Retailing in India
Encyclopedia
Retailing is one of the pillars of the economy in India
and accounts for about 15% of its GDP. India is one of the five largest retail markets in the world in economic value.
Indian retail industry
is divided into organised and unorganised sectors.
Organised retailing, absent in most rural and small towns of India in 2010, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly-traded supermarkets
, corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kinara (corner) shops, owner manned general stores, paan
/beedi shops, convenience stores, hand cart and pavement vendors, etc.
Supermarkets and similar organized retail accounted for just 4% of the market in 2008. Until recently, regulations prevented most of the foreign investment in retailing. Some retails faced complying with over thirty regulations such as "signboard licences" and "anti-hoarding measures" before they could open doors. There are taxes for moving goods to states, from states, and even within states in some cases. However, the Indian government has been opening the retail market and simplifying regulations. In 2011, Indian central government announced major reforms paving way for giants such as Walmart, Carrefour
and Tesco
, as well single brand majors such as IKEA
, Nike
, and Apple to enter one of the fastest growing retail market of 1.2 billion people.
Most Indian shopping takes place in open markets or millions of small, independent grocery and retail shops. Shoppers typically stand outside the retail shop, ask for what they want, and can not pick or examine a product from the shelf. Access to the shelf or product storage area is limited. Once the shopper requests the food staple or household product they are looking for, the shopkeeper goes to the container or shelf or to the back of the store, brings it out and offers it for sale to the shopper. Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the product the consumer is asking for. The product typically has no price label in these small retail shops; although some products do have a manufactured suggested retail price (MSRP) pre-printed on the packaging. The shopkeeper prices the food staple and household products arbitrarily, and two consumers may pay different prices for the same product on the same day. Price is sometimes negotiated between the shopper and shopkeeper. The shoppers do not have time to examine the product label, and do not have a choice to make an informed decision between competitive products.
India's retail and logistics industry, organized and unorganized in combination, employs about 40 million Indians (3.3% of Indian population). The typical Indian retail shops are very small. Over 14 million outlets operate in the country and only 4% of them being larger than 500 sq ft (46.5 m²) in size. India has about 11 shop outlets for every 1000 people. Vast majority of the unorganized retail shops in India employ family members, do not have the scale to procure or transport products at high volume wholesale level, have limited to no quality control or fake-versus-authentic product screening technology and have no training on safe and hygienic storage, packaging or logistics. The unorganized retail shops source their products from a chain of middlemen who mark up the product as it moves from farmer or producer to the consumer. The unorganized retail shops typically offer no after-sales support or service. Finally, most transactions at unorganized retail shops are done with cash, with all sales being final.
Between 2000 to 2010, consumers in select Indian cities have gradually begun to experience the quality, choice, convenience and benefits of organized retail industry.
The Retail Business in India is currently at the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by several Indian and multinational companies in the next 5 years. It is a huge industry in terms of size and according to India Brand Equity Foundation (IBEF), it is valued at about US$ 395.96 billion. Organised retail is expected to garner about 16-18 percent of the total retail market (US $ 65-75 billion) in the next 5 years.
India has topped the A.T. Kearney
’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of 8% for 2007. The predictions for 2008 is 7.9%. The enormous growth of the retail industry has created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300 malls are estimated to be operational in the country.
With over 1,000 hypermarket
s and 3,000 supermarket
s projected to come up by 2011, India will need additional retail space of 700000000 sq ft (65,032,128 m²) as compared to today. Current projections on construction point to a supply of just 200000000 sq ft (18,580,608 m²), leaving a gap of 500000000 sq ft (46,451,520 m²) that needs to be filled, at a cost of US$15–18 billion.
According to the Icrier report, the retail business in India is estimated to grow at 13% from $322 billion in 2006-07 to $590 billion in 2011-12. The unorganized retail sector is expected to grow at about 10% per annum with sales expected to rise from $ 309 billion in 2006-07 to $ 496 billion in 2011-12.
India has highest number of outlets per person (7 per thousand)
Indian retail space per capita at 2 sq ft (0.18580608 m²)/ person is lowest in the world
Indian retail density of 6 percent is highest in the world.
1.8 million households in India have an annual income of over .
Delving further into consumer buying habits, purchase decisions can be separated into two categories: status-oriented and indulgence-oriented. CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave
ovens and DVD players fall in the status category. Indulgence-oriented products include plasma TVs, state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and gaming consoles. Consumers in the status category buy because they need to maintain a position in their social group. Indulgence-oriented buying happens with those who want to enjoy life better with products that meet their requirements. When it comes to the festival shopping season, it is primarily the status-oriented segment that contributes largely to the retailer’s cash register.
