Industry Analysis - Retail

Abhinav Sirohi, NSC2

NITIE, Mumbai

Contents
Overview of Indian Retail
Evolution of Indian Retail
Indian Retail Market and its Value Chain
Modern Retail
Internet Retailing
Growth Drivers
Policy decisions on Retail
Challenges to Indian Retail

Overview(1/3)
Rising income and demand for quality
products to boost consumer
expenditure

Consumer expenditure estimated to

be USD3.6 trillion by 2025 vis--vis
USD1.0 trillion in 2010

Indian retail one of the fastest growing

markets in the world due to economic
growth

Retail market in India to reach

USD866 billion by 2015 from the
current USD516 billion

Favourable government policies to

boost investor confidence and thereby
investments across modern retail
formats

Modern retail market to expand to

USD88.3 billion by 2015 from
USD40.5 billion in 2012

Overview(2/3)
Robust consumption, rural markets to
augment FMCG market

FMCG market expected to increase

to USD100 billion by 2025 from
USD12 billion in 2006

Increasing participation from foreign

and private players to boost retail
infrastructure

Modern retail stores projected to

reach 67,100 by 2016 from 11,192
in 2006

Rising number of tier-2 and tier-3 cities

to enhance supermarket space in the
country

Supermarkets to total 8,500 by 2016

from 500 in 2006

Overview (3/3)
70% of the growth is expected
from urban centres and it will be
interesting to watch the
transformation of the urban retail
landscape
According to a study by the EIU
(Economist Intelligence Unit), India
along with China shall drive the
growth of the retail industry in the
APAC region

The Indian retail industry has experienced growth of 10.6% between 2010 and 2012 and is
expected to increase to USD 750-850 billion by 2015. Food and Grocery is the largest
category within the retail sector with 60 per cent share followed by Apparel and Mobile
segment.

Within the organized retail sector, Apparel is the largest segment. Food and Grocery and
Mobile and telecom are the other major contributors to this segment.

Slowdown effect ??
India falls nine spots in the GRDI
to 14th; its previous low ranking was
6th place in the inaugural Index in
2002, and it was first as recently as
2009.
The report highlights that
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growth of 14 to 15 percent
h
W per year is expected through 2015.
Modern retail remains limited (7
percent in 2012), but it is expected
to grow as the country urbanizes
and retailers make new
investments.

Evolution of Indian Retail

Value chain of Retail

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Shelf Filling
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Indian Retail Market

Unorganized Retail Market

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Organized Retail Market

Organized Retail
Both the share and growth rate of Organized retail is expected to have a accelerated
growth.

Evolution of Organized Retail

Evolution of Organized Retail in India
has been led by Apparel and
Footwear, with investments in Food
& Grocery picking up recently
Growth in organized retail has been
led by non-Food & Grocery
segments in India e.g. apparel,
footwear
Liberalization led to an exponential
increase in organized retail across
categories
However, it is only in the past 6-7
years that Food & Grocery has
witnessed the entry of large
domestic and foreign players

Challenges faced by Organized

Retailers
The Indian market presents major
structural challenges
Rising real estate costs are posing a key
challenge for retailers across all sectors
MRP constraints compel retailers to operate
on
thin margins
Competition from kiranas as well as an
increasing number of foreign retailers has
intensified over the past decade
Poor supply chain (including cold chain) due
to inadequate infrastructure leads to high
wastage and impacts timely availability of
products

Sales in Non-store Retailing by Channel: % Value Growth 2007-2012

% current value growth, retail value rsp excl sales
2011/12 2007-12 CAGR2007/12 Total
tax
Direct Selling
24.5
19.2
140.9
Homeshopping
10.2
20.8
157.0
Internet Retailing
35.8
37.4
389.6
Vending
Non-Store
Retailing
28.7 only.26.5
223.4
Note:
Vending data
captures vending systems installed in public and semi-captive environments
Sales in Non-Grocery Retailers by Channel: Value 2007-2012
Rs bn, retail value rsp excl sales tax
Apparel Specialist Retailers

2007 2008 2009 2010 2011 2012

1,331.5 1,486.2 1,668.5 1,872.2 2,115.5 2,549.2

Electronics and Appliance Specialist Retailers

412.9

454.1

495.0

549.5

613.9

715.1

Health and Beauty Specialist Retailers

325.1

339.7

354.3

376.5

402.0

433.6

Home and Garden Specialist Retailers

423.7

454.7

473.8

505.7

542.2

614.4

Leisure and Personal Goods Specialist Retailers

856.6

953.6

1,094.9 1,298.3 1,561.7 1,880.9

Mixed Retailers
Other Non-Grocery Retailers
Non-Grocery Retailers

49.2
60.8
61.3
75.1
92.3
111.2
19.7
21.5
23.2
25.5
27.6
30.6
3,418.7 3,770.5 4,170.9 4,702.8 5,355.1 6,335.0
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Retailing Brand Shares: % Value 2009-2012

