Organized Retail in India

Organized retailing comprises mainly of modern retailing with busy shopping malls, multi storied malls and huge complexes that offer a large variety of products in terms of quality, value for money and makes shopping a memorable experience.

Retailing Scenario in India

Most of the retail sector in India is unorganised, which were known as mom-pop stores. The biggest advantage in this sector is the consumer familiarity that passes on from one generation to the next. The transformation stage of the retail sector started in late 1990’s. The emergence of pure retailer has started at this stage as it is been perceived as a beginner and the organised retailing is getting more attractive. In India, the retail business contributes around 11 percent of GDP in 2005. Of this, the organized retail sector accounts only for about 3 percent share, and the remaining share is contributed by the unorganized sector. The main challenge facing the organized sector is the competition from unorganized sector.

Transformation of the Retail Scenario in India

Picture 1

As Indian retailing is witnessing rapid transformation in different areas of business by using ascendable and gainful retail models across different categories, consumers started accepting the modern retail irresistibly. The unorganised market is making its way for modern retail formats such as malls, provision stores, hypermarkets, discount stores etc. Most of the malls started expanding from metros to tier 2 cities as part of the expansion plans. Consumers are more attracted to these because of the shopping experience they provide and extra facilities like food court, entertainment which is set under one roof.

Demand and Supply Factors

Economic growth:

Economic growth is one of the major demand factors of Retail sector in India. Rapid economic growth has resulted in greater disposable incomes for the booming Indian middle class. Disposable incomes are expected to rise at an average of 8.5% p.a. till 2015. Higher numbers of working women have also increased both consumption and purchasing power. Real GDP grew at an annual rate of 9.4% in the fiscal year 2006 (ending March 2007), the fastest expansion for 18 years. 

Real GDP growth and annual household disposable income (at constant 2001 prices): 2001-2006

Source: Euromonitor International from IMF and national statistics

Demographics:

A tidal wave of young adults are entering India’s consumer society with rising aspirations, new lifestyle requirements and an insatiable demand for consumer brands. A large number of young working populations between the age of 24 and 35 are also a major factor.

Urbanisation:

Urban areas are the engines of productivity and growth in the country. Urbanisation is associated with higher incomes, improved health, higher literacy, improved quality of life and other benefits. The Indian urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment.

Media Explosion:

TV, Internet, radio & Press have the power to influence the population when it comes to promotion. Compared to previous years the presence of media has become more important. Our televisions have over 200 channels—international, national, regional and local. And the print media is still strong in this area. The radio is opening up and growing by the day.

Infrastructure Development:

Real Estate development, ownership of private transport, banking/credit are other factors which comes in the demand side. The real estate story in India is growing bigger by the day. Industry experts believe that Indian real estate has huge demand potential in almost every sector -- especially commercial, residential and retail. Organised retail is expected to create a demand for around 220 million square feet of retail space by 2010. Ownership of private transport gives accessibility. Credit facility is also playing a major role as the availability of it is more liberalized and the rates of interest are in an affordable position.

Competition:

As the market is a mix of organised and unorganised players, it is obvious that there will be a competition from the unorganised and the future stores.

Pricing:

Pricing will be a crucial variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change.

Scale of Operations:

Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India.

The Human resource factor:

As this sector has only recently emerged from its nascent phase, sourcing right talented people and training them will be a major factor.

Organised Retail in India

Organized retail business in India is very small but has tremendous scope and is expected to grow faster than GDP growth in next few years. Research done by the Tata Strategic Management Group (TSMG) indicates that over the next 10 years, the total retail market in India is likely to grow at a compounded annual growth rate (CAGR) of 5.5 per cent (at constant prices) to USD374 billion (Rs 16,77,000 crore) in 2015. The organised retail market is expected to grow much faster, at a CAGR of 21.8 per cent to USD55 billion (Rs 246,000 crore) in the same time frame, garnering around 15 per cent of overall retail sales. Based on their projections, the top five organised retail categories by 2015 would be food, grocery and general merchandise; apparel; durables; food service; and home improvement. (Picture 2).

Picture 2: Organised retail market in India (Rs crore).