While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include: Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods.
, some majors are also looking at the US and Europe
. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well. Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end.
The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra Group
is the fourth largest Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group
, and Bharti Enterprises
Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both.
Stores Inc and Sunil Mittal's Bharti Enterprises have entered into a joint venture
agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008.
see also for more Detail Pick/Müller "http://www.springerlink.com/content/t0197362518xxh31/"
Carrefour
, the world’s second largest retailer by sales, is planning to setup two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail.
The world’s fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity.
Opposition to the retailers' plans have argued that livelihoods of small scale and rural vendors would be threatened. However, studies have found that only a limited number of small vendors will be affected and that the benefits of market expansion far outweigh the impact of the new stores.
Tesco Plc., plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business.(19)
Total retail employment in India, both organized and unorganized, account for about 6% of Indian labor work force currently - most of which is unorganized. This about a third of levels in United States and Europe; and about half of levels in other emerging economies. A complete expansion of retail sector to levels and productivity similar to other emerging economies and developed economies such as the United States would create over 50 million jobs in India. Training and development of labor and management for higher retail productivity is expected to be a challenge.
To become a truly flourishing industry, retailing in India needs to cross the following hurdles:
In November 2011, the Indian government announced relaxation of some rules and the opening of retail market to competition.
India has had years of debate and discussions on the risks and prudence of allowing innovation and competition within its retail industry. Numerous economists repeatedly recommended to the Government of India that legal restrictions on organized retail must be removed, and the retail industry in India must be opened to competition. For example, in an invited address to the Indian parliament in December 2010, Jagdish Bhagwati
, Professor of Economics and Law at the Columbia University analysed the relationship between growth and poverty reduction, then urged the Indian parliament to extend economic reforms by freeing up of the retail sector, further liberalisation of trade in all sectors, and introducing labor market reforms. Such reforms Professor Bhagwati argued will accelerate economic growth and make a sustainable difference in the life of India's poorest.,
The government of Manmohan Singh, prime minister, announced on 24 November 2011 the following:
The opening of retail industry to global competition is expected to spur a retail rush to India. It has the potential to transform not only the retailing landscape but also the nation's ailing infrastructure. Currently, retailing is dominated by millions of mom-and-pop stores, and it lacks much modern product sourcing management, logistics, supply-chain management, including cold storage.,
Before 2011, India had prevented innovation and organized competition in its retail industry. Several studies claim that the lack of infrastructure and competitive retail industry is a key cause of India's persistently high inflation. Furthermore, because of unorganized retail, in a nation where malnutrition remains a serious problem, food waste is rife. Well over 30% of food staples and perishable goods produced in India spoils because poor infrastructure and small retail outlets prevent hygienic storage and movement of the goods from the farmer to the consumer.,,
One report estimates the 2011 Indian retail market as generating sales of about $470 billion a year, of which a miniscule $27 billion comes from organized retail such as supermarkets, chain stores with centralized operations and shops in malls. The opening of retail industry to free market competition, some claim will enable rapid growth in retail sector of Indian economy. Others believe the growth of Indian retail industry will take time, with organized retail possibly needing a decade to grow to a 25% share. A 25% market share, given the expected growth of Indian retail industry through 2021, is estimated to be over $250 billion a year: a revenue equal to the 2009 revenue share from Japan for the world's 250 largest retailers.,
A Wall Street Journal article claims that fresh investments in Indian organized retail will generate 10 million new jobs between 2012-2014, and about five to six million of them in logistics alone; even though the retail market is being opened to just 53 cities out of about 8000 towns and cities in India.
It is expected to help tame stubbornly high inflation but is likely to be vehemently opposed by millions of small retailers, who see large foreign chains as a threat. The need to control food price inflation -- averaging double-digit rises over several years -- prompted the government to open the sector, analysts claim. Hitherto India's food supplies have been controlled by tens of millions of middlemen (less than 5% of Indian population). Traders add huge mark-ups to farm prices, while offering little by way of technical support to help farmers boost their productivity, packaging technology, pushing up retail prices significantly. Analysts said allowing in big foreign retailers would provide an impetus for them to set up modern supply chains, with refrigerated vans, cold storage and more efficient logistics. "I think foreign chains can also bring in humongous logistical benefits and capital," Chandrajit Banerjee, director-general, Confederation of Indian Industry, told Reuters. "The biggest beneficiary would be the small farmers who will be able to improve their productivity by selling directly to large organised players," Mr Banerjee said.
