24-08-2012, 12:04 PM
Retail Sector in India
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Industry Overview
Industry analysis of the Indian retail sector:
Modern retailing has entered India in form of malls and huge complexes offering shopping, entertainment, leisure to the consumer as the retailers experiment with a variety of formats, from discount stores to supermarkets to hypermarkets to specialty chains. However, kiranas still continue to score over modern formats mostly due to the convenience factor i.e. near to their house.
This organized segment typically comprises of a large number of retailers, greater enforcement of taxation mechanisms and better labour law monitoring system. It's no longer about just stocking and selling but about efficient supply chain management, developing vendor relationship quality customer service, efficient merchandising and even the labour class is also in the working process timely promotional campaigns. The modern retail formats are encouraging development of well-established and efficient supply chains in each segment ensuring efficient movement of goods from farms to kitchens, which will result in huge savings for the farmers as well as for the nation. The government also stands to gain through more efficient collection of tax revenues. Network marketing has been growing quite fast and has a few large players today. Gas stations are seeing action in the form of convenience stores, ATMs, food courts and pharmacies appearing in many outlets.
In the coming years it can be said that the hypermarket route will emerge as the most preferred format for international retailers stepping into the country. Estimates indicate that this sector will have the potential to absorb many more hypermarkets in the next four to five years
ORGANIZED RETAIL:
Emerging Retail Markets:
India, Russia, China and Vietnam top the list of the most attractive emerging markets for retailers' investment in 2007, While India and Russia have held the top two spots since 2004, China's booming consumer spending, together with retailers moving into second-tier cities, helped it rise to No. 3 from its No. 5 spot last year, according to the 2007 Global Retail Development Index from management consultant firm A.T. Kearney.
The study based its results on four variables: 'country risk', measuring political risk, debt and credit ratings; 'market attractiveness', encompassing retail sales per capita, population, infrastructure and regulations; 'market saturation'; and 'time pressure'.
The higher the ranking, the more urgency for retailers to enter the market, according to the study, which ranks the top 30 emerging countries for retail development and focuses on mass-merchant and food retailers.
"If you want to be an international player in retail, these are the markets that demonstrate the characteristics (where) you can be successful," said Laura Gurski, a co-author of the study and partner in A.T. Kearney's consumer and retail practice.
India has already attracted the attention of global retailers like Wal-Mart Stores Inc., which is working with India's Bharti Enterprises to set up a joint venture for a cash-and-carry business. In India, foreign multiple-brand retailers, which sell diverse brands under one roof, are limited to cash-and-carry and franchise or license operations.
"India's window of opportunity continues to be wide for retail investment and development," the report said. "Once India's window closes for grocery retailers, there will be little opportunity for market domination in the main cities."
The country's growing population of young urban professionals with disposable incomes and the nouveau riche has also made India attractive for luxury retailers. India has attracted "the low end and the high end because of the breadth of the consumer segments that are available," said Gurski.
When variables stay constant, Gurski said, do-it-yourself, apparel and electronics retailers usually enter emerging markets some two years after international grocers establish themselves. Middle Eastern countries are also represented on the list, with Saudi Arabia ranking No. 10
India has emerged as the world's most attractive destination for mass merchant and food retailing, maintaining its 2005 position in an annual study of retail investment attractiveness among 30 emerging markets.
Early Markets:
Over time, producers would have seen value in deliberately over-producing in order to profit from selling these goods. Merchants would also have begun to appear. They would travel from village to village, purchasing these goods and selling them for a profit. Over time, both producers and merchants, would regularly take their goods to one selling place in the centre of the community. Thus, regular markets appeared.The First Shop : Eventually, markets would become permanent fixtures i.e. shops. These shops along with the logistics required to get the goods to them were, the start of the Retail Trade.
The Birth of Distance Retailing:
Defined as sales of goods between two distant parties where the deliverer has no direct interest in the transaction, the earliest instances of distance retailing probably coincided with the first regular delivery or postal services. Such services would have started in earnest once man had learned how to ride a camel, horse etc.
