investment potential in retail sector of india
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Prepared For:
Prepared By:
,
IMRB International
February, 2009
INVESTMENT POTENTIAL IN RETAIL
SECTOR OF INDIA
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 2
PREFACE
Thai-Indian business relations have improved considerably over the past decade.
Thailand and India are close to concluding a Free Trade Agreement (FTA) covering trade
in goods by 2010. The Free Trade Agreement between Thailand and India is expected to
improve trade relations between the two countries further. The FTA covering trade in
goods would lead to long term mutual benefits in trade and investment and the
partnership would be expanded further to cover technology knowledge and expertise
India's primary imports from Thailand are machinery, electronic appliances, textiles,
plastic material, transport equipment, vegetable oil and latex. The major items of imports
under FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners and
Aluminum products. Thailand‘s main imports from India are jewelry, gemstones, steel,
pharmaceuticals and ferrous metal ores.
India's trade with Thailand could touch USD 7 billion by 2010-11 propelled by a
doubling in transaction under Free Trade Agreement (FTA). The EHS was implemented
on September 1, 2004, under which tariffs on 82 items were to be phased out by
September 1, 2006 by both the sides.
The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 from
US $ 2.2 billion in 2005-06.
The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increased
by over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in
2003-04. The share of these 82 items in India-Thailand trade increased from 10.34
percent in 2003-04 to 15.68 percent in 2005-06.
Thailand‘s export to India of the identified 82 EHS items was increased from US $ 84.64
million to US $ 275 million during the period from 2003 – 04 to 2005 – 06. During the
same time, India‘s export to Thailand of these items increased from US $ 64.28 million to
US $ 83.03 million during the same period.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 3
In 2007, Thailand‘s export for these 82 items was US $ 406.31 million. Due the FTA
between two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007
in bilateral trade between Thailand and India.
With significant potential for growth of business between the two countries, the Ministry
of Commerce, Thailand and Royal Thai Embassy would like to understand the
investment potential in the following two sectors:-
1. Retail in India (with focus on Apparels & Fashion Accessories, Footwear, Food &
Grocery, Furniture & Furnishing, Personal Care, and Consumer Durables as
product verticals)
2. Logistics in India
In order to understand the trade potential across the above categories, the Ministry of
Commerce, Thailand and Royal Thai Embassy has commissioned Business and Industrial
Research Division (BIRD) of IMRB International to avail its research based consultancy
services.
Report for both the product categories are being submitted separately in two different
modules.
The following report ‘Investment Opportunities in Retail Sector of India’ is based on
the study conducted in Retail sector of India.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 4
TABLE OF CONTENT
1. EXECUTIVE SUMMARY................................................................................................................. 8
2. RETAIL SECTOR IN INDIA ...........................................................................................................16
2.1. EMERGENCE OF MODERN (ORGANIZED) RETAIL IN INDIA ..........................................................16
2.2. INDIA: A PREFERRED RETAIL DESTINATION ...............................................................................17
2.3. KEY GROWTH DRIVERS FOR MODERN RETAIL IN INDIA .............................................................18
2.4. SIZE AND GROWTH OF RETAIL IN INDIA ......................................................................................21
2.4.1. Product Category-wise Break-up of Retail Market ...............................................................21
2.4.2. Organized Retail as Part of Total Retail ...............................................................................22
2.4.3. Product Category-wise Break-up of Organized Retail ..........................................................22
2.4.4. Category-wise Penetration of Organized Retail ....................................................................23
2.4.5. Food & Beverage based Servicing Retail in India ................................................................24
3. MODERN RETAIL STORE FORMATS ........................................................................................26
3.1. PREMIUM LIFESTYLE RETAILING ................................................................................................27
3.2. LIFESTYLE RETAILING ................................................................................................................28
3.2.1. Departmental Stores ..............................................................................................................28
3.2.2. Apparel and Fashion Stores ..................................................................................................28
3.3. VALUE RETAILING .......................................................................................................................29
3.3.1. Supermarkets .........................................................................................................................29
3.3.2. Hypermarkets.........................................................................................................................30
3.4. OTHER RETAIL FORMATS ............................................................................................................32
3.4.1. Specialty Stores......................................................................................................................32
3.4.2. Discount Stores/ factory outlets .............................................................................................33
3.4.3. Airport Retailing ....................................................................................................................34
3.4.4. Online, Telephone and Catalogue Buying .............................................................................34
3.4.5. Shopping Malls ......................................................................................................................34
3.4.6. Food Outlets as part of Modern Retail ..................................................................................36
4. CASH AND CARRY STORES .........................................................................................................38
4.1. GLOBAL RETAILERS ENTRY THROUGH CASH & CARRY FORMAT ...............................................38
4.2. DOMESTIC PLAYERS NOT FAR BEHIND .......................................................................................39
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 5
5. SUPPLY CHAIN INSIGHTS ...........................................................................................................40
5.1. SUPPLY CHAIN MODEL FOR MODERN RETAIL OUTLETS .............................................................40
5.1.1. Level 1: Product Sourcing .....................................................................................................41
5.1.2. Methods of Procurement........................................................................................................42
5.1.3. Level II: Storage and Distribution .........................................................................................46
5.1.4. Level III: Retail Stores ...........................................................................................................47
5.2. SUPPLY CHAIN FOR FOOD & BEVERAGE SERVICING RETAIL IN INDIA ........................................48
5.2.1. Level I: Suppliers ...................................................................................................................48
5.2.2. Level II: Distribution .............................................................................................................49
5.2.3. Level III: Outlets ....................................................................................................................50
5.3. LOGISTIC FACILITIES FOR RETAIL INDUSTRY IN INDIA ................................................................51
5.3.1. Cost of Logistics in Indian Retail ..........................................................................................52
6. RENT STRUCTURE IN RETAIL ...................................................................................................53
6.1. PREVALENT RENTAL MODELS IN INDIA ......................................................................................53
6.1.1. Fixed Lease Rental Model .....................................................................................................53
6.1.2. Revenue Sharing Model .........................................................................................................53
6.2. MAJOR COMPONENTS OF OCCUPANCY COSTS IN INDIA ..............................................................53
6.3. ANCHOR TENANTS VERSUS VANILLA RETAILERS ........................................................................54
6.4. INCREASE IN LEASE RENTAL .......................................................................................................54
6.5. ECONOMIC SLOWDOWN AND CHANGES IN STRATEGIES OF RETAILERS .......................................55
6.6. EXCESS SUPPLY OF RETAIL SPACE IN PIPELINE ...........................................................................56
6.7. CHANGING RENTAL MODELS ......................................................................................................56
6.8. THE ROAD AHEAD ......................................................................................................................57
7. PROFITABILITY ACROSS VERTICALS ....................................................................................58
7.1. A COMPARISON BETWEEN APPARELS, FOOD & GROCERY AND HOME APPLIANCES ....................58
8. LEADING RETAIL COMPANIES OF INDIA ..............................................................................61
8.1. STRENGTHS AND WEAKNESSES OF KEY ORGANIZED PLAYERS ...................................................62
9. INDIAN RETAIL INDUSTRY ANALYSIS ....................................................................................70
9.1. INDIAN RETAIL MARKET ANALYSIS BASED ON NINE FORCES MODEL ........................................70
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 6
9.1.1. Threat of New Entrants (High) ..............................................................................................70
9.1.2. Threat of Substitutes (High) ...................................................................................................74
9.1.3. Bargaining Power of Suppliers..............................................................................................74
9.1.4. Bargaining Power of Buyers (High) ......................................................................................76