Despite the fact that Salman Khurshid, India’s law minister, claiming that many opposition parties, including the Bharatiya Janata Party, had privately encouraged the government to push through the retail reform, the intense criticism now targets Congress-led coalition government, and its decision to push through one of the biggest economic reforms in years for India. Opposition parties claim supermarket chains are ill-advised, unilateral and unwelcome.
The opposition claims the entry of organized retailers would lead to their dominance that would decimate local retailers and force millions of people out of work.
Mamata Banerjee, the chief minister of West Bengal and the leader of the Trinamool Congress, announced her opposition to retail reform, claiming “Some people might support it, but I do not support it. You see America is America … and India is India. One has to see what one’s capacity is.”
A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP), threatened to "set fire to the first Wal-Mart store whenever it opens;" with her colleague Sushma Swaraj busy tweeting up a storm of misinformation about how Wal-Mart allegedly ruined the U.S. economy.
B. Muthuraman, the president of the Confederation of Indian Industry, claimed the retail reform would open enormous opportunities and lead to much-needed investment in cold chain, warehousing and contract farming.
Organized retailers will reduce waste by improving logistics, creating cold storage to prevent food spoilage, improve hygiene and product safety, reduce counterfeit trade and tax evasion on expensive item purchases, and create dependable supply chains for secure supply of food staples, fruits and vegetables. They will increase choice and reduce India’s rampant inflation by reducing waste, spoilage and cutting out middlemen. Fresh investment in organized retail, the supporters of retail reform claim will generate 10 million new jobs by 2014, about five to six million of them in logistics alone.
Organized retail will offer the small Indian farmer more competing venues to sell his or her products, and increase income from less spoilage and waste. A Food and Agricultural Organization report claims that currently, in India, the small farmer faces significant losses post-harvest at the farm and because of poor roads, inadequate storage technologies, inefficient supply chains and farmer's inability to bring the produce into retail markets dominated by small shopkeepers. These experts claim India's post-harvest losses to exceed 25%, on average, every year for each farmer.,
Not only do these losses reduce food security in India, the study claims that poor farmers and others loose income because of the waste and inefficient retail. Over US$50 billion of additional income can become available to Indian farmers by preventing post-harvest farm losses, improving transport, proper storage and retail. Organized retail is also expected to initiate infrastructure development creating millions of rural and urban jobs for India’s growing population. One study claims that if these post-harvest food staple losses could be eliminated with better infrastructure and retail network in India, enough food would be saved every year to feed 70 to 100 million people over the year.
Supporters of retail reform, The Economist claims, say it will increase competition and quality while reducing prices helping to reduce India's rampant inflation that is close to the double digits. These supporters claim that unorganized small shopkeepers will continue to exist alongside large organized supermarkets, because for many Indians they will remain the most accessible and most convenient place to shop.
Supporters of retail reform who have voiced the need to promote organized retail include Chief Ministers of several states of India, several belonging to political parties that have no affiliation with Congress-led central government of India. The list includes the Chief Ministers of Maharashtra, Andhra Pradesh, Tamil Nadu and Gujarat. In a report submitted earlier in 2011, these Chief Ministers urged the Prime Minister to prioritize reforms to help promote organized retail, shorten the retail path from farm to consumer, allow organized retail to buy direct from farmers at remunerative produce prices, and reduce farm to retail costs. Similarly, the Chief Minister of Delhi
has come out in support of the retail reform, as have the Chief Ministers of the farming states of Haryana
and Punjab in north India., The Chief Ministers of Haryana and Punjab claim that the announced retail reforms will immensely benefit farmers in their states. The Chief Minister of the state of Maharashtra
- the state with the highest GDP in India and home to its financial capital Mumbai - has also welcomed the retail reform.,
Existing Indian retail firms such as Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and ShopRite support retail reform and consider international competition as a blessing in disguise. They expect a flurry of joint ventures with global majors for expansion capital and opportunity to gain expertise in supply chain management. Spencer's Retail with 200 stores in India, and with retail of fresh vegetables and fruits accounting for 55 per cent of its business claims retail reform to be a win-win situation, as they already procure the farm products directly from the growers without the involvement of middlemen or traders. Spencer’s claims that there is scope for it to expand its footprint in terms of store location as well as procuring farm products. Foodworld, which operates over 60 stores, plans to ramp up its presence to more than 200 locations. It has already tied up with Hong Kong-based Dairy Farm International. With the relaxation in international investments in Indian retail, India’s Foodworld expects its global relationship will only get stronger. Competition and investment in retail will provide more benefits to consumers through lower prices, wider availability and significant improvement in supply chain logistics.