% retail value rsp excl
sales tax
Tanishq

Company

2009 2010 2011 2012

Titan Industries Ltd

0.2

0.2

0.3

0.3

Big Bazaar

Future Value Retail Ltd

0.3

0.3

0.3

Reliance

Reliance Retail Ltd

0.2

0.2

0.2

0.2

Amway

Amway India Enterprises Pvt Ltd

0.1

0.1

0.1

0.1

Shoppers' Stop

Shopper's Stop Ltd

0.1

0.1

0.1

0.1

Lifestyle

Lifestyle International Pvt Ltd

0.1

0.1

0.1

0.1

LG Shoppe

LG Electronics India Pvt Ltd

0.1

0.1

0.1

0.1

Vishal Mega Mart

Vishal Retail Ltd

0.1

0.1

Big Bazaar

Pantaloon Retail India Ltd

0.3

Subhiksha

Subhiksha Trading Services Pvt Ltd

Others
Total

Others
Total

99.0 98.8 98.8 98.7

100.0 100.0 100.0 100.0

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources

Key Strategies of Indian Retailers

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Some Successful Innovations of Indian Retailers

Modern Retail

Modern Retail Verticals

Share of Different Retail Verticals in Modern Retail
Pharmacy 2%
Mobile & Telecom 11%

Beauty & Personal Care* 3%

Fitness 1%

Consumer Electronics 8%

Clothing & Apparel 33%

Entertainment
& Gaming 3%
Leisure 2%
Home & Interior* 5%
Fashion Accessories 1%
Food Service 7%
Footwear 4%
Food & Grocery 2%

J ewellery 6%
Eyewear 1%
Timewear 2%

The modern retail is close to 8% of the total retail market. The pie-graph shows how each category of modern retail
fares against total modern retail.

Shift in the Indian Shopping

ALandscape
simple comparison with other developed and emerging economies in Asia indicates room
for a manifold increase in Modern Trade density.
Contrasted with the density for Traditional Trade outlets (at approximately 7000 stores per
million), the lower density of Modern Trade is poised to change

Source Nielsen

Modern Trade in Urban India

Each of the key market have shown a double digit growth rates , with the share of
Modern Trade exceeding a fifth of total sales

Footfall to Modern Trade outlets

spike

The number of shoppers who visit Modern Trade on a regular basis, has doubled over
a five year period.
They are not simply strolling through the air conditioned aisles they are purchasing
more than ever before as well

MT dominates the share of wallet

Internet Retailing(1/2)
Issues with e-commerce
Use of credit cards, debit cards and online banking
Touch and feel of the product is a critical attribute
Internet or the electronic media used for search, research, price comparison and finally the
store locater to buy the product.

E-commerce has become very popular in the areas of apparel, arts and handicrafts, books, car rentals, computers and electronics, cosmetics,
financial services, gifts and novelties, etc.

E-Retail market will be worth US$ 70 billion by 2015 (according to ASSOCHAM) with a
steady growth of 35% CAGR.
Growth of Internet user is accelerating growth of this sector. According to Google, India
has more than 100 million internet users, half of whom make online purchases, and the
number is growing every year.
Online retail (also known as e-tail) is a web-enabled interface between a retailer and its
target consumers for selling products and services on the web with the facility of
ecommerce. These kinds of retailers are also known as e-tailers.
Among Indian states, Maharashtra has the best IT infrastructure, both for retailers as
well as consumers. Mumbai accounts for a 24% of Indias e-commerce transactions
Source pwc-The Indian Kaleidoscope: Emerging trends in Retail

Internet Retailing (2/2)

Future Impact-

Growth Drivers

convenience
lower price points
vast variety of brand options
cash on delivery option developed
trust in the channel

Consumers in 2012 started practicing

show-rooming to get the best
bargain on a product post the touch
and feel experience at a store-based
retailer.
Big Bazaar
www.futurebazaar.co
Store-based retailers
increased their
m,
focus.
Infiniti Retails Croma

www.cromaretail.co
m

K Raheja Corps
Shoppers Stop

www.shoppersstop.c
om

Expected to grow at a CAGR of 8% and

the highest growth rate for products such
as toys and games, personal goods and
eyewear, consumer health and tissue
and hygiene are expected to be via
internet retailing channel.
The channel will take a minimum of 1015 years to affect store-based retailing
as in 2012, 99% of the total retailing was
store-based.
Apparel, footwear, personal accessories
and eyewear will particularly be the most
crowded product categories for internet
retailers as these products have
minimum losses after the cost of
packaging, free shipping and delivery is
taken into account.
Grocery retailers will not be affected by
internet retailers in the short term

Growth drivers of Retail

Favorable demographics
Rising Income levels
Changes in consumer needs, attitudes
Increased credit friendliness
Increased consumer awareness

Favorable demographics
One of the youngest populations in the world, with a median
age of 25 years.
60% of the population today is below the age of 30 years
By 2020, the number of people in the working age population
in India is expected to grow by more than 47 million.

