Chapter- 3

RETAIL IN INDIA

Overview

The retailing industry in India is largely unorganised and predominantly consists of small independent, owner-managed shops Retailing is Indias largest industry in terms of contribution to GDP and accounts for 13 percent of the GDP There are around 5 million retail outlets in India There are also an unaccounted number of low-cost kiosks There are around 5 million retail outlets in India There are also an unaccounted number of low-cost kiosks (tea stalls, snack centre, barbershops etc,.) and pushcarts/mobile vendors

Growth in retail outlets (millions)

Year
1978

Urban
0.58

Rural
1.76

Total
2.35

1984
1990 1996

0.75
0.94 1.80

2.02
2.42 3.33

2.77
3.36 5.13

Composition of urban-rural outlets

Urban
Grocers 34.7% Cosmetic stores 4.0% Chemist 6.3%

Rural
Grocers 55.6%

Emergence of organized retailing

Organized retailing in India represents a small fraction of the total retail market Organized retailing was first started in India in the year 2001 and was valued at Rs. 11,228.7 billion Income in urban India is increasing A rising working population faces a shortage of time Demand for frozen, instant, ready-to-cook, ready-toeat food, and readymade clothes is rising Rural India continues to be serviced by small retail outlets The McKinsey report predicts FDI will help the retail businesses to grow to $ 460-470 billion by 2010

Traditional retail formats

Traditional retail formats refer to retail formats that have long been part of the retail landscape of India. There are predominantly two types of traditional retail formats, namely:
- Kirana and Independent Stores - Co-operative and Government owned stores

Kirana and independent stores

Kirana, Mom and Pop, and family owned retail shops represent bulk of the retail business in India These are usually shops with a very small area stocking a limited range of products, varying from region to region according to the needs of the clientele About 78% of these retail stores are small family-owned businesses utilising only household labour Even among retail enterprises that employ hired workers, the bulk of them use less than three workers These are low cost structures, mostly owner-operated, with negligible real estate and labour costs and little or no taxes to pay Branding is not the key decision criteria for a majority of customers at the traditional retail outlets particularly in the small townships and rural India Conventionally, retailers source the merchandise from wholesalers and sell it to end-users

Cooperatives and government bodies

India has large number of retail stores run by cooperative societies and government bodies across product categories Such initiatives were taken for various socio-economic factors primarily to promote industries and employment in rural areas Super Bazaars and the Kendriya Bhandars along with the administered price Public Distribution System are organized retailing formats Examples:

Mother Dairy, Delhi and Fruit & Vegetable Project Public Distribution System in New Delhi Central Cottage Industries Emporium

Retailing in rural india

An important phenomenon in Indias consumer culture is the emergence of the rural market for several basic consumer goods Three-fourths of Indias population lives in rural areas, and brings one-third of the national income The rural market has been growing steadily over the years and is now bigger than the urban market for FMCGs (53% share of the total market) with an annual size in value terms currently estimated at around 50,000 crore A boon for the companies who are seeking new ways to increase sales NCAER projects that the number of middle and highincome households in rural India are expected to grow from 80 million to 111 million by 2007 Existing retail formats available in rural India are retail outlets within the village, feeder centre or markets, melas, haats and shandies, hawkers (mobile retailers)

Rural market penetration levels

Durable
Refrigerator Black and white television Washing machine Pressure cooker

Rural share %
24.30 62.65 14.64 51.51

Product
Coffee Biscuits Toilet soap Toothpaste

Penetration %
7 60.1 91.6 35.6

Instant Water heater

Mixer/grinder Colour television Scooter

2.04
27.43 28.77 28.56

Talcum powder 16.4

Hair oil Shampoo Razor blade 16.0 39.8 47.1

Motorcycle

47.87

Skin cream

15.5

Retail Strategy

The sector represents a variation in level of development and preference for formats based on product categories Product categories differ in terms of percentage share of markets, level of risk and relevance for the consumer, and the expectation and requirement of customer service

Specific product categories

1. Food Category: Supermarkets,discount stores, fresh product outlets, speciality stores, convenience stores and off-price retailers. 2. Restaurants: Apna Ghar, old formats coexist (Ghanteewala Halwai, Natraj Caf, Giani ka falooda) 3. Health and Beauty Products: LIFESPRING HEALTH & BEAUTY PLACE (Health Foods at Beauty Products, Eye Care at Life Spring ) 4. Clothing and Footwear Retailers: Kala Niketan, THE LOFT, Shoppers Stop, Pantaloon, Trent, Home Furniture and Household Goods Retailers 5. Durable Goods Retailers :Viveks 6. Petro-Retailing in India: Bharat Petroleum 7. Retail Banking: Multi-Channel Distribution,Call Centres (support services), Technology, Rural exposure 8. Leisure industry

Number of retail outlets in India

000 outlets
1997 1998 1999 2000 2001

Food Retailers
2943 3123.4 3300.2 3480 3682.9

Point of access of the Internet

Net accessed from
Home
Cyber Caf

% on a Working Day
25
30

% on a Holiday
47
27

Work
Others

29
16

07
19

Vertical marketing system In Indian retailing

An independent vertical marketing system consists of all the levels of independently owned business entities along a channel of distribution/value chain Three levels of independently owned forms: manufacturers or suppliers, wholesalers or distributors, and retailers System is compatible if: - producer and retailers are large and selective
- exclusive distribution is sought - unit sales are moderate - company resources are high and greater channel control is desired - existing wholesalers are too expensive or unavailable

All or most of the functions from production to distribution are at least partially owned and controlled by a single entity Corporate systems typically operate manufacturing units, warehouse facilities, and retail outlets A single company performs all production and distribution functions without the aid of any other firms: Mother Dairy, Wills Lifestyle apparel

Challenges in retail business In India

Retail industry in India is in a phase of transition and faces challenges Recent examples of chains that tried ramping up too fast too soon (Barista, Domino's and Shoppers' Stop) all fell into a cash trap Deciding the right pace of expansion is critical Retailers in India face other challenges in terms of
1. Real estate 2. Regulations 3. Manpower

These challenges have an impact on thr costs and efficiency of operations of the retail business