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
and accounts for about 15% of its GDP. India is one of the five largest retail markets in the world in economic value.
Indian retail industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
is divided into organised and unorganised sectors.
Organised retailing, absent in most rural and small towns of India in 2010, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly-traded supermarkets
Supermarket
A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments...
, corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kinara (corner) shops, owner manned general stores, paan
Paan
Paan, from the word pān is an Indian, Pakistani, Uttarvarshi and Southeast Asian tradition of chewing betel leaf with areca nut and slaked lime paste, and katha brown powder paste, with many regional and local variations...
/beedi shops, convenience stores, hand cart and pavement vendors, etc.
Supermarkets and similar organized retail accounted for just 4% of the market in 2008. Until recently, regulations prevented most of the foreign investment in retailing. Some retails faced complying with over thirty regulations such as "signboard licences" and "anti-hoarding measures" before they could open doors. There are taxes for moving goods to states, from states, and even within states in some cases. However, the Indian government has been opening the retail market and simplifying regulations. In 2011, Indian central government announced major reforms paving way for giants such as Walmart, Carrefour
Carrefour
Carrefour S.A. is an international hypermarket chain headquartered in Levallois-Perret, France. It is one of the largest hypermarket chains in the world...
and Tesco
Tesco
Tesco plc is a global grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues and the second-largest measured by profits...
, as well single brand majors such as IKEA
IKEA
IKEA is a privately held, international home products company that designs and sells ready-to-assemble furniture such as beds and desks, appliances and home accessories. The company is the world's largest furniture retailer...
, Nike
Nike, Inc.
Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered near Beaverton, Oregon, which is part of the Portland metropolitan area...
, and Apple to enter one of the fastest growing retail market of 1.2 billion people.
Most Indian shopping takes place in open markets or millions of small, independent grocery and retail shops. Shoppers typically stand outside the retail shop, ask for what they want, and can not pick or examine a product from the shelf. Access to the shelf or product storage area is limited. Once the shopper requests the food staple or household product they are looking for, the shopkeeper goes to the container or shelf or to the back of the store, brings it out and offers it for sale to the shopper. Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the product the consumer is asking for. The product typically has no price label in these small retail shops; although some products do have a manufactured suggested retail price (MSRP) pre-printed on the packaging. The shopkeeper prices the food staple and household products arbitrarily, and two consumers may pay different prices for the same product on the same day. Price is sometimes negotiated between the shopper and shopkeeper. The shoppers do not have time to examine the product label, and do not have a choice to make an informed decision between competitive products.
India's retail and logistics industry, organized and unorganized in combination, employs about 40 million Indians (3.3% of Indian population). The typical Indian retail shops are very small. Over 14 million outlets operate in the country and only 4% of them being larger than 500 sq ft (46.5 m²) in size. India has about 11 shop outlets for every 1000 people. Vast majority of the unorganized retail shops in India employ family members, do not have the scale to procure or transport products at high volume wholesale level, have limited to no quality control or fake-versus-authentic product screening technology and have no training on safe and hygienic storage, packaging or logistics. The unorganized retail shops source their products from a chain of middlemen who mark up the product as it moves from farmer or producer to the consumer. The unorganized retail shops typically offer no after-sales support or service. Finally, most transactions at unorganized retail shops are done with cash, with all sales being final.
Between 2000 to 2010, consumers in select Indian cities have gradually begun to experience the quality, choice, convenience and benefits of organized retail industry.
Growth
An increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organized retail market is growing at 35 percent annually while growth of unorganized retail sector is pegged at 6 percent.The Retail Business in India is currently at the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by several Indian and multinational companies in the next 5 years. It is a huge industry in terms of size and according to India Brand Equity Foundation (IBEF), it is valued at about US$ 395.96 billion. Organised retail is expected to garner about 16-18 percent of the total retail market (US $ 65-75 billion) in the next 5 years.
India has topped the A.T. Kearney
A.T. Kearney
A.T. Kearney is a global management consulting firm, focusing on strategic and operational CEO-agenda concerns. It was founded in 1926, and its head office is in Chicago, Illinois...
’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of 8% for 2007. The predictions for 2008 is 7.9%. The enormous growth of the retail industry has created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300 malls are estimated to be operational in the country.
