Globonomics!

Consulting|Technology|International business

Retail opportunities in India

with 5 comments

India is witnessing a revolution in the retail sector. The demand is great, public consumption has never been higher, disposable incomes are shooting through the roof, the economy is motoring ahead, GDP growth is touching double digits, people are becoming health conscious leading to demand for health foods – so where is the catch?

Indian retail is estimated to be almost worth a whopping $200 billion by 2016!

(Source: http://www.ibef.org/industry/retail.aspx)

Flashback to 2004. India then had fewer than 20 malls (majority of them were in Gurgaon, Haryana – off New Delhi, Bombay, Madras and Bangalore).

http://www.thehindubusinessline.com/2004/12/29/stories/2004122900710400.htm

Come forward to today, there are hundreds of malls springing up in every town of the cities – offering branded products, an integrated entertainment experience with book shops, Coffee days, Barista’s and theaters all built-in. Who can forget the Forum mall in Bangalore or the City Style mall in Gurgaon? Who can forget the Spencers, what about the now established chain of Food world’s or the Subhiksha’s who rely on the Wal Mart model of EDLP – every day low pricing?

What began as a mere opportunity has turned into an opportunity for all. Should there be something people need to be wary about in this model?

Well, for starters, plenty. The fundamental concept behind the success of any retail chain is to sense a market opportunity and an established proven low cost supply chain network that out classes the best of the best. Take Wal-Mart in the USA. They are proven and almost every year come out as the Fortune 1 among the Fortune 100 companies. Do they squeeze their suppliers – yes. Employees – probably – debatable. Take Wal-Mart in Germany. Did they succeed ? Nope. They were forced to pack their bags and leave some years back and Metro (another retail chain for business owners) took over the Wal-Mart stores. Flashback to 2001 – Kmart – then turned bankrupt did not fly but somehow managed to emerge out of Chapter 11 bankruptcy later in 2003. BestBuy – a consumer electronics store witnessed a surge in the boom times of the late 1990’s. Fry’s – the electronics retail outlet – stands tall among competition even today.

What does this mean for the Indian context?

First of all, succeeding in India’s organized retail sector is not so easy as it appears. One needs to deal with regulatory requirements (India has not allowed majority FDI in retail as in Real Estate yet as I write this post), one needs to deal with the political framework (Kerala’s ban on organized retail), one needs to have a powerful supply chain network established (think the Subhiksha’s around).

So, let us address issues on by one. Needless to say, the foremost  concern area is to build an organized and an efficient supply chain network. This is the basic and I can’t stop saying this. Without knowing when to order inventory, whom to buy it from, whom to sell it to, no one is going to succeed in this competitive (predicted to be a hyper competitive Indian retail organized sector). How do people do this? I have been to many Food world outlets every month (for my purchases) and I am sorry to say, their replenishment of stocks isn’t the best in the business – they might have already lost their edge. I source my household vegetables from Subhiksha outlets near my house and am pleased to say – their quality of stock is pretty good on a Sunday morning but rather depleted on a Sunday evening (to prove this, I have been to them at both these times). I also source my fruits/vegetables from the local Hopcoms stores in Bangalore – they don’t face such a major issue as Subhiksha does in terms of time to replenish their goods to keep/maintain stock levels.

Now, it was not too long ago, that we would visit Sabji mandi’s (read: unorganized retail) where we would get fresh vegetables that were almost farm-fresh. Those still exist. Will the Subhiksha’s and the Spencers’ of the country put them out of business – I don’t think so.

Informed decision makers might still prefer shopping off the convenience of the retail malls/outlets but also from those sabji mandi’s as there is enough room for everyone to compete. Introducing a new business model of selling the same things does not mean the others go out of business. Same logic applies to your local Kirana/Paan stores. There has been widespread speculation among the leftists/communists that allowing the Wal-Marts to compete in this retail space will squeeze the margins of the local neighbourhood Kirana store. I doubt it. Reason is simple. The market is just too big and thus allows fair competition (at least as of 2007 when this post is being written).

I believe the local Shetty chap running your neighbourhood provision store would still co-exist as long as he remains competitive in keeping with pricing trends.

What about this ‘mall culture’ phenomenon.

Well, its been no secret that 90% of those who frequent malls every weekend might not even buy a single item but are there to experience the luxury of the setting or probably to catch a movie running on the iNox or the PVR. Would these discerning buyers come back. Probably some 10% of them would – to make purchases. This is a conservative estimate.

It is thus still pure speculation whether this competitiveness would be detrimental or advantageous to the buyers. Buyer experience has a role to play. Availability of the big brands not only appeal to the companies with funding coming in from bulge bracket firms and the deep pocketed customers but also to the ordinary middle class customers. In other words, affordability of those brands has become better. This is a chain reaction that can only increase interest among those from the middle class to experience shopping in malls or retail outlets such as those of the Food world’s or the Wal-Mart’s. Low pricing will only be an icing on the cake. Reliance already made some mark when it got into the Petrol bunk business (Tamil Nadu). Here is an interesting experience: I was driving off a highway when we went for refuelling and the guy did not take a single paisa for filling up the air in the car tires! The same Reliance has sensed a huge untapped opportunity in the Indian organized retail sector. Its left to be seen how they perform.

I believe in healthy competition and while there may still be caps on FDI in retail etc., I think it is a welcome change to allow more entrants in this organized retail sector.

I am a little skeptical about the sales staff being appointed at most of those malls/shops/retail outlets. They need to really up their game if they are to stay competitive. That is a challenge for the Indian organized retail sector – I must say.

Overall, the consumer wins. After all, is this not what we all want?

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5 Responses

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  1. I posted this comment on the reliance website.
    http://mail2nagen.blogspot.com/2007/07/letter-to-reliance-industries.html

    Nagendra HK

    Nagendra

    July 25, 2007 at 3:24 pm

  2. Here is an addendum:

    After I had written this post yesterday, I received valuable feedback from my peers reviewing this post and they had the following intertesting aspects to share:

    1. Pantaloon Big Bazaar deserves a completely new post to describe how they changed the retail landscape in this country. I will be taking care of this soon. Thanks Chaitanya, Nagendra for pointing this out and as always keep the valuable feedback coming in!

    2. Tata’s Ginger low cost restaurant chain http://tata.com/indian_hotels/media/20060322_ginger.htm plans to setup their hotels on the top floor of every mall in the country wherein they plan to utilize the top floors to provide a definite ambience to customers. Retailers usually do not prefer the top floors in malls and this gives the Ginger group a fantastic positioning because they benefit that their customers will shop at other retail outlets in the malls and then will feel hungry/want a room to stay and might grab a bite at their outlets! A sensible business model indeed!

    Naveen Athresh

    July 26, 2007 at 3:00 pm

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    Biju Panikkasseri

    Biju Panikkasseri

    August 24, 2007 at 7:00 am

  4. […] leave a comment » I had blogged about retail opportunities in India about an year and a half ago here – https://ecofin.wordpress.com/2007/07/25/retail-opportunities-in-india/ […]

  5. health foods that are organice and have natural source should be the stuff that we should take ‘`:

    Food Scales

    November 17, 2010 at 8:03 am


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