1 RETAILING IN INDIA RETAILING IN INDIA Presentation by Shahnas ASyama K S Sobymol Devasia Sabitha Z.B

2 Retailing According to Philip Kotler “retailing includes all the activities involved in selling goods or Services directly to final consumers for personal , Non business use”. “Every sale of Goods and Services to final consumer” – Food products, apparel, movie tickets; services from hair cutting to e-ticketing.

3 A retailer or retail store is any business enterprise whose sale volume comes primarily from retailing”. A retailer may be defined, as a ‘ dealer or trader who sells goods in small quantities’. Any Organization Selling to final consumer is retailing , whether they are A Manufacturer A Wholesaler A Retailer

4 It does not matter how they sell or serve ( By)Person Mail Telephone Vending Machine or Internet Or Where these are sold A store A street Consumer’s House

5 Retailing may be understood as the final step in the distribution of merchandise, for consumption by the end consumers. Retailers attempt to satisfy consumer needs by having the right merchandise, at the right price, at the right place, when the consumer wants it. Retailers are the final business in a distribution channel that links manufacturers to consumers Indian retail industry is the second largest employer in the country with almost 12million retail stores in India.

6 Characteristics of retailingIt offers direct interaction Sale volume is comparatively large in quantities Customer service Sales promotions are offered at this point only Different forms Location and layout are critical factors More employment opportunities

7 Retailers Types Department stores Specialty stores Convenience storeDiscount store Off-price retailer Super store

8 Functions of RetailingSorting Breaking Bulk Holding stock Communications Assist small suppliers Customer service

9 INDIAN RETAIL-BRIEF OVERVIEWThe Indian retail sector is highly fragmented with more than 90 per cent of its business being carried out by traditional family run small stores. This provides immense opportunity for large scale retailers to set-up their operations – a slew of organized retail formats like departmental stores, hypermarkets, supermarkets and specialty stores are swiftly replacing the traditional formats dramatically altering the retailing landscape in India.

10 India is the third-most attractive retail market for global retailers among the 30 largest emerging markets, according to US consulting group AT Kearney’s report published in June 2010

11 RETAIL-MARKET SIZE The total retail sales in India will grow from US$ billion in 2011 to US$ billion by 2015 Indian retail sector accounts for 22 per cent of the country's gross domestic product (GDP) and contributes to 8 per cent of the total employment.

12 Evolution of Indian retailHistoric/Rural Reach Traditional/Pervasive Reach Government Supported Modern Formats/ International Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency

13 REASONS FOR THE GROWTH Robust economic growthHigh disposable income with the end-consumer Rapid construction of organized retail infrastructure are key factors behind the forecast growth. Expansion in middle and upper class consumer base Growth potential in India’s tier-II and tier-III cities as well. The greater availability of personal credit and a growing vehicle population providing improved mobility also contribute to a trend towards annual retail sales growth of 12.2 per cent.

14 Indian Retail – Buoyed by high GDP growthReal Growth Rate Source :Central Statistical Organization (CS0) Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail…

15 India Experiencing Rapid Economic GrowthGDP (US$ bn) Real Growth Rate 9.4% growth rate makes India the second fastest growing economy in the world

16 Led by Growth in Services Sector% Increase in growth over the previous year Services sector adding to GDP in a significant manner

17 Driven from Consumption Throughout the 1.1 Billion Population5-7 million Super Rich 70 – 80 million Afford Cars, Private Healthcare & Foreign travel million Afford goods like Refrigerators , Scooters & Colour TVs million (Generally Rural) Afford simple industrial products e.g. bicycles , radios , textiles Poverty Line = income less than $ 1/day 60 % of India’s population are under 24 years Source: McKinsey,