9.1.5. Competitive Rivalry (Medium)...............................................................................................77
9.1.6. Government (Legal and Political Shifts) ...............................................................................78
9.1.7. Social Shifts ...........................................................................................................................79
9.1.8. Technological Shifts ..............................................................................................................80
9.1.9. Economic/ International Shifts ..............................................................................................80
9.2. MAJOR CONSTRAINTS FOR MODERN RETAIL IN INDIA ................................................................81
9.3. EMERGING TRENDS IN THE INDIAN RETAIL INDUSTRY ................................................................85
9.4. CRITICAL SUCCESS FACTORS IN RETAIL .....................................................................................89
10. RETAILERS’ PERCEPTION ABOUT THAI IMPORTS........................................................92
10.1. APPARELS ...................................................................................................................................92
10.2. PLASTIC GOODS ..........................................................................................................................92
10.3. HOME DÉCOR ITEMS & ELECTRIC GOODS ..................................................................................93
10.4. FURNITURE..................................................................................................................................93
10.5. FOOTWEAR ..................................................................................................................................94
10.6. PROCESSED FOOD .......................................................................................................................94
10.7. PERSONAL CARE ITEMS...............................................................................................................96
10.8. OTHER FACTORS RELATED TO THAILAND....................................................................................96
11. POSSIBLE WAYS FOR ENTRY OF FOREIGN RETAILERS IN INDIA ............................97
11.1. MANUFACTURING AND SOURCING...............................................................................................97
11.2. CASH-AND-CARRY OPERATION....................................................................................................97
11.3. FRANCHISING ..............................................................................................................................97
11.4. TEST MARKETING .......................................................................................................................98
12. CONCLUSIONS AND RECOMMENDATIONS ......................................................................99
12.1. LEVEL OF ATTRACTIVENESS VERSUS SUITABILITY FOR THAI INVESTORS ....................................99
12.2. PROPOSED ENTRY STRATEGY ...................................................................................................101
12.3. PHASE I .....................................................................................................................................102
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 7
12.3.1. As Suppliers ....................................................................................................................102
12.3.2. Look Out for Joint Ventures/ Franchisees/ 3 PL.............................................................103
12.4. PHASE II ....................................................................................................................................104
12.4.1. Single Brand Outlets .......................................................................................................105
12.4.2. Cash and Carry Stores ....................................................................................................108
12.4.3. Test Marketing ................................................................................................................109
12.5. PHASE III...................................................................................................................................110
12.5.1. Establishing Manufacturing Base in Select Product Categories ....................................111
12.5.2. Entering Theme / Specialty Malls ...................................................................................111
12.6. RECOMMENDATIONS ON FOCUS WITHIN EACH IDENTIFIED PRODUCT CATEGORY ....................112
1. ANNEXURE 1 ..................................................................................................................................113
1.1. COMPANY PROFILES IN RETAIL .................................................................................................113
2. ANNEXURE II .................................................................................................................................130
2.1. CITY-WISE RENTAL TRENDS .....................................................................................................130
3. REFERENCES .................................................................................................................................137
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 8
1. EXECUTIVE SUMMARY
1.1 Retail Sector in India
Retail business contributes around 11 percent of country‘s GDP and is the second largest
sector in India, only after agriculture. Retailing as a sector is witnessing revolution in
India. Modern retail has entered India as seen in sprawling shopping centres, multi-
storeyed malls and huge complexes that offer shopping, entertainment and food all under
one roof. Though at present, around 94-95% of India‘s retail market is unorganized, as
compared to unorganized retail, organized retail is experiencing much higher growth and
throwing open opportunities for new entrants to come and grow.
India: A Preferred Retail Destination
For three years in a row (2005-07), India has been ranked as the top retail destination
globally by a study from A T Kearney that measured retail investment attractiveness for
30 emerging markets in the world.
Key Growth Drivers for Modern Retail in India:
Higher disposable income coupled with favourable demographic changes (Increase in
working women population, rise in nuclear family, largest young population and higher
growth in urban and sub-urban population), changes in consumer needs, attitudes and
behaviour, and increased credit friendliness are some of the key growth drivers for
modern retail in India.
Size and Growth of Retail in India
Retail sales in India have grown from $US 230 billion in 2003-04 to $US 330 billion in
2007-08. Organized retail at present accounts for only around 5-6% of the total retailing
in India. However, growth experienced by organized retail (more than 35% against an
overall retail growth of around 11% in 2006-07) is much higher as compared to
unorganized retail within India. The graphs below depict the product category-wise
break-up of total and organized retail.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 9
Coming to the category-wise share of organized retail out of total retail, timewear and
footwear are the categories with maximum organized retail (almost 50% of total retail in
each category). ‗Clothing & Textile‘ stands third with more than 20% of the trade in
organized retail.
1.2 Modern Retail Store Formats
Indian Retailers are experimenting with various modern retail formats customized to
customer categories and product mix. Following is a snapshot of various formats that
exist in India at present.
THE INDIAN RETAIL PIE (INDIA) 2007- 08 ( M a r k e t S i z e : $ US 3 3 0 bi l l i on)
Food &
Gr oc e r y
5 9 . 5 %
Foot wear
1.2%
Healt h & Beaut y
Services, 0.3%
Pharma
3.7%
Wat ches
0.3%
Jwellery
5.2%
Consumer
Durables
4.3%
Mobile&
Services
2.0%
Furnit ure &
Ut ensils
3.4%
Out -of -Home
Food Services
5.4%
Books, Music &
Gif t s
1.2%
Ent ert ainment
3.4%
Clot hing,
9.9%
THE ORGANIZED RETAIL PIE (INDIA) 2007-08 ( M arket Size: $U S 19 .4 2 b il i ion)
Food & Grocery
11.5%
Foot wear
9.9%
Beaut y Services
0.8%
Pharma
2.0%
Wat ches
2.7%
Jwellery
2.9%
Consumer
Durables
9.1%
Mobile, &
Services
3.5%
Furnit ure &
Ut ensils
6.4%
Out -of -Home
Food Services
7.3%
Books, Music &
Gif t s
2.8%
Ent ert ainment
3.1%
Clot hing,
38.1%
Source: F &R Research
Clothing Food & grocery Footwear
Pharmaceutical
Jwellery,
Accessories
Furniture &
Furnishing
Other Retail
Formats
Electrical &
Electronic
Equipments
Books & Stationery
Beauty &
Health Care Music &
Entertainment
Destination
Malls
Specialty
Stores
Modern Retail Store Formats
Discount stores
Airport retailing
Online/ telephonic &
catalogue buying
Key product
categories with
luxury brands:
Apparel
Jwellery
Time wear
Accessories
Furniture
Premium Lifestyle
based Retailing
Other Retail
Formats
Departmental
Stores
Apparel and
Fashion Stores
Lifestyle based
Retailing
Value based
Retailing
Supermarket
Hypermarket
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 10
This section discusses in details each of the above mentioned formats, average store
space under each format, preferred store locations and key players and their principal
fascia operating under these formats.
Cash and Carry Stores
As Government of India has allowed 100% FDI in cash and carry format, many foreign
companies are choosing to enter the market through this format. Amidst the increasing
interest from foreign players, domestic retailers have also been entering this format in
India.
1.3 Supply Chain of Modern Retail in India
Level I: Sourcing Level II: Storage
& Distribution
Level III: Retail Stores
Company-owned
outlets
Franchised Stores
Departmental stores
Specialty Stores
Hypermarket
Supermarket
Other formats
Products from other
countries
Local Manufacturers supplying to more
than one retailing company for selling
under private labels
Retail Company‘s own
procurement office in
other countries
Importer / Retail
company‘ Import
Partners
Companies Manufacturing Branded
Products
Local Manufacturers supplying to a
single retail company for selling under
private labels
Distribution Centres or Warehouses
owned by Retail Company or by its Logistic Partners
These may be central or regional distribution centres
depending upon the structure
adopted by the retailer
Retailer may have common or
separate warehousing
arrange-ments for its different
retail formats
Company‘s In-house
Inventory
Distribution Centre (Owned by Company‘s Franchisee or its
Logistic Partner)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 11
The section discusses in details each of the three levels of supply chain alongwith details
on standard methods of procurement and margins enjoyed in case of select product
categories.
Logistic facilities for retail industry in India
While some of the modern retailers in India have been outsourcing their logistics needs to
specialist service providers, many large players with national footprint have opted to
develop in-house logistic systems. According to industry sources, level of satisfaction of
retailers with their logistic partners is mostly low in India and that speaks of the poor
level of logistic services.
