Submission of project synopsis and guide acceptance form

(to be submitted to the project steering committee)

Part A: synopsis registration.

I. Student details:

1. Name of the program

: Retail management
2. Name of the student
: Ruchit SHARADBHAI Naik
3. Roll number
: 1205032309
4.
Session & year
: semister IV,2015
5.
Name and address of learning centre : Prabhat Infosys, Surat

6. Title of the project :

A study on evolution of modern retail in india

Introduction
Retail has played a major role world over in increasing productivity across a wide
range of consumer goods and services .the impact can be best seen in countries
like u.s.a., u.k., mexico, thailand and more recently china. Economies of
countries like singapore, malaysia, hong kong, sri lanka and dubai are also

1|Page
heavily assisted by the retail sector. Retail is the second-largest industry in the
united states both in number of establishments and number of employees. It is
also one of the largest world wide. The retail industry employs more than 22
million americans and generates more than $3 trillion in retail sale annually.
Retailing is a u.s. $7 trillion sector. Wal-mart is the worlds largest retailer.
Already the worlds largest employer with over 1million associates, wal-mart
displaced oil giant exxon mobil as the worlds largest company when it posted
$219 billion in sales for fiscal 2001. Wal-mart has become the most successful
retail brand in the world due its ability to leverage size, market clout, and
efficiency to create market dominance. Wal-mart heads fortune magazine list of
top 500 companies in the world.

Objectives

To analytically understand the present retail boom in india, with special reference
to the changing face of retailing in india,

To understand the concept of modern retailing in india and the consequences

resulting from this phenomenon,

To understand the interface between traditional retailing and modern organized

retailing in various segments of the market.

To identify the challenges related with quality control in a retail project.

Statement of the problem:

Retailing in india is receiving global recognition and attention and this emerging
market is witnessing a significant change in its growth and investment pattern. It
is not just the global players like wal-mart, tesco and metro group are eying to
capture a pie of this market but also the domestic corporate behemoths like

2|Page
reliance, kk modi , aditya birla group, and bharti group too are at some stage of
retail development.

The indian retail sector is going through a transformation and this emerging
market is witnessing a significant change in its growth and investment pattern.
Both existing and new players are experimenting with new retail formats.
Currently two popular formats -hypermarkets and supermarkets are growing very
fast. Apart from the brick -mortar formats, brick -click and click-click formats are
also increasingly visible on the indian retail landscape. Consumer dynamics in
india is changing and the retailers need to take note of this and formulate their
strategies and tactics to deliver value to the consumer. This paper investigates
modern retail developments and growth of modern formats in this country. We
also discuss the challenges and opportunities available to the retailers to succeed
in this country.

Limitations:-

Some of the documents of the company were not accessible due to

confidentiality.

Many employees didnt have time to give interviews.

Some of the employees were not very forthcoming in their responses & reluctant
to answer the questionnaire.

Responses of few of them were biased due to fear of the management and some
are influenced by the opinions of their colleagues.

3|Pag
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Research methodology

Researcher will use the both primary and secondary data to fulfill the research
objectives. Interviews will be conducted with information security department
employees to gather the primary data. Secondary data will be collected through
online references, magazines and news papers.

Research methodology in a way is a written game plan for conducting research.

Research methodology has many dimensions. It includes not only the research
methods but also considers the logic behind the methods used in the context of
the study and complains why only a particular method of technique has been
used.

There are basically two techniques adopted for obtaining information:

primary data.

secondary data.

Source of secondary & primary data:

Primary data: this is the most authentic and accurate source of data collection as
it provides fresh and first hand information that we taking from latest available
balance sheet and profit & loss accounts of the company. Under this data is
collected by personal interview of the concerned executives. Consist of original
information gathered for the specific purpose at hand through various instruments
like structured interviews and questionnaires. It is the data collected first hand
relating to specific queries and problems. The primary data will be collected
using questionnaires and face-to-face interviews using structured questionnaire.

4|Pag
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Secondary data: secondary data will be collected from the reports of the
company, books, journals and internet. It is gathered from annual reports,
official records and standing orders of the units.

The research will use both primary and secondary data.the secondary data in this
research will be collected through news articles, journals, magazine, peer reviews
and published databases.

Text books
Articles

Journals
Websites

References

Indias sleeping giant: food, mckinsey quarterly, 1997

Faida revisited realizing the potential, cii- mckensey report, january 2004

Retail scenario in india : unlimited opportunity, mckinsey-cii report, 2003

Food processing policy 2005,

Http://www.mofpi.nic.in

Developing a rural market e-hub:the case study of e-choupal experience of itc.

B. Bowonder, vinay gupta and amit singh ;organic farming: its relevance to the
indian context, p. Ramesh*, mohan singh and a. Subba rao, current science, vol.
88, no. 4, 25 february 2005 563

Gerstner, e. Et al. 1994. a theory of channel price promotions. American

economic review 84: 14371445.

5|Page
Guide details:
Affiliation

01. Name of proposed guide

Qualification

Guide registration no. (if available)

Total experience

Designation
Communication address
MBAGJ0076

Management faculty
Contact no.

Skkim manipal university

09. E-mail id

M.B.A. (finance)

3 ( three years)

63, netal de park society,

Puna to bombay market

Road,surat - 395010
6|Page

: 08460440362

Hina gajera
:hinagajera@gmail.com
Part B: Guide acceptance

I ms. Hina gajera working as a faculty management with Prabhat Infosys,Surat

hereby confirm my willingness to guide MR. Ruchit sharadbhai naik,
rollno.120503309, attached to Learning centre 01956 Prabhat infosys
ltd,surat on the topic of A study on evolution of modern retail in india
during the winter session of march 2015 to november 2015. I agree to this
timeline and also to submit the project status/ internal assessment marks to the
university.

Place: Surat

Date: 15/03/2015 (signature of the guide)

Declaration

I hereby declare that this project synopsis is an original work carried by me and
will not submitted to any other university for fulfilment of any course of study.

Place: surat

Date: 15/03/2015 (signature of the student)

7|Pag
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A project report entitled

a study on evolution of modern retail in india

By

(ruchit naik)

(2015)

8|Pag
e
A project report

On
a study on evolution of modern retail in india

By

Ruchit naik
(registration no.1205032309)

A project report submitted in partial fulfillment of the

requirements

For the degree of master of business administration of

Sikkim manipal university, india
Page |-9-
Ruchit S Naik
Mba (Retail management) (sem-IV)
Roll no.: 1205032309
I hereby declare that the project report entitled

a study on evolution of modern retail in india

Submitted in partial fulfillment of the requirements for

the degree of

Masters of business administration

To sikkim-manipal university, india,
is my original work and not submitted for the award of
any other degree, diploma,
fellowship, or any other similar title or prizes.

Place: surat

Sign: Ruchit s Naik

Page |-
10 -
This is to certify that the project report entitled

a study on evolution of modern retail in india

Submitted in partial fulfillment of the requirements

for the degree of
Masters of business administration
of sikkim-manipal university
by
(Ruchit Naik)
has worked under my supervision and guidance and that no part of this
report has been submitted for the award of any other degree, diploma,
fellowship or other similar titles or prizes and that the work has not been
published in any journal or magazine

(Reg. No:1205032309)

Certified

Hina Gajera (mba finance)

P a g e | - 11 -
Acknowledgement
The success of any task lies upon the efforts made by a person,
but it cannot be achieved without the co-operation of others. A
project is a gift of joint efforts and constant over srain. It would
not have been possible from my side to complete the project, if
my competency, overall knowledge and above all my confidence
would not have been motivated by my faculty guide.

So, i take this opportunity to express my profound gratitude &

deep regards to my guide, MS. Hina gajera for her exemplary
guidance, monitoring & constant encouragement throughout the
course of this thesis. The blessing, help and guidance given by
her time to time shall carry me a long way in the journey of my
life.

I also take this opportunity to express a deep sense of gratitude to

Mr. Sandeep jadhav, f&b manager sodexo (india) pvt.

Ltd. For his cordial support, valuable information and guidance,

which helped me in completing my project report.

I am obliged to the staff members sodexo (india) pvt. Ltd. For

the valuable information provided by them. I am grateful for
their co-operation during the period of my project report.

Lastly, i thank the almighty, my parents and friends for their

constant encouragement without which this report would not be
possible. They have helped me during the hour of need and
increased my morale to complete my project report.

Page |-
12 -
Declaration

I, Ruchit Naik hereby declare that the report of the project

entitled

a study on evolution of modern retail in india

Has not presented as a part of any other academic work to get

my degree or certificate except sikkim manipal university for

the fulfillment of the requirements for the degree of mba.

Name: Ruchit Naik

Page |-
13 -
Table of contents

Chapter 1
introduction---------------------------------------------

1-7

1.1
global retail industry: an overview

3
Chapter 2
literature review-------------------------------------

8-67

2.1
retail scenario in india: touching meteoric scales
8

2.2
different forms of retailing: emergence of new formats

of retailing in india popular formats

11

2.3
food retailers

11

2.4
health & beauty products

13

2.5
clothing & footwear

13

2.6
home furniture & household goods

13

2.7
durable goods
13

2.8
leisure & personal goods

14

2.9
technology trends

15

2.10
supplier retailer relationships
16

2.11
innovations in transportation logistics

17

2.12
social trends:

17

2.13
malls in india- a symbol of modern retaling
17

2.14
malls: over-capacity?

19

2.15
india to have 600 shopping malls by 2010

20

2.16
indian scenario for mall management
21

2.17
indian retail shifting gears towards modern
Retail

22

2.18
indian retail the right enablers are falling to place
27

2.19
apparel rules supreme
29

2.20
highest penetration of organised retail in

Footwear

31

2.21
the modern retailing action is in the urban areas

For now

32

2.22
indian retail expanding the number of formats
33

2.23
fragmented market

36

P a g e | - 14 -

2.24
indian middle class the catalyst
38

2.25
share of modern retail will grow to 15-20 pc in
10 yrs
39

2.26
foreign players on the fringe
41

2.27
weighing the pros and cons
43

2.28
consumers prefer modern retail formats:
46

2.29
policymakers must take the lead
46

2.30
challenges of modern retailing in india
48

2.31
emerging channels increasing traction
51

2.32
the kiranas continue
53

2.33
what's in store?
54

2.34
the distribution dilemma
55
Chapter 3
objectives of the study---------------------------------
68
Chapter 4
research methodology-----------------------------
69-71

4.1
nature of data
69
4.2
data collection
70

4.3
sample design
70

4.4
sampling procedure
70

4.5
data collection
70

4.6
research constraints:
71
Chapter 5
data analysis-----------------------------------------
72-90
Chapter 6
conclusion--------------------------------------------
91-93
Chapter 7
references--------------------------------------------
94-96
Chapter 8
appendix--------------------------------------------
97-100

8.1
questionnaire
97

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15 -
Chapter 1

Introduction
Retailing involves all activities incidental to selling to ultimate consumer for their
personnel family and 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 any person/organization instrumental in reaching the goods or merchandise
or services to the end users. Retailer is a must and cannot be eliminated. The indian
retailing industry is becoming intensely competitive, as more and more payers are
vying for the same set of customers. The major retail players are pantaloon retail,
shoppers stop, reliance, etc., retailing is one of the biggest sectors and it is witnessing
revolution in india. The new entrant in retailing in india signifies the beginning of
retail revolution. India's retail market is expected to grow tremendously in next few
years. According to at kearney, the windows of opportunity shows that retailing in
india was at opening stage in 1995 and now it is in peaking stage in 2006. India's
retail market is expected to grow tremendously in next few years. India shows us$330
billion retail market that is expected to grow 10% a year, with modern retailing just
beginning. India ranks first in 2005. In fact, in 2005 and 2006, india is the most
compelling opportunity for retailers, because now india is in peaking stage.

The retail industry is divided into organised and unorganised sectors. Organised
retailing refers to trading activities undertaken by licensed retailers, that is, those who
are registered for sales tax, income tax, etc. These include the corporate-backed
hypermarkets and retail chains, and also the privately owned large retail businesses.
Unorganised retailing, on the other hand, refers to the traditional formats of low-cost
retailing, for example, the local kirana shops, owner manned general stores,

P a g e | - 16 -
paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Food
retail trade is a very large segment of the total economic activity of our country and
due to its vast employment potential; it deserves very special focused attention.
Efficiency enhancements and increase in the food retail sales activity would have a
cascading effect on employment and economic activity in the rural areas for the
marginalized workers. Thus even without fdi driving it, the corporate owned sector is
expanding at a furious rate. The question then that arises is that since there is
obviously no dearth of indigenous capital, what is the need for fdi? It is not that
retailing in india is in the need of any technology special to foreign chains.

India represents an economic opportunity on a massive scale, both as a global base

and as a domestic market. Indian retail sector consists of small family-owned stores,
located in residential areas, with a shop floor of less than 500 square feet. At present
the organized sector accounts for only 2 to 4% of the total market although this is
expected to rise by 20 to 25% on yoy basis. Retail growth in the coming five years is
expected to be stronger than gdp growth, driven by changing lifestyles and by strong
income growth, which in turn will be supported by favorable demographic patterns
and the extent to which organized retailers succeed in reaching lower down the
income scale to reach potential consumers towards the bottom of the consumer
pyramid. Growing consumer credit will also help in boosting consumer demand. The
structure of retailing will also develop rapidly. Shopping malls are becoming
increasingly common in large cities, and announced development plans project at least
150 new shopping malls by 2008. The number of department stores is growing much
faster than overall retail, at an annual 24%. Supermarkets have been taking an
increasing share of general food and grocery trade over the last two decades.
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17 -
However, distribution continues to improve, but it still remains a major inefficiency.
Poor quality of infrastructure, coupled with poor quality of the distribution sector,
results in logistics costs that are very high as a proportion of gdp, and inventories,
which have to be maintained at an unusually high level. Distribution and marketing is
a huge cost in indian consumer markets. It's a lot easier to cut manufacturing costs
than it is to cut distribution and marketing costs. Also, government has relaxed
regulatory controls on foreign direct investment (fdi) considerably in recent years,
while retailing currently remains closed to fdi. However, the indian government has
indicated in 2005 that liberalization of direct investment in retailing is under active
consideration. It has allowed 51% fdi in "single brand" retail. The next cycle of
change in indian consumer markets will be the arrival of foreign players in consumer
retailing. Although fdi remains highly restricted in retailing, most companies believe
that will not be for long. Indian companies know indian markets better, but foreign
players will come in and challenge the locals by sheer cash power, the power to drive
down prices. That will be the coming struggle.