When individuals or groups left their community and settled elsewhere, some missed foodstuffs and other goods that were only available in their birthplace. They arranged for some of these goods to be sent to them. Others in their newly adopted community enjoyed these goods and demand grew. Similarly, new settlers discovered goods in their new surroundings that they dispatched back to their birthplace, and once again, demand grew. This soon turned into a regular trade. Although such trading routes expanded mainly through the growth of traveling salesmen and then wholesalers, there were still instances where individuals purchased goods at long distance for their own use. A second reason that distance selling increased was through war. As armies marched through territories, they laid down communication lines stretching from their home base to the front. As well as garnering goods from whichever locality they found themselves in, they would have also taken advantage of the lines of communication to order goods from home.
Origins of Retail
It is likely that, as markets became more permanent fixtures they evolved into shops. Although advantageous in many respects, this removed the mobility that a peddler or traveling merchant may still have enjoyed. For some shopkeepers, it made sense to obtain extra stock and open up another shop, most probably operated by another family member. This would recover business from peddlers and create new business and the greater volume would allow the shopkeeper to strike a better deal with suppliers. Thus the retail chain would have started. Its thought that this process would have started in china over 2200 years ago with a chain of shops owned by a trader called Lo Kass.
The First Self-Service Store:
This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles, the first documented self-service store. This was soon followed a year later by the Piggly Wiggly® self-service store, founded by Clarence Saunders in Tennessee in the U.S.
Growth:
This new type of shopping was more efficient and many customers preferred it. Although personal service stores remain to this day, this new concept started a rapid growth of self-service stores in the United States. Other countries were slow to take up the idea, but there has been a steady rise in the global amount of self-service stores ever since.
Indian Retail Industry:
UNORGANISED RETAIL SECTOR:
Today, retailing doesn’t involve just dealing or marketing from shops, it includes analyzing the market in an effort to provide reasonable prices together with an array of options and experience to customers. The sole purpose of all this is retaining the brand loyalty of customers. Indian retail is currently a US$ 245 billion market and is anticipated to extend to almost US$ 385 billion mark by the next five years. The Indian retail sector is currently sporting a brand new look and together with a 46.64 per cent three-year Compounded Annual Growth Rate (CAGR), Conventional marketplaces are paving way for new shopping malls, the likes of superstores, shopping plazas, supermarkets and brand label stores. International style shopping centers have started dotting the skyline of cities and smaller towns, acquainting the Indian customer to a unique shopping experience. The retail industry in India is split up into the unorganized and organized retail segments.
The unorganized retail sector includes the big, average and modest grocery stores and the chemist shops. A changeover is taking place from the conventional retail sector to organized retailing. But the unorganized segment still dominates and leads the industry. By 2010, the Indian retailing sector is anticipated to become an Rs12.5 trillion market. The share of organized retailing is supposed to jump to about 10 per cent from the existing three per cent. The anticipated staggering growth in organized retailing provides an opportunity to expand the market for both established and new players. According to the latest report India Retail Sector Analysis (2006ñ07)I by RNCOS, the total retail market is primarily focused in rural regions, which makes up 55 per cent or US$ 165 billion of the overall retail market as opposed to urban segment, which represents 45 per cent or US$ 135 billion of the gross retail market. The rural market is spread over 627,000 villages, even though its centre of attention is focused around a core group of 100,000 villages that makes up 50 per cent of the rural population.
India represents the most compelling international investment opportunity for mass merchant and food retailers looking to expand overseas, according to management consulting firm AT Kearney's 2005 Global Retail Development Index (GRDI), an annual study of retail investment attractiveness among 30 emerging markets. India is rated as the fifth largest emerging retail market and is seen as a potential goldmine. Driving global brands into India is the greatly improved investment climate due to the recent relaxation of direct ownership restrictions on foreign retailers. The country's retail market totals $330 billion, is vastly underserved and has grown by 10 per cent on an average over the past five years. The message for retailers on India is clear – move now or forego prime locations and market positions that will soon become saturated. Global retailers that missed opportunities to capture first-mover advantage in China will make up for it in India.