1.4 Rent Structure in Retail
Two types of rental models are prevalent in India – fixed lease rental model and revenue
sharing model. Though mall developers have been chasing for fixed lease rentals, of late
the retailers are bargaining hard for revenue sharing rental model. Given the increasing
competition in retail industry, high lease rentals and the sudden economic slowdown,
many retailers have changed their business strategies to mitigate the negative impacts and
consolidate their position. Slump in real estate sector and excess supply of mall space in
pipeline has also forced real estate developers to either cut down on rentals or adopt
‗revenue sharing based rental‘ or any other rental models. The diagram below depicts
the rental models that are likely to be used more frequently in Indian retail sector in
future.
Zero Rent System
Retailer exempt from paying
rental charges during the initial
years of operation.
E.g.: Pantaloon is learnt to have
signed such an agreement with a
developer.
The Road
Ahead…
Franchisee Route
‗License‘ granted by a company
to a person or group allowing
them to use/ sell certain products
E.g: Trent in tier II cities
Sub-letting
Selling of space by retailers to
other brands (mostly happens as
part of Concessionaire model)
E.g.: Shopper‘s Stop sub-lets
some space of its store to brands
like FCUK and CK.
Revenue Sharing Model
A minimum guarantee on rental
and/or percentage share of the
revenue whichever is higher
E.g: Inorbit mall in Mumbai
‗Select City Walk‘ mall in Delhi
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 12
1.5 Profitability across Verticals
A comparison between Apparels, Food & Grocery and Home Appliances concludes that
apparels enjoy maximum gross margins, followed by food & grocery and home
appliances. Key reasons for higher gross margins in case of Apparels among the three
verticals are: Scope for higher share of private labels in case of Apparels, Cost of
developing & training manpower and wage inflation in case of Home Appliances higher
as compared to Apparels and Food & Grocery, Smaller ticket size in case of food &
grocery, and Store space largest in case of Home Appliances followed by Apparels and
then Food & Grocery
1.6 Leading Retail Companies of India
Pantaloon Retail is at present the largest retail company in terms of turnover, whereas
Vishal Retail leads in terms of presence and penetration across in India. Reliance and
Aditya Birla have forayed into the retail market only in 2006, however, they are poised to
grow big and expand aggressively. Bharti-Walmart is expected to set new standards for
supply chain and back end logistics management and has aggressive growth plans in cash
and carry format. Subhiksha is India's largest supermarket, pharmacy and telecom retail
chain. In terms of turnover, Subhiksha is only next to Pantaloon Retail (figures from
2007-08). Shoppers‘ Stop and Lifestyle are leading in Departmental store format.
1.7 Indian Retail Industry Analysis
1.7.1 Indian Retail Market Analysis based on Nine Forces Model
Threat of New Entrants is high. Retailing doesn‘t require huge capital investments
into owning machineries and other assets; required technology can be obtained by any
new entrant; Specialist Knowledge requirement is addressable through right
recruitment, training and technology support; New entrants can differentiate
themselves in multiple ways; Distribution Channel are largely standardized and
replicable by new entrants; However, for a foreign player, there are FDI related
restrictions.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 13
Threat of substitutes is high. Neighbourhood mom & pop stores, and other outlets
as part of unorganized retail, all are close substitutes of various Modern retail
formats. Cost of substitution is also not high in this case.
Bargaining power of real estate suppliers can be perceived as high to medium.
Recent real estate slowdown has given modern retailers power to bargain for lower
rentals or adoption of alternate lease models (e.g. revenue sharing). Bargaining power
of vendors varies from product to product and depends hugely upon whether a
product is branded or unbranded and whether the relationship with supplier is
formalized or not.
Bargaining power of buyers is high in case of modern retail largely because of
increased level of awareness among buyers on brands, quality, pricing etc., high price
sensitivity among Indian buyers and availability of close substitute in form of
unorganized retail.
Competitive rivalry can be perceived as medium because of medium to low
industry concentration ratio, concentration of players in few pockets, presence of
untapped market with room for new players to enter and grow, and low exit barriers
Government of India allows FDI in retail under two categories: Up to 100 per cent in
cash-and-carry (wholesale) retail and Up to 51 per cent in single brand retail.
Government regulations related to licenses, permits and taxation require further
simplification. Please refer to the section for further details on social, technological
and international/ economic shifts.
1.7.2 Major Constraints for Modern Retail in India
Poor physical infrastructure coupled with lack of 3 PL players, Absence of cold chain and
proper storage, High lease rentals, Inadequate Human Resources, and Stringent
Government Regulations are some of the key constraints faced by modern retail in India.
1.7.3 Emerging Trends in the Indian Retail Industry
Key emerging trends in the Indian retail industry are aggressive future plans of leading
retailers with higher focus on value retailing, more cases of market entry through
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 14
inorganic route, tie-up with global retailers, focus on tier II & lower cities, increased
share of goods under private labels and advent of self service outlets.
1.7.4 Critical Success Factors in Retail
Three most critical success factors for modern retail in India are: Location, Merchandize,
and Knowledge & Information. Knowledge & Information stands for Knowledge about
customers‘ tastes & preferences and Information is with regard to Efficient Supply Chain
and Inventory Management through Proper Information System.
1.8 Retailers’ Perception about Thai Imports
Apparels, plastic goods including kids‘ toys, home décor items, furniture, footwears, and
personal care items are some of the product categories in which Thai imports are being
preferred by retailers in India
1.9 Possible ways for entry of Foreign Retailers in India
Franchising, Cash and Carry Format, Test Marketing, and Manufacturing & Sourcing are
the possible routes through which International players can enter India
1.10 Conclusions and Recommendations
Among all product categories, Apparel comes out as the most attractive from Thai
Investors‘ point of view. Furniture, Footwear, Personal Care and Plasticware are the other
high potential categories for Thailand.
Recommendations on Focus within Each Identified Product Category
Product Categories Category-wise Focus
Apparel All types of denim based apparels for men, women and kids; Other fashion and casual
apparels for men, women and kids
Footwear Female footwear (specially the stiletto heel sandals); Thai manufacturers need to keep higher
quality standards for female footwears
Personal Care Various available range of products (skin care, cosmetics & health care products)
Plasticware All types of plasticwares (including plastic containers)
Furniture Rubber-wood/ Parawood based furniture
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 15
Home Décor Artificial flowers, vases, lamp shades, electric lamps, paintings, wall hangings etc.
Processed & Fresh Food
Sauces, Ketch-ups, Spices based pastes, and few ready to cook items (preferably vegetarian);
Supply of fresh items such as lettuce leaf
Thai manufacturers need to change the product packaging in following ways: no shrimps or
fishes drawn on the packets; cooking instructions and other details to be in clear font; Green
and red labels standing for vegetarian, and non-vegetarian items respectively to be put
clearly on the packets
Food & Beverage Outlets Fast food Outlets and Coffee Chains
Proposed Entry Strategy : Thai Entrepreneurs should plan to invest in Indian Retail
Market in three phases that are briefed below:
Phase I: 1st Year
During the first year, it is being proposed that Thai investors explore the business
opportunities as suppliers to Indian retailers. In the meantime they should be at constant
look out for suitable business partners in India for opening of single brand outlets in
various product categories.
Phase II: 2nd
and 3rd
Year
Once the partner companies have been identified and the formal agreements have
happened, the branded products manufacturers of Thailand should then immediately
focus on opening of single brand outlets. Also, some of the leading Thai retailers,
preferably with past experience in the same categories, should plan to start Cash and
Carry business in India. In case of a few brands within select product categories, such
as Personal Care Items, Consumer Durables, and Processed food, Thai Manufacturers
may plan to enter India through the route of Test Marketing.
Phase III: 4th
Year onwards
To stay profitable in long term, establishing local manufacturing base, rather than
continuing to import, is a much desired step for select product categories. Also, this
would be the time to decide about putting up manufacturing facilities for the products that
were Test Marketed during Phase II. By the time phase III is entered, Theme malls
would have grown big on popularity. Thai Investors may plan to develop Thai Specialty
Malls.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 16
2. RETAIL SECTOR IN INDIA
With a population fast approaching 1.2 billion and an economy that is likely to double in
size by 2015, India seems destined to become one of the largest consumer markets in the
world over the next decade.