With over 1,000 hypermarket
Hypermarket
In commerce, a hypermarket is a superstore combining a supermarket and a department store. The result is an expansive retail facility carrying a wide range of products under one roof, including full groceries lines and general merchandise...
s and 3,000 supermarket
Supermarket
A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments...
s projected to come up by 2011, India will need additional retail space of 700000000 sq ft (65,032,128 m²) as compared to today. Current projections on construction point to a supply of just 200000000 sq ft (18,580,608 m²), leaving a gap of 500000000 sq ft (46,451,520 m²) that needs to be filled, at a cost of US$15–18 billion.
According to the Icrier report, the retail business in India is estimated to grow at 13% from $322 billion in 2006-07 to $590 billion in 2011-12. The unorganized retail sector is expected to grow at about 10% per annum with sales expected to rise from $ 309 billion in 2006-07 to $ 496 billion in 2011-12.
The Indian Retail Market
Indian market has high complexities in terms of a wide geographic spread and distinct consumer preferences varying by each region necessitating a need for localization even within the geographic zones.India has highest number of outlets per person (7 per thousand)
Indian retail space per capita at 2 sq ft (0.18580608 m²)/ person is lowest in the world
Indian retail density of 6 percent is highest in the world.
1.8 million households in India have an annual income of over .
Delving further into consumer buying habits, purchase decisions can be separated into two categories: status-oriented and indulgence-oriented. CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave
Microwave
Microwaves, a subset of radio waves, have wavelengths ranging from as long as one meter to as short as one millimeter, or equivalently, with frequencies between 300 MHz and 300 GHz. This broad definition includes both UHF and EHF , and various sources use different boundaries...
ovens and DVD players fall in the status category. Indulgence-oriented products include plasma TVs, state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and gaming consoles. Consumers in the status category buy because they need to maintain a position in their social group. Indulgence-oriented buying happens with those who want to enjoy life better with products that meet their requirements. When it comes to the festival shopping season, it is primarily the status-oriented segment that contributes largely to the retailer’s cash register.
While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include: Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods.
Major Indian Retailers
Indian apparel retailers are increasing their brand presence overseas, particularly in developed markets. While most have identified a gap in countries in West Asia and AfricaAfrica
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
, some majors are also looking at the US and Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well. Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end.
The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra Group
Mahindra Group
The Mahindra Group is an Indian multinational conglomerate company headquartered at Mahindra Towers in Mumbai, India, with operations in over 100 countries across the globe...
is the fourth largest Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group
Aditya Birla Group
The Aditya Birla Group is an Indian multinational conglomerate corporation headquartered in Mumbai, India. It operates in 33 countries with more than 133,000 employees worldwide...
, and Bharti Enterprises
Bharti Enterprises
Bharti Enterprises is an Indian business conglomerate headquartered in New Delhi, India, operating primarily across India and in some other countries like Sri Lanka, Bangladesh, Jersey, Guernsey and Seychelles with expanding operations across Africa in Burkina Faso, Chad, Congo Brazzaville,...
Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both.
- REI AGRO LTD Retail: 6TEN and 6TEN kirana stores
- Future Groups-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc.
- Raymond Ltd.: Textiles, The Raymond Shop, Park Avenue, Park Avenue Woman, Parx, Colourplus, Neck Ties & More, Shirts & More etc.
- FabindiaFabindiaFabindia is an Indian chain store retailing garments, furnishings, fabrics and ethnic products handmade by craftspeople across rural India...
: Textiles, Home furnishings, handloom apparel, jewellery - RPG Retail-Formats: Music World, Books & Beyond, Spencer’s Hyper, Spencer’s Super, Daily & Fresh
- The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Croma.
- Reliance Retail-Formats: Reliance MART, Reliance SUPER, Reliance FRESH, Reliance Footprint, Reliance Living, Reliance Digital, Reliance Jewellery, Reliance Trends, Reliance Autozone, iStore
- Reliance ADAG Retail-Format: Reliance WorldReliance WorldReliance World is a chain of retail outlets in India. Managed by Reliance Webstore Ltd. . Reliance World offers information, communication, entertainment and utility services....
- K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper City, Inorbit MallInorbit MallInorbit Malls, a subsidiary of the K. Raheja Corporation, first opened its doors to the public in early 2004, in Malad, Mumbai. Inorbit Malls launched their Vashi, Navi Mumbai property in October 2008; in Cyberabad in Oct 2009...
