kulshreshtha mrp interim

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A

PROJECT REPORT

ON

FUTU

RE PROSPECTS OF

RETAIL SECTOR IN INDIA

Submitted by:

Kulshreshtha Tyagi

(09BS0001098)

Submitted to:

Prof. Vinay Aggarwal

ICFAI Business School

Chandigarh

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A

PROJECT REPORTON

FUTURE PROSPECTS OF RETAIL SECTOR IN INDIA

By:

Kulshreshtha Tyagi

(09BS0001098)

Date of Submission:

II


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Acknowledgement

Before I proceed further I wish to spend some time in expressing my gratitude to all those who

have been involved in guiding and helping me out during my entire research project.

I am grateful to IBS Chandigarh for giving me the opportunity to undergo this research project. My

project has been enriching and value adding experience. I would like to equivocally thank the Dean,

Prof. Bhagat Ram, who gave me this opportunity to work under this project.

I would take this opportunity to express my sincere accolade to my faculty guide, Prof. Viney Aggrawal

for facilitating me at various phases of the project. At the very outset of this research report, I would like

to acknowledge the contribution of all those who have been instrumental in helping and guiding me in

course of this effort.

Above all, I am grateful to all the respondents who took out time and helped to make this project a

reality.

Kulshreshtha Tyagi

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Abstract

Retailing is the most active and attractive sector of last decade. While the retailing industry

itself has been present since ages in our country, it is only the recent past that it has

witnessed so much dynamism. The emergence of retailing in India has more to do with the

increased purchasing power of buyers, especially post-liberalization, increase in product

variety, and increase in economies of scale, with the aid of modern supply and distributions

solution.

Indian retailing today is at an interesting crossroads. The retail sales are at the highest

point in history and new technologies are improving retail productivity. Though there are

many opportunities to start a new retail business, retailers are facing numerous challenges.

Indian retail industry is going through a transition phase. Most of the retailing in our country

is still in the unorganized sector. The spread out of the retails in US and India shows a widegap between the two countries. Though retailing in India is undergoing an exponential

growth, the road ahead is full of challenges.

This report will cover the study of future prospects of Retail Sector in India. It will cover the changes

occurred and future changes in the sector, challenges, opportunities, contribution in employment and

the economy of country.

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CONTENTS

Overview of Retail Sector 1

Organised Retail Sector in India 2

Unorganised Retail Sector in India 5

Evolution of Sector 7

Retail Formats 9

Major Industry Players 11

The Growth Drivers 12

Challenges 13

Future Outlooks 14

Project Introduction 16

Objectives 16

Limitations of the Study 16

Research Methodology 17


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Overview of Retail Sector in India

Retailing: - The word "Retail" originates from a French-Italian word. Retailer is someone who cuts off or

sheds a small piece from something. Retailing is the set of activities that markets products or services to

final consumers for their own personal or household use. It does this by organizing their availability on a

relatively large scale and supplying them to customers on a relatively small scale. Retailer is a Person or

Agent or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise

or Services to the End User or Ultimate Consumer.

The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized

sectors, India retail industry is one of the fastest growing industries in India, especially over the last few

years. Though initially, the retail industry in India was mostly unorganized, however with the change of

tastes and preferences of the consumers, the industry is getting more popular these days and getting

organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30%

annually. The India retail industry is expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000

crore by the year 2010.

Retail Sector is the most booming sector in the Indian economy. Some of the biggest players of the

world are going to enter the industry soon. It is on the threshold of bringing the next big revolution after

the IT sector. Although organized retail market is not so strong as of now, it is expected to grow

manifolds by the year 2010. The sector contributes 10% of the GDP, and is estimated to show 20%

annual growth rate by the end of the decade as against the current growth rate of 8.5%. A CRISIL report

says that the Indian retail market is the most fragmented in the world and that only 2% of the entireretailing business is in the organized sector. This suggests that the potential for growth is immense.

