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Promise of Indian Retail

From Vision to Execution

PwC

India Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution

The Promise of Indian Retail – Unparalleled yet elusive

Why Retailers Have Struggled – 4 key reasons

Rethinking The Future – Actions for profitable growth

1

2

3

PwC

India’s macro-economic indicators remain strong

1. 17% of world population

and 3% of global

consumption

2. India is fastest growing

major economy

3. Per capita income has

quadrupled in last 15 years

to ~$1600

4. Consumption growth not

just restricted to the Metros

Key Highlights10.3%

6.6%

5.5%

6.4%

7.5% 8.0%

7.1%

8.7%

9.3%

5.5%

7.3%

6.2% 6.1%

8.7%

2010 2011 2012 2013 2014 2015 2016

GDP y-o-y growth HFCE y-o-y growth

Source: World Bank DataIndia Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution

PwC

Organized Retail in India – An unparalleled opportunity


43%

16%

45%

25%

28%

8%

57%

84%

55%

75%

72%

92%

Malaysia

Indonesia

Thailand

Vietnam

Phillippines

India

Modern Retail Traditional Retail

+ $164

Bn

2016 2020

2015-20 CAGR

32%

4.2%

4.5%

3.2%

2.5%

1%

63%

7.5%

25.4%

14.1%

38%

11%

Brick and mortar E-retail

Total retail market size (USD Mn)

553 983

Source: Spire Research and Consulting, Images Group Research for India Retail Report 2017, IBEF, PwC Analysis

15%

PwC

Organized Retail in India – Fuelled by an emerging India


1. Growing urban, young population

2. Growing aspiration

3. Growing digital influence

4. Ease of doing business

47% of population below 25 yrs

Rising urbanization

Increasing nuclear families

Rise of branded products Willingness to pay for service &

convenience Focus on healthier living

31% internet penetration, growing at a CAGR of ~16% till 2021

77% of urban users and 92% of rural users consider mobile as the primary device for internet access

Easing FDI rules in retail

GST – A boost to organized retail economic model

India ranks 1 in Global Retail Index among 30 developing countries

Source: IAMAI-IMRB report

PwC

However, We are short of the early promise the Industry showed

% share of organized and traditional

retail in India

YearOrganized

retail

Traditional

retail

2005 3.6% 6.4%

2007 4.1% 95.9%

2010 5.0% 95.0%

2012E 8.0% 92.0%

2015E 21.0% 79.0%

2020E 24.0% 76.0%

• At 8-10 % penetration of organized retail is far short of Initial estimates

• Profitability projections for retailers have been revised across the market

• Several global & Indian players exited not achieving profitability and scale

Early projections carried out for organized retail penetration in India have been way above those that have actually been achieved

Source: Images Group Research for India Retail Report 2017, PwC AnalysisIndia Retail Forum 2017 • The promise of Indian Retail: From Vision to Execution

PwC

So what stopped retailers from building toward this promise?


Did they not have the right vision for this market?

Did their strategy fail to capture the market

nuances?

Did they fall short on execution?

Did regulations and infrastructure not support

their aspirations?

PwC

To isolate the reasons, we surveyed a breadth of Indian retailers


Total Retailers Surveyed: 40

30%

30% international retailers surveyed

5 Retailers > USD 500 Mn

26 Retailers between USD

100-USD 500 Mn

9 Retailers <USD 100 Mn

PwC

Our survey revealed..


On ground realities were different than envisioned

In a bid to scale fast, they faltered on execution

Over time, value proposition got ignored

As they were correcting past mistakes, competition from well -funded online players posed a new challenge

1

2

3

4

4Key reasons

for slow growth

PwC

#1. On ground realities different than envisioned


Met, 10%

Did not meet, 90%

In a bid to quickly expand and grow in an

under-penetrated market, retailers could not

meet their envisioned scale of business

because of…

1

2

3

Infrastructural challenges - Limited

availability of quality real estate. 75% of retailers surveyed cited this as a major constraint limiting scale

Access to capital- 50% of retailers

surveyed cited this as a major constraint for growth

Retail Talent – Acquiring, developing and retaining retail talent was challenging.

40% of retailers surveyed felt this to be

a major constraint

Source: PwC survey for IRF 2017 report

PwC

#2. In a bid to scale fast, execution suffered


Pressure on unit economics on account of…

1. Suppliers with strong hold over retail margins

2. Value conscious consumer

3. Strong competition from traditional trade

4. Higher cost to serve due to infrastructure challenges

…resulted in suboptimal execution

Rapid scale resulted in a large percentage of new stores that pushed

out profitability

55%

28%

40%

38%

Poor location

Underdeveloped supplyecosystem

Limited store talent

Geographically dispersedstore base


PwC

#3. Over time, value proposition got ignored or diluted


Internal factors preventing profitability and challenges in value proposition

20%

40%

30%

60%

30%

60%

Target Group Location Format Pricing Brand andcommunication

Assortment

Unclear value

proposition, 35%

Poor operational execution,

65%

One size fits all approach didn’t work in heterogeneous Indian market


PwC

#4. Competition from online posed a new challenge


1 Discounts and sales have become a way of life

2 There has been a shift in how consumers buy

Date CompanyAmount (in

USD Mn)

Jul-14 Flipkart 1,000

Dec-14 Flipkart 700

Oct-14 Snapdeal.com 637

May-14 Flipkart 210

Oct-14 Olacabs 210

Feb-14 Snapdeal.com 134

May-14 Snapdeal.com 100

Nov-14 Housing.com 90

Mar-14 Quikr 90

Sep-14 Quikr 60

Source: PwC report – e-commerce in India accelerating growth, Images Group Research for India Retail Report 2017

The top 10 PE deals in e-commerce in 2014 amounted to ~USD 3.2 Bn

The total size of non food and grocery retail in India in USD Mn (2014 and 2016)

Category 2014 2016

Fashion 32.4 44.2

Foodservice 26.6 30.9

Telecom & Broadcasting 18.0 23.1

Home and interiors 11.1 14.7

Gaming 9.6 12.6

Books, stationery, etc 7.9 9.4

Pharmacy 10.5 14.5

Mobile phones 9.9 14.9

Others 63.3 85.9

Total 189.3 250.2

PwC

The market has also evolved over this decade


Growing customer needs

Heightened competition

Evolving Technology

Changing role of retailers

Larger infrastructure investments

Smoother regulatory

environment

PwC

Rethinking the future for profitable growth


acts that will transform your future

Actions to Replan the Future

PwC


Don’t let the past limit how you think about the future.

• Think Big Break free of low growth orbit by thinking how to maximize on opportunities

• Bring clarity of vision Revisit core of your existence and define vision that’s clear to your employees & customers

• Recognize key trends and invest Allocate resources on opportunities of the future rather than problems of the past

Action #1

Source: PwC Analysis

PwC


Be clear of who you are. Stay true to that in what you do.

• Strengthen brand franchise How are you investing in creating a sustainable customer engagement?

• Create cost barrier Is your value proposition difficult / expensive for competitors to emulate?

• Create lasting change in consumer behavior Does your proposition align better with what customers really want?

Action #2


PwC


Rethink execution.

• Translate vision to performance metrics Create KPI’s that are controllable & have significant impact on vision

• Structure that drives ownership Build structure that promotes rather than inhibit end to end ownership

• Culture that promotes continuous improvement Culture should drive innovation in how you serve customers

Action #3


PwC

Thank you


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