- Nilgiri’s-Formats: Nilgiris’ supermarket chain
- Marks & Spencer: Clothing, lifestyle products, etc.
- Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores.
- Pyramid Retail-Formats: Pyramid Megastore, TruMart
- Next retail India Ltd (Consumer Electronics)(www.next.co.in)
- Vivek Limited Retail Formats: Viveks, Jainsons, Viveks Service Centre, Viveks Safe Deposit Lockers
- PGC Retail -T-Mart India http://www.tmartindia.com/tmartindia, Switcher , Respect India , Grand India Bazaar ,etc.,
- Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom discount chain.
- Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket chain
- Vishal Retail Group-Formats: Vishal Mega Mart
- BPCL-Formats: In & Out
- German Metro Cash & Carry
- Shoprite Holdings-Formats: Shoprite Hyper
- Paritala stores bazar: honey shine stores
- Aditya Birla Group - "More" Outlets
- Kapas- Cotton garment outlets
- Nmart Retails with 71 operating Stores till now and total 153 Stores in India and 1 to open in Dubai Shortly. (Expected to be 150 by the end of Aug-2012)(www.nmart.co.in)
Entry of MNCs
The world's largest retailer by sales, Wal-MartWal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
Stores Inc and Sunil Mittal's Bharti Enterprises have entered into a joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008.
see also for more Detail Pick/Müller "http://www.springerlink.com/content/t0197362518xxh31/"
Carrefour
Carrefour
Carrefour S.A. is an international hypermarket chain headquartered in Levallois-Perret, France. It is one of the largest hypermarket chains in the world...
, the world’s second largest retailer by sales, is planning to setup two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail.
The world’s fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity.
Opposition to the retailers' plans have argued that livelihoods of small scale and rural vendors would be threatened. However, studies have found that only a limited number of small vendors will be affected and that the benefits of market expansion far outweigh the impact of the new stores.
Tesco Plc., plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business.(19)
Challenges
A McKinsey study claims retail productivity in India is very low compared to international peer measures. For example, the labor productivity in Indian retail was just 6% of the labor productivity in United States in 2010. India's labor productivity in food retailing is about 5% compared to Brazil's 14%; while India's labor productivity in non-food retailing is about 8% compared to Poland's 25%.Total retail employment in India, both organized and unorganized, account for about 6% of Indian labor work force currently - most of which is unorganized. This about a third of levels in United States and Europe; and about half of levels in other emerging economies. A complete expansion of retail sector to levels and productivity similar to other emerging economies and developed economies such as the United States would create over 50 million jobs in India. Training and development of labor and management for higher retail productivity is expected to be a challenge.
To become a truly flourishing industry, retailing in India needs to cross the following hurdles:
- Automatic approval is not allowed for foreign investment in retail.
- Regulations restricting real estate purchases, and cumbersome local laws.
- Taxation, which favours small retail businesses.
- Absence of developed supply chain and integrated IT management.
- Lack of trained work force.
- Low skill level for retailing management.
- Lack of Retailing Courses and study options
- Intrinsic complexity of retailing – rapid price changes, constant threat of product obsolescence and low margins.
In November 2011, the Indian government announced relaxation of some rules and the opening of retail market to competition.
Opening of retail industry in India
Until 2011, Indian central government forbade foreign groups from any ownership in supermarkets, convenience stores or any retail outlets, to sell multiple products from different brands directly to Indian consumers.India has had years of debate and discussions on the risks and prudence of allowing innovation and competition within its retail industry. Numerous economists repeatedly recommended to the Government of India that legal restrictions on organized retail must be removed, and the retail industry in India must be opened to competition. For example, in an invited address to the Indian parliament in December 2010, Jagdish Bhagwati
Jagdish Bhagwati
Jagdish Natwarlal Bhagwati is an Indian-American economist and professor of economics and law at Columbia University. He is well known for his research in international trade and for his advocacy of free trade....