Retailing as a sector is witnessing revolution in India. Retail business contributes around
11 percent of country‘s GDP. From employment perspective, retail is already the second
largest sector in India, only behind agriculture. India's retail market is expected to grow
tremendously in next few years. According to AT Kearney, The Windows of Opportunity
shows that Modern Retailing in India was at opening stage in 1995, and has been in
peaking stage in 2006.
2.1. Emergence of Modern (Organized) Retail in India
Retailing in India is gradually inching its way to becoming the next boom industry.
Modern retail has entered India as seen in sprawling shopping centres, multi-storeyed
malls and huge complexes that offer shopping, entertainment and food all under one roof.
The whole concept of shopping has altered in terms of format and consumer buying
behavior, ushering in a revolution in shopping. The Indian retailing sector is at an
Window of Opportunity Analysis (based on GRDI rankings for 1995-2006)
Source: A T Kearney
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 17
inflexion point where the growth of organised retail and growth in the consumption by
Indians is going to adopt a higher growth trajectory.
Though at present, around 94-95% of India‘s retail market is unorganized, as compared
to unorganized retail, organized retail is experiencing much higher growth and throwing
open opportunities for new entrants to come and grow.
2.2. India: A Preferred Retail Destination
With markets in most of the developed countries reaching the stage of saturation, India
has emerged as one of the most preferred destination for global retailers. This is evident
from the number of retailers across the globe that have already forayed into India‘s retail
market or planning to do so soon.
For three years in a row (2005-07), India has been ranked as the top retail destination
globally, ahead of Russia and China by a study that measured retail investment
attractiveness for 30 emerging markets in the world.
2007 ranking Country 2006 ranking
1 India 1
2 Russia 2
3 China 5
4 Vietnam 3
5 Ukraine 4
6 Chile 6
7 Latvia 7
8 Malaysia 14
Source: A.T. Kearney, June, 2007
The same study, however, also identifies few key issues that stand in the way of India‘s
retail industry reaching its full potential. These issues have been discussed under ‗Major
Constraints for Modern Retail in India‘.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 18
2.3. Key Growth Drivers for Modern Retail in India
2.3.1 Higher Disposable Income and Economic Prosperity
Disposable income of Indian consumers has increased steadily. The proportion of major
consuming class (with income above Rs 90,000 per annum) is expected to reach 48% by
2009-10 from 20% in 1995-96.
2.3.2 Demographic Changes
Higher Level of Working Women
According to census 2001, working women population has increased to 26% in 2001 as
compared to 22% in 1991. This would lead to a higher retail spending as the buying
behaviour of working women differs from that of housewives because of low availability
of time. Also, working women‘ propensity for spending is higher by 1.3 times as
compared to Indian housewives.
Rise in Nuclear Family
The per capita consumption increases in case of a nuclear family. During the last few
years in India, nuclear family as a percentage of total household population has increased.
The average household size has reduced to 5.36 in 2001 from 5.57 in 1991 and is
0%
100%
1995-96 2001-02 2005-06 2009-10*
CHANGING INCOME DISTRIBUTION
(Income figures in '000 per annum at 2001-02 prices, households in '000
numbers)
10000+
5001-10000
2001-5000
1001-2000
501-1000
201-500
91-200
< 90
Source: NCAER
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 19
expected to decline further to 5.02 by 2011. This would further increase the consumption
and in turn, the retail industry.
Baby Boomer Effect
India has the lowest median age of 24 as compared to developed countries like USA, UK,
Japan etc. The composition of the Indian population is shifting towards the age group of
20-49 i.e. the working population with purchasing power. Approximately 60% of the
Indian population is below 30 years of age. Thus, India has the largest ‗young‘ population
in terms of sheer size and this young segment is the major driver of consumption as they
have the ability (disposable income) and willingness to spend.
Higher Growth in Urban and Sub-Urban Population
Over the last 10 years (1990-2000), urbanization has increased at a rate of 2.7 percent.
Around urban centres, huge sub-urban agglomerates are developing and expanding at a
huge scale. This trend is expected to continue and urbanization is likely to grow at 2.4
percent between 2000 and 2015. Over the next 10 years, growth in organized retailing is
likely to be concentrated in urban and semi-urban areas.
2.3.3 Changes in Consumer Needs, Attitudes and Behaviour
The growth of modern retail is linked to consumer needs, attitudes and behaviour. Rising
income levels, education and global exposure have contributed to the evolution of the
Indian middle class. As a result, purchasing and shopping habits have been inculcated
and are increasing day by day.
Today, Indians are willing to try new things and look different, which has increased
spending on health and beauty products apart from apparels, food and grocery items.
Also, in the last 4-5 years, Indian markets have witnessed a strong shift towards
branded products.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 20
2.3.4 Increased Credit Friendliness
The use of plastic money (credit and debit cards) has increased significantly in the last 3-
4 years. In fact the ease of payments (ability to spend without cash) due to the use of
credit and debit cards, has also led to an increase in total spending on shopping and eating
out. With the acceptance of and the increase in the number of electronic data converter
machines installed in retailing outlets, credit and debit cards will provide further fillip to
organised retail.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 21
2.4. Size and Growth of Retail in India
Indian Retail Market has experienced enormous growth during the last few years. Retail
sales in India have grown from $US 230 billion in 2003-04 to $US 330 billion in 2007-
08.
2.4.1. Product Category-wise Break-up of Retail Market
Out of the total market size in retail, Food & Grocery is the dominant category (valued at
$US 196.47 billion in 2007-08) followed by Clothing, Textile & Fashion Accessories
(valued at $US 32.57 billion in 2007-08).
THE INDIAN RETAIL PIE (INDIA) 2007- 08
(Market Size: $ US 330 billion)
Food & Grocery
59.5%
Footwear
1.2%
Health & Beauty Services
0.3%
Pharmaceuticals
3.7%
Watches
0.3%
Jwellery
5.2%
Consumer Durables &
Home Appliances
4.3%
M obile, Accessories &
Services
2.0%
Furniture, Furnishings &
Utensils
3.4%
Out-of-Home Food
(Catering) Services
5.4%
Books, M usic & Gifts
1.2%
Entertainment
3.4% Clothing, Textile & Fashion
Accessories
9.9%
Source: F &R Research
Source: Images F & R Research
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 22
2.4.2. Organized Retail as Part of Total Retail
Organized retail happens to be a very small part of total retail market in India. At present,
it accounts for only around 5-6% of the
total retailing in India. However, growth
experienced by organized retail (more than
35% against an overall retail growth of
around 11% in 2006-07) is much higher as
compared to unorganized retail within
India. Owing to high growth rate,
organized retailing has finally emerged
from the shadows of unorganized retailing
and is contributing significantly to the growth of Indian retail sector.
2.4.3. Product Category-wise Break-up of Organized Retail
In the organized retail segment, the category-wise shares are very different from the
THE ORGANIZED RETAIL PIE (INDIA) 2007-08
(Market Size: $US 19.42 biliion)
F o o d & Gro cery
11.5%
F o o twear
9.9%
H ealth & B eauty
Services
0.8%
P harmaceuticals
2.0%
Watches
2.7%
Jwellery
2.9%C o nsumer D urables &
H o me A ppliances
9.1%
M o bile, A ccesso ries
& Services
3.5%
F urniture,
F urnishings &
Utensils
6.4%
Out-o f-H o me F o o d
(C atering) Services
7.3%
B o o ks, M usic & Gif ts
2.8%
Entertainment
3.1%
C lo thing, T extile &
F ashio n A ccesso ries
38.1%
Source: F &R Research
Source: F &R Research
Source: F &R Research
GROWTH OF TOTAL AND ORGANIZED
RETAIL MARKET IN INDIA
330298
256231
1914
97
0
500
2004 2005 2006 2007
Ret
ail M
arke
t
(Uno
rgan
ized
+ O
rgan
ized
)
(in
$ U
S b
illio
n)
0
40
Org
aniz
ed R
etai
l
(in $
US
bill
ion)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 23
overall retail picture. Clothing, Textile & Fashion Accessories is the largest category
followed by Food & Grocery. Footwear and Consumer Durables happen to be the third
and fourth largest categories followed by Consumer Durables in organized retail at
present.
