CHAPTER V

IMPACT OF SHOPPING MALLS ON

SMALL RETAILERS- AN OVERVIEW

5.1 Competition or Conflict

5.2 Size of the Indian Retail Industry
5.3 Major Retail Segments
5.4 Foreign Direct Investment Scenario in India
5.5 Retail Investment
5.6 Availability of Quality Real Estate
5.7 Competition from the Unorganized Sector
5.8 Share of Organised Retail Sector in Total Market
5.9 Retail Revolution Impacting Our Food Industry
5.10 Small Store Format Is Still the King
5.11 Impact of Shopping Malls on Small Retailers- Icrier
Report 2011

[248]
 CHAPTER V
IMPACT OF SHOPPING MALLS ON SMALL
RETAILERS- AN OVERVIEW

The fifth chapter highlights on the impact of shopping malls on

small retailers: - malls vs small retailers Competition or conflict, Leading
Global Retail Players by revenue, Evolution of organized retail, Retail
Sales Growth vis-a-vis Key macroeconomic indicators, Indian Retail
market (at current market prices), FDI scenario in India, Competition
from the unorganized sector, and at last the report of Impact of shopping
Malls on small retailers- ICRIER Report 2011 has been discuses in brief.

Introduction

The retail sector has been at the helm of India’s growth story. The
sector has evolved dramatically from traditional village fairs, street
hawkers to resplendent malls and plush outlets, growing from strength to
strength. According to the Indian Council for Research on International
Economic Relations (ICRIER), India is the seventh-largest retail market
in the world, and is expected to grow at a CAGR of over 13 percent till
financial year 12. In financial year 07 retail sales reached Rs 13,300 bn
and amounting to around 33 percent of India’s GDP at current market
prices1. According to the Central Statistical Organization (CSO)
estimates, the total domestic trade (both retail and wholesale) constituted
13.0 percent of country’s GDP in 1999-2000, which has gone up to 15.1
percent in financial year 07.

With almost 25 percent of India living below the poverty line the
fruits of the development and organized retailing might result in a social

[249]
dissatisfaction amongst the lower side of the population. With almost 40
million people in India depending on the traditional retail sector, the trade
unions and traders fear these people's employment will suffer if retail
giants are permitted to enter India's retail market. Most of the
employment opportunities that promise to create are for the semi skilled
and unskilled labors this is not useful for majority of highly educated
Indian youth. Due to delay in processing and corrupted middle players of
government employees, the benefits of the elimination of middlemen are
not reaching to the real farmers.

The coming of the big players in the retail market would be a

threat for the friendly neighborhood kirana stores. The personal touch
one used to get from the service of kirana stores would be missed in these
sophisticated shopping giants. The life style of the community would
change. Food consumption patterns are already seeing a major change as
fast foods and junk foods are replacing the more nutritional conventional
foods. Whole sale commodity markets would disappear and there would
be considerable job loss. The inevitable journey to plain cultural
homogeneity started with globalization would be speeded up. Local
products would go off the shelf and more popular products would take its
place.

[250]
5.1 Competition or Conflict!

The question to be deliberated upon now is whether we take this

confrontation as a competition or a conflict?

India is a price sensitive market. And in such a scenario the

question which arises is that can the ambience and shopping experience
of shopping malls beat the 'kirana' stores? Do you see this competition
moving beyond just a price war? Looking at the situation from a different
perspective 'Kirana' stores target the masses whereas organized retail
services cater to a specific class of people. It would be unfair to apply the
same rules at both places, when they cater to two different sets of people.

The mall going consumers are more or less global, that is, they
have moved from price to value. This section is more value conscious, as
they will buy the most exclusive item, and concurrently will want to
acquire the finest price for it. A price conscious consumer, alternatively,
will look at price alone and choose a product which is the cheapest. The
consumer's taste and choice are becoming global. Even the food cooked
in their households need ingredients which is available only in the
supermarkets. On the other hand as the options increase, consumers will
demand extra and constraint of space will become a problem for the
'kiranas'. Possibly, what will come about is that the generalized retailer
will convert into a specialized one. We can presume that the 'kirana' store
will be around for the next 3-4 decades easily, as it is the neighborhood
store and convenience works in its favor. It also has two channels to buy
from – traditional suppliers and hypermarkets.

Retailing has played a major role in the global economy. In

developed markets, retailing is one of the most prominent industries. In
2008, the US retail sector contributed 31 percent to the GDP at current
[251]
market prices. In developed economies, organized retail has a 75-80
percent share in total retail as compared with developing economies,
where un-organized retail has a dominant share.1

Table No:-5.1

Leading Global Retail Players by Revenue in India

Banner Sales
2008E No. of
Sr. Company
(In USS outlets,
No Name Country
million) 2008

1 WAL-MART US 395,305 7,331

STORES
2 CARREFOUR FRANCE 142,229 13,419
3 TESCO UK 103,573 3,750
4 METRO GROUP GERMANY 102,942 2,541
5 SEVEN & I (II) JAPAN 84,375 22,590
6 KROGER US 73,633 3,672
7 AEON (I) JAPAN 73,416 14,803
8 TARGET US 71,125 1,591
9 SCHWARZ GERMANY 70,969 8,575
GROUP
10 COSTCO US 69,704 518

Source: - Planet retail (2008)

Global retail sales was estimated to be around US$ 12 million in

2007; however, in 2008, the slowdown in the global economy, especially
in the US, and credit crunch, decreased consumer spending. On a global
level, the economy performed robustly till 2007, but the US crisis spread
over to Europe in early 2008, and its impact was felt in the Asia-Pacific
region by mid-2008.

[252]
 Table No:-5.2

Total Number of Retail Outlets in Selected Countries from

2002 to 2007 (Fig in Million)

Country 2002 2003 2004 2005 2006 2007

India 11,689.0 12,049.8 12,408.8 12,770.8 13,122.1 13,448.5

China 5,463.7 5,208.1 4,854.1 4,635.7 4,503.2 4,496.3

Brazil 976.1 1,006.6 1,071.5 1,122.9 1,157.6 1,188.3

Russia 437.5 447.4 456.3 466.0 475.1 480.8

USA 923.5 923.7 934.3 945.8 946.5 946.2

UK 314.6 312.0 308.3 302.1 298.3 295.1

France 416.9 411.7 409.2 407.1 406.7 406.5

Germany 288.0 286.2 284.2 283.0 281.8 281.8

Source: - Euro monitor (2008)

India has the highest number of retail outlets in the world at over
13 million retail outlets, and the average size of one store is 50-100
square feet. It also has the highest number of outlets (11,903) per lakhs
inhabitants. The per capita retail space in India is among the lowest in the
world, though the per capita retail store is the highest. Majority of these
stores are located in rural areas.

[253]
Evolution of Organised Retail

The share of organized retail in developed countries is much higher

than developing countries like India. In 2006, the share of organized
retail in the US was around 85 percent, in Japan it was 66 percent, in the
UK it was 80 percent, while in developing countries like India, China and
Russia it was 6 percent, 20 percent and 33 percent, respectively. The
concept of organized retail had occurred much later in developing
economies than the developed economies. Modern day retail came into
existence in three successive waves. The first wave took place in the
early to mid-1990s in South America, East Asia excluding China, North
Central Europe and South Africa. The second wave of organized retail
occurred during mid-to-late 1990s in Mexico, Central America, South-
east Asia and South Central Europe. The third wave of organized retail
boom started in the late 1990s and early 2000 in some parts of Africa,
Central and South America, South-east Asia, China, India and Russia and
continues to grow at a rapid pace.2

Rising Household Expenditure in BRIC (Brazil, Russia,

India and China) Countries Drives Organised Retail

The household expenditure in Brazil, Russia, India and China, or

the BRIC countries, is growing at a faster rate than the developed
countries like the US, UK, Japan, Germany, and France, indicating the
higher growth potential for the retail sector in these countries that have a
large consumer base. Household expenditure (at constant prices) in
developed countries like the US, UK, Germany, and Japan has witnessed
an average annual growth of 3.2 percent, 2.5 percent, 0.2 percent, and
1.0 percent, respectively, during 2004-2007, but the expenditure in the
BRIC countries has been much higher. The developed countries are
[254]
witnessing a continuous fall in domestic demand and high dependence on
export earnings, which are the reasons for lower household expenditure.
In current times, the global demand is weakening, owing to economic
slowdown, and this worry is looming large over the retail sector.