An introduction is the opening phase of a market and is one that is just entering the
grdi, global retail development index this index is based on more than 25 macro-
economic and retail specific variables. For instance ,the country risk includes
parameters like political risk, economic performance, debt indicators, credit ratings,
access bank finance and business risk. The market attractiveness covers retail sales per
capita, urban population, laws and regulations and business efficiency. In this stage
all, which are outside the top 30 markets, falls in this stage. At this stage, retailers
should monitor and performing high-level assessments, they should plan for their
entry strategies. India in the late 1990's is a good example in the opening stage, while
in 2006; kazakhstan is the country in introduction stage.

P a g e | - 18 -
Strategy suggested: a rapid penetration strategy is suggested at this stage low price
and high promotion. Growth:

In growth stage, the market is developing quickly and also ready for modern retailing.
Countries, which are in peaking stage, are india, ukraine and vietnam. Retailers
entering this stage have the best chance for long-term success. Retailers at this stage
should enter through local representations, sourcing offices and new stores. Wal-mart
success in china in the late 1990's and early 2000's gives us the importance of
committing to a promising high-growth market at right time.

The organized sector is expected to grow faster than gdp growth in next few years
driven by favorable demographic patterns, changing lifestyles, and strong income
growth. This organized retail sector mix includes supermarkets, hypermarkets
discounted stores and specialty stores, departmental stores. For example, spencer
network has 69 stores, which includes seven spencer hypermarkets, three spencer
super markets and 49 spencer dailys. Now the company is planning to open 20 stores
in 10 cities in six months. The top 10 retailers account only for 2% of total market,
today modern retailing is expected to enter a boom phase, which has major players
and these players might capture 10% of total market, within next five years.

Growth drivers in india for retail sector

Rising incomes and improvements in infrastructure are enlarging consumer markets

and accelerating the convergence of consumer tastes.

Liberalization of the indian economy

Increase in spending per-capita income.

Advent of dual income families also helps in the growth of retail sector.

Shift in consumer demand to foreign brands like mcdonalds, sony, panasonic, etc.
Page |-
19 -
Consumer preference for shopping in new environs

The internet revolution is making the indian consumer more accessible to the growing
influences of domestic and foreign retail chains. Reach of satellite t.v. Channels is
helping in creating awareness about global products for local markets.

About 47% of india's population is under the age of 20; and this will increase to 55%
by 2015. This young population, which is technology-savvy, watch more than 50 tv
satellite channels, and display the highest propensity to spend, will immensely
contribute to the growth of the retail sector in the country.

Availability of quality real estate and mall management practices

Foreign companies' attraction to india is the billion-plus population.

Employment opportunities in retail sector in india

India's retail industry is the second largest sector, after agriculture, which provides
employment. According to associated chambers of commerce and industry of india
(assocham), the retail sector will create 50,000 jobs in next few years. Retail
companies are starting retail manamgent courses in partnership with management
institutes, roping in talent from other sectors and developing comprehensive career
growth and loyalty plans for existing employees. Top players like pantaloon retail
india limited, trent, shopper's stop, rpg group and ebony are virtually on their toes.

Many agencies have estimated differently about the size of organized retail market in
2010. The one thing that is common amongst these estimates is that indian organized
retail market will be very big in 2010. The status of the retail industry will depend
mostly on external factors like government regulations and policies and real estate
prices, besides the activities of retailers and demands of the customers also show
impact on retail industry. As the retail market place changes shape and competition

P a g e | - 20 -
increases, the potential for improving retail productivity and cutting costs is likely to
decrease. Therefore it is important for retailers to secure a distinctive position in the
market place based on values relationships or experience. Finally it is important to
note that these strategies are not strictly independent of each other; value is function
of not just price quality and service but can also be enhanced by personalization and
offering a memorable experience.

global retail industry: an overview

Retail has played a major role world over in increasing productivity across a wide
range of consumer goods and services .the impact can be best seen in countries like
u.s.a., u.k., mexico, thailand and more recently china. Economies of countries like
singapore, malaysia, hong kong, sri lanka and dubai are also heavily assisted by the
retail sector. Retail is the second-largest industry in the united states both in number of
establishments and number of employees. It is also one of the largest world wide. The
retail industry employs more than 22 million americans and generates more than $3
trillion in retail sale annually. Retailing is a u.s. $7 trillion sector. Wal-mart is the
worlds largest retailer. Already the worlds largest employer with over 1million
associates, wal-mart displaced oil giant exxon mobil as the worlds largest company
when it posted $219 billion in sales for fiscal 2001. Wal-mart has become the most
successful retail brand in the world due its ability to leverage size, market clout, and
efficiency to create market dominance. Wal-mart heads fortune magazine list of top
500 companies in the world. Forbes annual list of billionaires has the largest number
(45/497) from the retail business.

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21 -
Table1.1
P a g e | - 22 -
Chapter 2
Literature review
retail scenario in india: touching meteoric scales

As the corporates the piramals, the tatas, the rahejas, itc, s.kumars, rpg enterprises,
and mega retailers- crosswords, shoppers stop, and pantaloons race to revolutionize
the retailing sector, retail as an industry in india is coming alive. Retail sales in india
amounted to about rs.7400 billion in 2002, expanded at an average annual rate of 7%
during 1999-2002. With the upturn in economic growth during 2003, retail sales are
also expected to expand at a higher pace of nearly 10%. Across the country, retail
sales in real terms are predicted to rise more rapidly than consumer expenditure during
2003-08. The forecast growth in real retail sales during 2003- 2008 is 8.3% per year,
compared with 7.1% for consumer expenditure. Modernization of the indian retail
sector will be reflected in rapid growth in sales of supermarkets, departmental stores
and hypermarts. Sales from these large-format stores are to expand at growth rates
ranging from 24% to 49% per year during 2003-2008, according to a latest report by
euromonitor international, a leading provider of global consumer-market intelligence.
A. T. Kearney inc. Places india 6th on a global retail development index. The country
has the highest per capita outlets in the world - 5.5 outlets per 1000 population.
Around 7% of the population in india is engaged in retailing, as compared to 20% in
the usa.

In a developing country like india, a large chunk of consumer expenditure is on basic

necessities, especially food-related items. Hence, it is not surprising that food,
beverages and tobacco accounted for as much as 71% of retail sales in 2002. The
share of food related items had, however, declined over the review period, down from
73% in 1999. This is not unexpected, because with income growth, indians, like

P a g e | - 23 -
consumers elsewhere, have started spending more on non-food items compared with
food products. Sales through supermarkets and department stores are small compared
with overall retail sales. Nevertheless, their sales have grown much more rapidly, at
almost a triple rate (about 30% per year during the review period). This high
acceleration in sales through modern retail formats is expected to continue during the
next few years, with the rapid growth in numbers of such outlets due to consumer
demand and business potential. The factors responsible for the development of the
retail sector in india can be broadly summarized as follows:

Rising incomes and improvements in infrastructure are enlarging consumer markets

and accelerating the convergence of consumer tastes. Looking at income
classification, the national council of applied economic research (ncaer) classified
approximately 50% of the indian population as low income in 1994- 95; this is
expected to decline to 17.8% by 2006-07.

Liberalization of the indian economy which has led to the opening up of the market
for consumer goods has helped the mnc brands like kellogs, unilever, nestle, etc. To
make significant inroads into the vast consumer market by offering a wide range of
choices to the indian consumers.

Shift in consumer demand to foreign brands like mcdonalds, sony, panasonic, etc.

The internet revolution is making the indian consumer more accessible to the growing
influences of domestic and foreign retail chains. Reach of satellite t.v. Channels is
helping in creating awareness about global products for local markets.

About 47% of indias population is under the age of 20; and this will increase to 55%
by 2015. This young population, which is technology-savvy, watch more than 50 tv
satellite channels, and display the highest propensity to spend, will
Page |-
24 -
immensely contribute to the growth of the retail sector in the country. As india
continues to get strongly integrated with the world economy riding the waves of
globalization, the retail sector is bound to take big leaps in the years to come.

Table2.1

The indian retail sector is estimated to have a market size of about $ 180 billion; but
the lobaliza sector represents only 2% share of this market. Most of the lobaliza
retailing in the country has just started recently, and has been concentrated mainly in
the metro cities. India is the last large asian economy to liberalize its retail sector. In
thailand, more than 40% of all consumer goods are sold through the super markets and
departmental stores. A similar phenomenon has swept through all other asian
P a g e | - 25 -
countries. Organised retailing in india has a huge scope because of the vast market and
the growing consciousness of the consumer about product quality and services.

2.22 Different forms of retailing: emergence of new formats of

retailing in india popular formats
Hypermarts

Large supermarkets, typically (3,500 5,000 sq. Ft)

Mini supermarkets, typically (1,000 2,000 sq. Ft)

Convenience store, typically (7,50 1,000 sq. Ft)

Discount/shopping list grocer

Traditional retailers trying to reinvent by introducing self-service formats as well as

value-added services such as credit, free home delivery etc. The indian retail sector
can be broadly classified into:

Food retailers

There are large number and variety of retailers in the food-retailing sector. Traditional
types of retailers, who operate small single-outlet businesses mainly using family
labour, dominate this sector .in comparison, super markets account for a small
proportion of food sales in india. However the growth rate of super market sales has
being significant in recent years because greater numbers of higher income indians
prefer to shop at super markets due to higher standards of hygiene and attractive
ambience.

To be successful in food retailing in india essentially means to draw away shoppers

from, the roadside hawkers and kirana stores to supermarkets. This transition can be
achieved to some extent through pricing, so the success of a food retailer depends on
how best he understands and squeezes his supply chain. The other major factor is that
of convenience shopping which the supermarket has the edge over the traditional

P a g e | - 26 -
kirana stores. On an average a supermarket stocks upto 5000 to 7000 units against few
hundreds stocked at an average kirana stores. Though with excellent potential, india
poses a complex situation for a retailer, as this is a country where each state is a mini-
country by itself. The demographys of a region vary quite distinctly from others. In
order to appeal to all classes of the society, retail stores would have to identify with
different lifestyles. Hence one may find more of regional players competing with
nation wide successful retail chains. It can be observed that the most popular retail
format in india is the supermarket, beside the corner shop/grocery store.
Hypermarkets have very recently come into being and are negligible in number
though most retail chains do intend to expand their presence through this format as
well very soon. discount chains are also substantial in number and are growing at a
fast pace throughout the country.

Given that lobaliza retail has been registering growth rates of approximately 40 per
cent over the last three years, it is expected to grow to about to rs 90,000 crore in
2010. If projections were to be made considering the current trends in food retailing in
india, some years down the line, food and grocery stores will become dominating
trade partners for the food industry, which, in turn, will be forced to offer special
discounts and trade terms for them to get the shelf space in such stores. Also, once
established, in-store label brands will become a real threat to the industry as
manufacturers will have to compete with the store label brands that are generally very
price-competitive. As for the spread geographically, strong chances stand that the
major chains would spread to the next grade of cities in the country over the next 5
years or so and then progressively start covering every corner of the country. Most
chains have already started developing their own unique supply chains that would suit
their needs precisely.

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health & beauty products

With growth in income levels, indians have started spending more on health and
beauty products .here also small, single-outlet retailers dominate the market .however
in recent years, a few retail chains specializing in these products have come into the
market. Although these retail chains account for only a small share of the total
market , their business is expected to grow significantly in the future due to the
growing quality consciousness of buyers for these products .

clothing & footwear

Numerous clothing and footwear shops in shopping centers and markets operate all
over india. Traditional outlets stock a limited range of cheap and popular items; in
contrast, modern clothing and footwear stores have modern products and attractive
displays to lure customers. However, with rapid urbanization, and changing patterns
of consumer tastes and preferences, it is unlikely that the traditional outlets will
survive the test of time.

home furniture & household goods

Small retailers again dominate this sector. Despite the large size of this market, very
few large and modern retailers have established specialized stores for these products.
However there is considerable potential for the entry or expansion of specialized retail
chains in the country.

durable goods

The indian durable goods sector has seen the entry of a large number of foreign
companies during the post liberalization period. A greater variety of consumer
electronic items and household appliances became available to the indian customer.
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Intense competition among companies to sell their brands provided a strong impetus
to the growth for retailers doing business in this sector.

Leisure & personal goods

Increasing household incomes due to better economic opportunities have encouraged

consumer expenditure on leisure and personal goods in the country. There are
specialized retailers for each category of products (books, music products, etc.) In this
sector. Another prominent feature of this sector is popularity of franchising
agreements between established manufacturers and retailers.

The trend in grocery retailing, however, has stated with a growth concentration in the
south. Though there were traditional family owned retail chains in south india such as
nilgiris0 as early as 1904, the retail revolution happened with various major business
houses foraying into the starting of chains of food retail outlets in south india with
focus on chennai, hyderabad and bangalore markets, preliminarily. In the indian
context, a countrywide chain in food retailing has been pioneered by big bazar and
reliance fresh only.

There are an estimated 12 million retail outlets in india, with a total retail space of
about 2 billion sq.ft. About 5 million of these outlets are engaged in retailing of food
and food products. The degree of fragmentation is much higher among food retailers
than among non-food retailers. The majority of food and food products are retailed
through the neighborhood stores. These stores typically have 200 sq.ft and sell 500

800 stocks keeping units (skus) with focus on dry food products in the absence of
cold storage infrastructure. Bulk of fresh produce is sold by vendors with push carts.
Meat, poultry and marine products are primarily sold by small retailers in the wet
market. Such produce is associated with low product quality, lack of variety and low
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hygiene levels. The kirana stores single biggest advantage is the proximity to the
consumers. However, the fragmented retail structure results in inefficient storage and
transportation of food products, wastages and value loss, and high cost of distribution.

technology trends

A successful retailers winning edge will come from sourcing how best it can
leverage its scale to drive merchandise costs down, increase stock turns and get better
credit terms from its vendors. There are obvious and hidden areas where costs can be
pruned and the benefits of this lower cost of retailing can be passed on to customers as
lower prices, which in turn should fuel demand. One way of trimming costs is use of
the latest technologies in supply chain, inventory management and use of it tools to
rack the consumption pattern and the changing habits of the consumers.