2.4.4. Category-wise Penetration of Organized Retail
Coming to the category-wise share of organized retail out of total retail, timewear and
footwear are the categories with maximum organized retail (almost 50% of total retail in
each category). ‗Clothing & Textile‘ stands third with more than 20% of the trade in
organized retail.
CATEGORY-WISE SHARE OF ORGANIZED RETAIL OUT OF TOTAL RETAIL IN INDIA
0%
10%
20%
30%
40%
50%
Clo
thin
g
Jwel
lery
Watc
hes
Foo
twea
r
Hea
lth &
Bea
uty
Ser
vice
sPhar
mac
eut
ical
s
Cons
um
er D
ura
ble
s
Mobile
, Acc
essor
ies
& S
ervi
ces
Fur
nitu
re, F
urn
ishi
ngs
& U
tensi
lsFoo
d &
Gro
cery
Out
-of-
Hom
e Food
Serv
ices
Book
s, M
usi
c &
Gift
sEnte
rtai
nm
ent
Ove
rall
2007 2006
2005 2004
100%
Source: F &R Research
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 24
2.4.5. Food & Beverage based Servicing Retail in India
The Indian F&B services sector is estimated to be worth US $ 15.56 billion in 2007, out
of which about US $ 1.28 billion is
accounted for by the organized sector.
This is roughly 8.2 percent of the
market being organised as compared to
just 6.9 percent of the market being
organized in the previous year.
India currently has more than 1000 fast
food restaurants and coffee joints as
part of modern retail and there exists
huge potential for more number of
similar outlets to come in different
parts and different cities of India. All key players have major expansion plans in the
coming few years. Organized food outlets are expected to grow at the rate of 20 - 25%
even under the present situation of economic slowdown.
SIZE OF F & B (SERVICING) RETAIL (in US $ billion)
0
18
2004 2005 2006 2007
To
tal M
ark
et
0
3
Org
an
ize
d S
eg
me
nt
Total F&B (Serv icing) Retail
Organized F&B (Serv icing) Retail
Source: Business Standard
Mc Donald‘s has 160 restaurants in India at present (in 2008). With an aim to
achieve 30-35 per growth per annum, the company plans to add 40-60 outlets each
year nationally and also intends to invest Rs 400 Crores over the next three years
(that is 2009-2011).
Cafe Coffee Day, part of the Bangalore-based Amalgamated Bean Coffee Trading
Company Limited (ABCTCL), is planning to spend Rs 120-150 crore for expansion
during next year to take its number of cafes to around 1,000 from the current 700.
Cafe Coffee day is also working towards creating more formats like selling coffees
through dine-ins (for lunch and dinner) and coffee pubs for youths to hang out in
strategic locations. (Source: Business Standard, Dec 23, 2008)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 25
Domino‘s intends to increase its outlets to 250 by March 2009 from the present
number of 230. The company has announced an investment of Rs220-230 crore in
India over the next three years for expanding its retail fast-food chain and
manufacturing capacities. (Company Sources, 17 Nov, 2008)
Over the past 10 years, Yum! has become the largest and fastest growing restaurant
company in India. As of the first quarter 2008 earnings, the company had 140 Pizza
Huts in 35 cities and 33 KFCs in nine cities. Yum plans to scale up Pizza Hut to 175
by 2010 and also add 15-20 new restaurants every year. (Source: Business Wire)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 26
3. MODERN RETAIL STORE FORMATS
Indian Retailers are experimenting with various modern retail formats customized to
customer categories and product mix.
Key product
categories with
luxury brands:
Apparel
Jwellery
Timewear
Accessories
Furniture
Pharmaceutical
Food &
grocery
Clothing Footwear Jwellery,
Watches/
Accessories
Furniture &
Furnishing
Other Retail
Formats
Electrical & Electronic
Equipments
Books, Magazine
& Stationery
Beauty & Health
Care
Modern Retail Store Formats
Premium
Lifestyle based
Retailing
Lifestyle based
Retailing
Value based
Retailing
Departmental
Stores
Apparel and
Fashion
Stores
Specialty
Stores
Supermarket
Hypermarket
Other Retail
Formats
Discount
stores
Airport
retailing
Online/
telephonic
& catalogue
buying
Destination
Malls
Music & Entertainment
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 27
Following section deals in detail with these broad categories and sub-categories within
them:
3.1. Premium Lifestyle Retailing
The premium lifestyle retailing caters to the affluent by providing them the high-end
luxury brands/ services. Under premium lifestyle based retailing, key product categories
are accessories, electronics, apparel, Jwellery and Furniture. The brands in this category
have a unique appeal and touch upon psychological needs such as esteem, status and
pride in owning expensive items.
Given the constant rise in affluence with the GDP growth and boom in capital markets in
the last few years, many retailers are looking at tapping this segment. However, main
challenges for the sustenance of these luxury brands are high import duty structures and
lack of appropriate real estate.
Opening up of FDI up to 51 percent in single brand retailing coupled with the boom in
luxury retailing has led international luxury brands such as Loius Vitton, Chanel, Ralph
Lauren, Armani, Dolce and Gabbana to enter the country and the already present brands
such as Gucci, Tommy Hilfiger and Hugo Boss to expand their operations
Average size of retail outlets in this category ranges between 20,000 sq ft & 75,000
sq ft
Major concentration of Premium Lifestyle based Retail outlets are in some select
locations of the top 4-5 cities of India such as South Mumbai, South Delhi, Chennai
and Bangalore
S. No. Verticals Luxury Brands
1 Clothing Gucci, Calvin Klein, La Perla, Jimmy Choo, Fcuk, Nine West, Promod,
Crocodile, Daks, Saville Row, Trussardi, Gas and S Oliver
2 Jwellery Tiffany, Cartier, Zales and Harry Winston
3 Watches Seiko, Fendi, Rado, Omega, Breguet, Christian Dior, Tag Heuer, Corum
4 Furniture Baker and Henredon, Bernhardt and McGuire
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 28
3.2. Lifestyle Retailing
Higher disposable income, increased level of awareness, international exposure, and
higher aspiration, all this has influenced the consumption pattern of the Indian
consumers. The Upper, Upper Middle and Middle class Indian customers are willing to
pay more for a brand or better product that keeps him/her up-to-date and in style. Major
growth drivers for Lifestyle retailing are: rising lifestyle aspirations, increasing
urbanization and changing mindset of Indian consumers
Two popular formats under this category are: Departmental stores and Apparel and
Fashion stores
3.2.1. Departmental Stores
Departmental stores are large stores having a wide variety of products, organized into
different departments such as clothing, houseware, furniture, appliances, toys, accessories
and cosmetics, among others. They offer value in terms of being a one-stop shop with
different brands in each category, catering to varied consumer needs. These stores target
primarily the SEC A, where the ticket size is larger in spite of a footfall lower than other
store types.
Major Players
Pantaloon, Shoppers‘ Stop, Lifestyle (Landmark Group), Ebony, Indiabulls Retail (Piramyd)
3.2.2. Apparel and Fashion Stores
These are stores with prime focus on apparel and will a small percentage of their mix
being fashion accessories, trinkets and home décor items. These may be multi-brand
stores or exclusive showrooms.
Average size of apparel and fashion stores in India is 20,000 sq ft
These stores are targeted primarily at high end consumers, primarily SEC A & B
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 29
Major Players
Pantaloon, Lifestyle (Max retail), Shoppers‘‘ stop, Westside, Globus, Provogue, Raymonds,
Madura Garments, Arvind brands, Guess, Fab India, and Koutons
The apparel segment, which is fairly organized, is profitable in comparison to other
product segments. This segment sees the presence of more international players than
most other retail segments.