There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently being built in

the cities across India.

Estimates and predictions for retail sector:

y At present, the industry is estimated to be at more than US$ 400 billion by a study of McKinsey.

y KPMG Report says that the organized retail would grow at a higher rate than the GDP in the next

five years.y The retail sector would generate employment for more than 2.5 million people by the year

2010, predicts an analysis by Ma Foi Management Consultants Ltd.

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Organized Retail Sector in India

The Indian organized retail industry is valued at about $300 billion and is expected to grow to $427

billion in 2010 and $637 billion in 2015. Retail Market India today is the second fastest growing economy

of the world after China. Indian economy will grow larger than Britain's by 2022; Japan by 2032 and by

2050 will become the second largest economy of the world after China. Indian market has become the

most lucrative market for retail investment in the world. Some of the factors which have contributed to

the growth of organized retail in India are: increase in the purchasing power of Indians, rapid

urbanization, increase in the number of working women, large number of working young population.

Today people look for better quality product at cheap rate, better service, better ambience for shopping

and better shopping experience. Organized retail promises to provide all these. The Industry The various

formats of organized retail are: Hypermarkets: They store products of multiple brands comprising food

items and non-food items. Supermarkets: These are self service stores selling food and personal care

products. E.g.: Subhiksha. Departmental stores: Retails branded goods in non-food categories. E.g.:

Shoppers Stop. Specialty Chains: These stores focus on a branded product or a product category. E.g.:

Bata Convenience stores: These are small self service outlet located in crowded urban area. Malls: A

huge enclosures which has different retail formats. e.g.: Nucleus Key players in organized retail are:

Pantaloon Retail: It was started by Kishore Biyani- India's largest retailer. The various formats of

pantaloon retail are: Pantaloons, Big Bazaar, Food Bazaar, Central etc. RPG Retail: Its various formats

are: Food World, Music World, Health & Glow, Spencer's Tata Retail (known as TRENT): Its various

formats are: Croma Westside Star India Bazaar K Raheja Corp. Group: Shoppers' Stop, Hypercity,

Crossword, InOrbit Mall Reliance Retail Job Opportunities: Retail accounts for 8% employment in the

country. In the next 2 years the sector is set to provide 2.5 lakh job opportunities.

The types of jobs available in retail are: Retail sales, Store management, Stock management, Supply

chain management, warehousing and operations. In organized retail the front liners like shop floor

executives, sales executives etc are in great demand. The front liners have to directly communicate with

the customers. The other jobs are for store managers, store planners, cashiers, stockists, logistics,

operations, distribution, marketing, finance, HR, IT etc.

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Good communication skill, high interpersonal skills, convincing power, positive attitude and ability to

handle stress is a prerequisite for these jobs.

Fresh graduates who want to make career in retail can easily fill these jobs. Stock planners, Operations,

logistics, cashiers have to deal with the numbers daily. Besides having good communication skills they

also require numerical and analytical ability.

Bharati retail is planning to invest $2.5bn by 2015 which will create employment opportunity for 60,000

people. Bharti Resources, a learning and development solutions subsidiary of Bharati Group, has tied-up

with Global Retail School (GRS) to groom graduates and undergraduates in retail management and other

sectors. They will provide 3-month and 6-month certificate courses for Rs 30,000 and Rs 15,000

respectively in Retail Sales and Marketing, Retail Visual Merchandising and Space Planning, Retail Supply

Chain Management, for creating frontend manpower professionals. Indeed it is a fact that organized

retail in India is all set to grow at an stupendous pace.

In late 1990's the retail sector has witnessed a level of transformation. Retailing is being perceived as a

beginner and as an attractive commercial business for organized business i.e. the pure retailer is starting

to emerge now. Organized retail business in India is very small but has tremendous scope.

Organized retailers are the contemporary formats by which shoppers have the edge of a world class

shopping experience. Fine examples of these formats are Pantaloon, Shoppers Stop and Trent.