The Indian economy posted a remarkable CAGR growth of

8.9percent during FY04-FY08, which increased the per capita income
and in turn, the disposable income of a large section of the population.
Growth in the retail trade depends on the fundamentals of an economy.

Chart No: - 5.1

Rising Personal Income Is Driving Consumption

Source: - Central Statistical Organization (CSO-2009)

The Indian economy grew at a robust rate over the last five years,
riding high on the high growth in the service sector (10.5 percent) and the
manufacturing sector (9.4 percent) as compared with 7.4 percent and 4.1
percent during FY99-FY03. The rise in per capita income and the

[255]
resultant rise in disposable income stimulated consumption during this
five-year period, thereby resulting in a spurt in retail trade. Furthermore,
according to the Mckinsey Global Institute (MGI), the average real
household disposable income is likely to grow by 5.3 percent during
2005-2025 and reach Rs 318,896 per annum as compared with 3.6
percent in the previous 20 years, which indicates the huge potential for
the retail sector in India.

Private Final Consumption Expenditure, per capita income and

retail sales are positively related

The private final consumption expenditure (PFCE) and GDP growth are
indicative of the growth in the retail sector. In the past consumers,
especially young consumers in the age group of 15-34, increased their
consumption expenditure with an increase in their earnings; these young
consumers totaled around 400 million and constituted 35 percent of the
total population. Due to the consequent boom in the Indian retail sector
many foreign and Indian players entered the Indian retail sector.

[256]
 Chart No: - 5.2

Retail Sales Growth Vis-A-Vis Key Macro Economic Indicators

Source:-ICRIER, CSO, D&B Research

The above chart shows that during FY 95-FY 00, the PFCE
(constant prices) increased by 5.4 percent per annum. Later on, from FY
01 to FY 03, PCFE declined to 4.0 percent. Again during FY 03-FY 07, it
went up to 6.2 percent per annum. During these time periods, the retail
sales, the per capita income, and the real GDP growth followed a similar
trend as the PFCE, which made it evident that there is a positive
correlation between real GDP and PFCE on the retail sector. During FY
08, the PFCE as a percentage of GDP at factor cost at constant prices
remained very high at 62.2 percent; hence, the overall retail sector growth
received a major impetus during this period.3

There have been striking changes in India’s consumption pattern

over the past 50 years owing to the ever-increasing media exposure,
changes in lifestyle, growing urbanisation, coupled with an increase in
the education levels among others. The Indian retail industry has matured
tremendously over the years, and has become more process-driven,
standardised, quality assured, and brand-driven.
[257]
5.2 Size of the Indian Retail Industry

In 2007, the total Indian retail industry was valued at Rs 13,300

billion (estimate), and the organised segment constituted 5.9 percent of
the value at Rs 783 billion. In the segment, the clothing and accessories
sales had a majority share of 38.1 percent followed by the food and
grocery segment at 11.5 percent and electronics segment at 9.1 percent.
The organised retail industry grew at a CAGR of 33 percent during 2004-
2007. Even though the organised retail segment has a minuscule share in
the total industry, it has enormous potential considering the rising
urbanisation, the efficient supply-chain, the readily-available retail space,
and modern technology, which help in reducing consumer prices to a
great extent.

[258]
 Table No: - 5.3

Indian Retail Market (At Current Market Prices)

Total Retail Market Organised Retail Market

(Rs Billion) (Rs Billion)
Segments
2006 2007 Share Of 2006 2007 Share Of
2007 in 2007 in
Percentage Percentage
CLOTHING & 1,135 1,313 9.5 214 298 38.1
ACCESSORIES
FOOD & GROCERRY 7439 7,920 62 58 90 11.5
FOOTWEAR 137.5 160 1.1 52 77.5 9.9
ELECTRONICS 481 575 4.0 50 71 9.1
CATERING SERVICES 570 713 4.8 39.4 57 7.3
(F&B)
HOME & OFFICE 406.5 455 3.4 37 50 6.4
IMPROVEMENT
TELECOM 216.5 272 108 17.4 27 3.4
ENTERTAINMENT 380 456 3.2 15.6 24 3.1
JEWELLERY 602 694 5 16.8 23 2.9
BOOKS, MUSIC & 133 164 1.1 16.8 22 2.8
GIFTS
WATCHES 39.5 44 0.3 18 21.5 2.7
PHARMACEUTICALS 422 488 3.5 11 15.4 2.0
BEAUTY & 38 46 0.3 4 6.6 0.8
WELLNESS
TOTAL 12,000 13,300 550 783

Source:- Images India Retail Report (2008)

Furthermore, with the entry of big foreign players, the Indian

organised retail market has become more competitive in terms of
implementing newer business models on the operational format, and
pricing, and in terms of efficiency. The organised retail sector will
largely benefit in terms of productivity and growth if sectors like
agriculture, food processing, and textile are encouraged further. The
above-mentioned sectors would receive a remarkable boost if they would
supply to big Indian and foreign retail players, which will ensure their

[259]
growth in tandem with the retail sector. Moreover, the organised retail
sector will directly and indirectly improve the country’s employment
scenario.

Many Indian retail players have already started purchasing supplies

directly from farmers and other suppliers, which has invariably
eliminated the supply-chain complexities and large number of
intermediaries, and has resultantly lowered prices for consumers.
Furthermore, the amendment of the Agriculture Product Marketing Act
(APMC) has revamped the farm produce supply chain.

INDUSTRY SEGMENTATION

Organised retail can be segmented in two ways - segmentation by

verticals and by channels. Verticals are segmented on the basis of the
type of merchandise offered; similar merchandise can be clubbed
together to form a vertical, for instance food and grocery. Channels are
the means through which retailers sell their merchandise; for example,
store channels of retailing that comprise different formats like
hypermarkets, supermarkets and department stores and non-store formats
like online retailing, vending and kiosks.

[260]
5.3 MAJOR RETAIL SEGMENTS

Food and Grocery:

In 2007, the food and grocery segment was valued at Rs 7,920

billion, and it enjoyed a dominant market share of 62 percent in the total
Indian retail sector; however, there was a completely opposite scenario in
the organised retail segment. The food and grocery segment is the
second-largest in the organised retail and has an 11.5 percent share that is
valued at Rs 90 billion.

Initially this segment grew at a slow pace due to the presence of an

established retailing system led by kirana stores, a highly-fragmented
food supply chain, and the lack of a developed food processing industry.
Nilgiri was one of the earliest retailers that started a chain or stores in
different parts of the country. However, the growth of Nilgiri’s stores
was limited as it was challenged by a weak supply chain and an under-
developed food processing industry. Post-liberalisation, organised
retailers saw a renewed opportunity in the food and grocery segment.

Few Food and Grocery Retailers

1. Food Bazaar: PRIL ventured into food retailing with Food Bazaar in
Apr 2002. Initially it was a part of Big Bazaar but later on it started
operating as a standalone outlet in addition to being a part of Big Bazaar.
The store offers a wide range of fruits, vegetables, FMCG products and
ready-to-cook products. It uses a concessionaire model for wet groceries,
and it sources staples from APMC or farmers (where the state permits).
Food Bazaar attracts high footfalls due to innovative initiatives like live-
grinding, live bakery, fresh juice corner etc.

[261]
 In Aug 2007, the store ventured into another retail format that
served the food and grocery segment called the KB Fair Price shop. This
store is modelled on the concept of low-frills neighbourhood store of
1,000-1,600 square feet. The Fair Price store follows a pricing model that
is 20 percent lower than the prevailing market price.

2. More: Aditya Birla Retail Ltd forayed into the retail business in 2006
by acquiring Trinethra Super Market Ltd, the south-India based retail
chain. In May 2007, the company launched its own brand of stores called
more in Pune. The supermarket store has a minimum size of 2,500 square
feet and offers fruits, vegetables, staples, personal care, general
merchandise, pharmacy, poultry and dairy products.