3.3. Value retailing
Value retailing covers stores offering lower prices, better variety and a convenient and
improved shopping experience. It is based on the concepts of ‗Value for Money‘ and
‗Ways to Convenient Shopping‘.
The popular formats under this category are: Supermarkets and Hypermarkets
3.3.1. Supermarkets
A supermarket is a self-service one stop shopping store offering a wide variety of food
and household merchandise, organized into sections. It is larger in size and has a wider
selection than a traditional grocery store but is smaller than a hypermarket or superstore.
Supermarkets primarily cater to nearby residential areas and therefore throw a direct
competition to neighbourhood grocery stores and fresh fruits & vegetables retail mandis.
The basic appeal of supermarkets is the availability of broad selection of goods of
multiple brands as well as store‘s private labels under a single roof at relatively low
prices (possible on account of ‘Economy of Scale’ and ‘Efficient Warehousing and
Merchandizing’). Many of the superstores have discount and promotional offers on
various products at different points of time in a year. The concept of ‗Value retailing‘ is
catching up fast among middle class urban families.
Average size of supermarkets ranges from 3,000 to 10,000 sq ft and in some cases it
is upto 25,000 sq ft as well
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 30
Supermarkets of various Retail Companies are now present in many pockets of top
6-7 cities of India catering to the daily requirements of nearby residential areas. There
is an increasing focus on opening such outlets in Tier II cities (such as Ludhiana,
Patna, and Chandigarh etc.)
Key Players at National Level
Food Bazaar (Future Group), Reliance Fresh (Reliance), More (Aditya Birla Retail), Spencer
-Fresh, Daily and Super (RPG Group), Subhiksha , Indiabulls‘ Mart and Indiabulls‘
Megastore (Piramyd retail)
Modern Retail Players with presence in some specific regions and planning to grow big
Spinach (including Sabka Bazaar), Big Apple, Nilgiris, Marginfree, MK Retail, Namdhari‘s
Fresh, Easyday
3.3.2. Hypermarkets
Hypermarket is a large outlet which combines the format of a supermarket and a
department store. The result is a very large retail facility with an enormous range of
products catering to a spectrum of segments such as food and grocery, FMCG, apparel &
accessories, consumer durables, furniture & furnishing, entertainment & leisure, books
& stationery and other household items. Generally, they are located in the outskirts of
cities or as anchors in shopping malls. Hypermarkets offer lot of discount and
promotional offers to promote sales.
Margins depend on the product mix, volumes and supply chain management. A higher
share of food and grocery would mean lower margins. On the other hand, apparel and
furniture could increase margins.
Hypermarkets are becoming popular among consumers because products are available at
prices lower by 5% to upto 50% than the regular market price. Consumers are fine
traveling little far to shop in hypermarkets because of the price advantage they get.
Average size of hypermarkets ranges from 50,000 to 70,000 sq ft or more. Retail
outlets prefer to have their hypermarkets on one floor. However, in few cases the
space might be split into two or more floors as well.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 31
There is an increasing focus on opening hypermarkets in Tier II cities. Retail
companies like Vishal Megamart and Big Bazaar are already operating their
hypermarkets in various tier II cities in India. Most of the Retail Outlets that are
present as supermarkets are now foraying into hypermarket format as well.
Key Players at National Level
Big Bazaar (Future Group), Reliance Hypermarket (Reliance), Spencer -Hyper (RPG Group), Star
Bazaar (Trent – Retail Arm of Tata) Subhiksha , Indiabulls‘ Mart & Megastore (Piramyd retail)
Business Break up of Big Bazaar (Pantaloon Retail)
F ruits &
Vegetables
2%
Live Kitchen
1%
F M C G_N o n-
fo o d
12%
F o o d B azaar
40%
Staples
12%
C lo thing
30%
General
M erchandise
16%
Electro nics,
F urniture,
F urnishing &
Others
14%
F M C G_F o o d
13%
Business break up of Vishalmart
Others, 1%
N o n-apparel
18%
A pparel
59%
F M C G
22%
Business break up of Aditya Retail in Staples
CategorySpices & Dry Fruits,
12%
Sugar & Salt, 8%
Edible Oil, 30%
Pulses, 20%
Cereals, 30%
Break up of General Merchandise
(Pantaloon Retail)
Utensils
& Steel
Items, 25%
P last ic
Items,
17%
F o o twear,
16%Luggage &
Other
Items, 42%
Source: Primary Data
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 32
3.4. Other Retail Formats
3.4.1. Specialty Stores
Specialty stores are category specific stores and are meant to cater to some specific needs
of consumers. A specialty store offers different brands of any specified category under
one roof. Specialty store can be dedicated to any of the following categories – Food &
grocery, Apparel, Footwear, Jwellery & Time wear & related accessories, Furniture &
Furnishing, Electrical & Electronic Equipments, Books & Stationery, Personal Care
(Beauty & Health Care), Consumer Durables (including home appliances),
Pharmaceuticals, Entertainment, Mobile Handsets & Accessories & Services, and
Others.
Average space for a Specialty Store ranges between 8,000 – 10,000 sq ft
Verticals Key Players and their Principal Fascia
Food & Grocery Pantaloon (Brew bar, Café Bollywood, Chamosa)
Shoppers‘ Stop (Desi Café, Brio)
Clothing
Pantaloon (All, Brand Factory, Fashion Station, Top 10)
Shoppers‘ Stop (Mother Care)
Reliance Retail (Reliance Trendz)
Footwear Pantaloon (Shoe Factory)
Reliance Retail(Reliance Footprint)
Jwellery & Watches/
Accessories
Pantaloon (Blue Sky, Navaras)
Shoppers‘ Stop (Arcelia)
Furniture & Furnishing Pantaloon (Collection-i, Furniture Bazaar, Home Town)
Shoppers‘ Stop (Home Stop)
Electrical & Electronic
Equipments
Pantaloon (Electronics bazaar, e-zone, Got It)
Tata Trent (Croma)
Reliance Retail (Reliance Digital)
Videocon (Next)
Books, Magazine & Pantaloon (Depot)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 33
Stationery Shoppers‘ Stop (Crossword)
Personal Care (Beauty &
Health Care)
Pantaloon (Health Village, Star Sitara, Tulsi, Turmeric)
Shoppers‘ Stop (MAC Cosmetics)
Reliance Retail (Reliance Wellness)
Music & Entertainment
Pantaloon (Bowling Co., F123, Sports Bar)
Shoppers‘ Stop (Time Zone)
Videocon (Planet M)
Mobile Handsets,
Accessories & Services
Pantaloon (Gen M, M Bazaar, M-port)
Spencer‘s Retail (RPG‘s Cellucom)
Subhiksha (Subhiksha Mobile)
Essar Group (Mobile Store)
3.4.2. Discount Stores/ factory outlets
These are sales outlets offering goods at a discounted price. Goods sold by discount
stores are generally the unsold or excess stock or slightly defective pieces. In general,
Manufacturers have their factory outlets. Discount outlets help manufacturers and
retailers to dispose of the excess or unsold stock while consumers get the benefit of
branded products at affordable prices.
Name of Store Key Players
The Loot Jay Retailing and Merchandizing Pvt. Ltd.
Megamart Arvind Brands
Shoe Factory Liberty Shoes and Pantaloon Retail (JV between two parties)
Globus Factory Outlet Globus
Maxretail Landmark group
Brand Factory JV of Pantaloon with Planet M, Globus, Staples and Dollar stores
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 34
3.4.3. Airport Retailing
Airport retailing is a new concept in India. Retailers are now capitalizing on the
increasing traffic at Indian airports. Domestic players are tying up with global retailers
having relevant experience in airport retailing in other countries.
However, the recent economic slowdown has impacted many of the retailers‘ plans in
Airport retailing.
3.4.4. Online, Telephone and Catalogue Buying
These are some other retail formats and are in their take off stage in India. There are
challenges in growth of these retail formats because of the ‗touch and feel‘ based buying
culture in India.