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Organized retail may broadly be classified into the following formats-

Malls

This is the largest form of organized retiling today. Malls are located mainly in metro cities, in proximity

to urban outskirts, this format ranges from approximately 60,000 sq ft to 7,00,000 sq ft and above.

Hypermarkets

These are also large, starting from 40,000sq. ft plus are usually located outside the city limits. This

format comprises of a multiple division layout, and usually has an industrial- look interior. Hypermarkets

generally provide daily necessities and grocery like items. Pricing is competitive and they also offer

volume discounts.

Super Markets

Large self service outlets, catering to varied shopper needs are termed as Super markets. These are

located in or near residential high streets.

Discount Stores

As the name suggests, discount stores or factory outlets, offer discounts on the MRP through selling in

bulk reaching economies of scale or excess stock left over at the season. The product category can range

from a variety of perishable/ non perishable goods.

Exclusive Store

Ranging from a size of 500 sq ft to 5,000 sq ft. & above, this format is owned/ managed by the company

or through its franchise. These can offer single brand as well as multiple bands.

Specialty Store

These formats focus on a specific product category, medium sized layout in strategic location. Specialty

stores provide a large variety base for the consumers to choose from.

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Evolution ofSector

The origins of retailing in India can be traced back to the emergence of Kirana stores and mom-and-pop

stores. These stores used to cater to the local people. Eventually the government supported the rural

retail and many indigenous franchise stores came up with the help of Khadi & Village Industries

Commission. The economy began to open up in the 1980s resulting in the change of retailing. The first

few companies to come up with retail chains were in textile sector, for example, Bombay Dyeing, S

Kumar's, Raymonds, etc. Later Titan launched retail showrooms in the organized retail sector. With the

passage of time new entrants moved on from manufacturing to pure retailing

Retail outlets such as Foodworld in FMCG, Planet M and Musicworld in Music, Crossword in books

entered the market before 1995. Shopping malls emerged in the urban areas giving a world-class

experience to the customers. Eventually hypermarkets and supermarkets emerged. The evolution of the

sector includes the continuous improvement in the supply chain management, distribution channels,

technology, back-end operations, etc. this would finally lead to more of consolidation, mergers and

acquisitions and huge investments.

ss

Weekly Markets, Village and Rural Melas

Source of entertainment

Rural and historic reach

Convenience stores, Mom-and-pop / Kirana shops

Neighborhood stores/convenience

Traditional and pervasive reach


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PDS outlets, Khadi stores, Cooperatives

Government supported

Availability/low costs/distribution

Exclusive Brand outlets, Hypermarkets and Supermarkets, Department stores and Shopping malls

Shopping experience/ efficiency

Modern formats/ international

Percentage ofOrganized Retail across the World


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8

Retailing Formats

Modern Format retailers

y Supermarkets

y Hypermarkets

y Department Stores

y Specialty Chains

y Company Owned Company Operated

Traditional Format Retailers

y Kiranas: Traditional Mom and Pop Stores


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y Kiosks

y Street Markets

y Exclusive /Multiple Brand Outlets

Traditional vs.Modern Format Retailers

The retail boom will face a strong competition from the 12 million mom-and-pop stores. These are easily

accessible and provide services like free home delivery and goods at credit, which is not possible with

hypermarkets and supermarkets. Buying from Malls, Supermarkets and Department stores like

Subhiksha, Marks & Spencers, etc. provide a different environment where one can pick and choose from

a variety of products. Owing to the entry of such big players, the small shopkeepers fear losing their

business. Reliance Retail Ltd. has been inviting such people to join in its Dairy business as franchisees.

Mom-and-pop stores: These are generally family-owned businesses catering to small sections of society.

They are small, individually run and handled retail outlets.

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Category killers: Small specialty stores have expanded to offer a range of categories. They have widened

their vision in terms of the number of categories. They are called category killers as they specialize in

their fields, such as electronics (Best Buy) and sporting goods (Sport Authority).