18 With High Private ConsumptionGDP US$ 935 billion Food Apparel Beverages Footwear Consumer durables Appliances Stationery Kitchen utensils Furniture Furnishings Sports goods Health & Beauty Personal Care Jewellery Timing Private Consumption US$ 580 Billion (62%) Public Spending and Capital Formation US$ 355 Billion (38%) Transport Communication Recreation Cultural Services Education Rent Utilities Other Services Retail US$ 342 Billion (59%) Non Retail US$ 238 Billion (41%) Urban (5,100 towns) US$ 154 Billion (45%) Modern retail – US$ 12 billion 8% of urban retail spends Rural (6,27,000 villages) US$ 188 Billion (55%) Modern retail Negligible Source: Central Statistical Organization (CS0) and Technopak Analysis Conversion rate: 1 US$ = Rs.

19 About US $530 Billion Retail Market by 2012GDP* US$ 1,450 billion Private Consumption US$ 870 Billion (60%) Public Spending and Capital Formation US$ 580 Billion (40%) Retail US$ 530 Billion (61%) Non Retail US$ 340 Billion (39%) Urban US$ 252 Billion (47.5%) Modern retail – US$ 78 billion 31% of urban retail spends Rural US$ 278 Billion (52.5%) Modern retail – US$ 9 billion 3% of rural retail spends *All figures are in nominal terms after taking into account inflation Source: Technopak Analysis

20 Which Makes Indian Retail an Attractive MarketIndia tops the Global Retail Development Index

21 ORGANISED v/s UNORGANISEDThe Indian retail market, over the last decade, has been increasingly leaning towards organized retailing formats. The pattern in domestic retailing is altering in the favor of organized modern retailing, a big change from the traditional plethora of unorganized family-owned businesses. Rapid urbanization, changes in shopping pattern, demographic dividend and pro- active measures by the Government are abetting the growth of the retail sector in India.

22 Organised retail in India is expected to increase from 5 per cent of the total market in 2008 to per cent of the total retail market and reach US$ 450 billion by 2015 According to a report titled 'India Organised Retail Market 2010', published by Knight Frank India, during around 55 million square feet (sq ft) of retail space will be ready in Mumbai, national capital region (NCR), Bengaluru, Kolkata, Chennai, Hyderabad and Pune. Besides, between and 2012, the organised retail real estate stock will grow from the existing 41 million sq ft to 95 million sq ft. Driven by the growth of organised retail coupled with changing consumer habits, food retail sector in India is set to be more than double to US$ 150 billion by 2025.

23 Organized Retailing in India (2006)INR 28,000 crore Clothing, Textiles &Fashion accessories 39% Footwear 9% Jewellery & Watches 7% Mobile handsets & accessories 3% Health & Beauty (including services) 2% Food & Grocery 18% Durables 13% Books, Music & Gifts Home

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26 Modern Retail – Organized ChannelsThe share of organized retail is less than 3% of the total retail market The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last five years

27 .. but Rapid Transformation is AnticipatedAnd may reach a share of 25% by 2017

28 RECENT TRENDS

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30 Traditionally three factors have plagued the retail industry:Recent Trends Traditionally three factors have plagued the retail industry: Recent changes: Unorganized : Vast majority of the twelve million stores are small "father and son" outlets Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs) Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc. Store design : Biggest challenge for organized retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design. Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

31 Retail Market not limited to metros but widely across IndiaNew Delhi Bangalore Mumbai Chennai Kolkata Ahamabad Hyderabad Pune Above 10 Mn inhabitants Above 4 Mn inhabitants Above 2 Mn inhabitants Above 1 Mn inhabitants Kanpur Lucknow Jaipur Nagpur Coimbatore Bhopal Madurai Kochin Varanasi Visakhapatnam Patna Indore Surat Vadodara Ludhiana The classic ”skimming” strategy in the metros is not longer sufficient 100 cities strategy Over 250 large size shopping malls are currently under construction Leading cities 2030 are forecasted to be Mumbai New Delhi Chandigarh

32 RURAL RETAILING AADHARFuture Group and Godrej Agrovet's joint venture (JV) in rural retailing, 'Aadhar', is all set for a revamp. The alliance operates stores in Gujarat, Maharashtra, Haryana and Punjab and mainly sells wheat and paddy apart from daily need products. The company also provides farmers with solutions to problems regarding their agricultural output, which includes what kind of crop can they plant and when, along with techno-commercial suggestions to help them give a better output.