Indiatimes, rediff and ebay are some of the popular portals for online purchase
Pantaloons have ventured into e-tailing through their portal futurebazaar.com
Shopper‘s Stop has tied up with the UK based Home Retail group to develop the
Agros format of catalogue retailing in India
3.4.5. Shopping Malls
They are enclosures having different formats for retailers, both value and lifestyle based,
all under one roof. These are sophisticated versions of old shopping centres with huge
space, air-conditioned ambience, elevator and escalators. A variety of shops
(departmental stores, hypermarkets, and specialty stores), food court, parking space, and
entertainment (cine-multiplex and gaming zones) all together make it a One Stop
Shopper‘s Stop has tied up with Nuance from Switzerland whereas Tata‘s Consumer
Durable and Electronic Retail Company – Croma has tied up with Woolworth‘s to set up
retail stores at airports.
Pantaloon Retail had tied up with UK‘s Alpha Retail. However, because of major losses
faced by Alpha Retail, Pantaloon Retail has recently divested from the company and the
tie-up has ended.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 35
destination. Mostly, shopping malls have anchor tenants, who cover large areas in the
mall and are important from the point of attracting footfalls.
In India, there is a new culture towards Specialty malls (also known as Theme Malls) –
catering to specific needs of customers. Specialty malls for luxury goods and premium
lifestyle segment is expected to catch up in India. At present, there are only few specialty
malls in India, but the Retailers Association of India (RAI) expects to push specialty
malls constituting nearly 10 per cent of the total malls in India.
The first specialty mall was the Gold Souk in Gurgaon. Dedicated entirely to the
Jwellery collection, the mall houses some of the big brands in the Jwellery business in
India as well as abroad.
‘Central’ is a first of its kind seamless mall in India. It is an initiative of Pantaloon
Retail. Pantaloon Retail (India), is expanding its retail chain ‘Central’ by setting up
new mall stores in metro cities like Mumbai and Bangalore and tier-II and tier-III
cities like Ahmedabad, Nashik, and Vashi.
There are divided opinions about success of specialty malls in India – while one
segment feels that Specialty malls are a step towards adding value to retailing in
India, the other segment feels that Indian market is still not mature enough and it is a
bit early to introduce this concept here.
DISTRIBUTION OF MALL SPACE
ACROSS ZONES IN INDIA (2011)*
(Total Supply: 236 mn sq ft)
East Zone, 9% South
Zone, 24%
West Zone, 28%
North Zone, 39%
DISTRIBUTION OF MALL SPACE
ACROSS ZONES IN INDIA (2007)
(Total Supply: 47.4 mn sq ft)
East Zone,
7%
South Zone, 14%
West Zone, 44%
North Zone, 35%
Source: Images F & R Research
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 36
3.4.6. Food Outlets as part of Modern Retail
Home-grown as well as international restaurant chains present in both high street
locations and malls represent the organised food and beverages (F&B) services retail
sector. Major categories in which modern food & beverage outlets can be put basis front
end formats are discussed below.
While some of the specialty restaurant chains are based only on take away or home
delivery format and don‘t have any seating arrangements, most of these modern
restaurant chains have both types of arrangements – home delivery as well as on the spot
consumption option.
Food Outlets as part of Modern Retail
Specialty
Restaurant Chains
Hot Beverage/
Coffee Chains
Food Courts Multi-cuisine
Restaurant Chains
These are restaurant
chains with wide range
of menu catering to
different cuisines.
Example:
- Ohri‘s
- Blue foods
- Indijoe
Some regional Indian
chains that are
growing fast:
- Nirula‘s
- Haldiram‘s
These are restaurant
chains with focus on a
single cuisine or with
some specialty to
offer. They may be
chains based on a
particular concept or
theme. Fast food
chains would also fall
in this category.
Example:
- Mc Donald‘s
- Pizza Hut
- KFC
- Subway
- Jumboking
- Yo! China
- Pizza Corner
- Papa John‘s
These are outlets with
coffee or other hot
beverage in different
flavours and varieties
as their major
offerings. Alongside,
they generally serve
some some snacks or
bakery items. In some
cases, there may be
more food items to
offer, however, coffee
or other hot beverage
remains at the core.
Example:
- Café Coffee Day
- Barista
- Mocha
- Costa Coffee
These are areas where
counters of multiple
food vendors are
present with a
common space for
self-serve dining. Food
courts are mostly
found as part of
shopping malls. In
some cases they may
be standalone
development as well.
Food courts may have
food stalls belonging
to various cuisines,
concepts and brands.
Coffee chains may
also present as part of
food courts.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 37
Apart from the above mentioned categories, there are many traditional and regional
Indian restaurants that are now expanding their presence in different parts of India and
growing as Chain restaurants. However, their supply chain models are not exactly on
same lines as modern restaurant chains. Example: Sarvana Bhavan, Karim‘s, Hyderabadi
Biryani House, Vasanta Bhavan
Modern restaurant chains in India compete against the traditional vegetarian and non-
vegetarian restaurants and food stalls which constitute almost 92-93% of the total food &
beverage servicing segment in India. Some of the traditional cuisines of India are:
Kashmiri, Punjabi, Mughlai, Bengali, Gujarati, Rajasthani, and Hyderabadi.
Entry and Operating Format
Most of the modern food outlets are either franchised or company-owned. Most of the
global food chains have entered India either through franchise route or through JVs with
any existing Indian players. An international company can get into JVs with different
local players for opening and operating outlets in different parts of India.
Example: Mc Donald's India is a joint-venture company managed by Indians. In Western and
Southern India, Hardcastle Restaurants Private Limited owns and manages McDonald's
restaurants. In Northern and Eastern India, McDonald's Restaurants are owned and managed
by Vikram Bakshi‘s Connaught Plaza Restaurants Private Limited. Almost all the outlets of
Mc Donalds are company owned.
Pizza Hut has entered Indian market through Franchise route in 1996. The pizza franchise
soon expanded itself in India and now has the KFC brand beneath its umbrella.
Domino's entered India in 1996 through a franchise agreement with Vam Bhartia Corp. Vam
Bharti Corp. acts as master franchisee and in turn further extends franchises to different sub-
franchisees
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 38
4. CASH AND CARRY STORES
Targeted at and open only to business customers - cash and carry scheme focuses on
small-wholesale customers who buy in bulk and pay in cash. Unlike hypermarkets where
any consumer can walk-in and buy goods, cash-and-carry outlets allow only
authenticated bulk buyers to transact business. Medium-sized businesses such as retail
stores, hotels, restaurants, caterers, exporters etc can buy from cash-and-carry outlets at
prices much cheaper than market rate.
In its original form, owners of cash and carry outlets (i.e. large retail chains) buy from
producers directly at very high volume, dispensing with middlemen like wholesalers and
stockiest. They also establish their own brands - asking producers to manufacture as per
their product and packaging specifications. Volume purchase and removal of middlemen
result in substantial cost reduction - a part of which is passed on to b2b customers. So,
b2b customers get products of assured quality throughout the year at less than market
price.
Wholesale cash-and-carry operations would provide small retailers and business owners a
wide range of products at the wholesale prices.
4.1. Global Retailers Entry through Cash & Carry Format
As Government of India has allowed 100% FDI in cash and carry format, many foreign
companies are choosing to enter the market through this format. Global retailers plan to
use the opportunity to set up wholesale stores in India to understand the market. Opening
of 'Cash and Carry' stores throughout the country shall provide a golden opportunity to
these global retailers to make in-roads into India. When the restrictions on the retail
industry are lifted, international retailers will be in a prime position to easily convert their
'Cash and Carry' stores into highly profitable supermarkets and hypermarkets.
German wholesale major Metro Cash and Carry has already forayed into Indian
market and is taking its stores to Mumbai, Kolkatta, NCR and Punjab.
Bharti-Walmart is expected to roll out its first store in Punjab (One of the North
Indian States of India) between April and June, 2009.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 39
French Retailer Carrefour has announced its entry in cash and carry segment of India
in 2009
Britain‘s largest retailer Tesco Plc announced its investment (in August, 2008) to
develop a wholesale cash-and-carry business in India. Also, Tesco has tied-up with
Trent Ltd, the retail arm of the Tata group, to help develop the Indian company‘s Star
Bazaar hypermarkets.