3. Reliance Retail: Reliance Retail Ltd, a subsidiary of Reliance

Industries Ltd, has an aggressive plan to expand its retail network across
India. It entered the food and grocery segment in November 2006
through its convenience store format Reliance Fresh. The store offers a
range of fruits, vegetables, personal care, home care and kitchen utensils.
It focuses on building a strong relationship with the agri-business value
chain and sources directly from wholesalers.

Fashion and Accessories

Fashion and accessories is the largest category in organised retail

and had a 38.1percent share valued at Rs 298 bn in 2007. In terms of total
retail, this category held the second position with a 9.5 percent share
valued at Rs 1,313 bn. The segment has driven the retail boom in India
and has opened many opportunities for large as well as global retailers to
enter the segment. Despite the high rental, many global retailers like Gas,
Gucci, Levi’s, Benetton, Marks and Spencer have opened their stores in
India, and also have plans to increase their presence.
[262]
 The men’s wear segment had the highest share of 40.2 percent in
the Rs 1,313-billion fashion and accessories market in 2007 while the
women’s category accounted for 34.8 percent, followed by the kids wear
and uniform category at 24.9 percent. Demand in the branded apparel
segment is increasing as consumers are upgrading to premium brands due
to changing preferences. The premium segment has seen the fastest
growth in value owing to the rising preference for formals at Indian
workplaces, the new offerings from international brands, and the
increasing willingness on the part of consumers to pay a premium for
quality. The apparel retailers are also pushing themselves to the
accessories segment to attract more customers.

Few Fashion and Accessories Retailers

1. Pantaloons: The first Pantaloon store was opened at Gariahat in 1997

in 8,000-square-feet area. Over the years, the store has undergone several
transitions. When it was launched, the store mostly sold external brands.
Gradually, it started retailing an eclectic mix of external brands as well as
private labels. Initially, it positioned itself as a family store targeted
across age and gender groups but later it shifted its focus towards being a
fashion store and gave more emphasis on the youth. As on Dec 2008,
Pantaloons had around 44 stores spread across major cities in India.

2. Shoppers Stop: Shoppers Stop is one of the largest retailers in India.

It primarily caters to the lifestyle segment and offers customers both
domestic and international brands. The store recently revamped its
branding by introducing a new symbol. Shoppers Stop has lifestyle
retailing as its core housing brand across categories like apparels and
accessories. The store operated at 26 locations in 12 cities as on Dec
2008.4

[263]
3. Koutons: Koutons Retail is a leading manufacturer of readymade and
fashion wear brand. It was established as Charlie Creation Pvt. Ltd in
1991 for manufacturing and exporting garments. Later in 1998 Koutons
was established to provide affordable men’s wear to the masses. Koutons
also entered the women’s segment in Apr 2008 by launching its brand
Les Femme, which caters to young women in the 16-34 years age group
and includes apparels like t-shirts, partywear, Lycra, semi-formal shirts,
denims, capri pants etc. Koutons has also launched its brand Les femme
for women & Koutons Junior for kids. Few renowned brands of Koutons
are: Koutons men’s wear, Les Femme, Koutons Junior and Charlie
Outlaw.

FOOTWEAR

In 2007, the footwear segment had a 1.1 percent share in the total
retail market and was valued at Rs 160 billion while it had a 9.9 percent
share in the organised market and was valued at Rs 77.5 billion. In the
same year the organised footwear market recorded a fantastic growth of
49 percent over 2006 while the overall retail market grew by just 16.4
percent. The changes in consumer behaviour and attitudes reflected in the
increasing demand for newer styles and different types of footwear. The
market currently offers many brands that cater to every target segment.
The Indian footwear market is moving at a brisk pace presently to cater
to the domestic demand. Moreover, the influx of international brands is
inducing the otherwise price-conscious customers to shell out more bucks
for their favourite brands.

The footwear market is experiencing a changing consumer

preference for casual and younger style due to media penetration and due
to the increasing awareness about international trends and lifestyle. There

[264]
already are a large number of players, both domestic and international, in
the semi-formal, formal and casual segment but the casual segment
dominates the Indian footwear market with a 75 percent share. Branded
sportswear is also growing at a faster rate than the other segments and the
key players in this segment are Adidas, Reebok, Nike, Puma et al.5

Few Footwear Retailers

1. Reebok: In 1995, Reebok forayed into the Indian retail market. Today
Reebok is one of the frontrunners in the Indian sports wear industry.
Reebok’s offerings include apparels, footwear and fitness equipment and
products. Its footwear offerings are mostly in the trainers and sneakers
segment. Reebok recently has introduced its new lifestyle vertical
Reebok Classic.

2. Bata: Bata India is one of the most well-known and largest footwear
retailers in India. The retailer manufactures and markets different types of
footwear that includes rubber, canvas, leather, and plastic footwear. It
markets footwear under the brand names of North Star, Power,
Ambassador, and Marie Claire besides dealing in international brands
like Dr Scholl and Hush Puppies. Bata has a strong distribution network
structure of wholesalers and distributors.

3. Khadim’s: Khadim’s forayed into footwear retailing in 1993 and is

one of the most renowned retailers in east India. Khadim’s markets its
own products besides few others and specialises in women’s and
children’s footwear. The retailer has a presence in multi-brand outlets
(MBOs) across the country in addition to its own exclusive outlets.

[265]
Home and Office Improvement in Retailing

In 2007, the home and office-related retail segment was valued at

Rs 455 billion in the total retail market while it was valued at Rs 50
billion in the organised retail market. In the same year the segment had a
6.4 percent share in the organised retail. Home and office improvement is
another important segment of the organised retail as people have started
spending more on discretionary items. Presently the segment is growing
at an impressive rate. Due to the salary hikes and rise in the double-
income households, the lifestyle needs of the young and flourishing India
are surging and consequently, consumers are going for renovation of
their homes. The concomitant rise in investments in furniture, home
accessories and furnishings, has added to the segment’s boom.

Few Home and Office Improvement Retailers

1. Godrej Life space: On Apr 1, 2003, Godrej & Boyce Manufacturing

Company Ltd launched a new retail division. The division was
established to present a new concept in retailing by displaying and selling
under one roof the Godrej range of home and office furniture, appliances,
security equipment and locks. Later in 2005, the showrooms were
branded as Godrej Life space Stores.

2. Home Stop: Home Stop is one of the premium home improvement

stores that offers a wide range of merchandise. It stocks various national
and international brands that cover all the home needs like home décor,
furniture, bath accessories, draperies and health equipment. Home Stop
currently operates three Home Stop stores, one each in Mumbai,
Bangalore and New Delhi.

[266]
3. Home Town: Home Solution Retail (India) Ltd (HSRIL), a subsidiary
company of Pantaloon Retail, is designed to cater to the home furnishing
and improvement market. The format is designed as a one-stop
destination that offers a complete range in consumer electronics, furniture
and other home products. HSRIL operates five retail formats: Collection-
i, Furniture Bazaar, Electronics Bazaar, Home Town and e-zone.

Electronics

In 2007, the electronics segment had a 4percent share in the total

retail segment and was valued at Rs 575 billion while it had a 9.1 percent
share in the organised electronic retail segment valued at Rs 71 billion.
The electronics market has seen a proliferation of brands and product
categories in recent years. All international brands from Japan, Korea, the
US, Europe and China have been launched in India and have been trying
to build a pan-India dealer network. The lifestyle category has seen
higher growth in India on the back of changing consumer preferences and
a consumption boom.

Few Electronic Retailers

1. eZone: eZone is an electronics specialty retail format from HSRIL by

Kishore Biyani-led Future Group. The first eZone store was launched in
2006 in Indore and was followed with a second one in Bangalore. eZone
offers a range of personal products like computers, laptops, handy cams,
MP3 players and mobile phones, entertainment products like
plasma/LCD, flat TVs, home theatre systems, DVD players, and
stereosystems, home products like refrigerators, air conditioners, washing
machines and microwave ovens, among other kitchen appliances.