The present food supply chain in india is full of inefficiencies a result of inadequate
infrastructure, too many middlemen, complicated laws and an indifferent attitude. To
combat and improve efficiency in the supply chain corporate are taking ngo
interventions at the farm end in the form of farm management services to ensure
quality and timely supply of produce for the operations. The farmer-corporate
relationship has helped both the farmers and the corporate in bringing the high quality
low cost product to the retail shelf. To ease the burden of the corporate in setting up
farm management services, several leading ngo bodies have taken up this activity
essentially due to the fact that their operations are mostly at the farm end the other
important aspect of retailing relates to technology. It is widely felt that the key
differentiator between the successful and not so successful retailers is primarily in the
area of technology. Simultaneously, it will be technology that will help the organized
retailer score over the unorganized players, giving both cost and service advantages.
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Retailing is a `technology-intensive industry. Successful retailers today work closely
with their vendors to predict consumer demand, shorten lead times, reduce inventory
holding and thereby, save cost. Wal-mart pioneered the concept of building a
competitive advantage through distribution and information systems in the retailing
industry. They introduced two innovative logistics techniques cross-docking and
electronic data interchange. Today, online systems link point-of-sales terminals to the
main office where detailed analyses on sales by item, classification, stores or vendor
are carried out online. Besides vendors, the focus of the retailing sector is to develop
the link with the consumer. `data warehousing is an established concept in the
advanced nations. With the help of `database retailing, information on existing and
potential customers is tracked. Besides knowing what was purchased, by whom,
during which time of year, festive seasons shopping pattern, all these information are
compiled, analyzed and future shelf planning, discount offer or season sales planning
is made.

2.10 supplier retailer relationships

Traditionally the supplier-retailer relation in india comprised several layers such as the
national distributor, the regional c & f , wholesaler and the end retailer. However this
scenario is fast changing with the organized retail increasing its presence in the
country where the relationship is directly with the manufacturer. However this new
model has been affecting the relationships that the manufacturer enjoys with the
traditional system which is still the most dominant in the entire retail sector. However
with technology replacing the supply chain and improving distribution and logistics
chain, the role of these middle chains would slowly fade away and there will be direct

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manufacturer retail chain combine to offer each party try to squeeze maximum
margins out of the other.

2.11 innovations in transportation logistics

The logistics service providers have been innovating several interesting formats and
models for the retail sector. As retail chains begin to focus more and more on the retail
end, the logistics support would begin to get outsourced. The cold chain involving
nationwide cold storages, refrigerated vans to transport food articles and specialized
logistic companies offering the fleet for these services to organized sector big retails is
now a reality in india in modern retail environment. With it support logistics service
providers would continue to innovate and develop effective distribution systems for
the retail sector.

2.12 social trends:

Changing social trends in india will fuel growth of food retailing in a country. India is
geographically vast and culturally diverse. The ict revolutions, double income
families where husband and wife both are working and more and more indian women
are now moving into education and jobs, packaged food, ready to cook food and
shopping convenience in organized retail ambience under one roof would be the
increasing replacing the corner kirana shop / traditional grocery shop shopping .

2.13 malls in india- a symbol of modern retaling

Over the last 2-3 years, the indian consumer market has seen a significant growth in
the number of modern-day shopping centers, popularly known as malls. There is an
increased demand for quality retail space from a varied segment of large-format
retailers and brands, which include food and apparel chains, consumer durables and
multiplex operators. Shopping-centre development has attracted real-estate developers

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and corporate houses across cities in india. As a result, from just 3 malls in 2000, india
is all set to have over 220 malls by 2005. Today, the expected demand for quality
retail space in 2006 is estimated to be around 40 million square feet. While previously
it was the large, lobaliza retailers with their modern, up-market outlets, and direct
consumer interface- who had been a key factor driving the growth of

lobaliza retail in the country, now it is the malls which are playing the role.

Factors such as availability of physical space, population densities, city planning, and
socio-economic parameters have driven the indian market to evolve, to a certain
extent, its own definition of a mall. For example, while a mall in usa is 400,000 to 1
million sq.ft. In size, an indian version can be anywhere between 80,000 sq.ft. And
500,000 sq.ft. By 2005, total mall space in the 6 cities of mumbai, bangalore,
hyderabad, chennai, kolkata, and national capital region (delhi, noida, gurgaon) is
expected to increase to over 21.1 million sq. Ft. Compared to other big cities, kolkata
and hyderabad are relatively new entrants in the mall segment, but are witnessing
quick growth. Smaller cities like pune, ahmedabad, lucknow, ludhiana, jaipur,
chandigarh and indore, are also expected to see a formidable growth in the growth of
malls in the near future. But malls in india need to have a clear positioning through the
development of differential product assortment and differential pricing, in order to
compete effectively in a growing mall market. Segmentation in malls, like up-market
malls, mid-market malls, etc. , proper planning, correct identification of needs, quality
products at lower prices, the right store mix, and the right timing, would ensure the
success of the mall revolution in india.

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2.14 malls: over-capacity?

With all the major retailers planning to double the number of stores and the retail
space that they will need in the next three years, availability of real estate space will
be a key enabler for growth. The survey respondents highlighted their concern on the
high cost of retail space. This is understandable given that many indian cities are
choking under rapid urbanization.

Graphs 2.1

The emergence of a mall culture and development of malls should come across as a
positive development. Approximately 68 million square feet of mall space is expected to
be available by end of 2007. However, around 70 percent of our survey respondents
believe that there will be over-capacity once all the new malls open. While some
respondents felt that the over-capacity was in pockets like gurgaon, others felt that there
would be over-capacity in malls across all major cities. The reason stated for the
anticipated over-capacity is that many malls may not be able to get the necessary anchor
tenants. Focused malls an emerging opportunity another aspect that was highlighted by
the respondents is the lack of differentiation among the malls that are up coming. Given
this, we asked the respondents if there was scope for focused malls.
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One area where india is witnessing destination malls is in the form of specialty gold
malls, which largely have jewelry retailers. Almost 70 percent of the respondents felt
that there was a scope for focused malls in india. Some stressed that india may take
some time before focused malls become successful. The survey respondents felt that
since customers often visit shops with an intention to purchase a specific product, they
would prefer focused malls. These malls essentially replicate traditional high streets
and provide benefits of cluster advantage. Mall developers need to differentiate and
specialize clearly, generic me-too malls may soon run out of flavor, given the large
capacity in malls that are being planned. Malls should aim to differentiate themselves
clearly; one option may be to look at specialization. This is reinforced by the fact that
real estate developers in china are moving towards such formats.

2.15 india to have 600 shopping malls by 2010

There would be 600 shopping malls in india within the next three years, according to a
report brought by federation of indian chambers of commerce and industry, and ernst
and young. The report, called winning with intelligent supply chains, also indicated
that with the indian retail industry thriving by the day, lobaliza retail is likely to touch
$30 billion by 2010 from the current $14 billion. the sector is expected to grow
rapidly to reach $30 billion by 2010 driven by the increasing number of nuclear
families, working women, greater work pressure, easy accessibility and convenience,
the report said. the growth in the retail sector has driven a mall building boom across
the country, with the total number of malls expected to increase to 600 by 2010 from
158 in 2005, the report added. It also said the retail sector in india is fragmented, with
more than 12 million lobalizati retailers across the country.

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with the entry of large modern retailers over the last few years, the share of the
lobaliza market has been growing rapidly to reach five percent of the total market, the
report highlighted, adding that china and brazil took about 10 to 15 years to reach the
current levels of 20 percent and 38 percent, respectively, of lobaliza retail from five
percent when they began. the low penetration levels of lobaliza retail in india
provide huge potential for retailers to tap a highly unexplored market. Organised retail
in india is likely to account for 25 to 30 percent of the total retail market in 10 years,
the report added. The report also underscored some of the challenges the industry is
facing, which include inadequate infrastructure, unavailability of retail space, multiple
taxes, lack of clarity in policies and shortage of experts in areas such as supply chain
and store management. the retail industry loses to the tune of $120 to $130 million
every year in frauds, thefts and employee pilferage, shoplifting, vendor frauds or
inaccurate supervision, despite using standard and modern security features, the

report lobalizat.

the most significant challenge that impedes the development of an efficient and
modern retail sector is an underdeveloped supply chain, it pointed out.

2.16 indian scenario for mall management

The partial foreign direct investment (fdi) relaxation in 2006 allowed 51% ownership
in joint ventures by single-brand companies in the retail market. This triggered high
international single brand retailer interest in the indian retail market. Additionally,
large indian conglomerates such as reliance industries and aditya birla group are
commencing their foray into retailing across the country. This prompts the indian
retail industry to undoubtedly move on a high growth curve. However, at this

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juncture, retailing is still faced with one major challenge: systematic mall
management.

Currently, there are very few designated mall management companies in india.
However, big retail chains such as future group and some large developers have set up
their own mall management divisions that operate as their subsidiary companies.
Some developers such as dlf have also recently entered into contractual arrangements
with international property consultancy firms to manage their malls. Historically,
developers were managing their malls in-house, which is expected to change going
forward.

Earlier in the decade, mall developers were more inclined towards exiting the project
early by selling retail mall units to investors at the pre-completion and post-
completion stages and booked profits. As the ownership of individual retail spaces
were with different entities, there was no central authority managing the malls. Even
though there have been some examples of professionally managed malls in recent
years, lobaliza retail in indian malls have a long way to go to achieve optimum mall
management.

2.17 indian retail shifting gears towards modern retail

India is witnessing an unprecedented consumption boom. The economy is growing

between 7 and 8 percent and the resulting improvement in income dynamics along
with factors like favorable demographics and growth in aspirational consumption are
the drivers. Retailing in india is currently estimated to be us$ 200 billion, of which
organized retailing (i.e. Modern trade) makes up 3 percent or us$ 6.4 billion.
Organized retail is expected to grow at 25-30 percent p.a., and is projected to attain

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us$ 23 billion by 2010.1 at these levels, organized retail would constitute up to 9
percent of overall retail sales.

Graphs 2.2

Organized food retailing is a relatively new phenomenon in india, with small western

style supermarkets only starting to appear since the 1990s. Most supermarkets
resemble the small independent operations that existed in western cities about 20
years ago, typically occupying 275-750 sq. M and carrying 6000 skus. Most
supermarket development has occurred in the south of the country in the cities of
bangalore, chennai and hyderabad as well as new delhi and mumbai. Market analysts
estimate that organized retail will grow by nearly 30 % a year in the short to medium
term. The sector is expected to undergo further change with a number of strong
domestic players planning to establish operations on a regional or national basis.

Modern retail started with chains of stores that were about the size of kirana stores.

Called five and dime or five and ten cent stores, they bought nonfood goods in
volume and sold at discount. They further cut costs by moving to self-service. These
chain stores were an innovation of the tiny shop owners. As a major format, they
lasted into the 1950s. The most famous example was woolworths, started in the 1870s

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in big cities in the boom zones. From one tiny store in 1878, a chain was born that
built to the first global retail multinational of medium-sized nonfood shops, with
2,866 stores in five countries (including the united kingdom) 50 years later. As retail
competition soared in developing countries over the past decade, success has
demanded reducing costs to penetrate the mass market and raising quality to hold onto
and deepen the market among middleclass clientele. A crucial instrument of reducing
costs and raising quality is modernization of procurement systems to achieve
efficiency gains, economies of scale, and coordination cost reductions. Nontraditional
players specialize in a product category and are dedicated to the supermarket sector as
a primary client. These specialized and dedicated wholesalers cut transaction,
coordination, and search costs and enforce private standards and contracts with
suppliers on behalf of the supermarkets. The two basic sources of conflict between the
supermarkets on one side and the traditional retailers and supermarket suppliers on the
other are (1) inequality of power based on supermarkets greater concentration and
scale and greater access to technologies and commercial practices because of that
scale; and (2) the practices and strategies through which supermarkets wield their
power, magnifying their initial advantages through pricing, quality, location, payment,
and contracting. The conflicts have assumed various manifestations based on the
perception of inequality of power among segments or sub segments of retail in
developing countries.

The current and projected growth rates in organized food retail are quite high, albeit
from a very small base. Organized retail in all commodities constitutes about 4 percent
of total retail, while in food and grocery segment the ratio is less than 1 percent.
Notwithstanding this small share, if these high growth rates continue, or accelerate
further, it might not be longsay, by 2015before the share of organized

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retail in food and grocery segment accounts for at least 1520 percent; by then it
would start having some noticeable impact not only on unorganized retail in food but
all along the food supply chain. As the share of organized retail increases, the sector is
likely to experience major consolidation, with large retailers and processors taking
over smaller players or joining hands with other large retailers to exploit greater
economies of scale. In 2007, reliance took over adani retail in gujarat; and trinethra
stores were bought by the retail segment of the av birla group under the banner more.

Also, mumbai based spinach retail stores took over delhis sabka bazaar and home
store. Recently, media reported bharti is likely to take over big apple, which started in
2005 and now has 65 stores covering an area of more than 100,000 square feet
(chakravarty and kurian 2007).

Organised retailing in india witnessed a gross turnover of usd 320 billion1 in 2006.
Although this figure is low compared with other developed economies, industry
experts expect the growth rate of this sector at 35%2 until 2010. At present, about 100
malls are operational at a pan-india level with a total area of 19 million sq ft. As per
the currentestimates, about 3003 additional malls are expected to be constructed
across the country by 2010. According to the jones lang lasalle retailer sentiment
survey 2006, 95% of the respondents expect their gross turnover to improve and have
plans for expansion in 2007. About 70% of those who have expansion plans said they
prefer malls over high streets for their expansion, indicating the rising demand for
malls as the preferred destination of lobaliza retail in india. Moreover, about 65% of
those who preferred malls over high streets also said that mall management is
expected to become the deciding factor for a malls success in the future.