33 Champion Agro Ltd Rajkot based Champion Agro Ltd is planning to come up with single window shopping facility for farmers. The company already has 35 agri-retailing outlets in the Saurashtra region, and is expected to open around 400 outlets at a taluka level across Gujarat by 2016. It will open 50 new outlets by the end of 2011with an investment of US$ 3.3 million. The overall investment planned is between US$ 66.7 – US$ million.

34 ACIL Cotton IndustriesVadodara based ACIL Cotton Industries is all set to come up with around 40 outlets of 'ACIL Krishi Store' in Gujarat. Of these, four outlets got operational in April - May As for 2011, ACIL has decided to focus on the Gujarat market. ACIL stores will sell all types of seeds, fungicides, fertilisers, micronutrients.

35 OTHER VENTURES Marico is using mobile technology innovatively to arm its field representatives in their procurement process. The IT team at Marico developed a mobile-based application for Nokia series handsets. The company gave these GPS-enabled phones to 120 of its field representatives, with mapped routes.

36 Hindustan Unilever Ltd (HUL) is experimenting with tablet PCs in its attempt to increase its rural reach. It has been able to reach to 500,000 outlets in a year’s time. According to Nitin Paranjape, managing director, HUL, “We put all the villages on an IT map. The name of the village, its total strength, nearest distributors available, whether it has a school, a hospital, a primary health centre, all of this was mapped. We used this information to determine the opportunity the village presented to us.

37 Global Heavyweights in Indian RetailingJoint Ventures Product Range Retail Formats Bharti-Walmart (with $2.5 Billion investment by Bharti) Food & grocery, electronics & appliances, clothing & footwear, furniture & furnishing, household articles. Hypermarkets, Supermarkets and Convenience Carrefour-Landmark Food and groceries, FMCG, apparel and electronics Hypermarkets Home Retail Group plc - Shopper's Stop Ltd and Hypercity Retail India Private Ltd Franchising the Argos concept under the terms of the arrangement, Argos will be providing its brand, catalogue and multi-channel expertise and IT support Multi Channel propositions Tata-Woolworths Sourcing agreement for Consumer durables and Foods under brand name CROMA Multi brand retail chain Staples Inc – Pantaloon Retail Global Sourcing of Office equipments across various businesses Cash and carry Reliance Multi format and Multi Category Birla Convenience and Supermarket

38 FDI in Retail At present, the government allows 51% foreign direct investment in a single-brand retail venture while 100% is permitted in wholesale cash-and-carry. Under single-brand retailing a store can stock goods that have the same brand. In the wholesale cash-and-carry route, which most foreign retailers use, there is restriction on sale to individuals. These stores are only permitted to sell to outfits such as restaurants and kirana stores

39 FDI in Retail Foreign direct investment (FDI) inflows between April 2000 and December 2010, in single-brand retail trading, stood at US$ million, according to the Department of Industrial Policy and Promotion (DIPP).

40 FDI in Multi Brand RetailingIndia's multi-brand retail sector, is estimated to be worth $28 billion (Rs 125,000 crore) according to a Boston Consulting Group (BCG) study. The government is likely to permit foreign direct investment (FDI) in the multi-brand retail sector from April 2012.

41 The government prepared a draft in July 2011, which says 49 per cent FDI in multi- brand retail will be allowed in a phased manner which will be effective from the next financial year i.e. April 2012. The Committee of Secretaries (CoS) headed by Cabinet secretary Ajit Kumar Seth met on July 22 to finalise the blueprint of the proposal for political clearance. One of the major outcome of the discussion is raising 49% to 51%.