[267]
2. Viveks: In 1965, B A Lakshmi Narayana Setty founded Vivek’s in a
200-square-feet-shop in Chennai. Today Viveks is one of the largest
consumer electronics and home appliances retail chains in India. Viveks
Ltd is a public limited company that runs two retail brands – Viveks and
Jainsons. The store was transformed into a public company from a
family-run company when 14 stores of Jainsons were bought over in
1999. Later on in 2001 two stores of Premier and in 2002 Spencers Super
Store were purchased. Viveks has recently absorbed Spencer’s into the
Premier brand. Viveks grew from three stores in 1995 to more than 35
stores as on Dec 2008.

Catering Services

In 2007, the catering service in organised retail showed a

tremendous growth of 44.7 percent over the previous year. It was valued
at Rs. 713 billion in the total retail market and at Rs 57 billion in the
organised retail market. The catering services market is divided into fast
food, cafes and restaurants and others. India is a buoyant market for this
segment with over a billion people with different food habits, religious
festivals, and various regions. Each region has its own traditional food,
dietary habits and its own food specialities. In recent times many
international food chains have entered India, which has made this
segment more dynamic and its growth, fast-paced. The key growth
drivers of the segment in India are: the changes in Indian demographics,
young working population, nuclear families, rise in double-income
household etc.6

[268]
Few Catering Service Retailers

1. Yum! Restaurants: Yum! Restaurants are present in India through its

brands Pizza Hut and KFC. In 1995, KFC, which mainly serves chicken
products, set foot in India. After taking into account the vegetarian
population of India, KFC recently modified its menu and launched a
vegetarian fare, which now constitutes 40 percent of the product
categories. Pizza Hut entered India in 1996 and as on Dec 2008, there
were 147 Pizza Hut and 45 KFC stores across 35 and 14 cities,
respectively.

2. McDonald’s: McDonald’s is a 50:50 joint venture partnership in India

between McDonald’s Corporation (USA) and two Indian businessmen.
Hard castle Restaurants Pvt. Ltd owns and operates McDonald’s
restaurants in West India while Connaught Plaza Restaurants Pvt. Ltd
owns and operates these food outlets in the North.

3. Café Coffee Day: Café Coffee Day is a division of India’s largest

coffee conglomerate Amalgamated Bean Coffee Trading Company. Café
Coffee Day sources coffee from 5,000 acres of estates and is the second-
largest coffee shop in Asia. It has ventured into formats such as music
cafes, book cafes, highway cafes, lounge cafes, garden cafes and cyber
cafes.

Telecom

In 2008 the telecom market in India was worth Rs 272 billion and
had a 1.8 percent share in the total retail market while it had a 3.4 percent
share in the organised retail segment and was valued at Rs 27 billion. The
mobile and accessories segment exhibited tremendous growth in 2007.
The Indian telecom sector emerged as the second-largest wireless
network in the world after China with the recent spate in number of
wireless subscribers.

[269]
Few Telecom Retailers

1. The Mobile Store: The Mobile Store, promoted by the Essar Group, is
one of the country’s largest mobile retailers. It’s a one-stop mobile
solution shop that offers telecom products like mobiles, accessories,
mobile connections and recharges, mobile bill payments, handset repairs,
handset exchange, music and gaming devices and DTH, all under one
roof, in a world-class shopping ambience. The shop had more than 1,300
stores spread across 200 cities as on Dec 2008.

2. MobileNXT: Bangalore-based MobileNXT Teleservices Pvt. Ltd has

a pan-India presence and operates in the following three major retail
formats: standalone stores, store-within-a-store, and enterprise stores.
This store is eyeing a pan-India network and hence has initiated a tie-up
with Shoppers Stop, Star Bazaar, Mega Mart, and Landmark stores, for
setting up store-within a- store in their outlets across the country. As on
Dec 2008, the company was operating more than 36 stores that were
spread across major cities in India.7

Pharmaceuticals

In 2007, the pharmaceuticals market had a 3.5 percent share and

was valued at Rs 488 billion in the total retail market; however, its share
in the organised retail market accounted for merely 2.0 percent share at
Rs. 15.4 billion during the same period. The organised pharmaceutical
retailer is known to implement innovative concepts and global standards
to provide customers with an experience that is completely different from
what an unorganised retailer offers.

[270]
Few Pharmaceutical Retailers

1. Apollo Pharmacy: In 1983, Apollo Pharmacy, a division of Apollo

Hospital Enterprise Ltd, entered retailing by opening up its first store in
Chennai. The retailer also took initiatives to provide medicines to the
rural regions by tying up with ITC’s e-choupal and Godrej Aadhaar.
Apollo has also started expanding through the franchise route. It has
recently launched a new concept, Nurse Station, at its pharmacy outlets,
where the nurses are available to attend the patients at their houses, or
refer them to an Apollo Clinic nearby. As on Dec 2008, Apollo was
operating at over 890 outlets across the country.

2. MedPlus: In 2006, Med Plus Health Services Private Ltd was

incorporated in Hyderabad to cater into the health care segment. The
company has established a large number of pharmacy outlets chain across
major cities in various states of the country, and are majority of those are
spread across four southern states. It has over 600 pharmacy outlets
spread across 63 cities/ towns in the country.

Beauty and wellness

In 2007, the beauty and wellness segment grew at a tremendous

rate of 65 percent over the previous year in the organised retail market.
Its share in the total retail market, however, was just 0.3 percent and was
valued at Rs 46 billion. In the organised market, the segment showed
tremendous growth due to the rise in service sector employment.

[271]
Few Beauty and Wellness Retailers

1. Reliance Wellness: In Oct 2007, Reliance Retail Ltd, owned by

Mukesh Ambani, entered the beauty and wellness segment by opening its
first store at Hyderabad. This store offers a wide range of products under
the health foods, personal care, healthcare, and pharmaceuticals
categories.

2. Himalaya Drugs: The Himalaya Drug Company operates both

exclusive retail outlet formats and shop-within-a-shop outlets. The stores
offer an entire range of Himalaya drugs from pharmaceuticals, personal
care, to baby care and animal healthcare products at competitive prices.
The company emphasises on service, trained personnel and a quality
shopping experience in their stores. Himalaya has also launched its
online shopping website to make all its products conveniently available
to its customers 24/7 and to reach a wider market, where its stores are not
present.

Jewellery

In 2007, jewellery retail was worth Rs 694 billion and accounted

for 5percent of the total retail market. In the organised retail market,
jewellery retail merely had a 2.9 percent share at Rs 23 billion. In the
same year jewellery retail in the organised retail market recorded high
growth of 36.9 percent over 2006 as compared with 15.3 percent
recorded in the total retail market.

Few Jewellery Retailers

1. Gitanjali: Gitanjali Gems Ltd (GGL) is one of the largest, integrated

diamond and jewellery manufacturer and retailer in India. It sources

[272]
rough diamonds from primary and secondary source suppliers in the
international market, cuts and polishes the rough diamonds and exports
the diamonds to its international markets. GGL sells diamonds and other
jewellery through retail operations in India as well as in international
markets. Its brand extensions include Gili, Asmi, Sangini, D’Damas,
Giantti, Nakshatra, Collection G, Gold Expressions, Vivah Gold & Kiah.

2. Tanishq: In mid-1990s Titan Industries Ltd - promoted by the TATA

Group - entered jewellery retailing through Tanishq. Tanishq has set up
production and sourcing bases by researching the jewellery crafts of
India. Its factory, located at Hosur, Tamil Nadu, is spread across 135,000
square feet and is equipped with all modern machinery and latest
equipment. As on Dec 2008, there were 115 Tanishq stores spread across
major cities in India.

3. Reliance Jewels: Reliance Retail Ltd entered jewellery retailing by

opening its first store in Bangalore. The company aims to make Reliance
Jewels a one-stop destination that offers consumers a wide range of gold
and diamond jewellery.

Time wear

In 2007, the Indian watches market enjoyed a 2.9 percent share in

the overall organised retail market as compared with merely 0.3 percent
in the total retail market. The market size of the watch market was valued
at Rs 44 billion in the same year. The size of this market has expanded
due to the changes in consumer preference and the growing market for
international watches in India. International players like Tag Huer, Rado,
Omega, and Rolex have even signed up Indian celebrities as brand
ambassadors to tap the market.

