Challenges & Opportunities in Indian Retail Industry

AgendaRetailing : An overview

Indian retail

The change factor

FDI in Indian retailing

Why FDI ?

How FDI ?

FDI in Indian retailing

Retailing World’s largest private industry

US$ 6.6 trillion sales annually

Indian retailing Largest employer after agriculture -

8%* of population Highest outlet density in world

Around 12 mn outlets Still evolving as an industry

Long way to go

An overview

Retailing: An overview

Wal-Mart Topmost global Fortune 500

company(3 Consecutive Years) Annual Sales of over US$ 250 bn India’s two largest retail player

turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop)

Fortune 100 9 Retailers Carrefour, Ahold, Home Depot,

Kroger, Metro, Kmart-Sears, Target, Albertsons’

An overview

Retailing: An overview

Weekly MarketsVillage FairsMelas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super MarketsDepartment StoresShopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Evolution of Indian retail

Source of Entertainmen

t

Neighborhood Stores/Convenie

nce

Availability/ Low Costs / Distribution

Shopping Experience/Efficie

ncy

Informal retailing Sector Typically small retailers. Evasion of taxes

Difficulty in enforcing tax collection mechanisms

No monitoring of labor laws

Formal Retailing Sector Typically large retailers Greater enforcement of taxation

mechanisms High level of labor usage monitoring

Indian retail

Evolution of Indian retail

Corporate Houses Tatas: Tata Trent RPG group: Food World, Health and Glow, etc ITC: Wills Life Style Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc.

Dedicated brand outlets Nike, Reebok, Zodiac etc

Multi-brand outlets Vijay Sales, Viveks etc

Manufacturers/ Exporters Pantaloons, Bata, Weekender

Indian retail

Categories of Indian retail

Modern Format retailers Supermarkets

(Foodworld) Hypermarkets (Big

Bazaar) Department Stores (S Stop) Specialty Chains (Ikea) Company Owned Company Operated

Traditional Format Retailers Kiranas: Traditional Mom and Pop

Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets

Indian retail

Classifying Indian retail

Hypermarket Big Bazaar Giants Shoprite Star

Department store Lifestyle Pantaloons Pyramids Shoppers Stop Trent

Entertainment Fame Adlabs Fun Republic Inox PVR

Indian retailers

Large Indian retailers

Greater per capita income Increase in disposable income of

middle class households 20.9%* growth in real disposable

income in ’99-’03. Growing high and middle income

population Growing at a pace of over 10%* per

annum over last decade Affordability growth

Falling interest rates Easier consumer credit Greater variety and quality at all

price points

Indian consumer

The changing Indian consumer

The urban consumer Getting exposed to international

lifestyles Inclined to acquiring asset More discerning and demanding

than ever

No longer need-based shopping Shopping is a family experience

Changing Mindset Increasing tendency to spend Post Liberalization children coming

of age100 mn 17-21 year olds*. Tend to spend freely.

Greater levels of education

Indian consumer

The changing Indian consumer

Low domestic competition Because of fragmented nature of

industry

Lack of exposure to global best practices

Low entry barriers for unorganized retailing

Moderate entry barriers for organized retailing

Wholesale system under-invested leading to 20-40% wastage

Non level playing field issues Wide differences in treatment of

small and large retailers

IndustryChallenges

Challenges in the Industry

Real Estate Costs

Supply Chain Inconsistency

Poor Infrastructure

Lack of Skilled Manpower

issues

Challenges……

Market size Current market size is roughly US$

286 bn* 96% of the 12 Million stores are less

than 500 Sq. ft. Forecast Growth rate for the retailing

industry is roughly 8.3% for 2003-2008

Sales from large format stores would rise by 24-49%**

Formal and modern format retailing would enjoy rapid growth

Anticipated growth

Opportunities

Growth determining factors Government Policy Infrastructure development GDP growth Employment generation and job

creationIn several new sunrise industriesImplies greater purchasing power

Growth factors

Growth factors

India ranked 1st in the Global A.T Kearney Retail Development Index

India

Russia

China

Advantage India

The Indian advantage

THE SIZE OF THE OPPORTUNITYTHE SIZE OF THE OPPORTUNITY

Products   

Total Retail Organised Organised

Rs. Billion Retail Retail as %

  Rs. Billion of Total

Food & Grocery 6422 50 1

Textiles & Apparel 980 185 19

Jewelry & Watches 554 30 5

Consumer durables 415 43 10

Pharmaceuticals 364 10 3

Home Solutions 351 32 9

Books, Music & Gifts 115 15 13

Others 1159 111 10

Total 10360 476 5

Current Indian FDI Regime FDI not permitted in retail trade

sector, except in: Private labels Hi-Tech items / items requiring specialized after sales service Medical and diagnostic items Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator) For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required)

FDI in Retail not

permitted

FDI in Indian retailing

Metro Group of Germany Cash-and-carry wholesale trading Proposal faced strong opposition

Entities established prior to 1997 Allowed to continue with their

existing foreign equity components. No FDI restrictions in the retail

sector pre-1997 Foodworld

51:49 JV between RPG and Dairy Farm International, Leading food retailer in India now

Mc Donalds

Current FDI

FDI in Indian retailing

Franchise International company gives name

and technology to local partner. Gets royalty in return

In case master franchise is appointed for region or country, he has right to appoint local franchisees

Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango

Manufacturing Company sets up Indian arm for

production Bata India. It also has right to retail in India

How they are present

International retailers in India: Strategies

Distribution International company sets up local

distribution office Supply products to Indian retailers

to sell Also set up franchised outlets for

brandSwarovski, Hugo Boss

Wholesale trading Cash and Carry operations 100% FDI permitted

Metro Cash n Carry

How they are present

International retailers in India: Strategies

Improve competition Develop the market Greater level of exports due to

increased sourcing by major players Sourcing by Wal-Mart from China

improved multifold after FDI permitted in China

Similar increase in sourcing observed for Metro in India

Provides access to global markets for Indian producers

Benefits of FDI

Why FDI?

Investment in technology Cold storage chains solve the perennial

problem of wastage Greater investment in the food

processing sector technology Better operations in production cycle and

distribution Better lifestyle

Greater level of wages paid by international players usually

More product variety Newer product categories Economies of scale to help lower

consumer price Increased purchasing capacity of

consumers

Benefits of FDI

Why FDI?

FDI should be allowed in stages Initial stages: 26% FDI

Establishment Phase: 49% FDI

Mature Phase: 100% FDI

FDI policy No incentives needed to attract FDI Market size and potential are

sufficient inducers No need for costly tax breaks, import

duty exemptions, land and power subsidies, and other enticements

How FDI ?

How FDI ?

2 yrs

2 yrs

2 yrs

Thank you