“No power on earth can stop an idea whose time has come” Dr Manmohan Singh, then Finance Minister of India, quoting Victor Hugo while presenting the Union Budget 1994-95, making a reference to the Indian economy's unlimited potential. If Dr Singh were to use the quote again today, he would probably apply it in the context of the promise contained in the Indian retail industry, and in particular, organized retail in India in the days to come. Retailing in
Indian retail – The right enablers are falling in place. There are multiple factors driving Indian retail growth. With roughly 60 percent of the total population below 30 years of age, favorable demographics are expected to drive consumption across categories. The purchasing power of a young consuming middle class has been talked of considerably since the time of economic liberalization in 1991. However, it is only today that we are witnessing the spending power associated with this consumer segment. For example 50 percent of the cellular phone purchases in the past year were by the under-30 age group2. This consumption is expected to continue due to the aspirational nature of spending associated with this consumer segment. Most of the retail malls in
Role of Formats:-
In modern trade retailing, a key strategic choice is the format. Innovations in formats can provide an edge to retailers. A study of evolution of the largest retail market in the world, the
offering a range of services from saloons to cafes, newsstands and grocery stores. The 50s saw the emergence of the 'enclosed' shopping mall, providing an end-to-end shopping and entertainment experience from food courts, theatres to shopping outlets.
The last major development in the American retail landscape was the discount stores along the lines of Wal-Mart and Costco. Discount stores are large stores with more than 100,000 sq ft of space situated at a distance from the city-centre or the suburb. Typically these discount chains gain significant market share in a relatively short span of time, and cater to the entire spectrum of household requirements such as grocery, apparel, household goods, do-it-yourself stores, books and even banking services.
Can Indian retailers learn from such experiences and leapfrog to the most successful formats abroad is a key question on everyone's mind. In the Chinese market, modern format stores such as hypermarkets and convenience stores have proved to be extremely successful. One of the key enablers for this popularity has been the high level of urbanization in the country.
Another unique factor in these hypermarkets is that they predominantly stock food. They also stock 'fresh produce' alongside groceries to cater to local consumer tastes.
An AC Nielsen survey across seven leading Chinese cities in July 2005 pointed to the popularity of modern formats in
Format choices by Indian retailers:-
The respondents of the KPMG retail survey in
Here, the interesting calculation I’m explaining. Suppose a manufacturer sets up some product with maximum retail price is Rs.20. The manufacturing cost is Rs.8, plus other charges ends up Rs.10 at the manufacturing point, which is the distributor buying price. Distributor keeps Rs.2 as margin and forwards the materials to the dealer points at the price of Rs.12. The dealer/retail point would purchase the item at Rs.18 and sales it at Rs.20 keeping 10% margin. So, the Rs.6 is the cost of the manpower, promotion plus some deals in the entire supply chain. Now, suppose a mall buys the item with the distribution price @Rs.12 and sells it to the retailer at the price of Rs.18 and the retailer at the price of Rs.16 it extends value of money in both the points with a discounted pricing. Hence, a grocery shop owner is making more profit and the buyer is also saving Rs.2. The mall owner is making more margin and controlling both the retail point pricing and MRP and manipulating buyer’s with the value deals because still he’s having volume margin at his hands from the manufacturer.
Similarly, ITC is experimenting with a model which brings together a two way flow of goods in the retail outlet - farmers sell their produce and purchase goods to fulfill their consumptions needs. While the experience of these retailers as they scale up beyond their current geographies may provide new insights and lead to modification or fundamental re-engineering of their formats in future, such experimentation and identification of an appropriate format for the local conditions would differentiate winners from losers in Indian retail market of the future.
The retail supply chain in
The key imperative facing retailers in
Most Indian retailers KPMG surveyed have inventory turns levels between 4 to10. Another metric of efficient supply chain management is the stock availability on the retail shelves. Global best practice retailers achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock out level of less than 5 percent). The stock out levels among Indian retailers surveyed ranged between 5 to 15 percent. Looking at the inventory turns and stock availability metrics, retailers in
1. KPMG, 'Retail Outlook for China 2005'
2. KPMG, 'Trends in Retailing -
3. HSBC, 'Jumbo retailing - Organised retailing in
4. Fitch Ratings, 'Indian Retailing - Investing for Growth'