42 According to the the economic advisor to the Prime Minister, Kaushik Basu , the government will allow FDI in three phases. In the first phase, foreign multi-brand retail chains will be allowed in the metros Delhi, Mumbai, Kolkata and Chennai. In the second phase other metros like Bangalore, Hyderabad and Pune will be included. The draft has laid out strict norms such as earmarking 40 per cent investment for backend infrastructure, such as cold storage, soil testing labs and seed farming, for prospective entrants.

43 The move has paved the much-required way for international retailer like Bentonville, Arkansas-based Wal-Mart Stores Inc. and Paris-based Carrefour SA to open their retail stores through strategic partnerships. According to Business Monitor International, retail sales in India may jump from $396 billion in 2011 to $785 billion in 2015, representing a growth of around 100 per cent.

44 to harm self-employment opportunitiesadversely affect the manufacturing sector harm small traders across the country.

45 consumers will soon more options to choose productsmore and more investment in the backend Improve the standard of efficiency of supply chain management.

46 Latest Information on Indian Retail ScenarioSingapore-based CapitaMalls Asia, which develops, owns and manages malls across Asia, has pledged US$ 400 million to its growth in India up till Mr Kevin Chee, CEO and Country Head of CapitaMalls Asia, has said that apart from funding the two malls that are operational now, this money would be used to develop seven more malls in India.

47 Reliance Retail will enter the cash and carry market with "Reliance Market" in Ahmedabad; the first one to be opened by August 2011.

48 Ujala fabric whitener maker Jyothy Laboratories has bought Henkel AG's per cent stake in its Indian subsidiary for US$ million, including debt and preference shares, the two companies revealed. The deal includes Henkel's entire portfolio that includes Henko and Chek detergents, Pril dish cleaners and Fa deodorant, and rights to the multinational's future launches.

49 With the launch of its first 'Arvind Experience Store' in Gujarat at Vadodara, denim major Arvind Ltd. is looking at 100 stores by the end of the financial year The store in Vadodara is the company's eighth in the country after seven stores in Andhra Pradesh.

50 Quick food service restaurant chain Subway will set up 45 outlets across the country by entailing an investment of around US$ 9 million. The company has now 205 outlets in India and plans to take its count to 250 by the end of

51 Max Hypermarkets, the food retailing chain of the Dubai-based Landmark Group is investing US$ million for its store expansion business across 30 cities in India.

52 Retail - Government InitiativesIndia will announce new rules for foreign investment in retail by April 2012, paving the way for companies such as Wal-Mart Stores and Carrefour to open stores, according to Junior Trade Minister Jyotiraditya Scindia. A government panel has issued a report that recommends easing a law that prohibits non-Indian companies from operating multi-brand outlets. Allowing foreign investment in multi-brand retail may help moderate food prices, said Kaushik Basu, chief economic adviser in the finance ministry, who sits on the panel.

53 India currently allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale cash-and-carry operations. In a landmark decision, the government has eased norms for investments by foreign companies that are present in India through a joint venture (JV) or a technical collaboration. Now, the foreign company will not have to seek a no- objection certificate (NOC) from the Indian partner for investing in the sector where the joint venture operates. The government has also relaxed norms for downstream investments and convertible instruments, giving foreign companies more powers. The changes are part of the third revision of the Consolidated FDI Policy.

54 KEY CHALLENGES

55 THE KIRANA CRM practice Known about the customer’s familiesCredit and home delivery Consumer familiarity runs from generation to generation Open longer hours and stock most of the goods Consequently, a large number of customers are not willing to pay a premium for the shopping experience promised by large format retailers.

56 HIGH COSTS FOR THE ORGANIZED SECTORHigh expenses to organized sector . The lease cost up to 6-10 percent of sales Manpower cost is lower at 5-6 percent of sales Capital costs are more in retail business due to major renovations needed every 5-7 years.

