A Nation of Shop keepers... getting Better !

India, like Britain, is also a nation of shopkeepers. With over 12 mn retail outlets, India
has one of the highest densities of retail outlets in the world with one retail outlet for ~90
persons. No wonder India is the ninth largest retail market in the world with annual retail
sales of ~USD 215 Bn in 2005. However, the share of organized trade in India is
currently very low estimated at just Rs. 35,000 Cr. in 2005 (Rs. 28,000 in 2004). This
accounts for less than 4% of the total retail trade in the country.

Organised trade in India is highly under-developed as compared with other emerging
markets in Asia, Latin America and Eastern Europe and developed markets like the US.
Country
% Share of
Organized Trade
(2003)
India 4%
China 17%
Poland 20%
Indonesia 30%
Russia 33%
Brazil 35%
Thailand 40%
Malaysia 55%
USA 85%
Organised Retail : India Vs. China
Indian and Chinese markets are comparable in many aspects.
• Both countries are not homogeneous. They are composed of many markets within a
single country with significantly varying cultures and customer preference across
regions.
• There is a significant rural population in both countries with much lower purchasing
power as compared to their urban counterparts.
• Both countries are very large geographically thereby adding the distribution and
logistics dimension to trade.
• Lastly, consumers in both countries are highly value conscious.
Between 1996 and 2003, the organized retail market in China more than doubled. We
estimate the Indian retail market today at the same inflection point as China in the mid-
1990s. Considering similar per capita GDP and economic growth, the Indian organized
retail market has exponential growth potential over the next decade.
Consumerism in India : The New Wave
Growing consumerism would be a key driver for organized retail in India. Several
demographic trends are favorable for the growth of organized

Rapid income growth : Consumers have greater ability to spend.
• Increasing Urbanization : Larger urban population which values convenience coupled
with higher propensity of the urban consumer to spend
• Growing young population : Growth of post liberalization maturing population with the
willingness to spend (attitude)
• Tendency to spend now v/s save earlier. Consumers willing to borrow for current
consumption

Organised Retail Market in India : Size of Opportunity
Going forward, in the next 10 years, the overall retail market in India
is likely to grow at a CAGR of 5.5% (at constant prices) to 1,677,000 Cr in 2015. The
organized retail market is expected to grow much faster at a CAGR of 21.8% (at
constant prices) to Rs. 246,000 Cr by 2015 thereby constituting ~15% of the overall retail
sales. Based on our projections, the top 5 organized retail categories by 2015 would be
food, grocery & general merchandise, apparel, durables, food service and home
improvement.
Organised Retail Market in India (Rs. Cr.)
Where is the opportunity?
Retailers inspired by the Walmart story of growth in small town America are tempted to
focus on smaller towns and villages in India. However, a careful analysis of the town
strata-wise population, population growth, migration trends and consumer spend
analysis reveals a very different picture for India.
As per our estimates, the share of the 35 towns with current population greater than 1
mn in the overall population of India would grow much faster from 10.2% today to reach
14.4% by 2025. Simultaneously, the share of these towns in the overall retail market
would grow from 21% today to 40% by 2025.
Within these top 35 towns, an estimated 70-80% of trade could be in the organized
sector. This is similar to the experience in China where in cities like Shanghai and
Beijing, organized sector accounts for 70-80% of overall retail trade in certain categories.
Hence, retailers should focus on the top 37 towns in the next decade. The opportunity in
smaller towns and rural India would be smaller and fragmented as compared to the
larger towns.

There are a few key trends that one observes in international markets that have a
bearing on India.
Trend 1 : Consolidation of market share - The big getting bigger
In the early stages of development in retail markets, there is a proliferation of players.
For example in China in 2003 the top 100 players accounted for only 8% of the total
retail market with the top ten accounting for 3.2% of the market. However, when retail
markets develop there is a consolidation of players with fewer large players dominating
the market. This trend is starkly visible in the developed economies of US and Europe.

As per data from M+M Planet Retail, in 1990 30 retailers accounted for 20% share of the
US retail market. By 2005, only 8 retailers accounted for the same 20% share of the market.
Similarly, in 1990 37 retailers accounted for 20% share of the European retail market. By
2005, only 10 retailers accounted for the same share of the market.

Trend 2 : Convenience stores and hypermarket formats are gaining prominence
These are driven by consumer need for convenience and lower price / higher value in
mass categories while big box category killer stores are gaining importance in the
specialty retail categories. While supermarkets may emerge at the initial stages of retail

Trend 3 : Private label products become increasingly important
Private labels today account for 17% of global retail sales with the highest share of 23%
in Europe and Asia the least at 4%. As per M+M Planet Retail data, private label
penetration varies from 25%-95% among some of the largest retailers in the world.
Rank Company Estimated Share of
Private Labels (%), 2004
1 Aldi 95
2 Schwarz Group (Lidl) 63
3 Target 46
4 Tesco 45
5 Casino 40
6 Wal-Mart 37
7 ITM (Intermarché) 35
8 Carrefour 32
9 Seven & I 27
10 Rewe 25

Growing acceptance among consumers, increasing price competition and need for
differentiation among retailers and lastly the ability to offer higher margins are the key
factors contributing to the growth of private labels. Private labels provide the retailer an
ability to offer a significant price advantage to consumers with private label prices being
16-32% lower as compared to manufacturer brands.

Implications for Indian Retailers
The global trends have important implications for Indian retailers. The Indian consumer
remains value conscious. The consumer in most cases is willing to spend money, but
remains cost conscious, evaluating every rupee spent. It is therefore imperative for
retailers to offer price advantage via sourcing and operational efficiency and a strong
private label program to attract customers. Existing and new entrants need to achieve
scale quickly for driving efficiencies in procurement, supply chain and marketing. Else
they risk being marginalized by larger players.
Real estate and human resources will be the critical drivers to build scale. While there
are a few hundred malls under various stages of development across the country,
retailers will need to think out of the box as well to ensure availability of real estate. This
may include acquiring and developing the real estate themselves rather than wait for
mall development. Given the rising demand for retail real estate, retailers will need to
take a long term view on rentals and look at alternative options like ownership or very
long term leases. Retailers that invest in training will be able to ensure availability of
quality manpower in the rapidly growing market.

( Source :: Web /not an orginal Blog Post )