80 to 150K+

2008 to 20122003 to 2007

India Household Income Size and Growth Forecast

CAGR, 2000 US$

$0 to 40K

$40 to 80K

$80 to 150K+

Millions of 2000 US$

228.5182.5

0.180.09

0.140.09

20122003


2.4

5.9

5.9

6.0

7.2

8.7

10.1

9.2

12.1

9.9

19.1

3.0

5.2

5.9

6.2

7.0

7.3

7.8

8.0

11.1

11.6

16.2

0.0 5.0 10.0 15.0 20.0 25.0

Nonalcoholic Beverages

Restaurants & Hotels

***Non Durables

Food

Clothing & Shoes

Alcoholic Beverages

***Semi Durables

***Services

Personal Care

Household Equipment

***Durables

2008 to 2012

2003 to 2007

Key Consumer Category Growth Forecast

CAGR, Billions of 2000 US$

433.7258.3***Non Durables

0.30.3Nonalcoholic Beverages

134.382.7Restaurants & Hotels

195.7115.0Food

63.734.3Clothing & Shoes

28.514.3Alcoholic Beverages

67.231.1***Semi Durables

141.467.5***Services

4.41.6Personal Care

9.94.0Household Equipment

2.90.7***Durables

20122003Billions of 2000 US$


Foreign Direct Investment Policy

Retail• Limit of 51% FDI for retail trade in “single brand”

products only– Foreign companies can retail goods directly if sold

internationally under a single brand– Retailing not allowed where the same company retails

multiple brands

Wholesale• 100% FDI is allowed

– Exporting– Bulk imports with warehouse sales, such as Cash and Carry


“Quit Retail”

• The political rhetoric swirling around India’s retail industry– “Quit Retail” (echoing Gandhi's "Quit India" rallying cry, which

led India to independence from Britain 60 years ago)– “Our culture is not the wasteful consumption that we see in the

first world.” (Dharmendra Kumar, India FDI Watch )– “Corporate hijack of retail”– “Gigantism at its worst”– “Backdoor entry of Wal-Mart”– “Great Indian retail gold rush"

• “Movement for Retail Democracy”– Enact strict law to ban all corporations in retail – Cancel wholesale cash and carry deals with foreign corporations– Enact laws against predatory pricing and anti-competitive actions


Arguments Against Rapid, Large Format Retailing• Retailing touches many lives in India

– A “retail democracy”; 8% of the country’s employment– Small shops comprise 97% of the retail trade– Low capital required; whole family employed to run business– New job creation will not offset jobs lost

• Current system in India is productive enough– “Self-organized retail” not “unorganized retail”– Small scale trading is flexible, personal, and fair– Efficiency would improve if government just invested in infrastructure– Retail sector should develop at natural rate

• International trade agreements just benefit foreign retailers– Agreements result in consolidated markets; less competition– Foreign retailers’ domestic markets have become saturated– India should learn from mistakes of others in Asia


Changing India’s Retail from Within

Reliance Industries– Indian energy giant began revolutionizing India’s food retailing– However, now closing “Reliance Fresh” supermarkets in Uttar Pradesh

in response to protests, threats of violence

Pantaloon Retail– India’s largest retailing company– Formed in 1987; food banners launched in 2002– Multi-format retailer in fashion, food, general merchandise, home,

finance, communications, and wellness

Bharti Enterprises – Telecom giant with good political clout; was looking for foreign partner– Wal-Mart deal triggered formal impact study on “mom and pop” stores– Following Wal-Mart’s agreement, Carrefour began looking for partner


Case Study: L’Oreal

• Entered India in 1991, but only became profitable in 2004– Sales doubling since 2002, and on target to hit $159 million

in 2007• Failed product launch led to marketing upscale first

– Indian women are increasingly employed, tied to a strong tradition of beauty, and not as price sensitive as previous generations

• L’Oreal trained the retail trade on 1) product benefits and, 2) western-style merchandising– Also introduced salon business and hairdressing academy to

seed future demand• Once securing a niche in upscale market, started planning

re-entry into larger, more profitable mass market– Domestic brands are following the reverse course


Case Study: Fiskars

• Scandinavian manufacturer of utility knives, high-end cutlery, scissors, and garden tools

• Entered market initially through military channels with utility knives– Initiated non-military distributor relationships at trade shows– Market opportunity is actually much stronger than anticipated—

more of a consumption economy

• Spending time in-market with distributors became essential because of the number of independent retail outlets– General lack of western-style merchandising knowledge, but

backroom operations (ordering, invoicing, etc.) is very developed– Retail logistics remain challenging, despite obvious government

investment in infrastructure– Attacking major metro areas first, one-by-one


Implications for Consumer Mfrs and Retailers• Resistance to foreign direct investment for multi-category

and multi-brand retailers will continue, at least near term– Retailing sector in India is more strategic than in the West– Domestic companies are active and will likely lead change– Opposition is organized and arguments are not simply reactionary– Argument against FDI is merging with anti-corporate sentiment

• Changes to food retailing are more sensitive than non-food– Tremendous impact on farmers and inefficient supply chain– Resistance to non-urban, domestic food retailers is high

• Consumer goods manufacturers stand better chance – High-end products, durables, and international brands for growth;

non-durables for scale– Market income growth, employment, and education in urban areas– Partnering with right distributor is essential

AuthorGroup

Global Insight

Thank You!

Leon NicholasPrincipal, Consumer Goods & [email protected]

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