Department stores: These are the general merchandise retailers offering various kinds of quality

products and services. These do not offer full service category products and some carry a selective

product line. K Raheja's Shoppers Stop is a good example of department stores. Other examples are

Lifestyle and Westside. These stores have further categories, such as home and dcor, clothing,

groceries, toys, etc.

Malls: These are the largest form of retail formats. They provide an ideal shopping experience by

providing a mix of all kinds of products and services, food and entertainment under one roof. Examples

are Sahara Mall, TDI Mall in Delhi.

Specialty Stores: The retail chains, which deal in specific categories and provide deep assortment inthem are specialty stores. Examples are RPG's Music World, Mumbai's bookstore Crossword, etc.

Discount stores: These are the stores or factory outlets that provide discount on the MRP items. They

focus on mass selling and reaching economies of scale or selling the stock left after the season is over.


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Hypermarkets/ Supermarkets: These are generally large self-service outlets, offering a variety of

categories with deep assortments. These stores contribute 30% of all food and grocery organized retail

sales. Example: Big Bazaar.

Convenience stores: They are comparatively smaller stores located near residential areas. They are

open for an extended period of the day and have a limited variety of stock and convenience products.Prices are slightly higher due to the convenience given to the customers.

E-tailers: These are retailers that provide online facility of buying and selling products and services via

Internet. They provide a picture and description of the product. A lot of such retailers are booming in

the industry, as this method provides convenience and a wide variety for customer. But it does not

provide a feel of the product and is sometimes not authentic. Examples are Amazon.com, Ebay.com, etc.

Vending: This kind of retailing is making incursions into the industry. Smaller products such as

beverages, snacks are some the items that can be bought through vending machines. At present, it is

not very common in India.

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Major Industry Players

Pantaloon: Pantaloon is one of the biggest retailers in India with more than 450 stores across the

country. Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the

country. It's growing at an enviable pace and is expected to reach 30 million sq. ft by the year 2010. In

2001, Pantaloon launched country's first hypermarket Big Bazaar. It has the following retail segments:

Food & Grocery: Big Bazaar, Food Bazaar

Home Solutions: Hometown, Furniture Bazaar, Collection-i

Consumer Electronics: e-zone

Shoes: Shoe Factory

Books, Music & Gifts: Depot


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Health & Beauty Care: Star, Sitara

E-tailing: Futurebazaar.com

Entertainment: Bowling Co.

Tata Group: Tata group is another major player in Indian retail industry with its subsidiary Trent, which

operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book and

music retailer in India Landmark in 2005. Trent owns over 4 lakh sq. ft retail space across the country.

RPG Group: RPG Group is one of the earlier entrants in the Indian retail market, when it came into food

& grocery retailing in 1996 with its retail Foodworld stores. Later it also opened the pharmacy and

beauty care outlets Health & Glow.

Reliance: Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh

stores and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales to reach Rs.

90,000 crores by 2010.

AV Birla Group: AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis

Phillipe, Allen Solly, Van Heusen & Peter England are quite popular. It's also investing in other segments

of retail. It will invest Rs. 8000-9000 crores by 2010.

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The Growth Drivers

The Retail Sector of Indian Economy is going through the phase of tremendous transformation. The

retail sector of Indian economy is categorized into two segments such as organized retail sector and

unorganized retail sector with the latter holding the larger share of the retail market. At present the

organized retail sector is catching up very fast. The impact of the alterations in the format of the retail

sector changed the lifestyle of the Indian consumers drastically. The evident increase in consumerist

activity is colossal which has already chipped out a money making recess for the retail sector of Indian

economy.

With the onset of a globalized economy in India, the Indian consumer's psyche has been changed.

People have become aware of the value of money. Nowadays the Indian consumers are well versed with

the concepts about quality of products and services. These demands are the visible impacts of the Retail

Sector of Indian Economy.