[273]
Few Time wear Retailers

1. Citizen: Citizen has 38 exclusive outlets in 27 cities across India. The

Exclusive Branded Outlets (EBOs) called First Citizen house the latest
international range of Citizen Watches and display over 800 different
watches. Besides, Citizen Watches are also available at Lifestyle,
Shoppers Stop and more than 250 Citizen Corners across the country.

2. Titan: Titan is one of the largest manufacturers of watches in India. It

offers product ranges that include the flagship brand Titan, Edge,
Fastrack, Nebula, Raga, Steel, Regalia, Flip, Sonata, which is available in
Titan and exclusive Sonata stores. As on Dec 2008, there were 245
exclusive Titan showrooms (World of Titan) across 122 Indian cities in
India.

Books, Music and Gifts

Books, music and gift retailing were the earliest segments that
witnessed a consolidation of business into organised formats. The
combined share of this segment was 1.1percent of the total retail market
at Rs 164 billion in 2007. Organised retailers like Planet M, Music
World, and Landmark dominated the music segment. Archies, a
prominent gift retailer, has a presence on both high streets as well as in
malls.8

The books and publishing business continues to thrive due to

greater literacy levels and rapidly growing middle class and higher
middle class population, English-speaking middle-class population.
Moreover, new format chains like Crossword, Landmark, Oxford, and
now, Odyssey, that fit into the leisure aspirations of people, are located

[274]
conveniently, and offer an ambience conducive to browsing and book
buying. As a result, the segment has been growing further.

Crossword: Crossword was established in Oct 1992, is India’s leading

bookstore chain and a wholly-owned subsidiary of Shoppers Stop Ltd.
The company sells books and other products under the Crossword brand.
Crossword sells a wide variety of products like magazines, CD ROMs,
music, stationery and toys apart from books. Crossword provides
customers with cafes, reading tables and cloak facilities at each of its
outlets. Crossword customers can also shop for books using dial-a-book,
fax-a-book and email-a-book facilities offered by the company. Its other
services include gift vouchers, apart from the return, exchange & refunds
policy being followed by the company. Crossword bookstores are
presently located in Mumbai, Bengaluru, Ahmadabad, New Delhi, Pune,
Nagpur, Vadodara, Kolkata, Chennai, Jaipur and Hyderabad.

Entertainment
In 2007, the entertainment segment was worth Rs 456 billion and
had a 3.2percent share in the total retail industry. This segment has been
driven by the increasing base of young population in India, whose
entertainment needs has been surging with the influx of malls and
multiplexes that provide leisure retail, gaming, and cinema. Players in the
segment are likely to gain greater market share as the consumer spend on
entertainment is increasing. PVR cinemas, Fun Cinemas, Inox are the
major players in the entertainment retailing space.

[275]
Overview of formats/channels
The Indian retail industry is categorised into different retail
formats on the basis of the retail operation. The formats are basically
defined on the basis of the size of the outlet, the pricing strategy
followed, the type of merchandise sold, and also the location. Given
below is a list of formats on the basis of the above-mentioned
characteristics:

1. Hypermarkets: Hypermarkets are big-box formats with an average

size that ranges between 60,000-120,000 square feet, and they stock
multiple lines of products such as food and grocery, general merchandise,
sports goods, and apparels. Hypermarkets are mammoth outlets that are
fewer in number but cater to a larger area (3-5 kilometer). Hyper CITY,
Big Bazaar, RPG Spencer’s and Shoprite Hyper are some major players
in this format.

2. Supermarkets: The average size of supermarkets range from 10,000-

30,000 square feet. They are a smaller version of hypermarkets that holds
multiple lines of merchandise but is limited in number when compared
with supermarkets. Supermarkets are spread across the city, are greater in
number, but cater to a smaller area (1-2 kilometer). Food world, Food
Bazaar and Spinach are some major players in this format.

3. Convenience stores: Convenience stores offer easy purchase

experience through easily accessible store locations. The stores are
basically small in size (500-3,000 square feet), which allows quick
shopping and fast checkouts. Subhiksha and Reliance Fresh are some
major players in this format.

[276]
4. Cash-and-carry outlets: Cash-and-carry outlet is strictly not a retail
format, but considering the business dynamics it follows it can qualify for
a retail format. In a retail business usually a consumer has to purchase
one or more products but under this format, the consumers have to buy a
minimum volume of products or value specified by the cash-and-carry
retailer. In this format the buyers are basically small retailers or catering
service providers who purchase in bulk quantities. This stores’ size
ranges from 100,000 square feet to 300,000 square feet. At present,
Metro is a major player that falls under this format. Wal-mart’s alliance
with Bharti and Tesco’s with Trent will also come under the cash-and-
carry format.

[277]
5.4 Foreign Direct Investment Scenario in India

In 1991, the Indian government introduced the economic policy to

attract foreign investments and since then, it has amended the policy from
time to time in various sectors to allow higher levels of foreign
participation. The government policy in retail sector allows 100percent
foreign investment in wholesale cash-and-carry and single-brand retailing
but prohibits investments in retail trading. In 1997, the government
imposed restrictions on FDI in retail sector but in 2006, these were lifted
and opened in single-brand retailing and in cash-and-carry formats.

The cash-and-carry business is the easiest mode of entry for

foreign retailers into India. Many global players like Metro and Shoprite
have already entered the market. Wal-mart has forged an alliance with
Bharti for a cash-and-carry business, and Bharti is concentrating on front-
end retail. Similarly, Tesco has entered India through an alliance with
Trent (Tata Group). Apart from investing in the cash-and-carry business,
Trent will also support the back-end activities of Trent Ltd.

Many foreign brands have also entered India either through JVs
with leading Indian retailers or through exclusive franchisees to set up
shop in India. Louis Vuitton, Marks & Spencer Plc, GAS, Armani are
some such operators who have entered India through JVs. McDonald’s,
KFC, and Domino’s are the retailers who have taken the franchise route.

Slowly the government is opening up to the idea of permitting FDI

in the Indian retail sector; consequently there is greater momentum in the
sector. Last year, owing to the global meltdown, investments dropped in
all sectors. The government has therefore changed the guidelines for
foreign investments to boost investments in the current year. This move
is certainly likely to improve the investment climate in the Indian retail
space.9

[278]
Growth Drivers

Currently, organised retail is in a nascent stage of growth in India

as it just has a 5.9percent share in the total India retail trade. However, in
recent years, organised retailing has been growing at a robust rate due to
rise in the number of shopping malls as well as in the number of
organised retail formats. The key factors of growth of organised retail in
modern India are discussed in the following pages.

Rising Disposable Income of Indian Middle-Class

The Indian middle-class can be categorised into seekers and

strivers, which is the consuming class and the prime target segment for
retailers in India. In 2005, these two categories together constituted
around 6.4 percent of total households in India but accounted for 20
percent of the disposable income. By 2015, the middle class is expected
to constitute around 25 percent of total households and account for
44percent of the total disposable income, and by 2025, the respective
figures are likely to go up to 46 percent and 58 percent. The Indian
middle-class population and their growing disposable income levels will
drive the future growth of organised retail in India.

Changing Consumer Preferences and Shopping Habits

The prime reason for a paradigm shift in the shopping attitude of

the Indian consumer is the change in their preferences and tastes. Due to
the increasing use of IT and telecom, Indian consumers have become
aware of brands and shops for lifestyle and value brands according to the
need and occasion. Consumers will continue to drive the growth in the
organised retail by expanding the market and compelling retailers to
widen their offerings in terms of brands and in terms of variety.
[279]
 Chart No:-5.3

Consumption of Essential Commodities

Source: - Central Statistical Organization (CSO (2010)

The spending on essential commodities has been steadily falling

over the years, whereas the consumption of discretionary products has
been growing at a healthy pace. If the composition of PFCE is studied,
one can notice that the share of food, beverages and tobacco in the total
Private final consumption expenditure PFCE has declined from 53.0
percent in FY 90 to 42.2 percent in FY 08. On the other hand, the share
of communication, entertainment, personal care consumption has been
rising over the years. Changes in lifestyle have brought about a paradigm
shift in consumption, which will undoubtedly continue to drive retail
growth in segments like beauty, healthcare, telecom, and entertainment.
Moreover, the rising reach of media coverage is increasing consumer
awareness about products, their prices and services, which is likely to
further encourage growth in the organised retail segment.
[280]
Changing demographics

India is one of the youngest and largest consumer markets in the

world with a median age of around 25 years, which is the lowest as
compared with other countries. According to estimates, India’s median
age would be 28 by 2020. It is expected that over 53 percent of the
population will be under the age of 30 by 2020, which means that the
potential for the Indian retail segment will be enormous. Another plus
about this population is that they will be more dynamic than the previous
generations because their consumption is driven by wants rather than
needs. Thus, the organised retailing, which thrives on lifestyle products,
is expected to receive a boost because of the young population by 2020.