, Professor of Economics and Law at the Columbia University analysed the relationship between growth and poverty reduction, then urged the Indian parliament to extend economic reforms by freeing up of the retail sector, further liberalisation of trade in all sectors, and introducing labor market reforms. Such reforms Professor Bhagwati argued will accelerate economic growth and make a sustainable difference in the life of India's poorest.,
The government of Manmohan Singh, prime minister, announced on 24 November 2011 the following:
- India will allow foreign groups to own up to 51 per cent in "multi-brand retailers", as supermarkets are known in India, in the most radical pro-liberalisation reform passed by an Indian cabinet in years;
- single brand retailers, such as Apple and Ikea, can own 100 percent of their Indian stores, up from the previous cap of 51 percent;
- both multi-brand and single brand stores in India will have to source nearly a third of their goods from small and medium-sized Indian suppliers;
- all multi-brand and single brand stores in India must confine their operations to 53-odd cities with a population over one million, out of some 7935 towns and cities in India. It is expected that these stores will now have full access to over 200 million urban consumers in India;
- single brand retailers must have a minimum investment of US$100 million with at least half of the amount invested in back end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing to considerably reduce the post harvest losses and bring remunerative prices to farmers;
- the opening of retail competition will be within India's federal structure of government. In other words, the policy is an enabling legal framework for India. The states of India have the prerogative to accept it and implement it, or they can decide to not implement it if they so choose. Actual implementation of policy will be within the parameters of state laws and regulations.
The opening of retail industry to global competition is expected to spur a retail rush to India. It has the potential to transform not only the retailing landscape but also the nation's ailing infrastructure. Currently, retailing is dominated by millions of mom-and-pop stores, and it lacks much modern product sourcing management, logistics, supply-chain management, including cold storage.,
Before 2011, India had prevented innovation and organized competition in its retail industry. Several studies claim that the lack of infrastructure and competitive retail industry is a key cause of India's persistently high inflation. Furthermore, because of unorganized retail, in a nation where malnutrition remains a serious problem, food waste is rife. Well over 30% of food staples and perishable goods produced in India spoils because poor infrastructure and small retail outlets prevent hygienic storage and movement of the goods from the farmer to the consumer.,,
One report estimates the 2011 Indian retail market as generating sales of about $470 billion a year, of which a miniscule $27 billion comes from organized retail such as supermarkets, chain stores with centralized operations and shops in malls. The opening of retail industry to free market competition, some claim will enable rapid growth in retail sector of Indian economy. Others believe the growth of Indian retail industry will take time, with organized retail possibly needing a decade to grow to a 25% share. A 25% market share, given the expected growth of Indian retail industry through 2021, is estimated to be over $250 billion a year: a revenue equal to the 2009 revenue share from Japan for the world's 250 largest retailers.,
A Wall Street Journal article claims that fresh investments in Indian organized retail will generate 10 million new jobs between 2012-2014, and about five to six million of them in logistics alone; even though the retail market is being opened to just 53 cities out of about 8000 towns and cities in India.
It is expected to help tame stubbornly high inflation but is likely to be vehemently opposed by millions of small retailers, who see large foreign chains as a threat. The need to control food price inflation -- averaging double-digit rises over several years -- prompted the government to open the sector, analysts claim. Hitherto India's food supplies have been controlled by tens of millions of middlemen (less than 5% of Indian population). Traders add huge mark-ups to farm prices, while offering little by way of technical support to help farmers boost their productivity, packaging technology, pushing up retail prices significantly. Analysts said allowing in big foreign retailers would provide an impetus for them to set up modern supply chains, with refrigerated vans, cold storage and more efficient logistics. "I think foreign chains can also bring in humongous logistical benefits and capital," Chandrajit Banerjee, director-general, Confederation of Indian Industry, told Reuters. "The biggest beneficiary would be the small farmers who will be able to improve their productivity by selling directly to large organised players," Mr Banerjee said.
Social impact and controversy with retail reforms
The November 2011 retail reforms in India have sparked intense activism, both in opposition and in support of the reforms.Opposition to retail reforms
Within a week of retail reform announcement, Indian government has faced a political backlash against its decision to allow competition and 51% ownership of multi-brand organized retail in India.Despite the fact that Salman Khurshid, India’s law minister, claiming that many opposition parties, including the Bharatiya Janata Party, had privately encouraged the government to push through the retail reform, the intense criticism now targets Congress-led coalition government, and its decision to push through one of the biggest economic reforms in years for India. Opposition parties claim supermarket chains are ill-advised, unilateral and unwelcome.
The opposition claims the entry of organized retailers would lead to their dominance that would decimate local retailers and force millions of people out of work.
Mamata Banerjee, the chief minister of West Bengal and the leader of the Trinamool Congress, announced her opposition to retail reform, claiming “Some people might support it, but I do not support it. You see America is America … and India is India. One has to see what one’s capacity is.”
A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP), threatened to "set fire to the first Wal-Mart store whenever it opens;" with her colleague Sushma Swaraj busy tweeting up a storm of misinformation about how Wal-Mart allegedly ruined the U.S. economy.