Since the liberalization policy of 1990, the Indian economy, and its consumers are getting whiff of the


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latest national & international products, with help of print and electronic media. The social changes with

the rapid economic growth due to trained personnels, fast modernization, and enhanced availableness

of retail space are the positive effects.

The growth factors of the retail sector of Indian economy:

y Increase in per capita income which in turn increases the household consumption

y Demographical changes and improvements in the standard of l iving

y Change in patterns of consumption and availability of low-cost consumer credit

y Improvements in infrastructure and enhanced availability of retail space

y Entry to various sources of financing

y Changing life styles and tastes

y Growing need for convenience

y Increasing disposable income

y Increasing numbers of working women

y Change in consumption patterns

y Higher aspirations among youth

y Impact of western lifestyle

y Plastic Revolution Increased use of credit cards and debit cards

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Challenges

Issues & Challenges

y Weaknesses in Current Retail Sector

y Limitations due to Land and Property Laws

y Limitations due to Stringent Labor laws

y Lack of Basic & Secondary Infrastructure

y Non-availability of Quality Real Estate at Prime Locations

y

Poor Distribution Networky Supply Chain Issues

y Economies of Scale

y Non-availability of Skilled Manpower

y Differentiation

y Differences between urban-rural consumers


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Critical Success Factors

y Location

y Merchandise

y Knowledge and Information

y Customer Satisfaction

y Ability to Acquire the Right Products

y Product Presentation / Placement

y Traffic Building

y Layout

y Keeping Pace with Technology

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Future Outlooks

Future Trends

y Lifestyle International, a division of Landmark Group, plans to have more than 50 stores

across India by 201213

y Shoppers Stop has plans to invest Rs250 crore to open 15 new supermarkets in the coming

three years

y Pantaloon Retail India (PRIL) plans to invest US$ 77.88 million this fiscal to add up to existing

2.4 million sq ft retail space. PRIL intends to set up 155 Big Bazaar stores by 2014, raising its

total network to 275 stores

y Timex India will open another 52 stores by March 2011 at an investment of US$ 1.3 million

taking its total store count to 120. In the first six months of the current fiscal ending

September 30, 2009, the company has recorded a net profit of US$ 1.2 million


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y Australia's Retail Food Group is planning to enter the Indian market in 2010. It has plans to

clock US$ 87 million revenue in five years. In 20 years they expect the India operations to be

larger than the Australia operations.

y The retail sector of Indian economy will grow up to 10% of total retailing by the year 2010

y No one single format can be assumed as there is a huge difference in cultures regionally

y

The most encouraging format now would be the hypermarts

y The hypermart format would be further encouraged with the entry of the TNC's

The Road Ahead

Industry experts predict that the next phase of growth in the retail sector will emerge from the rural

markets. By 2012 the rural retail market is projected to have a total of more than 50 per cent market

share. The total number of shopping malls is expected to expand at a compound annual growth rate of

over 18.9 per cent by 2015. According to market research report by RNCOS the Indian organized retail

market is estimated to reach US$ 50 billion by 2011.

International Retailers

Major retail players like Wal-Mart, Tommy Hilfiger, Carrefour, Marks & Spencer, Nike, etc. are going to

foray into the booming retail industry in India. Indian fashion industry would see the advent of fashion

brand DKNY through a franchisee agreement with S. Kumar's.

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In the food & beverages sector, McDonald's is going to penetrate the markets through 100 new outlets

across the country.

Encouraged by the huge success of Pizza Hut, McDonald's, and Dominos, another organization known as

Starbucks has expressed its interest in opening up outlets in India through franchising. There are various

kinds of restrictions on FDI in the Indian retail sector, but organizations can enter the industry through

Strategic License agreements, Franchising and Cash and carry wholesale trading.