57 Organizing Retail in India-ChallengesHeterogeneous market Product offerings in different stores across the country will be very different No standard mode of operation across formats Market not mature (has to be validated) Infrastructure will bring about logistical challenges Though, improvements in road networks, power supply are underway Trained employees with understanding of retail business are inadequate compared to the needs of organized retail Barriers to Entry High taxes, bureaucratic clearance process and labour laws High cost of real estate though over 600 malls are to come up all over the country by the next 4 years Indian retailers are deeply entrenched, are expanding and building on logistics and technology initiatives Retail Challenges

58 Evolving processes in Supply chain & merchandising Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment, Lean supply chain – JIT inventory, flow through warehouse Evolving processes in Supply chain & merchandising Global Best Practices not adopted Processes Consumer High disposable income Changing consumer preferences 28 states, 100+ religion, 250+ festivals Infrastructure Supply chain not reliable. Cold storage infrastructure evolving Outsourced transportation Low level automation in warehouses Little or no collaboration between vendor & retailer Low fill rates from vendors Highly localized assortments leading to relationship with multiple vendors Complex trading contracts and off invoice discounts Supplier/ Vendor Multiplicity of disparate Systems & Data Formats No architecture roadmap Base ERP and home grown POS solutions. Low investments in store systems No investments in planning & optimization technologies Current IT

59 Challenges contd.. Weakness of PlayerRetail not being recognized as an industry in india. The lack of recognition as an industry hampers the availability of finance to the existing and new players. This affects growth and expansion plans The high cost of real estate: Real estate price in some cities in India are amongst the highest in the world. The lease or rent of the property is one of the major areas of expenditure, high lease rentals eat into the profitability of a project. Lack of adequate infrastructure Poor roads , lack of a cold chain infrastructure, etc , hamper the development of food and fresh grocery retail in india. The existing supermarkets and food retailers have to invest a substantial amout of money and time in building a cold chain network.

60 Multiple and complex taxation systemThe sales tax rates very from state to state while organised players have to face a multiple point control and tax system,there is considerable expense to transfer good from one store to another. Foreign direct investment:- The fact that foreign direct investment(FDI)is not permitted in pure retailing is seen as one of the prime reasons for the slow growth of retail in India. A global retailer can enter India only by way of a franchise with an Indian partner or through technological alliances. Purchasing power of money As the Indian population mostly consist of middle class families and low wages worker they don't want to go in the super market or retail market

61 The Way Ahead India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats Many strong regional and national players emerging across formats and product categories Most of these players are now gearing up to expand rapidly after having gone through their respective learning curves Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers The Shopping Mall formats are fast evolving Partnering among Brands, retailers, franchisees, investors and malls Improved Infrastructure In view of a compressed evolution cycle, retailers need to simultaneously address issues of speed, Execution and efficiency

62 Key Challenges to overcomeAttracting & retaining qualified manpower Implementing SOP’s & best practices Focus on improving operational efficiency Cost control CRM & Service levels Internal High real estate cost Anarchic laws Shortage of qualified manpower Poor infrastructure Unorganized & poor supply chain External

63 Key Opportunities Supply Chain InvestmentsSetting up logistics and supply chain infrastructure Import of know how and logistics techniques from developed retail countries IT Infrastructure IT is the enabler behind communication, collaboration with suppliers, and an efficient supply chain Manpower Potential tie-ups with universities and setting up dedicated retail institutes Utilize experience of international retailers to train local talent Large Rural market

64 RETAIL – ROAD AHEAD There is a huge untapped opportunity in the retail sector, thus having immense scope for new entrants, driving large investments into the country. A good talent pool, huge markets and availability of raw materials at comparatively cheaper costs are expected to make India lead one of the world’s best retail economies by 2042. The industry is also slated to be a major employment generator in future.