Group Members

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Name Pratik Ahluwalia Richika Chanana Juhi Chawla Rupinder Singh Chawl Kiran Lakhani Pallak Obhan

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BACKGROUND OF RETAIL INDUSTRY IN INDIA

The Indian 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, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Indias retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unparalleled shopping experience. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10 per cent by the year 2010 bringing in a huge opportunity for prospective new players. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of Indias GDP

Current Status

Indias retail industry accounts for 10 percent of its GDP and 8 percent of the employment to reach $17 billion by 2010. The Indian retail market is estimated at US$ 350 billion. But organised retail is estimated at only US$ 8 billion. However, the opportunity is huge-by 2010, organised retail is expected to grow at 6 per cent by 2010 and touch a retail business of $ 17 billion as against its current growth level of 3 per cent which at present is estimated to be $ 6 billion, according to the Study undertaken by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). Indian retailing is clearly at a tipping point. India is currently the ninth largest retail market in the world. And it is names of small towns like Dehradun, Vijayawada, Lucknow and Nasik that will power India up the rankings soon. Organised retail in India has the potential to add over Rs. 2,000 billion (US$45 billion) business by the Year 2010 generating employment for some 2.5 million people in various retail operations and over 10 million additional workforce in retail support activities including contract production & processing, supply chain & logistics, retail real estate development & management etc. It is estimated that it will cross the $650-billion mark by 2011, with an already estimated investment of around $421 billion slated for the next four years.

SEGMENT ANALYSIS

The structure of Indian retail is developing rapidly with shopping malls becoming ncreasingly common in the large cities and development plans being projected at 150 new shopping malls by 2008. However, the traditional formats like hawkers, grocers and tobacconist shops continue to co-exist with the modern formats of retailing. Modern retailing has helped the companies to increase the consumption of their products for example: Indian consumers would normally consume the rice sold at the nearby kiranas viz. Kolam for daily use. With the introduction of organized retail, it has been noticed that the sale of Basmati rice has gone up by four times than it was a few years back; as a superior quality rice (Basmati) is now available at almost the same price as the normal rice at a local kirana. Thus, the way a product is displayed and promoted influences its sales. If the consumption continues to grow this way it can be said that the local market would go through a metamorphoses of a change and the local stores would soon become the things of the past or restricted to last minute unplanned buying.

Food and grocery retail The food business in India is largely unorganized adding up to barely Rs.400 billion, with other large players adding another 50 per cent to that. The All India food consumption is lose to Rs.9,000 billion, with the total urban consumption being around Rs.3,300 billion. This means that aggregate revenues of large food players is currently only 5 per cent of he total Indian market, and around 15-20 per cent 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 per cent of income being spent on food and beverages.

Apparel retail The ready-mades and western outfits are growing at 40-45 per cent annually, as the market teems up with international brands and new entrants entering this segment creating an Rs.5 billion market for the premium grooming segment. The past few years has seen the sector aligning itself with global trends with retailing companies like Shoppers stop and Crossroads entering the fray to entice the middle class. However, it is estimated that this segment would grow to Rs. 3 billion in the next three years.

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 with an estimated annual consumption of 1000 tonnes, considering actual imports and recycled gold. The market for jewellery is estimated as upwards of Rs. 650 billion.

Pharmaceutical retail Corporate Catalyst India A report on Indian Retail Industry The pharma retailing is estimated at about Rs. 300 billion, with 15 per cent of the 51 lakh retail stores in India being chemists. Pharma retailing will follow the trend of becoming more organised and corporatised as is seen in other retailing formats (food, apparel etc). A few corporates who have already forayed into this segment include Dr Morepen (with Lifespring and soon to be launched Tango), Medicine Shoppe, Apollo pharmacies, 98.4 from Global Healthline Pvt Ltd, and the recently launched CRS Health from SAK Industries. In the south, RPG groups Health & Glow is already in this category, though it is not a pure play pharma retailer but more in the health and beauty care business.