The recent initiatives taken by the government to open up the sector for foreign players have lured

many companies to enter the industry. Big players like Reliance Retail, Wal-Mart-Bharti combination,

Tesco, AV Birla group and Future group are all gearing up for huge investments and aggressive business

strategies. The government is considering the introduction of multi brand specialty formats like

consumer electronics, building, sports goods and construction and stationery. The government has

allowed 51 percent foreign direct investment (FDI) in single brand retail outlets. Reliance Retail has

announced its plan to open 5000 stores over the next 5 years. Many companies like Lee Cooper,

Starbucks and Wal-Mart have put forward their FDI proposals to the government.


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At present, the 12 million mom-and-pop and kirana stores dominating the retail landscape suffer from

certain limitations, such as small size of operations, low cost format and pervasive use of tax evasion

techniques. They also suffer from capital shortage, labor and real estate problems. Some experts believe

that the influx of major retail chains would wipe out millions of these shops. This might leave a lot of

people jobless. Legal, political, infrastructural, cultural and educational constraints would have to be

considered if the sector truly desires to achieve the kind of future it has planned for itself.

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Project Introduction

Indian retail industry is going through a transition phase. Most of the retailing in our country is still in

the unorganized sector. The spread out of the retails in US and India shows a wide gap between the two

countries. Though retailing in India is undergoing an exponential growth, the road ahead is full of

challenges.

India retail industry is the largest industry in India, with an employment of around 8% and contributing

to over 10% of the country's GDP. Retail industry in India is expected to rise 25% yearly being driven by

strong income growth, changing lifestyles, and favorable demographic patterns.

This project will evaluate the future prospects of growing retail sector in India. It will estimate the

contribution in GDP and percentage of creating employment. Also, the steps taken by the big players in


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this field and their future steps in the same & the steps taken by the government. It will find out the key

challenges for the growth in this sector & opportunities available for big & small players and new

entrants.

Objectives

y

To study the future prospects of Retail sector

y To evaluate the contribution in GDP

y To evaluate the contribution in employment

y Challenges & opportunities

y Impact of big players on small players

y Impact of foreign players

y Role of Government

Limitations of the study

y

For collecting data commutation cost will be incurred

y Frequent changes in the market trend and customer preferences

y The scope of study is limitedto sample size of 200

y Our observation is confined to New Delhi and Chandigarh only

y The data which will be collected from customers and food retailers is through questionnaires

and is subject to response errors

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Research Methodology

Primary Data Collection for Customers and Retail Outlets

Descriptive Research Design:

The research design adopted in this study is Descriptive Research Design. A descriptive research design

is the one which is description of the state of affairs as it exists at present. It includes survey and fact

finding enquiries of different kinds. The researcher has no control over the variables. The researcher


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used this research design to describe the consumer buying behavior and the retailers outlook towards

changing trends in Indian Food Retailing and their future perceptions.

For Customers: This research design is used to find out the respondents attitude and their customer

satisfaction level.

For Retail Outlets: This research design is used to find out the comparative study of competitive Retail

Outlets which are being preferred by the respondents.

Sampling Design: A sample design is a definite plan for obtaining a sample from a given population. It

refers to the techniques or procedures the researcher would adopt in selecting items for the sample.

Convenience Sampling:

The researcher adopted convenience sampling. It is the non probability sampling in which sampling

procedures does not have any basis for estimating the probability that each item in the population is

included in the sample. The researcher selects the people according to their convenience.

For Customers: For selecting respondents, random sampling was used, due to factors like convenience

and for each market there was a set quota of 25 respondents.

For Retail Outlets: For selecting respondents, random sampling was used, due to factors like

convenience and for each market there was a set quota of 5 outlets.

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Sample Size:

For Customers: The target sample for this study is 200 respondents in various areas of Mohali and

Chandigarh that was done independently and they are further divided into age group of 20-60 including

business class, service class, students and house wives.

For Retail Outlets:The target sample for this project is 5 Competitive Brands and further 3 Outlets of

each competitive Retail Brands in various areas of Chandigarh and New Delhi that was done

independently.


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