However, a sense of concern was expressed over the following challenges to the

indian retail market:

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Lack of quality locations

Shortage of trained staff

Rising rental values

Mall management

The first three concerns can be classified as external factors, whereas mall
management is internal. External factors are common to all players in the indian retail
industry, whereas mall management is specific to individual malls. We anticipate that
the success of indian malls will not only be achieved by housing the biggest and the
best mix of retailers, but also by setting up new standards and procedures in mall
management that will provide a platform to differentiate its products and services
from competitors. In the current market scenario, both consumers and retailers have
limited choice in terms of mall shopping experience.

As lobaliza retail grows, we expect the market to be more competitive by providing

more choices to consumers and retailers. At this point, developers will have to work
harder to create a differentiation for their product. We believe consumers and retailers
will be attracted to malls that are professionally managed, making effective mall
management a critical factor behind the success of a mall. The prime objective of
landlords as well as of investors is to attract shoppers and persuade them to purchase
goods and services. This will in turn boost retailers turnover and benefit their bottom
line. Efficient mall management can help landlords achieve this goal.

Organized retailers tend to start off from first-tier cities with high purchasing power
and then go to second- and third-tier cities with more price sensitive populations.
Several chains in india have started in cities like hyderabad and bangalore, which are
prospering from the information technology boom, to the metropolitan cities of delhi,
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mumbai, chennai, and kolkata, and then very quickly moving to smaller cities like
jaipur and chandigarh. Some chains have announced plans to start business hubs in
rural areas. Dscls haryali kisan bazaars, mahindra and mahindras shubh labh stores,
tata/ralliss kisan kendras, escorts rural stores, and itc-led choupal sagars are similar
business hubs that provide value-added services like credit services, soil-testing
facilities, education services, and agri-input supply to village farmers. In many
countries, it takes decades for retail to extend into rural areas. In india, however, it
appears that organized retailers are moving very fast in all cities and in all product
segments (except meat and meat products). The expected benefits of that expansion
are lower consumer prices for the same quality, wider variety, and a better shopping
experience. These benefits should soon percolate to the mass of indian consumers,
assuming that organized retailers have free access to global- and pan-indian sourcing
directly through producers, processors, and specialized agents.

2.18 indian retail the right enablers are falling to place

There are multiple factors driving indian retail growth. With roughly 60 percent of the
total population below 30 years of age, favorable demographics are expected to drive
consumption across categories. The purchasing power of a young consuming middle
class has been talked of since the time of economic liberalization in 1991. However, it
is only today that we are witnessing the spending power associated with this consumer
segment. For example, 50percent of cellular phone purchases in the past year were by
the under-30 age group. This consumption is expected to continue due to the
aspirational nature of spending associated with this consumer segment. The ac nielsen
online omnibus survey 2005 rates india in the highest category of aspiration index in
asia, along with china, indonesia and thailand.
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Graphs 2.3

The aspirational nature of consumption is underlined by the trends witnessed in the

consumer durables sector. While the overall refrigerator segment has been growing at
6 percent, frost-free refrigerator sales have been growing at 61 percent; similarly,
while the washing machine market grew at 17 percent in fy2005, the sales of
automatic washing machines grew by 63 percent. The positive demographics and the
indian consumers increasing disposable income have been highlighted by several
studies. Increasing double income families in cities is another positive factor. Salary
hikes in india are also expected to increase at a faster pace than other developing
countries. All these portend a sustained growth in discretionary spending in india.

Food and apparel retailing likely to drive growth with various factors impacting
growth in retail, some segments are bound to grow faster than others. For instance,
increasing affluence is driving growth in the watches and jewelry segment, while
awareness of health is driving growth in lifestyle pharmaceuticals. The retailers who

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participated in the survey expect growth in retail segments across the board; however,
food and grocery is expected to see the highest growth, with clothing emerging as the
second fastest growing segment.

Graphs 2.4

2.19 apparel rules supreme

Clothing and accessories rule the roost in indian lobaliza retail. They account for the

maximum share of 38% in organized retail in india, followed by food or groceries and
consumer durables at 11% and nine per cent, respectively. Park avenue, chiragh din,
liberty, double bull, proline and snowhite are among the leading players catering to the
branded apparel market. It took a long time for global brands such as allen solly and
van heusen to create a respectable market share in the ready-to-wear segment,
especially in the face of fierce competition from local brands.

Today, there is also a discernible trend towards reverse lobalization in the case of
indian apparel. Indian brands such as zodiac clothing have created a niche for

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themselves in competitive markets such as holland and the uk. Similarly, indian
leather brand, hidesign, is being retailed at premium international outlets in south
africa, china, dubai and russia. Players in the retail industry are adopting different
strategies to compete effectively. In keeping with their scale and competitive
advantage, certain brands have been focusing on regional markets and trying different
retail formats. For instance, in food retail, food-world, nilgiris, margin free market,
giant, varkeys and subhiksha are focusing on the regional markets in south india
whereas sabka bazaar is present only in and around the capital city of delhi. With the
indian government still dithering over the issue of allowing direct access to foreign
companies in the retail sector through the 100% foreign direct investment (fdi) route,
domestic players have been experimenting with innovative retail formats and value
propositions.

Graphs 2.5

2.20 highest penetration of organised retail in footwear

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In terms of penetration by the organized retail sector, footwear is the highest category,
followed by clothing. Footwear is driven by the dominance of home-grown players
like liberty as well as the 15% market share that mncretailer bata commands. Foreign
presence, especially through the franchisee route, e.g. Adidas, reebok, nike etc. Adds
to this slice of the pie. Franchisee activity in this category, especially in tier ii cities, is
pegged to rise. The clothing segment is positioned for further organized retail
penetration due to the high level of branding activities by apparel retailers and
merchandising spread across formats such as department stores, hypermarkets, own
retail outlets and franchises. Spend on books & music, which is still concentrated in
the big 8 cities, is also slated for increase. The jewellery sector on the other hand will
see increased competition, especially on price, as smaller retailers challenge the might
of the larger ones. Growth in consumer durables has traditionally been driven by the
post-liberalization era. Retail revenues in this segment will grow further in proportion
with increase in urban incomes.

The home furnishings segment has been relatively unorganized so far and growth will
be driven by new formats introduced by innovative retailers. The medical care, health
and beauty segments too require an innovative, aggressive approach on the part of
indian and international retailers to grow.

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Graphs 2.6

2.21 the modern retailing action is in the urban areasfor now

A distinctive feature of organized retailing in india is that it is largely an urban

phenomenon so far. Organized retail has been more successful in cities, more so in the
south and west of india. The reasons for this regional variation range from differences
in consumer buying behavior to cost of real estate and taxation laws. Nonetheless, the
case for indian retailers to explore rural markets is strong. Factoring the size of the
rural population and agricultural income growth in rural india, the rural market is
definitely an opportunity for retailers with an innovative retail proposition. A clear
indicator of this potential is the share of the rural market across most categories of
consumption. Key challenges in tapping this potential are the fragmentation of the
market, given the geographic spread, and infrastructure issues like lack of distribution
and logistics.

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Graphs 2.7

Indian retail expanding the number of formats

Organized retailers in india are trying out a variety of formats, ranging from discount
stores to supermarkets to hypermarkets to specialty chains. A common element of the
expansion plans of different players appears to be the hypermarket. All leading indian
retail players are either already present or have plans for hypermarkets.
P a g e | - 48 -
Table2.2

Understandably, with poor internet infrastructure (in terms of pc penetration and

internet connectivity), e-tailing was identified as a channel with the least potential by
most respondents. Similarly, with traditional kirana stores offering an undisputed
convenience proposition, our respondents felt that convenience stores may not grow
as fast in the indian context. While many respondents agreed that hypermarkets had
potential, their estimate for the number of successful hypermarkets in india was
conservative. The buying behavior of indian consumers and the infrastructure issues
were identified as key impediments to the rapid growth of hypermarkets in india.
India remains largely a small stock-keeping unit (sku) purchase market today. Many
homes still lack refrigerators and in homes that have one, it is typically available in
small sizes (penetration of refrigerators in india is 15 percent, 75 percent of these are

P a g e | - 49 -
in urban areas). Availability of transportation to drive long distances for purchases is
also an issue. All these are expected to make the adoption of hypermarkets a little
slow after the initial burst that captures the latent urban demand for this format.

Graphs 2.8

In india, too, it may be difficult to transplant a successful international format directly

and expect similar performance. Local conditions and insights into the local buying
behavior have to shape the format choice. A good point to note in the retailing
industry today is the level of experimentation happening locally in terms of formats.
Players like subhiksha and margin free markets are providing convenience with
discounts on goods, while internationally convenience formats typically charge a
premium over market prices. Similarly, itc is experimenting with a model which
brings together a two-way flow of goods in the retail outlet farmers sell their
produce and purchase goods to fulfill their consumptions needs. While the experience
of these retailers as they scale up beyond their currentgeographies may provide new
insights and lead to modification or fundamental re-engineering of their formats in
future, such experimentation and identification of an appropriate format for the local
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conditions would differentiate winners from losers in the indian retail market of the
future.

2.23 fragmented market

The retail sector in india is highly fragmented and organized retail in the country is at
a very nascent stage. There are about 12 million retail outlets spread across india,
earning it the epithet of a nation of shopkeepers. More than 80% of these 12 million
outlets are run by small family businesses which use only household labour.
Traditionally, small-store (kirana) retailing has been one of the easiest ways to
generate self-employment, as it requires limited investment in land, capital and labour.
Consequently, india has one of the highest retail densities in the world at 6%

(12 million retail shops for about 209 million households).indias peers, such as china
and brazil, took 10-15 years to raise the share of their organized retail sectors from 5%
when they began, to 20% and 38% respectively. India too is moving towards growth
and maturity in the retail sector at a fast pace. Retail is amongst the fastest growing
sectors in the country. India ranks 1st, ahead of russia, in terms of emerging markets
potential in retail and is deemed a priority 1market for international retail.

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Graphs 2.9
Figure 2.1

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2.24 indian middle class the catalyst

A growing indian middle class that has so far been used to buying apparel and
groceries from small and cluttered neighborhood market shops is fast realizing the
joys of visiting swanky malls that have redefined the freedom to shop and entertain.
Such malls are the new temples of leisure and weekend entertainment.

Indias national council for applied economic research estimates that the nations
middle class population currently comprises about 17 million households 90 million
people with annual earnings ranging between $4,500 (2,400) and $22,000
(11,736). An additional 287 million could be termed as aspirers or those that hope
to join the middle class in the near term. Rising incomes, particularly in the lower and
middle-income households, are impacting retail growth in india as these groups tend
to spend more on upgrading and diversifying their lifestyles, eating out and moving on
to processed and convenience foods.

The middle class is the hope for large indian retail players such as pantaloon, the tatas
and rpg enterprises that have moved beyond the urban sprawl to smaller cities in their
bid to gain the first mover advantage. Also joining them in the fray is reliance group,
which is expected to change the dynamics of competition when it becomes the
countrys largest modern retailer with an investment of $2.5bn (1.33bn) in 1500
super and hypermarkets by march 2007. Similarly, indias aditya birla group is also
investing $2bn (1.1bn) to roll out a mix of super and hypermarkets across the country
by 2007. Bharti enterprises is yet another player foraying into this sector with an
initial investment of $100m (53.35m) in a tie-up with uk-based global retailer, tesco.

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2.25 share of modern retail will grow to 15-20 pc in 10 yrs

The first decade of modern retail in india has been characterised by modern retail
driving a shift from traditional channels to new formats, including department stores,
hypermarkets, supermarkets and specialty stores across a range of categories. Modern
retail formats have mushroomed in the metros and mini-metros, and over the last few
years have also begun to establish a presence in the second-rung cities, exposing the
people ofthese cities to shopping options they have never experienced before. It is
forecast that the share of modern retail shall grow from about 2 per cent currently, to
15-20 per cent over the next decade." "with gdp growth averaging 6-7 per cent
predicted for the next few decades, and private consumption comprising about two-
thirds of gdp, it is imperative that consumption grows rapidly to support the growth
forecast for the economy. "in the absence of a healthy growth in private consumption,
economic growth will not result in substantial improvement in the quality of life. The
development of the retail industry is a key factor influencing the promotion of
consumption," said the cii in a background paper. The next 2-3 years shall witness at
least two indian retail businesses attaining the magic figure of rs 1,000 crore in sales.
Several others shall also attain critical mass, beyond which growth shall be driven by
the multiplier effect as rapid rollout progresses in tandem with new customer
acquisition and increased spend capture.

The rapid rollout shall be enabled by two key developments, which have occurred
over the last few years: first, the availability of quality retail real estate and modern
mall management practices shall remove a key obstacle, which has hindered the
growth of modern retailers over the past decade. With over 300 mall projects currently
under way across the country, retailers will have options to select projects
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which best support their proposition and india shall witness the emergence of
specialty malls e.g. Home improvement malls, electronics and technology malls etc.,
which address specific consumer communities. Consumers shall shop at malls for
over 50-60 per cent of their shopping basket, as opposed to the 20-25 per cent of the
shopping basket that these malls address today. Second, the consumer preference for
shopping at modern formats, which is already manifest in the larger cities, shall spread
to the smaller cities as these formats take root in these cities over the next 2-3 years.
With consumers seeking increasing choice, convenience, value for money, and
improved shopping experience, these consumers shall adopt modern formats, which
provide all of these benefits.

The total number of consuming class with an annual income level of between $1,000
and $4,800 would be around 75 million households by 2006 compared to 29 million
households a decade ago. The demographic profile of india is also a great marketing
asset. While, as per 2004 data, people in the 0-14 yearsage group constituted 31.7 per
cent of the population, the 15-64 years age group forms 63.5 per cent and the people
above 65 years constitute the balance. This is a constituency that no marketer can
ignore. The challenge for the leading retailers shall, therefore, shift from diverting
demand from traditional retail, to creating demand. With all that modern stores offer
in terms of assortment, ambience, service and innovative products, the paradigm shall
shift from competing with the kirana, to growth through demand creation. In this
context, how retailers manage demand growth through introduction of new categories
to induce trial and adoption, value-added products, which improve quality of life, and
innovative pricing to enhance affordability for the masses, shall be a crucial
determinant of success. Relevant experiences from consumer goods companies, which
have successfully crafted an explosion in demand in their sectors, through innovative,

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consumer driven strategies, will be showcased. Also, retail experts will provide their
perspectives to enable a quantum change in the development of modern retailing in
india. Modern retail business would be creating up to two million jobs in the next two
years. The benefit of this growth is that it would create employment at the local level
and a significant percentage of them would be first time taxpayers in the country. An
important feature of this employment boom would be that more than 50 per cent of
these employees would be women.