Music Retail The size of the Indian music industry, as per this Images-KSA Study, is estimated at Rs.11 billion of which about 36 percent is consumed by the pirated market and organized music retailing constitutes about 14 percent, equivalent to Rs.1.5 billion.

Book retail The book industry is estimated at over Rs. 30 billion out of which organized retail accounts for only 7 per cent (at Rs.2.10 billion). This segment is seen to be emerging with text and curriculum books accounting to about 50 per cent of the total sales. The gifting habit in India is catching on fast with books enjoying a significant share, thus expecting this sector to grow by 15 per cent annually.

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 (A/Cs). The existing size of this sector stands at an estimated US$ 4.5 Billion with organized retailing being at 5 per cent.

Retailing Formats Modern retailing has entered India in form of sprawling malls and huge complexes offering shopping, entertainment, leisure to the consumer as the retailers experiment with a variety of formats, from discount stores to supermarkets to hypermarkets to specialty chains.

QUESTION.1). Identify the opportunities & threats that the retailing industry in India offers to Local and foreign companies?

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 a customers on are relatively small scale. Retailer is any person/organization instrumental in reaching the goods or merchandised 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.

This window of opportunity is useful for executives who plan their market-specific strategies; the four stages or the lifecycle of this industry is as follows:

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, bank finance and business risk. The

market attractiveness covers retail sales per capita ,urban population ,laws and regulations and business efficiency.

When we Iink 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.

Strategy suggested: rapid penetration strategy is suggested at this stage i>e 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.

Strategy suggested: The strategy of adopting quality and styled products with new models and shift of advertising from product awareness to product preference Eg the big bazaar advt says surf exel is cheaper than the market price. The idea behind adopting strategy is to strengthen against competitors.

Maturity: In this stage the market is still big and growing, but the space for new entrants will become tighter and retailers should act quickly at this stage because retailers at this stage have limited time to explore, and also their margin for error is thin. In general , they should act according to the established rules and should be open to face the competition from international retailers. This

stage generally lasts longer than the previous two stages. Strategy suggested: Enter new market segments that is either enter new geographic areas e.g. vishal mega mart has opened stores in smaller cities tier II and III cities

Decline: The window of opportunity is closing fast and modern retail share is reaching 40 to 60 percent. Though the opportunity is closing the existing retailers can enter with new formats such as discount models or non-food formats such as consumer electronics and apparel. Window of opportunity ends for about 5 to 10years before a market enters the closing phase and reaches saturation level. India for example, was in the opening stage in 1995 and entered peaking stage in the year 2003 and reached number 1 rank in2005.

Strategy suggested: Identifying weak segments, maintaining investment level selectively.

Unorganized retailing in India In India, the most of the retail sector is unorganized. In India, the retail business contributes around 11 percent of GDP. 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. Unorganized retailing has been there in India for centuries, theses are named as mom-pop stores. The main advantage in unorganized retailing is consumer familiarity that runs from generation to generation. It is a low cost structure; they are mostly operated by owners, has very low real estate and labor costs and has low taxes to pay. Organized retailing in India In late 1990's the retail sector has witnessed a level of transformation. Retailing is being perceived as a beginner and as an attractive commercial business for organized business i.e. the pure retailer is starting to emerge now. Organized retail business in India is very small but has tremendous scope. The total in 2005 stood at $225 billion, accounting for about 11% of GDP. In this total market, the organized retail accounts for only $8 billion of total revenue. According to A T Kearney, the organized retailing is expected to be more than $23 billion revenue by 2010. In organized retailing will grow faster than unorganized sector and the growth speed will be

responsible for its high market share, which is expected to be $ 17 billion by 2010-11. Retailing will show good prospects in cities like Mumbai, Delhi, Chennai, Kolkata, Bangalore and Kanpur. After Dubai, Singapore and Hong Kong, In India Delhi will be the next big retail destination, According to Confederation of Indian Industries whose findings have shown that Delhi has the good resources and good conditions for the retail sector. Out of the total earnings of the Government of Delhi Rs 11,000 crore, Rs 6,500 crore is achieved from the retail sector