Last few years witnessed the growth of retail sector in India. Growth of this sector led to the entry of foreign players, expansion plans, use of new technologies and processes. Supply chain plays a major factor in new era retailing because of their complex structure which includes different suppliers, retailers and other third party suppliers. Supply chain includes activities like proper relation and communication with suppliers, stock management, cost cutting and reducing wastage, which is one of the major factors.

Segments in Retail Market

Food and grocery retail: The food business in India is largely unorganized adding up to barely Rs. 40,000 crore, with other large players adding another 50% to that. This means that aggregate revenues of large food players is currently only 5% of the total Indian market, and around 15-20% of total urban food consumption. Most food is sold in the local `wet' market, vendors, roadside push cart sellers or tiny kirana stores. According to McKinsey report, the share of an Indian household's spending on food is one of the highest in the world, with 48% of income being spent on food and beverages.

Apparel retail: The ready-mades and western outfits are growing very fastly, as the market teems up with international brands and new entrants entering this segment creating a market for the premium grooming segment. The past few years has seen the sector aligning itself with global trends with retailing companies entering the fray to entice the middle class.

Gems and Jewellery retail: The gems and jewellery market is the key emerging area, accounting for a high proportion of retail spends. India is the largest consumer of gold in the world, considering actual imports and recycled gold.

Pharma retail: The pharma retailing is estimated to follow the trend of becoming more organised and corporatised as is seen in other retailing formats (food, apparel). A few corporates who have already forayed into this segment include Dr Morepen, Medicine Shoppe, Apollo pharmacies. In the south, RPG group's Health & Glow is already in this category, by showing presence in the health and beauty care business.

Book retail: This segment is seen to be emerging with text and curriculum books. The gifting habit in India is catching on fast with books enjoying a significant share.

Consumer durables retail: The consumer durables market can be stratified into consumer electronics comprising of TV sets, audio systems, VCD players and others; and appliances like washing machines, microwave ovens, air conditioners. This segment is seen to be emerging from the past few years.

Retail Formats

In modern retailing, a key strategic choice is the format. Innovation in formats can provide an edge to retailers. Organized retailers in India are trying a variety of formats, ranging from discount stores to supermarkets to hypermarkets to specialty chains.

Key Players

Future Trends

With the retail pie continuing to expand on the back of rising disposable incomes and spending power, both domestic retailers as well as foreign players are expected to capitalise on the latent potential in the Indian marketplace. Foreign retailers are restricted to directly invest in India because of the government regulation. However the international players are planning to enter in to the Indian retail market through franchising, strategic alliances and the wholesale trading. For wholesale trading government is allowing 100% FDI. Tesco, Carrefour and Wal-mart have plans to enter the Indian retail market through a joint venture. Rosy Blue Group which is world’s biggest diamond manufacturer is also planning to launch exclusive diamond showrooms in India.

Conclusion

Finally, it is important to note that value is function of not just price, quality and service but can also be enhanced by personalization and offering a memorable experience. In fact, building relationships with customers can by itself increase the quality of overall customer experience and thus the perceived value. But most importantly for winning in this intensely competitive marketplace, it is critical to understand the target customer's definition of value and make an offer, which not only delights the customers but also is also difficult for competitors to replicate.

References

1. http://www.thehindubusinessline.com/catalyst/2003/04/24/stories/2003042400130300.htm
2. Rural Marketing “Indian Perspective” by Awadesh Kumar singh and Satyaprakash pandey Page 188
3. Ernst &Young, The Great Indian Retail Story, 2006.
4. http://www.euromonitor.com/Articles.aspx?folder=The_rise_of_second_tier_cities_in_India&print=true
5. AT Kearney study 2007.
6. http://www.tatainvestment.com/tata_strategic/articles/20060925_retail.htm
7. http://www.valuenotes.com/one-time/IndianRetailSector_11oct06.asp?ArtCd=86179&Cat=&Id=
8. www.pantaloon.com
9. www.rpggroup.com
10. www.tata.com
11. www.krahejacorp.com
12. www.ril.com/html/business/business_retail.html
13. www.adityabirla.com
14. www.murjanigroup.com
15. www.vishalgroup.com

        

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