2.26 foreign players on the fringe

Large foreign retailers such as wal-mart and tesco are currently watching from the
sidelines but they are hopeful that they can find a direct entry into the indian retail
market. Many foreign companies have also been exploring possible alternative entry
routes such as brand licensing, franchising, cash & carry and wholesaling, where
100% fdi is allowed, apart from online retailing. Some of the foreign brands that have
successfully ventured into the indian marketplace include metro, shoprite, louis
vuitton moet hennessy, marks & spencer, mango and versace. The recent permission
granted tothe foreign players for operating exclusive branded stores with 51% fdi is a
really positive step, both for international brands and the local indian retail sector as
whole.

Foreign brands that currently operate through various routes generally position
themselves to cater to the requirements of a niche category of buyers. For instance,
spanish women wear retailers such as mango prefer standalone stores and are
positioned at high street locations with upmarket environments such as shopping
malls. Similarly, the canadian lingerie brand, la senza, and the french womenswear
line, promod, are targeting women who have travelled internationally and want to
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look like their counterparts in foreign countries. The level of competition between the
domestic players as well as between local and foreign brands has started getting
intense. But the foreign players do not as yet enjoy as much leeway as their indian
counterparts.

Figure 2.2

Consumer retention and an understanding of the indian consumer are the key
challenges facing indian retail. Companies which reduce customer defections by 5%
can boost profits from 25% to 85%. International retailers need to understand that
indian consumers dont shop and buy the same products as the rest of the world. India
is very similar to the eu -the number of states and union territories number 35 and
languages, cultures, habits and consumer preferences are different in every one of
them. An international retailer looking to enter india needs to be extremely well
versed with local retail culture and know-how. We see a number of strategic
partnerships between indian and international retailers becoming a key point on entry
strategy dashboards.

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2.27 weighing the pros and cons

The evolution from traditional to modern retail fundamentally transforms economies

and, to some extent, cultures. Although there are many disruptions along the way, on
balance, the overall impact is positive.

Market efficiency: the fiercest argument against foreign retailers is that they will
destroy local businesses. It is true that when modern retailers enter new markets,
inefficient players should take notice, and some businesses will inevitably close their
doors. Most traditional retailers have limited access to capital and a smaller appetite
for investing in technology to improve productivity. Their smaller size also means that
they can't take advantage of economies of scale. By contrast, modern retailers have
deeper pockets and the ability to make longer-term and larger investments to increase
supply chain productivity. They also benefit from scale efficiencies of supply chain
infrastructures, significantly larger stores and leveraged buying practices.

Although modern retailers clearly have the advantage of size and power, local
companies can survive by adapting. As the newcomers introduce new practices
everything from improved planning and merchandising to branding strategies and
category management techniquessavvy local retailers emulate them. Similarly, as
modern retailers improve the local infrastructure and expand the supplier base,
including additional logistics providers, merchandisers and distributors, local
companies can tap into these new resources for their own benefit. Those able to adjust
and tailor their strategies may very well evolve into stronger companies. For example,
despite stiff foreign competition from the likes of wal-mart and carrefour, domestic
retailers in china, including the bailan group, gome, and suning, continue to lead the
market because they adapted quickly to changing business conditions. The bailan
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group increased its scale by consolidating several companies, which allowed it to buy
in volume and develop more efficient processes for its conglomerate of stores.

As productivity and efficiency improve across the board, the entire market can benefit.
For example, from 1995 to 2000, a wave of global retailers entered brazil and
contributed to a 4 percent growth in the country's productivity. The increased
efficiency and competition triggered lower prices and improved services for end
consumers. Lower prices are also good for the economy by helping to counteract
inflation. In brazil, the food components of the consumer price index grew at an
annual rate of 39 percent less than other segments between 2001 and 2005.

Job creation: coupled with the fear of shuttered local businesses is the concern over
job loss. As much as corporate public relations departments tout high employment
numbers, this growth comes at a heavy cost. One recent study by global insight
reports that for every 100,000 square-foot store, wal-mart creates 97 retail jobs.
However, because it brings its own wholesalers into a new market, about 30 local
wholesale jobs will be lost, leaving a net gain of about 67 jobs. That's the good news.
The downside? Other studies suggest that when the retail giant enters a new area,
average employee income declines anywhere from 2 to 5 percent. Labor displacement
is another concern as people move from traditional retail jobs to urban modern retail
jobs. In some cases, however, modern retail might not be as big a threat to smaller
retailers as it appears. In india, for example, traditional retail is often located in
residential areas where family-owned stores are generally an extension of the family
home. The labor and fixed costs are low, as are the associated break-even points. The
result is that significant volume losses would have to occur in order to put these
businesses into the red.
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In mature markets, the retail sector is a significant source of employment. In the
united states, for example, 17 percent of the total population is in the retail industry
almost double that of china and india. And as modern retailers establish their
businesses, they help build ancillary industries. Again, look to mature markets where
four main sectors directly benefit from modern retail: construction and real estate,
supply chain and logistics, packaging, and security.

Accelerated exports. When markets open up to modern retail, export volumes tend to
surge, whereas when markets remain closed, exports stagnate. Conclusively
attributing the export increase to modern retailing is impossible, but the connections
are too compelling to ignore. Consider the contrast between china and india. After the
chinese government opened its market to foreign investments, exports topped more
than $60 billion per year. As retailers establish operations there, they increase their
exports. In 2004, for example, wal-mart exported $20 billion from china. By contrast,
india has remained largely closed to foreign investmentand exports have hovered
under $1 billion per year over the same period.

For the first time in indias history, modern retailers are offering farmers a choice of a
buyer other than the traders at government-controlled apmc markets. But some
farmers also say this may be something of a limiting choice because they could end
up selling to the only buyer who comes to them rather than selling through the apmcs
open auction system that ensures several buyers bid. As indians prepare for the army
of retailers, who are drawing up plans to open stores in all sizes and price-ranges for
them to buy from, the nascent industry is offering selling choices for farmers as well
from cooperatives to big retail firms to higher rates from apmc traders and even
farmer-owned stores.
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2.28 consumers prefer modern retail formats:

Even as the commitment of indian consumers to the local grocers remains very high, a
significant 15 per cent have started buying food and grocery from the modern retail
formats on a regular basis, said a report by consultancy firm technopak. Factors such
as entry of new brands, availability of a wide range of products, and the new-age
shopping experience are slowly pulling consumers towards the modern supermarkets,"
said sushmita balasubramaniam, the knowledge company (head), technopak. The india
food and grocery shopping trends 2008 offers insights into the behavioural transitions
of the indian food and grocery shoppers. Consumers spending is highest at 36 per cent
on food and grocery vis--vis other household expenses, the report stated. On
emerging townships, where the population has not yet crossed the 1-million mark the
report said, not only have there been significant trial operations by retail majors but
also the neighbourhood shops are also trying to upgrade themselves in the modern
formats.

2.29 policymakers must take the lead

The benefits of modern retail are significant, but the responsibility for ensuring that
emerging markets can tap into the rewards while minimizing the social disruption
rests squarely with policymakers. China's decision-makers have set an example that
others would do well to follow. The country's retail policy allows for gradual opening
of the market and gives people a chance to adapt to the probable longer-term social
disruptions. For example, as discussed earlier, family-owned businesses may be able
to survive on fewer customers over the short term but the impact of modern retail will
eventually change the social structure of the country. With this in mind, the chinese
government first allowed foreign direct investment in retail in 1992, but capped it at

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26 percent; 10 years later, it raised the fdi limit to 49 percent. In 2004, the government
finally allowed full foreign ownership, but only in certain cities. This gradual
approach allowed local retailers to consolidate before there was a heavy influx of
global retailers. Other countries, including poland, brazil, morocco and the czech
republic have taken a similar path.

With strong gdp growth over the past 10 years, rising employment rates and lower
retail prices, these markets exemplify a smooth transition to modernand global
retail. Now it is time for policymakers in asian economies, particularly india, to foster
their own smooth transition to modern retailattracting businesses while keeping
retail sprawl in check and respecting social requirements, local cultures and norms.

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2.30 challenges of modern retailing in india

Modern retail trade is now picking up rapid momentum. Incidentally, about us$ 20
billion of this is expected from indian businesses themselves. This investment
excludes investment in retail real estate and is being carried out at a frantic pace in
view of the fact that the current retail market of over us$ 300 billion (2006) is likely to
touch us$ 427 billion by 2011 and us$ 637 billion by 2016. Hence, in the last 12
months alone, based on our estimates, additional capacity (in terms of additional
retail shelf space) worth at least us$ 4 billion in annualized revenue terms has been
created. By the end of 2007, another us$ 7-8 billion worth of (annualized) shelf space
would have been created. Interestingly, this capacity is also expected to be created not
only by current players such as future group, shoppers stop, subhiksha, trinethra, and
others but also by newer and new players such as reliance, av birla group, wal-mart -
bharti, itc, godrej, metro and others. Most of these retail players yet do not have the
critical mass to introduce their own brands / labels and hence are stocking up or will
be stocking up tens of millions of running feet of new shelf space with branded
merchandise from current players. Hence, we believe that the increase in demand
being seen by fmcg and other consumer goods companies in 2006 and beginning of
2007 could be largely accounted for by this filling-up of the newly laid modern trade
pipeline and not mostly by increased consumption. While this pipelines spread will
dramatically increase in the coming years, beyond 2007 the stocking-up could be
through retailers ownprivate brands which will then start putting up tremendous
pressure on the national and regional branded goods marketers.

Retailing as an industry in india has still a long way to go. To become a truly
flourishing industry, retailing needs to cross the following hurdles:
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Automatic approval is not allowed for foreign investment in retail.

Regulations restricting real estate purchases, and cumbersome local laws.

Taxation, which favours small retail businesses.

Absence of developed supply chain and integrated it management.

Lack of trained work force.

Low skill level for retailing management.

Intrinsic complexity of retailing rapid price changes, constant threat of product

obsolescence and low margins.

The retailers in india have to learn both the art and science of retailing by closely
following how retailers in other parts of the world are organizing, managing, and
coping up with new challenges in an ever-changing marketplace. Indian retailers must
use innovative retail formats to enhance shopping experience, and try to understand
the regional variations in consumer attitudes to retailing. Retail marketing efforts have
to improve in the country - advertising, promotions, and campaigns to attract
customers; building loyalty by identifying regular shoppers and offering benefits to
them; efficiently managing high-value customers; and monitoring customer needs
constantly, are some of the aspects which indian retailers need to focus upon on a
more pro-active basis.

Despite the presence of the basic ingredients required for growth of the retail industry
in india, it still faces substantial hurdles that will retard and inhibit its growth in the
future. One of the key impediments is the lack of fdi status. This has largely limited
capital investments in supply chain infrastructure, which is a key for development and
growth of food retailing and has also constrained access to world-class retail practices.
Multiplicity and complexity of taxes, lack of proper infrastructure and
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relatively high cost of real estate are the other impediments to the growth of retailing.
While the industry and the government are trying to remove many of these hurdles,
some of the roadblocks will remain and will continue to affect the smooth growth of
this industry. Fitch believes that while the market share of organised retail will grow
and become significant in the next decade, this growth would, however, not be at the
same rapid pace as in other emerging markets. Organised retailing in india is gaining
wider acceptance. The development of the organised retail sector, during the last
decade, has begun to change the face of retailing, especially, in the major metros of
the country. Experiences in the developed and developing countries prove that
performance of organised retail is strongly linked to the performance of the economy
as a whole. This is mainly on account of the reach and penetration of this business and
its scientific approach in dealing with customers and their needs. In spite of the
positive prospects of this industry, indian retailing faces some major hurdles (see table
1), which have stymied its growth. Early signs of organized retail were visible even in
the 1970s when nilgiris (food), viveks (consumer durables) and nallis (sarees) started
their operations. However, as a result of the roadblocks (mentioned in table 1), the
industry remained in a rudimentary stage. While these retailers gave the necessary
ambience to customers, little effort was made to introduce world-class customer care
practices and improve operating efficiencies. Moreover, most of these modern
developments were restricted to south india, which is still regarded as a mecca of
indian retail.

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2.31 emerging channels increasing traction

India is also witnessing action in different non-store retailing channels. Hindustan

lever limited has initiated sangam direct, a direct to home service. Network marketing
has been growing quite fast and has a few large players today. Gas stations are seeing
action in the form of convenience stores, atms, food courts and pharmacies appearing
in many outlets. Information technology is another tool that has been used by retailers
ranging from amazon.com to ebay to radically change buying behavior across the
globe. The e-tailing channel is slowly making its presence felt in india. Companies in
india are using either their own web portal or are tying up with horizontal players like
rediff.com and indiatimes.com to offer their products on the web. A driver for growth
of the e-tailing channel is coming from the indian diaspora, which is leveraging these
web sites to send gifts home (see box on lgezbuy.com). Another model, though in its
infancy, may become a significant channel in future. The m-cash venture supported by
icici bank enables purchases through cellular phones, one of the most commonly
owned consumer products in urban india. With the increased pace of cellular network
rollout in tier-two towns and rural areas, it could only be a matter of time before
cellular phone penetration becomes significant in these areas. Cellular phones could
eventually prove to be the medium that takes innovative retailers to places where
computers and e-commerce are yet to arrive.