[281]
 Chart No:-5.4

Comparative Median Age In 2008

Source:-US Census Bureau, D&B Research

Increase in Working Population

India is the second-largest country in the world in terms of

population, and is the largest consumer markets in the world owing to its
favourable demographics. In 2008 India’s working population (in the 15-
49 years age group) constituted around 25 percent of the population as
compared with 39 percent in the UK, 36 percent in the US, and 38
percent in Russia. Further, the increase in the number of working women
has fuelled the growth in sales of discretionary items. There has been a
20 percent increase in the number of working women in the last decade.1

[282]
 Chart No:-5.5

India Population Pyramid 2008-2020

Source: - US Census Bureau (2010)

Spurt in Urbanization

Historically cities and towns have been the driving force of overall
economic and social development. Currently over 335 million people of
India reside in cities and towns, which translates to around 30 percent of
the total population. The rapid growth in urbanisation has facilitated
organised retailing in India, and has caused the speedy migration of
population into major tier I and tier II cities, which have a significant
share in the retail sales of the country.

[283]
 Chart No:-5.6

PERCENTAGE OF URBAN TO TOTAL POPULATION

Source: - Census of India (2011) Note: - * Estimated

The urban population’s contribution in India’s GDP shot up from

29 percent in 1951 to 60 percent in 2001 and is expected to increase to 70
percent by 2011, as migration to cities and towns grows rapidly in
anticipation of higher income opportunities provided by these epicenters.
Moreover, the continuous development in urban areas has invariably
attracted substantial inflows of capital both from domestic and foreign
investments have led to the transition of urban areas. As the Indian
organised retail is mainly concentrated in the urban areas, its growth
(urban areas) is imperative for the organised retail in the country.

Notably, the urban areas are India’s growth centres and they are
growing rapidly over the last couple of years as compared to the world
average as well countries like Brazil, the US and UK among others. For
instance, during 1995-2000, annual urban growth in India was 2.35
percent as compared to the world average of 2.07 percent. Furtherance,
the annual urban growth in India would touch 2.6 percent during 2020-
25, while globally it would fall consistently to reach 1.6 percent, China

[284]
1.36 percent from 3.1 percent during 1995-2000, followed by Brazil to
0.82 percent. Though, percentage of urban population to total population
in India (29 percent) is comparatively quite low against the world
average (48.6 percent), as well as countries such as Brazil (84 percent),
China (40 percent), the US (81 percent) and Russia (73 percent), it is
however noticeable that total urban population in India was far more than
the total population of the entire US in 2005 and by 2025, it is expected
that India’s total urban population would constitute around 6.7 percent of
the total world population. This would undeniably emerge as the India’s
largest market for organised retail, and therefore the challenge for the
retail players to leverage the full potential of flourishing urban areas.11

Chart No: - 5.7

Urban Population Annual Growth Rate

Source: United Nations World Urbanisations

Furthermore, due to the rapid infrastructure development in major

tier I, II and III cities, many rural inhabitants are attracted to cities, which
increase the urban per capita income and in turn offers unbound
opportunities for the organised retail segment. Increased globalisation has
also played a big role in the development of urban areas.
[285]
5.5 Retail Investment

Investments in the retail sector have improved since FDI has been
allowed in single-brand and cash-and-carry formats. According to the
Technopak estimates, investments in the organised retail will touch US$
35 billion in the next five years or so. Investments allow organised
players in retail to expand at a very high rate. All key retailers in India
have expansion plans over the next 3-4 years; for instance, Pantaloon has
an ambitious expansion plan to take its retail space up to 30 million
square feet by 2011. Likewise, Vishal Retail is expected to take its total
store count to 500 with an estimated retail space of around 10 million
square feet by 2011.

[286]
5.6 Availability of Quality Real Estate

According to industry sources, mall space in India has grown from a

meagre 1.0 million square feet in 2002 to about 57.3 million square feet
by the end of 2008; tier I cities are expected to account for around 73
percent of the mall space and the rest is likely to be equally divided
between tier II and tier III cities.

The organised retail sector in India has been witnessing various issues
and challenges which are proving to be a hurdle for its fast-paced growth.
Even though the organised retail sector is in a very nascent stage in India,
it provides ample opportunities for retailers, and mitigation of a few
challenges will help the sector attain higher economies of scale and
growth. Elucidated below are the challenges and risks that the sector
faces:

• Global economic slowdown

• Competition from the unorganised sector
• Retail sector has no recognition as an industry
• High real-estate costs
• Lack of basic infrastructure
• Supply-chain inefficiencies
• Challenges with respect to human resources
• Margin Pressure

[287]
5.7 Competition from the Unorganized Sector

Organised retailers face immense competition from the

unorganised retailers or kirana stores (mom-and-pop stores) that
generally cater to the customers within their neighbourhood. The
unorganised retail sector constitutes over 94 percent of India’s total retail
sector and thus, poses a serious hurdle for organised retailers. If put
numerically, the organised retailers are facing stiff competition from over
13 million kirana stores that offer personalised services such as direct
credit to customers, free home delivery services, apart from the loyalty
benefits. During the current economic slowdown, the traditional kirana
stores adopted various measures to retain their customers, which directly
affected organised retailers. Generally, it has been observed that
customers shop impulsively and end up spending more than what they
need at organised retail outlets; however, in kirana stores, they stick to
their needs because of the limited variety. During a downturn, many
customers may not like to spend more as is evident from the past few
months’ trend that shoppers are increasingly switching from organised
retail stores to kiranas.12

[288]
 Organized Retailers Still Insignificant Players?

The organized sector, identified as malls/multiplexes/

supermarkets is still at a nascent stage, and is unlikely to prove a threat to
the unorganized sector for many, many years to come. The retail segment
itself is growing so fast that it will absorb any fresh additions to the
supermarkets very easily, and the unorganized sector will still continue to
grow. Even currently, the organized segment constitutes a very modest 7-
8 percent of the overall retail market. This alone proves that there is a
long way to go for organized retail, before it can even present itself as an
alternative to small traders.

Besides there are a number of reasons which clearly vouch for the fact
that India will continue to be dominated by small retailers for a long time
to come. Such as -

Even the biggest of domestic players in organized retail lack the

muscle and resources to cater to significant proportion of Indian
population. It takes a lot of time and money for an organized
retailer to show decent profits in Indian situations, and the weaker
ones will continue to fall by the wayside – remember Shubhiksha.

Ø The bulk of future growth in retail will come from rural population,
which is a segment that organized retailers will not be able to cover for a
number of reasons – poor infrastructure, operational difficulties, and
remoteness of markets and the sheer size of the Indian market.
Ø Peculiarities of the Indian customers, which make it a very
‘unpredictable’ lot. Even for a large section of able and affluent buyers,
malls are mostly for ‘hanging out’ and family outings – purchasing is
still done at the friendly neighborhood kirana store. And however much
marketing gurus like to tout the “changing mindset” and the “increased
[289]
 purchasing power” of the Indian customer – the truth is – she still feels
that supermarkets/malls are expensive.
Ø The biggest draw for organized retail all over the world has been an
innovative format – called the discount stores. These stores sell grocery
items at hugely discounted prices, for the simple reason that high
margins make such a move possible. In India, the margins are already
wafer thin, even at the retailers level. Therefore, supermarkets will find
it very hard to attract customers on the price front – unless they are
ready to bear huge losses for a long, long time.
Ø Despite of what the media and business leaders want us to believe, the
average Indian customer has very limited purchasing capacity. Even the
affluent buyers are not profligate spenders – we Indians love to extract
maximum ‘value for money’. Purchasing at the local kiranawalla gives
us valuable opportunity to bargain!
Ø Most important of all, the smaller retailers, shopkeepers and kiranawallas
are learning very fast, and are willing to provide exceptional customer
service at no extra cost. For example, my residence is about the same
distance from the nearest supermarket, and the nearest kirana store. I
have to make a phone call to the kirana shop, and the delivery boy will
reach my place within 10 minutes, even if I order goods worth Rs 50. On
the other hand, the supermarket “undertakes to home deliver all
purchases above Rs 2000 within 24 hours of purchase, within two
kilometers!”13