Opportunities:

1. Economic growth 2. Positive growth rate 3. Growing size of consuming class international market awareness 4. More exposure to international markets through tv & internet growing market consumers from larger area are getting reached socio-cultural change 5. Increasing number of youths & increment in income level advancing technology 6. Software support to operations 7. Better supply chain management

Threats: 1. Threats political ambiguity 2. Organized retailers are often resisted in order to maintain support from unorganized vendors regulatory issues 3. Direct foreign investment not permitted 4. Real estate laws for setting up infrastructure 5. Restructuring of tax weak supply system 6. Difficulty in covering such a large area 7. Traditional, fragmented distribution & retail networks

8. Erratic logistics buyers psychology # 9. Misconception among middle-class consumers that the modern retail formats are more expensive and not affordable for them.

Challenges of Retailing in India: 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:

* 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.

Conclusion Many agencies have estimated differently about the size of organized retail market. The one thing that is common amongst these estimates is that Indian organized retail market will be very big in the coming years. 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

Q.2) PREPARE AN ETOP FOR THE COMPANY INTERESTED IN ENTERING RETAIL INDUSTRY IN INDIA?

ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE.

Environment analysis results in a mass of information related to forces in the environment. They deal with events, trends, make issues, and expectations. Structuring of environmental formulation.

issues is necessary to

them meaning

full for

strategy

ETOP(Environmental Threat and Opportunity Profile) is a technique to structure environmental issues.

ETOP involves:

Dividing the environment into different sectors. Each sector can be subdivided into sub sectors.

Analyzing the impact of each sector and sub sector on the organization. Describe the impact in the form of a statement.

Advantage of ETOP 1. It provides a clear of which sector and sub sector shave favorable impact on the organization. It helps interpret the result of environment analysis. 2. The organization can assess its competitive position. 3. Appropriate strategies can be formulated to take advantage of opportunities and counter the threat. 4. SWOT analysis (Strategic weakness, opportunities and threats.) RETAILING INDUSTRY EVOLUTION IN INDIA:

The emergence of the neighborhood Kirana stores catering to the convenience of the consumers

Era of government support for rural retail: Indigenous franchise model of store chains run by Khadi & Village Industries Commission 1980s experienced slow change as India began to open up economy. Textiles sector with companies like Bombay Dyeing, Raymonds, S Kumar's and Grasim first saw the emergence of retail chains Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Post 1995 onwards saw an emergence of shopping centers, Mainly in urban areas, with facilities like car parking Targeted to provide a complete destination experience for all segments of society . Emergence of hyper and super markets trying to provide customer with 3 V Value, Variety and Volume Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid. At year end of 2000 the size of the Indian organized retail industry is estimated at Rs.13,000 crore

ETOP for Wal-Mart :

'Wal-Mart Stores, Inc. is the world's largest retailer, with $256.3 billion in sales in the fiscal year ending Jan. 31, 2004. The company employs 1.6 million associates worldwide through more than 3,600 facilities in the United States and more than 1,570 units.

Environmental sectors 1.economic

Nature of impact favorable

impact on each sector The behavior changed. Indian consumers has theIndian hefty

pattern Now

consumergets

more

pay-packages, is younger, a large number of women are working, western influences, and more disposable income have opened a lot of opportunities in Indian organized retail sector. 2. political unfavorable The Indian government have allowed 51%foreign direct investment (FDI)in the India retail sector to one brand shops only This have made the entry of global retail giants to organized retail sector in India difficult. This is challenge being faced by

the Wal-Mart in Indian retail sector. Being a

global retailer means that you are exposed to

political problem

3.market

unfavorable

Being number one means that you are the target of competition, locally and globally. Cut-throat

competition from the 12 million mom-and-pop

stores. These are easily accessible and provide

services like free home delivery and goods at credit.