Organised retail as the west knows it is taking root in India, spurred on by economic liberalisation and rising disposable income. Foreign retailers are eyeing India as they step up their international expansion. Good idea? In the first half of a two-part feature, Debasish Ganguly profiles the sector.
Despite its poverty, the size of India’s population and the diversity of its economy ensure that India provides a huge market for consumer goods, especially food. The process of economic liberalisation which has taken place over the last few years has ensured that this market has been both expanding and growing more diverse. While purchasing power is low, there is immense potential for the spread of branded goods of any appropriate sort.
Retailing has responded to this in a number of ways. The growth in disposable income amongst the more affluent, much of it “invisible” to official statistics, has underpinned the recent development of organised retailing in the major metropolitan areas. At the same time, rising incomes amongst the mass of the population, especially rural areas, has stimulated the growth of retail outlets of all sorts.
The development of the country, not only the slow, steady increase in its standard of living, but also its increasing degree of urbanisation and, perhaps paradoxically, the prevalence of poverty (attracting entrants into the sector where startup costs are low), has been driving a significant increase in the number of retail outlets. In urban areas the rate of increase is 8-10% p.a., in rural areas it is about 15%.
The most commonly understood benefit that a consumer looks at is low price tags, a nice environment, friendly service and guaranteed product quality. Some of these needs are being catered to and up-market Indian retailing has started appealing to the Indian shopper for its clean air-conditioned environment.
Food retailing in India is predominantly a small-scale business. Small family owned shops typically retail food products in urban residential areas, urban markets and in villages throughout India. These grocery stores mainly sell food commodities. Small independent general stores (similar to grocery stores) retail branded foods. Specialised food stores mainly sell bakery products, confectionery, dairy products, processed meat, fruits, vegetables, grains, pulses, spices and condiments, juices and other beverages. Hawkers sell fresh fruits and vegetables on open stalls or handcarts in wet markets.
There are various ways of making goods available to consumers such as:
- Company to distributor to wholesaler to retailer to consumer
- Company through salesperson to consumers
- Company to consumers (online/phone/catalogue ordering)
These three are the most common ways of making the goods available to consumers. But in India the three-tiered system of distributor, wholesaler and retailer forms the backbone of the front-end logistics of most of the consumer-good companies. Retailing so far has been fragmented in India due to major reasons including:
- Low per capita income
- Savings-focused and less indulgent mindset
- Poor infrastructure facilities like roads etc
- Restriction on intra-state good movement
- High taxes
- Expensive supply chain
Retail size & categorisation
Today in India, the industry estimates that there are about six million retail outlets and most of them are family run and locally owned. There are few nationally present retail stores in India but in the recent past, expansions in some major retail chains have been seen. This is due to the increasing influence of media and urbanisation. Seeing the huge market of retail business in the country and the current level of the organised segment many players have jumped into the fray and many more are waiting for the right opportunity to enter it.
In Indian context the retail sector can be broken down into traditional retail stores and modern retail stores. But apart from that there is a huge number of vendors and street markets that do not generally report to the government.
Unofficial estimates indicated that there are about five to eight million such retailers in the informal economy.
The traditional and modern retail format for the organised retail market can be further classified:
- On the basis of covered area
- On the basis of products retailed
- On the basis of ownership arrangement as well as product categories
- On the basis of readiness for riding the expected retail boom
Organised retailing also has a segment called branded retail stores. These have proliferated in the past few years with the growth of organised retailing.
In rural India, two kinds of stores that are popular are grocery stores and general stores. The urban India retail format is more varied with kiosks, foodstores, grocery, departmental stores, supermarket and other convenience stores. Although, there are wide categories of stores, the retail outlets in urban areas accounts for approximately 42% of all retail outlets in India.
In rural and urban India, traditional retail outlets like grocery and general stores have been successful so far because of their convenience (proximity to homes) and personal attention. Few Indian consumers have access to transportation to travel to a supermarket, and most consumers prefer their local neighbourhood shops that carry only a slight narrower range of products.
Currently there are two significant trends taking shape in Indian retailing. First, the Indian retailers have started promoting brands instead of just selling commodities. Larger retail outlets are influencing brand selection and are beginning to use merchandising techniques. Some of these stores charge brand owners for shelf space and window displays. This is in stark contrast to the small shopkeepers who paid personal attention to regular customers and strongly influenced their buying decision.
Secondly, retailers have also started offering home delivery services in urban areas.
It has been observed that there is a gradual shift in the control on the market from retailers’ hands to customer hands. In India presently the market has become more consumer-dictated.
Of all categories of retailing, food retailing is expected to witness a major boom. Of the total expenditure by Indian consumers around 53% is spent on food, beverage and tobacco, 12% on transport, 11% on clothing and footwear, 7% on rent, 4% on furniture, 4% on recreation, 2% on medical care and the rest on miscellaneous items.
Food retailing has largely been in the hands of small roadside grocer shops, mandis, roadside vendors etc. throughout Indian history but slowly the shift is taking place towards retailing through supermarkets.
By Debasish Ganguly, just-food.com correspondent
This is the first part of a two-part feature. To read part two please click here.
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