One of the anticipated fallouts of this would be that the other majors who have been
engaged in planning their own entry for some time would now accelerate their launch,
and will probably up the ante by committing even more resources than what they may
have envisaged some time ago. At this time, technopak anticipates that the top 10
players in the modern retail trade are likely to pump in $18-20 billion in five years

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and generate as much as $50-60 billion in revenue by 2011. This investment will be
omnipresent at least in the top 150 cities, though impact would be visible in at least
the top 500 if not more. It is no surprise that the traditional retailers are alarmed and
worried if they can survive in the wake of this rapidly advancing overwhelming force.
On the face of it, many have good reasons to be so. There may be initial hiccups for
the large players in getting the sourcing and the supply chain to work smoothly but
sooner or later, the economies of an efficient supply system will give the modern
retailers a distinct edge over the unorganised, small ones. Relatively large, clean,
modern shops will certainly find more favour from the young, upwardly mobile
middle class india than the dusty, cramped traditional stores. Wider/better assortment
will indeed be a major enticement for tens of millions of shoppers who are now
willing to experiment more by trying new products. However, it would be tragic if the
small retailers resigned too early to their fears and, in the process, almost willingly
came in the path of the juggernaut of modern retail. In fact, for most of the millions of
small family-owned single-store operators, it is a relatively simple series of action
steps that can take them well out of the way of an immediate danger and in the
process, actually improve their financial position as well. First, they have to start by
understanding that it is fortunate that it has taken so many years for major indian
business houses and other entrepreneurs to enter retailing. Had some of the large
indian business groups started entering in the 50s and the 60s, the situation could have
been very different. As we all know, that era was beset with licensing and all other
kinds of controls that could have potentially given an unfair advantage to those who
had the licence to enter the modern retail business. With the so-called hindu growth
rate, the modern trade of those years could have grown only at the cost of the small,
independent retailers. Now, with the economy growing at over 8 per cent per year,

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and private consumption increasing even faster, even this apparently humungous
anticipated investment (and therefore the volume of retail revenue) by the new
entrants will not be even 50 per cent of the anticipated jump in the quantum of
consumer spending between now and 2011.

2.32 the kiranas continue

First things first. The rise of organised retail does not mean the end of traditional
retail. According to "retail in india: getting organised to drive growth", a joint report
by global management consultancy a t kearney and the confederation of indian
industry, the indian retail sector is valued at $320 billion (rs 14,40,000 crore), of
which organised retail accounts for a minuscule 6 per cent (rs 86,400 crore or rs 864
billion). Of course, the latter's 35 per cent growth is multiple times the 7-8 per cent
forecast for the sector as a whole: which is why kearney forecasts organised retail will
cross $100 billion by 2012. Even at that level, though, it will be far behind traditional
retail. Most manufacturers understand that. "for a very long time to come, the biggest
chunk of business will be from general trade. The corner shop will not disappear,"
says v s sitaram, executive director, consumer care division, dabur india. Even modern
format retailers agree. "microenterprise is the most adaptable retail entity in india. It
will always remain relevant," points out damodar mall, president and ceo, foods
business, future group.

Still, with the rise of modern retail outlets, the nature of shopping will change. While
stock-up purchases (buying the month's groceries, for instance) are likely to move to
the supermarkets and hypermarkets, top-ups (when you run out of, say, shampoo, in
the middle of the month) will continue at local stores. That shift in buying habits has
far-reaching consequences for consumer product companies.
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2.33 what's in store

Fmcg companies in india have had a fairly smooth run until now - given that the
average kirana is 150-200 sq ft and has space for less than 1,000 skus, they didn't need
to create endless product variations and extensions of the same brands. Compare this
with barry schwartz's list in his 2004 bestseller the paradox of choice: why less is
more, based on a visit to his local supermarket in the us: 285 types of cookies (21
options in chocolate chip alone), 95 different snacks, 360 shampoo types, 40 options
for toothpaste, 275 varieties of breakfast cereal, 175 types of teabags. Schwartz's
supermarket was a "not particularly large store", but indian consumer goods
companies would struggle (and fail) to stock even that level of products (and
remember, this book is three years old): cadbury india has over 100 skus in two
categories, procter & gamble sells over 320 skus across five categories, while
hindustan lever has more than 700 skus in over 20 categories. If hypermarket visitors
are not to be confronted by acres of empty shelves, then, consumer goods companies
will have to expand their portfolios substantially. "the sheer number of skus will rise
because of the capability to stock a wider and deeper assortment of products," agrees
sachin gopal, sales director, procter & gamble india.

It is not just numbers, of course. Modern format retail offers suppliers a chance to sell
assortments of products, in different sizes and different bundling options: soaps in threes
and sixes, bigger (2 kg and more) sacks of detergent or a variety pack of soup mixes, for
instance, rather than the single packs seen in general trade. Planned properly, consumer
goods companies can take advantage of different shopping habits at different shopping
formats. "what we stock in a hypermarket is different from what we stock at a petrol
pump shop. A convenience store does not need supervalue packs,"
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agrees sunil sethi, director, sales and customer development, cadbury india. Big packs
and varying skus is just one angle to the product strategy. Unlike traditional outlets,
where space and ambience are serious constraints, modern format stores also provide
an ideal environment for fmcg companies to initiate product trials and launch
premium or niche products. In mid-2006, for instance, dabur india launched a 400
gram squeeze pack of dabur honey only through modern format stores.

In the past year or so, the company has also launched two variants of its
chyawanprash, a sugar-free version and another that claims to combat stress - both
were launched in modern format stores where the target customer is likely to shop
and, perhaps more importantly, is willing to pay the 30 per cent premium these
products charge over regular chyawanprash. "it is probably easier to sell such concepts
through the organised retail route," agrees sitaram. While organised retail provides
brands much-needed visibility and platform for customer-interaction (more on that
later), manufacturers also need to make some changes to packaging to bring their
products in line with the requirements of modern retail and its customers.
"manufacturers will have to cede part ownership of the brand to retailers," says raman
mangalorkar, head, consumer and retail practice, a t kearney. That means complying
not just with the requirement, but also ensuring expiry dates are prominently
displayed, as is nutritional information and ingredient lists.

2.34 the distribution dilemma

Modern trade operates to a completely different set of rules. Given its superior
bargaining power, it can negotiate better margins, wider product ranges and more
frequent, speedier deliveries. For manufacturers, then, it makes sense to have a
separate team servicing these outlets, working full-time to ensure both parties profit
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equally from the transactions. One way of doing that is by persuading retailers to route
their purchases through suppliers' existing distribution networks. That's because for
the supplier, selling directly to the retailer works only if the order size is large enough.
To their credit, most large retailers are willing to accept such an arrangement. Their
only condition: orders must be filled on time. Modern stores maintain lower
inventories than traditional retail - nine days for hypercity and under two weeks for
food bazaar, compared to over three weeks for most kiranas - and losses due to a
stockout are far more significant, for both the manufacturer and the retailer. Retail
analysts say on-time order replenishments will become even more critical once the
wal-mart/ bharti combine begins operations - the american retailer works almost
entirely on cross-docking and is likely to demand higher service levels, including
potential levies for delays in shipment.

Meanwhile, manufacturers have to also keep their traditional distributors satisfied - a

tough task, considering they offer modern trade more concessions and better
promotions than their general trade partners. Hindustan lever is working around that
by involving family grocers, chemists and wholesalers in custom-made programmes
that offer them targeted promotions, value deals and also build relationships through
training sessions, newsletters and meetings. "general trade will continue to be the
focus of all fmcg companies that want to grow," says a company spokesman. For its
part, cadbury india has changed the rules for all its customers (retailers). It has created
a menu-based approach - issues covered include prompt payment, efficiency and
business building initiatives - that is common to all retailers, big and small. A couple
of years ago, it also started the purple star programme for traditional retailers, where it
tailors promotions and schemes for selected stores. "there is no differential treatment
between retailers," says sethi. Jo dikhta hai, woh bikta hai

P a g e | - 71 -
The earlier approach to marketing was simple enough: make sure the product is
visible - on store shelves and through mass media advertising - and it will more or less
sell itself. With the evolution of modern retail, though, the emphasis is shifting to in-
store displays and promotions - probably also because for the first time, the space for
such initiatives is available. But manufacturers no longer have the last word on what
will happen at the store. "modern trade has a significant say in promotions, perhaps
because it offers far superior results with a much faster lead time," says future group's
mall. Cadbury india's sethi points out that retailers are more open to brand promotions
and displays - including posters, gondolas and danglers - when manufacturers back up
their ideas with shopper insights. "there will be a shift from traditional media to
increased communication at the point of purchase," he says.

Initiatives that help grow the category as a whole are particularly welcome, say
analysts, since that boosts the retailers' revenue. And many fmcg companies are
predicting that spends on promotion, in-store and point of purchase displays will
increase significantly from the present 20-30 per cent share of the marketing budget.
Consumer goods companies need to make several changes - in strategy and in attitude
- if they are to achieve the same level of success with organised retail as they have
with traditional formats. Printing barcodes on their products would probably be a good
place to start.

Hence, traditional retail does not have to fight a zero-sum game for many years to
come. Secondly, the need for convenience for all segments of indian consumers is
increasing faster than what most in the consumer products industries anticipate.
Indians, like any other human being on the planet, have only 24 hours in their day.
The priority for spending this time is actually not in favour of shopping (though the
inclination to spend is higher). The traditional stores can very easily leverage this

P a g e | - 72 -
trend to their own advantage and to the very palpable delight of their current
customers, who may initially be tempted to check out some of the large, modern
stores located some distance away but will generally revert (for product categories
other than consumer electronics, durables, furniture and some minor ones) to the
neighbourhood ones even if it means paying a small price premium for the same since
the trade-off of this price premium will be with an even more premium commodity,
i.e. Their time.

Table 2.3

Page |-
73 -
Table 2.4

The future is bright but obstacles can sour the picture the organized retailing industry
is clocking up impressive growth in india. More than 70 percent of the retailers kpmg
in india surveyed expect to grow at rates in excess of 40 percent per annum in the next
three years. Many of the modern retailers in india have a regional footprint today. A
key trend that can be expected in the next three years is the emergence of national
chains. All the players we met have rapid ramp-up plans. If the plans of our survey
respondents bear fruit, india should see a doubling of retail outlets and retail space in
the next three years. However, the survey respondents cited potential roadblocks that
could sour the high-growth retail picture.

Real estate costs: many of the retailers interviewed expressed concerns about the
high cost of real estate today. On the other hand, the average purchase ticket size in

P a g e | - 74 -
india is still low. This could lead to a situation of high fixed costs, with low
contribution per sale for retailers. High footfalls would be a necessary condition for
success. Unless real estate costs become conducive to retail growth, many retail
business could take a long time to break-even.

Distribution costs: another bottleneck mentioned by respondents is the absence of

distribution networks connecting tier-two towns with regional logistics hubs. There is
scope for organized logistics players like regional transport companies/ third party
logistics (3pl) players to develop these distribution networks, including warehouses,
cold chains and truck and multi-modal services connecting these locations.
Investments are being made in warehouses and hubs by indian corporations.
Outsourced logistics service providers are also emerging mcdonalds working with
radhakrishna foodland is a case in point.

Regulatory aspects: a point that kept emerging in various discussions with

retailers was the dated regulations in the country. For example the weights and
measures act expects all goods to be available in factory packed form in stores.
Similarly the agricultural produce marketing committee (apmc) acts consider even
small volume purchases to qualify as wholesale deals. There are also variations
among states with respect to aspects like store timings. All these are hindrances that
can restrict rapid growth of retailing in india.

Skilled retail personnel: a key concern raised by many respondents has been the
expected shortfall of trained manpower to meet expansion plans. With increasing
competition from the ites industry, retail manpower shortages could become a critical
bottleneck that limits players expansion plans. Individual players are taking proactive
measures like providing on-the-job training, setting up retail academies, etc to help

P a g e | - 75 -
ensure availability of people with the right skill sets. However, the industry as a whole
would need to step forward and put in place measures to deal with the critical gap.
The industry is facing a severe shortage of talented professionals, especially at the
middle-management level. Areas gradually becoming critical are technology, supply
chain, business development, marketing, product development and research.
Successful indian retailers are creating a robust second and third level of management
by hiring aggressively for these key roles. There is also an increase in the number of
retail management programmes and institutes. This will bridge the gap in availability
of talented professionals at the middle and lower levels. There is also an increasing
trend towards hiring hotel management graduates in the retail sector. The retail
industry is expected to create 2 million jobs between now and 2010. However,
talented professionals will put increased pressure on wage costs. Therefore, operating
margins, especially for mid-sized retailers will shrink. There is also a huge risk for
indian retailers becoming a poaching ground for international retailers once they enter
india.

India is one of the largest emerging markets, with a population of over one billion.
India is one of the largest economies in the world in terms of purchasing power and
has a strong middle class base of 300 million. Around 70 per cent of the total
households in india (188 million) reside in the rural areas, where mostly traditional
retail outlets, commonly called kirana stores exist. These are unorganized, operated by
single person and runs on the basis of consumer familiarity with the owner. However,
recently organized retailing has become more popular in big cities in india and most of
the metropolitan cities and other big cities are flooded by modern organized retail
stores. Many semi-urban areas also witnesses entry of such organized retail outlets.
Till now, entry of foreign retailers was restricted in indian retail market because of the

P a g e | - 76 -
ban on foreign direct investment in indian retail sector. But recently, as government
has changed its policy and the cabinet has allowed 51 per cent fdi in single-brand
retail, the prospects of foreign players entering india became high. The findings of a
new study of modern retail customers show that it isn't only the affluent who shop at
supermarkets. Delhi-based market research consultancy market pulse spoke with close
to 350 consumers in delhi, mumbai and chennai to understand their attitudes to
modern retail and their spending patterns. The results of the study have been made
available exclusively to business standard's weekly supplement, the strategist. A
considerable proportion (44 per cent) of customers belonged to the lower socio-
economic categories. Half the respondents have monthly household incomes below rs
20,000, while 26 per cent earn less than rs 10,000 a month. The skew is most
remarkable in chennai, where just 8 per cent said they earned over rs 20,000. On an
average, consumers spend 19 per cent of their monthly household income on shopping
at modern retail outlets -- 30 per cent in the lowest income groups and 7 per cent for
those earning more than rs 30,000 a month. While the wider range of products at
modern retail outlets is the biggest draw for most respondents, for a third of those
belonging to socio-economic categories (secs) c, d and e, the real attraction lies in the
lower prices and promos. The most frequent purchases from modern format stores are
of commodities (60 per cent) and personal care products (55 per cent) followed by
fruit and vegetables and home care products. The study also proves that even converts
to modern retail recognise the importance of kirana stores. The biggest advantages
consumers see are proximity to their homes, personalised attention and the availability
of easy credit (without needing a credit card).