Rising Income levels

Current Impact Growth of 13% in annual disposable income across India
Almost 15% in major cities like Delhi and Chennai
Per Capita expenditure increased at a rate of 12% in 2011-12
Consumers spent more in hypermarkets, apparel specialist retailers, electronics and appliance
specialist retailers and health and beauty specialist retailers which enjoyed very strong growths
at 20%, 21%, 17% and 8% respectively
World-class luxury is within reach of Indians.
The luxury car market in India has grown at a CAGR of 22% (2008-09 to 2010-11) . Mini metros
and smaller cities are also showing an increased appetite for luxury car brands a tier 2 city like
Indore now has the largest Mercedes Benz showroom in the country!

Source Euromonitor- Retail

Increased credit friendliness

Easy Credit facility which includes zero EMI facility and acceptance of plastic money at majority of the
retailers also helped in the growth of retail sector.
Card payment transactions excluding commercial transactions witnessed growth of 35% in 2011-12.
The CAGR for card payment transactions witnessed growth of 27% in the review period and is expected to
increase to 33% in the forecast period
The number of point of sale terminals witnessed an increase of 16% at 717,000 units. This increased
number of point of sale terminals increased the use of cards across all retailing outlets in India.
A change in the shopping habit - Instead of going to the local kirana store whenever something is
required, most urban consumers nowadays changed the practice to doing grocery shopping once a week.
This resulted in one large bill one time every week which 35-40% of all consumers paid for with cards.
Use of cards provided consumers with the independence to spend more without the actual act of handing
over cash. The average spend per transaction witnessed an increase of 13% in 2012.
The government is also constantly focussing and encouraging consumers across the country to use cards
and decrease the number of cash transactions
An case to ponder - Companies such as ValueCloud Ltd introduced Cloud Card. The company has links
with 15 retailers which include restaurants, fashion brands, spas and salons such as Clarins, Jimmy Choo,
Caf Noir, Bay Leaf and more where these closed loop cards can be used. This will eventually be mirrored
by other companies and retailers as well in order to obtain a loyal customer base.

Policy decisions on Retail

Timeline of Govt. decisions on FDI

FDI in Multi Brand Retail

Timeline of evolution of
FDI in MBRT

Source- Deloitte Indian Retail Report

Implications of 51% FDI in MBRT

Minimum FDI of USD 100 million
Minimum FDI of USD 100 million and a constraint of maximum 51 per cent stake of the
foreign entity imply that the minimum investment required by both, the foreign and the
Indian partner together, is more than INR 1000cr.
50 per cent of FDI in backend infrastructure in three years
Minimum investment of INR 250-220cr is to be invested in backend infrastructure in the first
three years.
30 per cent of sourcing from small industries
This policy constraint implies that retailers should have at least 30 per cent sales from
private label brands or unbranded products sourced from small industries .
Only cities with population more than one million
Only 53 cities in India qualify under this policy condition. This policy constraint restricts the
access to retail marketing all sub-one million populated cities and towns.
Approval from State Government required
There are only 18 cities in India with population more than one million and the
corresponding State Government supporting FDI in multi-brand .
E-commerce not permissible
Multi-brand retailers with FDI will not be able to use e-commerce, whereas, Indian retailers
can use e-commerce as another channel for sales.

Impact of FDI in Retail

GST would simplify the Tax structure

Challenges to Indian Retail Sector

Even with FDI reforms for retail, India will be a
major challenge. Big Retailers are still sceptical
on Indian entry because of political uncertainty
over FDI in Retail.
Road network hinders shipment of goods across
India.
Markets with large land areas must depend
on a solid transport infrastructure in order
to ship goods across the country.
At only 4% of households, India has one of the
lowest levels of passenger car ownership.
This limits the scope for large grocery trips
This will prove to be a major challenge to
foreign companies, like Wal-Mart, aiming to
set up big box stores in India.
The market is highly fragmented, and chained
competitors have inefficient supply chains,
resulting in higher costs for retailers and
consumers.

Recent M&A deals in Indian Retail

References
IBEF Indian Retail report (August 2013)
Understanding Indias New Breed of Shoppers, Nielsen Featured Insights
India Boarding Destination- Indian Retail Market, Consulting white paper by Tata
Consultancy Services
The Indian Kaleidoscope : Emerging trends in retail, A report by pwc and FICCI,
September 2012
Indian Retail Market- Opening more doors, A report by Deloitte, January 2013
A guide to Indias new FDI rules, Euromonitor Passport, December 2011
Successful Innovations in Indian Retail, Booz and co. and RAI, February 2013
Analysis Indian Retail , Euromonitor International
Indian Retail report 2011, Images Group and IRIS Research