Support for retail reforms
Many business groups in India are welcoming the transformation of a long-protected sector that has left Indian shoppers bereft of the scale and variety of their counterparts in more developed markets.B. Muthuraman, the president of the Confederation of Indian Industry, claimed the retail reform would open enormous opportunities and lead to much-needed investment in cold chain, warehousing and contract farming.
Organized retailers will reduce waste by improving logistics, creating cold storage to prevent food spoilage, improve hygiene and product safety, reduce counterfeit trade and tax evasion on expensive item purchases, and create dependable supply chains for secure supply of food staples, fruits and vegetables. They will increase choice and reduce India’s rampant inflation by reducing waste, spoilage and cutting out middlemen. Fresh investment in organized retail, the supporters of retail reform claim will generate 10 million new jobs by 2014, about five to six million of them in logistics alone.
Organized retail will offer the small Indian farmer more competing venues to sell his or her products, and increase income from less spoilage and waste. A Food and Agricultural Organization report claims that currently, in India, the small farmer faces significant losses post-harvest at the farm and because of poor roads, inadequate storage technologies, inefficient supply chains and farmer's inability to bring the produce into retail markets dominated by small shopkeepers. These experts claim India's post-harvest losses to exceed 25%, on average, every year for each farmer.,
Not only do these losses reduce food security in India, the study claims that poor farmers and others loose income because of the waste and inefficient retail. Over US$50 billion of additional income can become available to Indian farmers by preventing post-harvest farm losses, improving transport, proper storage and retail. Organized retail is also expected to initiate infrastructure development creating millions of rural and urban jobs for India’s growing population. One study claims that if these post-harvest food staple losses could be eliminated with better infrastructure and retail network in India, enough food would be saved every year to feed 70 to 100 million people over the year.
Supporters of retail reform, The Economist claims, say it will increase competition and quality while reducing prices helping to reduce India's rampant inflation that is close to the double digits. These supporters claim that unorganized small shopkeepers will continue to exist alongside large organized supermarkets, because for many Indians they will remain the most accessible and most convenient place to shop.
Supporters of retail reform who have voiced the need to promote organized retail include Chief Ministers of several states of India, several belonging to political parties that have no affiliation with Congress-led central government of India. The list includes the Chief Ministers of Maharashtra, Andhra Pradesh, Tamil Nadu and Gujarat. In a report submitted earlier in 2011, these Chief Ministers urged the Prime Minister to prioritize reforms to help promote organized retail, shorten the retail path from farm to consumer, allow organized retail to buy direct from farmers at remunerative produce prices, and reduce farm to retail costs. Similarly, the Chief Minister of Delhi
Delhi
Delhi , officially National Capital Territory of Delhi , is the largest metropolis by area and the second-largest by population in India, next to Mumbai. It is the eighth largest metropolis in the world by population with 16,753,265 inhabitants in the Territory at the 2011 Census...
has come out in support of the retail reform, as have the Chief Ministers of the farming states of Haryana
Haryana
Haryana is a state in India. Historically, it has been a part of the Kuru region in North India. The name Haryana is found mentioned in the 12th century AD by the apabhramsha writer Vibudh Shridhar . It is bordered by Punjab and Himachal Pradesh to the north, and by Rajasthan to the west and south...
and Punjab in north India., The Chief Ministers of Haryana and Punjab claim that the announced retail reforms will immensely benefit farmers in their states. The Chief Minister of the state of Maharashtra
Maharashtra
Maharashtra is a state located in India. It is the second most populous after Uttar Pradesh and third largest state by area in India...
- the state with the highest GDP in India and home to its financial capital Mumbai - has also welcomed the retail reform.,
Existing Indian retail firms such as Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and ShopRite support retail reform and consider international competition as a blessing in disguise. They expect a flurry of joint ventures with global majors for expansion capital and opportunity to gain expertise in supply chain management. Spencer's Retail with 200 stores in India, and with retail of fresh vegetables and fruits accounting for 55 per cent of its business claims retail reform to be a win-win situation, as they already procure the farm products directly from the growers without the involvement of middlemen or traders. Spencer’s claims that there is scope for it to expand its footprint in terms of store location as well as procuring farm products. Foodworld, which operates over 60 stores, plans to ramp up its presence to more than 200 locations. It has already tied up with Hong Kong-based Dairy Farm International. With the relaxation in international investments in Indian retail, India’s Foodworld expects its global relationship will only get stronger. Competition and investment in retail will provide more benefits to consumers through lower prices, wider availability and significant improvement in supply chain logistics.