Infrastructure is the weakest link in indias path to progress and there is an urgent need
to address issues plaguing this area. Urbanization is driving an increasing need

P a g e | - 77 -
to upgrade or create infrastructure facilities. An indicator of the urgent need for
highway development, for instance, is the fact that average daily traffic volume on
highways of 39,000 passenger car units (pcus) far exceeds the highway capacity of
15,000 pcus. Transport is a major concern, with a deteriorating railway system and a
limited highway network. In contrast to the global standards, the average load carried
by trucks in india -around 7 tons -is very low. However, the indian government is
presently investing heavily in the state highway system. This will help in an overall
decline in logistics costs which is currently 10-12% of the total gdp.10,000 mw of
power needs to be added every year for the next decade. Growth in air passenger
traffic, estimated at 20% p.a. For the next two years, necessitates quadrupling of
airport capacities. Ports will witness 38% increase in tonnage in the next 2-3 years and
hence, port infrastructure cannot be ignored. The lack of a distribution sector and
specialized distribution companies is a major obstacle for retailers to fully utilize
indias retail potential. We feel that private logistics companies offering specialized
services, refrigerated transport and warehouse facilities across the country, along with
timely distribution of supplies to retail outlets will create some of the much needed
back-end support for retailers to enhance operational performance. If addressed
urgently and seriously, infrastructure can translate into indias biggest opportunity.

India has several options with which it can experiment. It is important to remember
that organized retail is not just about big-box malls but is also about neighborhood
stores (as shown by subhiksha and reliance) and even pushcarts. Many dairy and ice
cream companies (e.g., mother dairy, hll-owned kwality walls, vadilall, etc.) Are
organizing pushcarts, and itc has been considering using pushcarts organized through
a nongovernmental organization or pushcart vendor association that can organize them
and infuse some capital through micro financing. In early 2007, itc went ahead

P a g e | - 78 -
to launch as many as 300 pushcarts in hyderabad and secunderabad in andhra pradesh
and were in talks with the municipal corporation of hyderabad (business line 2007).
This could help small roadside vendors develop a brand image and charge better
prices for quality products. Another retail format that has gained popularity are
exclusive booths and dairy parlors. For instance, mother dairy conducts its retail sales
of milk and milk products through exclusive milk booths. Amul, the retail brand of
gcmmf, has already launched about 200 outlets, mostly in gujarat, selling all products
under the brand gcmmf, including milk and ice cream. It proposed to expand the pilot
project and set up 10,000 outlets across the country (bose 2005). Organized retailers
can co-opt several kirana stores and hawkers drawn from the pool of traditional
retailers; upgrade them with adequate infusions of capital, design, and training to
enable them to better meet the demands of customers; and organize them under their
respective banners through franchises, partnerships, or even employees. That is being
done in japan, where big retailers are co-opting convenience stores and upgrading
them under their franchise models. In the fast-food industry, mcdonalds now runs
more than 30,000 restaurants worldwide (although the company has not yet offered
franchises in india). In india, nirulas followed a similar pattern, though on a much
smaller scale. The franchise model can also be successful in organized retail, with
some outlets directly under company ownership and others under franchise. This can
make the chain competitive as well as inclusive. In india, the government as well as
industry associations like the federation of indian chambers of commerce and industry
and the confederation of indian industry are confronting the challenge of incorporating
traditional retailers in the modern retail movement. Even civil society could join this
revolution to ensure that it benefits most stakeholders in the economy. This would
require not only innovative ideas but also significant resources.

P a g e | - 79 -
Interestingly, as the share of organized retail grows, the indian government is likely to
realize a major gain in terms of tax revenues, because it would be much easier to
collect sales taxes from organized retailers than from traditional retailers. Tax
revenues can be ploughed back into the system to upgrade traditional retailers and
improve the wholesale wet-markets, as china is doing under the 2006-launched 200
markets upgrading program.

Stocks in the retail sector are also becoming increasingly attractive from an investors
point of view. Successful development of value based concepts as well as
development of retail space in smaller cities and towns shall drive the organized retail
into the next levels of cities. Retailers have responded to this phenomenon by
introducing contemporary retail formats such as hypermarkets and supermarkets in the
new pockets of growth. Prominent tier-ii cities and towns which are witnessing a
pick-up in activity include surat, lucknow, dehradun, vijaywada, bhopal, indore,
vadodara, coimbatore, nasik, bhubaneswar, varanasi and ludhiana among others. With
consumption in metros already being exploited, manufacturers and retailers of
products such as personal computers, mobile phones, automobiles, consumer durables,
financial services etc are increasingly targeting consumers in tier ii cities and towns.
In addition, petro-retailing efforts of petroleum giants scattered through out the
countrys landscape have also ensured that smaller towns are also exposed to modern
retailing formats. On the supply side, mall development activity in the small towns is
also picking up at a rapid pace, thereby, creating quality space for retailers to fulfill
their aggressive expansion plans. Thus, the retail boom, 85% of which has so far
been concentrated in the metros is beginning to percolate down to smaller cities and
towns. The contribution of these tier-ii cities to total organized retailing sales is
expected to grow to 20-25%.

P a g e | - 80 -
Favorable demographic and psychographic changes relating to indias consumer class,
international exposure, availability of increasing quality retail space, wider availability
of products and brand communication are some of the factors that are driving the
retail in india. Over the last few years, many international retailers have entered the
indian market on the strength of rising affluence levels of the young indian population
along with the heightened awareness of global brands and international shopping
experiences and the increased availability of retail real estate space. Development of
india as a sourcing hub shall further make india as an attractive retail opportunity for
the global retailers. Retailers like wal-mart, gap, tesco, jc penney, h&m, karstadt-
quelle etc stepping up their sourcing requirements from india and moving from third-
party buying offices to establishing their own wholly owned/wholly managed
sourcing & buying offices shall further make india as n attractive retail opportunity for
the global players.

If the future opportunity for modern retail looks bright, the current reality is a little
harder to discern. One aspect of it is on display in the boomtown of gurgaon, on the
outskirts of new delhi. There, amid the high-rise apartment blocks, the office towers
for dell and amex, the gyms, the tennis courts, the golf courses, and the raggedy huts
of itinerant construction workers, the great experimental malling of india is taking
place. Shopping malls by developers such as dlf, unitech, sahara, and raheja are
popping up everywhere. On a recent weekend at the mgf metropolitan mall next to
gurgaon’s heritage city residential area, a gaggle of hopeful contestants wait
their turn for a shot at the indian capital’s biggest talent quest. The other big
problem for modern retail is with quality, quantity, and consistency of supply.

In india the retailing industry has a long way to go,and to become a truly flourishing
industry, retailing needs to cross the following hurdles:

P a g e | - 81 -
The first challenge facing the organized retail sector is the competition from
unorganized sector.

In retail sector, automatic approval is not allowed for foreign investment.

Taxation, which favors small retail businesses.

Developed supply chain and integrated it management is absent in retail sector.

Lack of trained work force.

Low skill level for retailing management.

Intrinsic complexity of retailing- rapid price changes, threat of product obsolescence

and low margins.

Organized retail sector has to pay huge taxes, which is negligible for small retail
business.

Cost of business operations is very high in india.

Page |-
82 -
Chapter 3
Objectives of the study

To analytically understand the present retail boom in india, with special reference to
the changing face of retailing in india,

To understand the concept of modern retailing in india and the consequences resulting
from this phenomenon,

To understand the interface between traditional retailing and modern organized

retailing in various segments of the market.

Page |-
83 -
Chapter 4
Research methodology
A research methodology defines the purpose of the research, how it proceeds, how to
measure progress and what constitute success with respect to the objectives
determined for carrying out the research study. The appropriate research design
formulated is detailed below.

Exploratory research: this kind of research has the primary objective of

development of insights into the problem. It studies the main area where the problem
lies and also tries to evaluate some appropriate courses of action. The research
methodology for the present study has been adopted to reflect these realties and help
reach the logical conclusion in an objective and scientific manner. The present study
contemplated an exploratory research

nature of data

Primary data: data which is collected through direct interviews and by raising

questionnaires.

Secondary data: secondary data that is already available and published .it could be
internal and external source of data. Internal source: which originates from the
specific field or area where research is carried out e.g. Publish broachers, official
reports etc. External source: this originates outside the field of study like books,
periodicals, journals, newspapers and the internet.

Page |-
84 -
data collection

Primary data:

To be collected through structured questionnaires, personal interviews/ discussions

with focus on his/ her choice before availing for the service.

sample design

Sampling unit: (a) dealers

executives

consumers

Sample size: 100

Research location: new delhi, india

Research period: five months

sampling procedure

Respondents are chosen through cluster sampling. Views of both users and non-users
of modern retailing would be taken.

data collection

Sources of data: 1) primary data which included the input

received from directly the employees through

questionnaire and interview

2) secondary data from the books, journals and

internet etc.

Page |-
85 -
Method of collecting data: questionnaire (schedule) & interview method

Secondary data: secondary data will be collected through the following

sources:-

Articles,

Reports,

Journals,

Magazines,

Newspapers and

Internet

research constraints:

Geographical limitation;

Busy schedule of the dealers and the consumers.

Page |-
86 -

Chapter 5

Data analysis
1.
Do you believe that there is a retail boom in india?
 Yes -------------------------------------------
85 percent

No --------------------------------------------
04 percent

Do not know/ can not say ----------------

11 percent

10%

0%

90% Yes
85%
80% No
4%
70% Do not
11%
60% know/ Can
50% Yes
not say
40%
No
30%
Do not
20% know/ Can
not say
Inte ts are of the opinion that given
rpre The the present economic and
Graphs 5.1 res market situation, it can be
tatio
pon certainly said that there is a
n: den retail boom in india.
g e | - 87 -

Pa
2. The retail boom is due to the growth of disposable income in india.

Do you agree?

Yes --------------------------------------------- 73 percent

No ---------------------------------------------- 12 percent

Do not know/ can not say ------------------ 15 percent

0%

Yes
73%
80% No
12%
70% Do not
15%
60% know/ Can
50%
not say Yes
40%

30% No

20% Do not
know/ Can
10% not say
acco ret ia, but given by the response
unt ail of our respondents, 73 per
Graphs 5.2 for ma cent of the respondents feel
the rkethat the boom in the retail
Interpretation: boo t market in india is due to the
m in in increase in the disposable
There are various factors that the indincome with the individuals.
P a g e | - 88 -
The retail industry in india has enhanced the employment
generation. Do you agree?

Yes ---------------------------------------------- 65 percent

No ----------------------------------------------- 27 percent

Do not know/ can not say ------------------- 08 percent

0%

Yes
65%
No
27%
70% Do not
8%
60% know/ Can
50% not say Yes
40%

30% No

20% Do not
know/ Can
not say
10%

cent ca the retail industry in india has

of n led to creation of
Graphs 5.3 the be employment in india. But the
resp sta nature and sustainability of
Interpretation: onde ted the employment created by
nts, tha the retail sector needs
Going by the views of 65 per it t detailed examination.
P g e | - 89 -
a
Do you think that there exists a gap in the retail boom between the
urban india and the rural india? If it is so please attribute the
reasons for it.

Yes ----------------------------------------------- 55 percent

No ------------------------------------------------ 32 percent

Do not know/ can not say -------------------- 13 percent

Yes
55%
No
60% 32%
Do not
50% 13%
know/ Can
40%

30%
not say Yes

20%
No
10%
Do not
0% know/ Can
not say
able Gap in
Incom inco consumerism
Graphs 5.4 e me
Spending culture
Reasons Dispos
P a | - 90 -
ge
Do you think that recently there has taken place a paradigm shift in
the retail sector leading to organized retailing transpassing the
traditional retailing?

Yes ------------------------------------------- 45 per cent

No -------------------------------------------- 52 per cent

Do not know/ can not say ---------------- 03 per cent

Yes
45%
No
52%
Do not
60% 3%
know/ Can
50%
not say
40%
Yes
30%

20% No

10% Do not
know/ Can
not say
0%
niz retailing in india is in a very
The ed nascent stage and certainly
Graphs 5.5 grow molags behind the traditional
th of derretailing in terms of volume
Interpretation: orga n and intensity.
P a g e | - 91 -
Do you agree that the modern retailers are a threat to the

traditional retail market already in operation?

Yes ------------------------------------- 68 per cent

No -------------------------------------- 27 per cent

Do not know/ can not say ---------- 05 per cent

0%

Yes
68%
No
70% 27%
Do not
60% 5%
know/ Can
50%
Yes
not say
40%

30% No

20% Do not
know/ Can
not say
10%

ers of their volume of trade and

The be risk bearing capability in the
Graphs 5.6 mod ca long run pose a threat to the
ern us already existing traditional
Interpretation: retail e retailers in india.

P a g e | - 92 -
What are the advantages of modern retailing? Please give your
answer in indian context?

One stop shopping ------------------------------- 56 per cent

Price rationalization due to competition ------ 25 per cent

Product quality ensured ------------------------- 08 per cent

Other factors ------------------------------------- 11 per cent

due to

competition
60%
Product quality
50% 8%
ensured One
40% stop
Other factors shopping
30%
11%
20%

10% graphs 5.7 Price

rationaliza
0% tion due to
competitio
One stop n
56%
shopping Product
quality
Price ensured
25%
rationalization Other
factors

Page |
- 93 -
Interpretation:

The respondents feel that the modern retail shops provides goods required at
one place. So the one stop shopping facility is one of the advantages
identified by the respondents in connection with modern retailing. This is
followed by price rationalization and ensuring product quality.

8. Do you agree that modern retaling in india is more

concentrated in larger metropolis and its growth beyond tier
ii cities is at the infant level?

Yes -------------------------------------- 74 per cent

No --------------------------------------- 10 per cent

Do not know/ can not say ----------- 16 per cent

10%

0%

Yes
74%
80% No
10%
70% Do not
16%
60% know/ Can
50% not say Yes
40%

30% No

20% Do not
know/ Can
not say
Graph s 5.8
P a g 94 -
e |-
Interpretation:

A distinctive feature of organized retailing in india is that it is largely an urban

phenomenon so far. Organized retailers tend to start off from first-tier cities with high
purchasing power and then go to second- and third-tier cities with more price sensitive
populations.

9. In which product segment, the modern retail market is more

prominent?