[290]
5.8 Share of Organised Retail Sector in Total Market
The organised retail sector in the country, which presently
accounts for close to 4 percent of total market, will increase its share to
over 30 percent by 2013, according to estimates by an industry
body."The organized retail sector with emergence of new store formats is
recording phenomenal growth and will completely revolutionize retailing
over next 3-4 years," said the study brought by the Associated Chambers
Of Commerce and Industry (ASSOCHAM).As per estimates made by
ASSOCHAM, the organized retail in urban market is expected to grow at
the rate of 50 percent to reach a value of 30 percent of the total retail
market in India. It added that currently, the rural organized retail in India,
which is at nascent stage at present with hardly a value of 2 percent of
total organized retail, is expected to grow over 10 percent by 2013. The
study added that the changing structure and scale of retail will critically
impact several industries immediately – the retail industry itself,
manufacturing, real estate and in the long term, cascading effects will be
felt on tourism, information technology and others. Releasing its
findings, ASSOCHAM President Swati Piramal said that impact on brand
management and advertising will be huge, even as professionals in sales,
marketing, merchandising and promotions will have to cope with radical
changes. "Through backward and forward linkages, growth of retailing
impacts the performance of interlinked sectors such as tourism,
manufacturing of consumer goods, recreational and cultural services and
agro-based industries," she added. The study also pointed out that
retailing in India is characterized by a high degree of fragmentation with
street markets and convenience stores (kiranas) accounting for more than
96 percent of retail business. There are over 10 million outlets, 96 percent
of them are very small with an area of less than 50 sqm. It noted that the
key market drivers, which will fuel retail growth, will include rapid
[291]
economic development of the India economy. "Consumers are
increasingly becoming brand conscious due to greater exposure to
western lifestyle and are another key target for retailers, the study said.
With rising income levels, contribution of Indian middle class to retail is
likely to increase from existing 20 percent now to over 30 percent in next
3 years. "Consumers in this segment are likely to spend a greater part of
their incomes on further upgrading and diversifying their lifestyles and
moving to higher margins under the age of 25 years. It is anticipated that
close to 50 percent of their income would go towards retailing in this age
group in future," the ASSOCHAM study estimated. Commenting on the
findings of the study, which viewed that the brand savvy urban
population is likely to derive demand for lifestyle products such as
perfumes, jewellery and watches, the ASSOCHAM chief said,
"Therefore, growing consumerism will be a key driver of over-all retail
growth in India." The study mentioned that retail in India comprises
various segments of which food and grocery is the biggest accounting for
around 75 percent of total retail trade. In contrast, it said, food and
grocery accounts for minuscule proportion of organized retail
penetration. "While traditional street markets and kiranas remain the
dominant formats, the assault by major retailers like Reliance and Tata
into the sector will help to boost the share of sales through the organized
route,"14

[292]
5.9 Retail Revolution Impacting Our Food Industry

Organised retailing is still in a very nascent stage. With Wal-

Mart’s entry and Reliance Group’s foray into the retail business things
are going to be different now on. We can therefore say that retail
revolution in India is about to begin. The left parties in the UPA
government have started making noises and expressing concerns over the
repercussions of entry of such big giant in the world of retailing.

However, we should not think that these small retailers eventually

will have to perish and will be thrown jobless or will lose their
livelihood. It is not going to be so if they are enterprising and agree and
most importantly act to play a different role in the new value chain.
Essentially there are two different kinds of roles that these traders will
have to play. One, to become a franchised outlet in those localities where
they are operating now. But this will be possible for those who own a real
estate which meets the criteria of the big organized retail players or have
the ability to invest to create new facilities. The other possibility for them
is to become sourcing agents and quality inspectors for large players after
taking the necessary training. There will be opportunity for those who
can invest large fund to create storage and warehouse and packing
stations for the Wal-Mart and Reliance. Of course, these possibilities are
not going to cover all small retailers who earn their daily livelihood from
whatever they sell from their shops. But they will still remain. India is a
vast country and Wal-Mart and Reliance will not be able cover all such
small pockets of market. The new role has to be played by at least those
reasonable size retailers in metros, cities and towns. Because these local
retailers will not have any value proposition for the consumers, they will
not be able to provide ambience to make shopping pleasurable nor can
they offer lower price than what Wal-Mart and Reliance will offer.
[293]
Besides, the variety of merchandise in orgainsed retailing will be more
where each customer will be treated with grace to make him or her feel
important. Why then customers will go to these small outlets? There is
going to be a need of huge trained work force to work in these retail
outlets. Some institutions are already come up for providing those
training to simple graduates and non-graduates to be ready for working in
organized retail outlets where customer care is an important part of their
business. Business Schools have started offering programme on retail
management. I have been asked by my publisher to immediately write a
book on Retail Management. The impact of the retail revolution is going
to be very positive in our economy. In processed food industry small and
new players will be able to find ways to place their products in these
stores by producing store label brands for them. This will also help them
to sell their products abroad through say Wal-Mart itself. Processed food
industry should therefore welcome this new development. Everything is
going good for them. Food processors should quickly line up to capture
this new opportunity. Reliance Chairman Mr. Mukesh Ambani has said
that our country is too big and thus there is a room for them also to play
their part. This is true. There is no reason for other organized players in
retail to get panicky about Wal-Mart entry because they have other global
and successful players to tie up with. And lastly Wal-Mart is not the last
word. Even they also failed. After losing money for consecutively for
eight years in Germany to the local players and incurring huge loss Wal-
Mart had withdrawn couple of months ago from German market. Who
knows Reliance and other established local players can put up a good
fight against Wal-Mart and outsmart Wal-Mart as well in terms of
performance. Only advantage that Wal-Mart have is that they are the
biggest and they know the game better than anyone else.15

[294]
5.10 Small Store Format is Still the King

Retail trade in India is valued at $ 300 billion and is the second

fastest growing market in the world. The industry comprises of 7 million
small stores; a larger number of which are situated in rural India (4
million).

Not just in terms of number of stores; rural India is also fairly

developed in categories like Shampoos and Washing powders – where it
accounts for almost 40-50 percent of the category off take in volume
terms.

Most of these stores are the over the counter – mom and pop stores
– run by the owner. Such stores account for 98 percent of the retail trade
value; the much touted Modern Retail run by the who’s who of corporate
India – Reliance, Bharti, Pantaloons, Aditya Birla group – all put together
are not even 2 percent of the trade. And if 2008 was any yardstick, they
are all struggling to increase top line sales.

Some of the retail chains like Subhiksha and Spencers (RPG

owned), who started the year with a bang, have ended it with a whimper
with most FMCG companies asking their distributors to go slow on
invoicing to these customers as they fear bad debts. Only retailer who has
tasted some measure of success is the Kishore Biyani led – future retail –
with its Big Bazaar chain. The much hyped Bharti-Walmart alliance is
still in the lab mode, with just 12 stores in Punjab trying to get their
model right before expanding any further.

With the small store mom and pop format, most FMCG companies
have seen their sales grow in India. This is despite an otherwise gloomy
economic environment in India and the world.
[295]
 Given the performance and potential of the India retail market; it
continues to be top priority for most FMCG companies. But in order to
win in this market, it’s important to keep winning in the small store
format and in Rural India. As that is where most of the category growths
will come from. The challenge is that it is expensive to serve these
markets; given their low thru-put. Lets now see how 2009 fares for the
FMCG industry and the retail trade in India. For now the small store
format still rules. For the 2 percent Modern retailers; they have to first
look inwards and sort out the mess they are in; before they can look to
serve the shoppers better.

