Indian Retail Industry… What does the future hold?

US based Wal-Mart Stores Inc., the world's biggest retailer, is entering India's sprawling retail market through a tie up with Bharti Enterprises Ltd. In the future, we will have many such cases of global retailers entering Indian markets, given the huge Indian consumer base and growth across all sectors of the economy generating a positive wealth effect of sorts.

According to KSA Technopak, a consultancy firm, the Indian retail market is projected to grow from US$300 Billion in 2006 to US$637 Billion by 2015 as GDP rises from US$804 Billion to US$1.7 Trillion over the same period. The bulk of the market is unorganised with less than 5% being classified as ‘organised retail’. The urban market is 45% of India's retail market, with the top 784 cities alone accounting for US$105 billion in retail sales. The rural market is dispersed over 627,000 villages, though it has a concentration around a core 100,000 villages that account for 50% of the rural population. Indian retail has a unique concept of ‘Kiranawallahs’, family run small shops.

With global players all set to capture the Indian retail, the Indian businesses have also recognised the opportunity and recently few large businesses have jumped into retailing. Reliance entered the retail market by opening its chain of Reliance Fresh hypermarkets in the city of Hyderabad. Reliance is expected to pump in close to US $ 5 billion in the next five years to build a chain of thousands of such shops across urban and rural India. The Aditya Birla Group is reported to be putting together a plan for a similar venture in the retail space. The group may invest upwards of US$3 billion to set up 6,000 stores within three years, with the first stores set to open by middle of next year. Pantaloon Retail, an earlier entrant to retail in India, has aggressive plans to double its retail space to 8 million sq ft within a year and to 30 million sq ft by 2010. It owns the most successful Big Bazaar/ Food Bazaar chain of retail shops. Godrej Agrovet and ITC (e-choupal) are large payers focusing primarily on the rural sector. Godrej plans to launch 1,000 Aadhar stores in rural India by 2010. The Tata Group is also getting involved in the business in a big way with Infiniti Retail venture. It has already opened its Chroma chain of consumer electronics shops across Mumbai. Global players like French retailer Carrefour, UK based Tesco are some of the other biggies in the pipeline waiting for their share of the action.

The Left is opposing such a generous liberalisation of the Indian markets. They believe that the scale and efficiency of the operations of the mammoth global retailers will hit the business of small family run Kiranawallah Shops and will leave millions of people jobless. The global players, on the other hand, are arguing that they will be targeting only the cream of the Indian consumer base in the urban India and will not affect Kiranawallahs in any significant way. They also argue that large Indian retailers like Reliance, Pantaloons, etc are also posing similar threat to the small retailers, if at all. Whatever may be the fate of the smaller retailers, the consumers will surely win with maturing retail market. Long used to shopping in packed and dusty marketplaces, they will flock to the neat, air-conditioned malls, fascinated by the convenience of one-stop shopping, a wide range of products to choose from, and significantly lower prices than they pay today. The savings will likely find their way back via higher consumption, helping drive the economy. Tax collections will also increase as more retail sales flow through the organised trade. Farmers and other suppliers who are able to deliver against the stringent quality requirements placed on them by modern retail will benefit from higher prices as middlemen get cut out of the supply chain. Landowners and real estate developers will laugh all the way to the bank as multi-billion dollar investments compete for limited supply of space.

So, what does the future hold for big retailers, Kiranawallahs and consumers?

As I’ve already mentioned, consumers are in for a good time for sure.

Contrary to general opinion, I think that the local Kiranawallahs are in a vantage position. They already have a loyal consumer base in place in rural as well as urban India. The young Indian consumer may be charmed by the large, brilliantly lit malls, larger than life shopping experience and loads of so called discounts, but small shops can counter these by their customised, personalised services. They will have to unite and achieve the benefits of scale which the bigger retailers enjoy. They will have to drastically change the way they services their consumers and innovate and they can survive this revolution in the Indian retail. The Kiranawallahs are placed in the vicinity of their consumers and this is where they score over the larger retailers. My local Kiranawallah almost knows all my family’s preferences right from the brand of the oil that we use to the quantity of wheat floor that we consume every month. For all my sundry orders like a loaf of bread, a bottle of ketchup, a pack of Maggie, I cannot go to a large retailer’s shop. My local Kiranawallah turns to my help in such cases. Indian consumer is not used to doing all his shopping for the month at one go. With the increasing share of organised retail in the Indian retail industry, the consumer will also have to transform itself into an organised consumer. If all small retailers in an area come together to give a basket of services to the consumers in the area then Kiranawallahs can very well survive alongside the big retailers. I really think that Kiranawallahs can see through this retail restructuring if they believe that they can counter bigger retailers and innovate.

As for large retailers, not everything is as good as it seems. There are already half a dozen players who have either announced their entry or are already operating in the organised retail. There will be enormous advertising and consumer education expenses that these larger players will have to bear. Immense competition in the large players will see a fierce price battle and will reduce the margins drastically. Foreign retailers cannot mimic their US or Europe business models directly into India as Indian consumer has its own characteristics and Indian market is like no other markets they’ve been before in. Only a few players with superior supply chain and consumer reach will survive this revolution.
Indian retail is trying to achieve in a decade what other developed retail markets have achieved in a span of two to three decades. This very fact makes this transition period very interesting. No one knows who will survive and who will not but consumers are surely in for a good time.