Footwear ------------------------------- 16 per cent

Food ------------------------------------ 28 per cent

Apparel -------------------------------- 40 per cent

Other segments ---------------------- 16 per cent

40%

35%

30%

25%

20%

15%
Footwear

10%
Food

5%
Apparel

Other Segments
0%

Footwear
16%

Food
28%

Apparel
40%

Other Segments
16%

Graphs 5.9
Page |-
95 -
Interpretation:

Clothing and accessories rule the roost in indian organised retail.

What do you agree that the modern retail segment in india?

Cohesive market ---------------------------- 10 per cent

Loosely networked ------------------------- 12 per cent

Fragmented market ------------------------- 32 per cent

Highly fragmented market ---------------- 28 per cent

Do not know/ can not say ----------------- 18 per cent

fragmented

market
35%

30%

25% Do not know/

18%
Cohesiv
e market
20%

15%
Loosely
10%
network
ed
5%

0%
Fragmen
Cohesive market Can not say ted
10% market
Loosely
12% Highly
networked fragment
ed
Fragmented market
32%
market
Do not
Highly
know/
28% Can not
say
Graphs 5.10

P a g 96 -
e |-
Interpretation:

The retail sector in india is highly fragmented and organized retail in the country is at

a very nascent stage.

How according to you the consumers respond to the modern retail

marketing in india?

Prefer modern retail stores --------------------- 56 per cent

Do not like it over kirana stores -------------- 17 per cent

Remain indifferent ----------------------------- 09 per cent

Do not know/ can not say -------------------- 18 per cent

Do not know/
35% Can
18%
30%

25%

20%
Cohesive
market
15%

10%

5% not say
Loosely
networke
0% d

Cohesive market
10% Fragment
Loosely networked ed market
12%
Fragmented market
32% Highly
Highly fragmented fragmente
28% d market
market Do not
know/ Can
not say
Inte rpretation:
graphs 5.11
P a | - 97 -
ge
Factors such as entry of new brands, availability of a wide range of products, and the
new-age shopping experience are slowly pulling consumers towards the modern
supermarkets.

How the foreign players are placed in the modern retail market

in india?

Very suitable for the foreign companies ------------------ 10 per cent

Suitable for the foreign companies ------------------------ 17 per cent

Not suitable for the foreign companies ------------------- 44 per cent

Do not know/ can not say --------------------------------- 29 per cent

the foreign

45%
companies
40%

35%

30% Do not know/

29%
foreign companies
25%

20%

15%

10%

5%

0% Not suitable for

44%
Very Suitable for
10%
the foreign Can not say

companies

Graphs
5.12

Suitable for the

17%
 companies

Not suitable
for the foreign
companies
Very Suitable for the
Do not
foreign companies
know/ Can not
say

Suitable for the foreign

P a g e | - 98 -
Interpretation:

Foreign brands that currently operate through various routes generally position

themselves to cater to the requirements of a niche category of buyers.

13. Do you think that fdi in modern retail segment will be beneficial
to the consumers?

Yes ------------------------------------------- 46 per cent

No -------------------------------------------- 38 per cent

Do not know/ can not say ----------------- 16 per cent

10%

5%

0%
50%
Yes
45% 46%
No
40% 38%
Do not
35% 16%
know/ Can Yes
30%
not say
25%
No
20%
Do not
15% know/ Can
not say
Graphs 5.13
| - 99
-
Page
Interpretation:

Going by the response of the respondents, fdi in the modern retail segment needs to be

further examined.

14. What do you see to be organised retails biggest challenge in

india today?

The biggest challenge being faced by organised retail in the country is that of people.
While most players have bought the best of systems, the best of benchmarked
practices, the best of real estate and indeed the best of everything else, the biggest
challenge is retaining the best of people to work for them. While all other items
inanimate can be managed with ease of consistence and surety, people are the biggest
variable in this business. The people challenge is across all levels. The most critical
levels are right at the top and right at the bottom. The cxo of every description and the
front-end store hand who interacts with consumers are the two most valuable
resources that face the crunch. Everyone in retail wants the high-on-performance and
high-on-image ceo. And equally everyone in modern retail wants the true-blue
performers who manage consumers at the front end in their stores. These are the true-
blue store warriors who ensure repeat custom at the store of choice. Managing people
is therefore today a science that demands multiple variables to interact with one
another and multiple disciplines to interact to make it a model of success.

Page |-
100 -
Future of the modern retail segment in india.

The boom will continue ------------------------------------ 75 percent

The boom is a temporary economic situation----------- 12 percent

Do not know/ can not say -------------------------------- 13 percent

know/ Can

80%

70%

60%
a temporary
50%

40%

30% economic

20%

10%
situation
0%

The boom
75%
will continue The boom
Do not
13% will continue

The boom is
a temporary
The boom is economic
12% situation

Do not
know/ Can not
say
Graphs 5.15
101 -

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Chapter 6
Conclusion
The indian retail sector is going through a transformation and this emerging market is
witnessing a significant change in its growth and investment pattern. Both existing
and new players are experimenting with new retail formats. Currently two popular
formats -hypermarkets and supermarkets are growing very fast. Apart from the brick -
mortar formats, brick -click and click-click formats are also increasingly visible on the
indian retail landscape. Consumer dynamics in india is changing and the retailers need
to take note of this and formulate their strategies and tactics to deliver value to the
consumer. This paper investigates modern retail developments and growth of modern
formats in this country. We also discuss the challenges and opportunities available to
the retailers to succeed in this country.

Retailing in india is receiving global recognition and attention and this emerging
market is witnessing a significant change in its growth and investment pattern. It is not
just the global players like wal-mart, tesco and metro group are eying to capture a pie
of this market but also the domestic corporate behemoths like reliance, kk modi ,
aditya birla group, and bharti group too are at some stage of retail development.
Reliance, announced that it will invest $3.4 billion to become the country's largest
modern retailer by establishing a chain of 1,575 stores by march 2007. The last couple
of years have been rosy for real estate developers and the retailers are finding suitable
retail space in prominent locations. The industry is buoyant about growth and the
early starters are in expansion mood. There is increased sophistication in the shopping
pattern of consumers, which has resulted in big retail chains coming up in most
metros; mini metros and towns being the next target. Consumer taste and preferences

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are changing leading to radical alteration in lifestyles and spending patterns which in
turn is giving rise to new business opportunities. Companies need to be dynamic and
proactive while responding to the ever-changing trends in consumer lifestyle and
behavior.

Organised retail has miles to go in india. It captures only three per cent of the $330bn
(176bn) retail market which is highly fragmented and unorganised, comprising
mostly family-owned businesses that leverage their unique selling point of being close
to peoples homes. Modern retail chains which sprang up fewer than five years ago
foresee immense growth potential. A vast swathe of indian retail is yet to be tapped
into. Compare this with organised retail activity in taiwan and malaysia: organized
retail accounts for 81% of total retail in taiwan, whereas in malaysia, thailand and
china, it makes up 55%, 40% and 20%, respectively.

With improving infrastructure facilities, especially in cities, and with government

moving in the direction of relaxing rules for foreign brands, the indian organised retail
sector is set to become the new star on the commercial horizon. The entry of the
largest domestic business conglomerates such as the reliance group, aditya birla group
and bharti enterprises, has upped both the capital inflows as well as business
confidence in the sector.the largely untapped organized retail arena is now viewed as a
multibillion dollar proposition by indian and foreign players. It is backed by a strong
economy where gdp has more than doubled in the last 10 years, a mushrooming
middle class, and a young earning population with an appetite for spending that is
further spurred by a rapid rise in the proportion of working women in india. Many
agencies have estimated differently about the size of organized retail market in 2010.
The one thing that is common amongst these estimates is that indian organized retail

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market will be very big in 2010. The status of the retail industry will depend mostly
on external factors like government regulations and policies and real estate prices,
besides the activities of retailers and demands of the customers also show impact on
retail industry. As the retail market place changes shape and competition increases, the
potential for improving retail productivity and cutting costs is likely to decrease.
Therefore it is important for retailers to secure a distinctive position in the market
place based on values relationships or experience. Finally it is important to note that
these strategies are not strictly independent of each other; value is function of not just
price quality and service but can also be enhanced by personalization and offering a
memorable experience.

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104
Chapter - 7
References
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Retail scenario in india : unlimited opportunity, mckinsey-cii report, 2003

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Http://www.mofpi.nic.in

Developing a rural market e-hub:the case study of e-choupal experience of itc.

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88, no. 4, 25 february 2005 563

Gerstner, e. Et al. 1994. a theory of channel price promotions. American

economic review 84: 14371445.

Hiemstra, s.j., and w.g. Kim. 1995. factors affeeting expenditures for food away
from home in commercial establishments by type of eating place and meal
occasion.

Hospitality research journal 19(3): 153 1.

Hoch, s.j., b. Kim, a.l. Montgomery, and p.e. Rossi. 1995. determinants of store-
level price elasticity. Journal of marketing research 32:17-29.

Holdren, j3.r. 1968. The structure of a retail market and the market behavior of
retail units. Ames, ia the iowa state university press.

The wall street journal. 1997. how grocers are fighting giant rivals. March

27 issue.

Holmes, t.j. 1989. the effects of third-degree price discrimination in

monopoly. American economic review holton, r.h. 1957. price

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discrimination at retail: the supermarket case. Journal of industrial

economics 6:2836.

Hughes, d. 1994. Breaking wirh tradition. Wye, uk: wye college press.

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Katz, m.l. 1984. price discrimination and monopolistic competition.

Econometrics 52:1453-1471.

Kim, b.-d., r.c. Blattberg, and p.e. Rossi. 1995. modeling the distribution of price
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economic statistics 13:29 1303.

Krtebel, d.e. Et al. 1991. predation to coerce competitors acceptance or predators

price leadership: the supermarket model. Antitrust law and economics review
22:65 74.

Lal, r., and c, matutes. 1989. price competition in multimarket duopolies.

Rand journal of economics 20:5 16 537.

Lamm, r. Mcfall. 1981. prices and concentration in the food retailing industry.
Journal of industrial economics 30: 67-77.

Marion, b. W., and the nc-117 committee. 1986. The organization and
performance of the u.s. Food system. Lexington, ma: lexington books.

Messinger, p.r., and c. Narasirufran. 1997. a model of retaii formats based on

consumers economizing on shopping time. Marketing science 16:1-23.

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maclean hunter media, inc., april.
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106
Chapter - 8
Appendix

questionnaire

1.
Do you believe that there is a retail boom in india?

Yes -------------------------------------------
85 percent

No --------------------------------------------
04 percent

Do not know/ can not say ----------------

11 percent
2.
The retail boom is due to the growth of disposable income in india.

Do you agree?

Yes ---------------------------------------------
73 percent

No ----------------------------------------------
12 percent

Do not know/ can not say ------------------

15 percent

The retail industry in india has enhanced the employment

generation. Do you agree?

Yes ---------------------------------------------- 65 percent

No ----------------------------------------------- 27 percent

Do not know/ can not say ------------------- 08 percent

Do you think that there exists a gap in the retail boom between the
urban india and the rural india? If it is so please attribute the reasons
for it.
 Yes ----------------------------------------------- 55 percent

No ------------------------------------------------ 32 percent

Do not know/ can not say -------------------- 13 percent

Do you think that recently there has taken place a paradigm shift in
the retail sector leading to organized retailing transpassing the
traditional retailing?
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107
 Yes ------------------------------------------- 45 per cent

No -------------------------------------------- 52 per cent

Do not know/ can not say ---------------- 03 per cent

Do you agree that the modern retailers are a threat to the

traditional retail market already in operation?

Yes ------------------------------------- 68 per cent

No -------------------------------------- 27 per cent

Do not know/ can not say ---------- 05 per cent

What are the advantages of modern retailing? Please give your

answer in indian context?

One stop shopping ------------------------------- 56 per cent

Price rationalization due to competition ------ 25 per cent

Product quality ensured ------------------------- 08 per cent

Other factors ------------------------------------- 11 per cent

What is the most identified limitation of modern retailing in india?

Lack of quality locations --------------------------- 36 per cent

Shortage of trained staff --------------------------- 30 per cent

Rising rental values --------------------------------- 22 per cent

Mall management ----------------------------------- 10 per cent

Other factors ----------------------------------------- 02 per cent

Do you agree that the issue of product homogeneity is one of

the consequence of the development of modern retailing?

Yes ------------------------------------- 47 per cent

No -------------------------------------- 30 per cent

 Do not know/ can not say ---------- 23 per cent

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108
Do you agree that modern retaling in india is more concentrated in
larger metropolis and its growth beyond tier ii cities is at the infant
level?

Yes -------------------------------------- 74 per cent

No --------------------------------------- 10 per cent

Do not know/ can not say ----------- 16 per cent

In which product segment, the modern retail market is more

prominent?

Footwear ------------------------------- 16 per cent

Food ------------------------------------ 28 per cent

Apparel -------------------------------- 40 per cent

Other segments ---------------------- 16 per cent

What do you agree that the modern retail segment in india?

Cohesive market ---------------------------- 10 per cent

Loosely networked ------------------------- 12 per cent

Fragmented market ------------------------- 32 per cent

Highly fragmented market ---------------- 28 per cent

Do not know/ can not say ----------------- 18 per cent

How according to you the consumers respond to the modern retail

marketing in india?

Prefer modern retail stores --------------------- 56 per cent

Do not like it over kirana stores -------------- 17 per cent

Remain indifferent ----------------------------- 09 per cent

Do not know/ can not say -------------------- 18 per cent

How the foreign players are placed in the modern retail market

in india?

Very suitable for the foreign companies ------------------
10 per cent

Suitable for the foreign companies ------------------------

17 per cent
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109

Not suitable for the foreign companies -------------------

44 per cent

Do not know/ can not say ---------------------------------

29 per cent

Do you think that fdi in modern retail segment will be beneficial to

the consumers?

Yes ------------------------------------------- 46 per cent

No -------------------------------------------- 38 per cent

Do not know/ can not say ----------------- 16 per cent

What do you see to be organised retails biggest challenge in india

today?

Future of the modern retail segment in india.

The boom will continue ------------------------------------ 75 percent

The boom is a temporary economic situation----------- 12 percent

Do not know/ can not say -------------------------------- 13 percent

P a g e | 110