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5.11 Impact of Shopping Malls on Small Retailers- ICRIER
Report 2011

The real GDP is expected to grow at 8-10 per cent per annum in
the next five years. As a result, the consuming class with annual
household incomes above Rs. 90,000 is expected to rise from about 370
million in 2006-07 to 620 million in 2011-12. Consequently, the retail
business in India is estimated to grow at 13 per cent annually from US$
322 billion in 2006-07 to US$ 590 billion in 2011-12.

• The unorganized retail sector is expected to grow at about 10 per cent

per annum with sales rising from US$ 309 billion in 2006-07 to US$ 496
billion in 2011-12.

• Given the relatively weak financial state of unorganized retailers, and

the physical space constraints on their expansion prospects, this sector
alone will not be able to meet the growing demand for retail.

• Hence, organized retail which now constitutes a small four per cent of
total retail sector is likely to grow at a much faster pace of 45-50 percent
per annum and quadruple its share in total retail trade to 16 percent by
2011-12.

• This represents a positive sum game in which both unorganized and

organized retail not only coexist but also grow substantially in size.

• The majority of unorganized retailers surveyed in this study, indicated

their preference to continue in the business and compete rather than
exit.16

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 Table No:-5.4
Sales Performance since the Start of Mall
Operations of the Selected Small Retailers

Sr. No of Small Percentage

Sales Level retailers
No of Total
1 Remained
the 102 26
same
2 Increased 48 12

3 Declined 250 62

Total 400 100

Source: - Field Survey 2010-11

The above Table No.5.4 highlights on the impact of shopping

malls on sales performance of the small retailers, it can be seen that 62
percent of small retailers has told that the sales performance has declined
with 26 percent of the respondents have said the business has remained
the same only 12 percent of the respondents have said that there sale
performance have increased.
1. Impact on Unorganized Retailers
• Unorganized retailers in the vicinity of organized retailers experienced a
decline in their volume of business and profit in the initial years after the
entry of large organized retailers.
• The adverse impact on sales and profit weakens over time.
• There was no evidence of a decline in overall employment in the
unorganized sector as a result of the entry of organized retailers.
• There is some decline in employment in the North and West regions
which, however, also weakens over time.

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• The rate of closure of unorganized retail shops in gross terms is found
to be 4.2 percent per annum which is much lower than the international
rate of closure of small businesses.
• The rate of closure on account of competition from organized retail is
lower still at 1.7 percent per annum.
• There is competitive response from traditional retailers through
improved business practices and technology upgradation.
• A majority of unorganized retailers is keen to stay in the business and
compete, while also wanting the next generation to continue likewise.
• Small retailers have been extending more credit to attract and retain
customers.
• However, only 12 percent of unorganized retailers have access to
institutional credit and 37 percent felt the need for better access to
commercial bank credit.
• Most unorganized retailers are committed to remaining independent and
barely 10 percent preferred to become franchisees of organized retailers.
17

2. Impact on Consumers
• Consumers have definitely gained from organized retail on multiple
counts.
• Overall consumer spending has increased with the entry of the
organized retail.
• While all income groups saved through organized retail purchases, the
survey revealed that lower income consumers saved more. Thus,
organized retail is relatively more beneficial to the less well-off
consumers.
• Proximity is a major comparative advantage of unorganized outlets.
• Unorganized retailers have significant competitive strengths that
include consumer goodwill, credit sales, and amenability to bargaining,
ability to sell loose items, convenient timings, and home delivery.
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3. Impact on Intermediaries
• The study did not find any evidence so far of adverse impact of
organized retail on intermediaries.
• There is, however, some adverse impact on turnover and profit of
intermediaries dealing in products such as, fruit, vegetables, and apparel.
• Over two-thirds of the intermediaries plan to expand their businesses in
response to increased business opportunities opened by the expansion of
retail.
• Only 22 percent do not want the next generation to enter the same
business.

4. Impact on Farmers
• Farmers benefit significantly from the option of direct sales to
organized retailers.
• Average price realization for cauliflower farmers selling directly to
organized retail is about 25 percent higher than their proceeds from sale
to regulated government mandi.
• Profit realization for farmers selling directly to organized retailers is
about 60 percent higher than that received from selling in the mandi
• The difference is even larger when the amount charged by the
commission agent (usually 10 percent of sale price) in the mandi is taken
into account.

5. Impact on Manufacturers
• Large manufacturers have started feeling the competitive impact of
organized retail through price and payment pressures.
• Manufacturers have responded through building and reinforcing their
brand strength, increasing their own retail presence, ‘adopting’ small
retailers, and setting up dedicated teams to deal with modern retailers.
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• Entry of organized retail is transforming the logistics industry. This will
create significant positive externalities across the economy.
• Small manufacturers did not report any significant impact of organized
retail.

Policy Recommendations by Indian Council for Research

and International Economic Relations (ICRIER)
On the basis of the results of the surveys and the review of
international retail experience, the study makes the following major
recommendations:
1. Modernization of wet markets through public-private partnerships.
2. Facilitate cash-and-carry outlets, like Metro, for sale to unorganized
retail and procurement from farmers, as in China.
3. Encourage co-operatives and associations of unorganized retailers for
direct procurement from suppliers and farmers.
4. Ensure better credit availability to unorganized retailers from banks
and micro-credit institutions through innovative banking solutions.
5. Facilitate the formation of farmers’ co-operatives to directly sell to
organized retailers.
6. Encourage formulation of “private codes of conduct” by organized
retail for dealing with small suppliers. These may then be incorporated
into enforceable legislation.
7. Simplification of the licensing and permit regime for organized retail
and move towards a nationwide uniform licensing regime in the states to
facilitate modern retail.
8. Strengthening the Competition Commission’s role for enforcing rules
against collusion and predatory pricing.
9. Modernization of APMC markets as modelled on the National Dairy
Development Board (NDDB) Safal market in Bangalore.18
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 Concluding Remarks:-

We can say that the 'kiranas' might have a layout and product
threat, but not under any business threat. Where the prices are concerned,
a consumer is motivated to buy more quantity of the goods and there is
an immense scope for impulsive shopping in the organized retail shops.
Eliminating the impulse shopping factor a consumer saves money in the
supermarkets as they offer best prices, however that is not what happens.
The consumers more or less end up doing an impulse purchase in the
alluring set up of these stores. Competition amongst these two setups
will in fact help expand the organized retail market. And of course the
consumers will take the final call.

1. Organized retailing in India is yet to get an industry status. The

consequence is quite obvious. 100% Foreign Direct Investment (FDI) is
not permitted in retailing in India. Ownership of retail chains is allowed
only to the extent of 49%. The Food World chain is one such venture,
with an ownership pattern of 51:49 between RPG and Dairy Farm.

2. The impact of shopping mall on small retailers shows that (as per
ICRIER REPORT 2011) the unorganized retail sector expected to grow at
about 10 percent per annum with sales rising from US$ 309 billion in
2006-07 to US$ 496 billion in 2011-12.the majority of unorganized
retailers surveyed in this study, indicated their preference to continue in
the business and compe rather than exit.

[302]
3. As per the field survey study is found that the impact of shopping mall
on sales performance of small retailers,it can be seen that 62 percent of
small retailers has told that the sales performance has declined and only
12 percent of therespondendents have said that there sale performance
have increased.
4. The study also found that the impact of shopping mall on farmers,can
be seen that farmers benefit significantly from the option of direct sales to
organized retailers.profit realization for farmers selling directly to
organized retailers is about 60 percent Higher than that received from
selling in the mandi.
5. In the concern of impact of shopping mall on consumer study revealed
that overall consumer spending has increased with the entry of organized
retail.while all income groups saved through organized retail
purchases,the survey revealed that lower income consumers dsaved
more.thus organized retail is relatively more beneficial to the less well off
consumers.
6. The unorganized sector has dominance over the organized sector in
India, especially because of the low investment needs. In India, organized
retailing is only 2% of total retailing of worth US$ 180 billion. This is
playing at multiple levels. For instance, the reason for low number of
discount stores in India is an effect of the dominance of the unorganized
sector.

7. The number of retail outlets in India is more than the number of outlets
in most of the other countries. Small size retail outlets dominate the
Indian scene. 96% of the outlets are lesser than 500 sq ft. The retail
chains of India are also smaller than those in the developed countries.

[303]
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