Costco, one of the largest retail chains of US has also shown interest in joining the
bandwagon
Australian retail giant Woolworths is in discussion with Future Group (Pantaloon
Retail) for an equal equity joint venture for entry into Cash and Carry format in India
4.2. Domestic Players Not Far Behind
Amidst the increasing interest from foreign players, domestic retailers have not been
left behind. Videocon Industries has floated a separate subsidiary company for its
cash and carry retailing business — Bolld Cash & Carry.
While Bharti has already stuck a deal with Wal-mart, Pantaloon is exploring the
options to foray into cash and carry business.
Wadhawan Food Retail, which owns Spinach, Sabka Bazaar and Home Store retail
formats, is also eyeing the cash and carry format.
Reliance is also planning to launch its B2B format
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 40
5. SUPPLY CHAIN INSIGHTS
5.1. Supply Chain Model for Modern Retail Outlets
The given supply chain model exists across various product verticals with slight
modifications
Level I:
Sourcing
Level II: Storage
& Distribution
Level III:
Retail Stores
Company-
owned outlets
Franchised
Stores
Departmental
Stores
Specialty
Stores
Hypermarket
Supermarket
Other formats
Products from
other countries
Local Manufacturers
supplying to more than one
retailing company for selling
under private labels
Retail
Company‘s own
procurement
office in other
countries
Importer / Retail
company‘ Import
Partners
Companies Manufacturing
Branded Products
Local Manufacturers
supplying to a single retail
company for selling under
private labels
Distribution Centres or
Warehouses owned by
Retail company or by its
Logistic Partners
These may be central
or regional distribution
centres depending
upon the structure
adopted by the retailer
Retailer may have
common or separate
warehousing arrange-
ments for its different
retail formats
Company‘s In-house
Inventory
Distribution Centre
(Owned by Company‘s
Franchisee or its Logistic
Partner)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 41
5.1.1. Level 1: Product Sourcing
Modern retailers in India largely procure branded products in various categories
(apparels, consumer durables, electrical & electronic equipments, furniture and furnishing
items, footwear etc.) directly from companies‘ factories and send the procured lots to
their distribution centres. Procurement is done centrally for all the retail outlets. In case of
private label items also sourcing is done directly from manufacturing points and the lots
are sent to distribution centres. From the distribution centres, the lots are further
distributed across various retail outlets.
There are two ways in which retailers usually import goods from other countries:
Maintaining their own offices in other countries: The offices act as procurement
points (from manufacturing units), quality check points and they take care of
shipment of procured goods to India. This method is mostly adopted for countries
from where large volume imports are happening on regular basis.
Sourcing from importers: In many cases, retailers don‘t import directly from
manufacturing points in other countries, rather source the products from already
existing importers present in India. This method is adopted if volume of procurement
is neither huge nor on regular basis.
India is a country of diverse culture, lifestyle and food habits. Taste and preferences of
buyers vary from region to region. Retailers in India need to maintain in their retail
outlets some products and brands that are locally popular in the regions where the retail
stores are present. Procurement of these locally popular products are done only in the
specific regions with the procured goods mostly moving to the specific regional
warehouse or in some cases directly to the specific retail stores.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 42
5.1.2. Methods of Procurement
6.1.2.1. Product Category-wise Standard Methods of Procurement & Margins
Apparels
Mode of Procurement: In Apparels, model of procurement varies depending upon
the source and product labels.
Apparels Procurement Model Remarks
Private labels 100% outright All procurements from local manufacturers are
on outright basis (make to order basis)
New brands/
less known
brands
Consignment is
preferred (however, it
may be Outright as well)
Retailers avoid taking risk with new or less
known brands
Established
brands
Consignment or
Concessionaire (In some
cases, it may be Outright
as well)
In case of established brands, consignment is
a preferred way. Alongwith retailer, this is
preferable for brand vendors as well. In case
a supplied stock is not selling in any retail
There are three ways of getting supplies from vendors in case of retail stores:
Outright: Under this method of procurement, a retailer places an order with any vendor
and buys the entire ordered merchandize from the vendor. Inventory management and
risk of sale/non-sale of the merchandise is entirely on the retailer.
Consignment: Under this method of procurement, vendor shares the risk of non-sale of
any merchandize items along with the retailer. In case any merchandize doesn‘t sell,
the vendor takes it back and tries to clear the stock through some other channels.
Concessionaire: Under this model, retailer rents out some space of its store to a
vendor. The vendor is in charge of managing the provided space to display and sell its
products. Managing the inventory of its product is entirely the vendor‘s responsibility.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 43
store, then the vendor takes the stock back
and tries selling it through other channels.
This helps in placing of fresh stock.
Retailers prefer Concessionaire model as they
don‘t need to maintain any inventory of
vendor‘s supplies. Example: Brands FCUK
and CK operate in Shopper‘s Stop stores
under Concessionaire model.
Imports 100% outright All imports in apparels are largely based on
supply orders or Outright
Margins on Apparels: As found during the study, margins on apparels in Indian
retail vary depending upon
whether it is a private label product or a brand
within brands, markup varies depending upon the popularity of the brand and
the brand‘s market share
Also, it varies from one retailer to another depending upon the ticket size and
mark up policy of the retailers
Apparels
Mark up on Product
Stores with big ticket size
(Example: Shopper’s Stop)
Stores with small ticket size
(Example: Vishalmart)
Private labels 250% - 350% 80 – 100%
Brands
25% - 60%
(25% markup indicates that the
brand is very strong and 60%
markup indicates that the brand is
new or less popular)
20% - 60%
(Stores with small ticket size avoid
keeping big brands and their product
mix has very high share of private
labels)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 44
Furniture and Furnishing
Furniture
Mode of procurement: For a non-manufacturer retailer in furniture segment,
around 90% of the furniture procurement happens on ‗Outright‘ basis whereas
only the balance 10% is on vendor ‗consignment‘ basis. In case of
consignment based sourcing, money is paid to the vendor only on the final
purchase of the product from the retail stores.
Margins on Furniture: Both for wooden as well as metal furniture, Indian
retailers in general, are enjoying margins in between 30% - 50%.
Soft furnishing
Mode of procurement: For a non-manufacturer multi-brand retailer in
furnishing segment, ‗Outright‘ buy and ‗Concessionaire‘ model are the two
main modes of operation.
Margin on soft furnishing: In soft furnishing vertical, the share of private
labels is the range of 35-40% for large retailers. Private labels in soft
furnishings provide retailers a higher (gross) margin of 35-40% as compared
to 25-30 % in case of national level brands.
Consumer Durables
Method of procurement: In case of consumer durables, due to fast changing
technology, most retailers have an arrangement with brand manufacturers to take
back the unsold inventory. In other words, they follow the ‗consignment‘ based
procurement.
Margins on Consumer Durables: On branded products, the retailers enjoy a
margin of 10-14%. In case of private labels, the margin lies in the region of 15 -
20%
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 45
Footwear
Mode of procurement
Footwear Mode of Procurement
Private labels 100% outright
Brands Consignment
Imports 100% outright
Margins on Footwear
Footwear Margin
Private labels 50-100%
Brands (such as Red Tape, Lee Cooper etc.) 30-40%
Food and Grocery
Method of procurement: In food and grocery, almost all the procurement in case
of both branded as well as private labels happens on ‗Outright‘ basis.
Margins on Food & Grocery
Food & Grocery
Product Margin
Modern stores (such as
Big Bazaar, More etc.)
Discount stores (such as
Subhiksha)
Branded 10-15% 2-3%
Private Labels 15-25% 5-7%
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 46
5.1.3. Level II: Storage and Distribution
Most of the leading retailers or their logistic partners in India have been maintaining
regional warehouses or distribution centres (DCs) at state level, for stocking and
movement of their goods. With Central Sales Tax (CST) in place, it is cheaper to have
distribution centres in each state than pay CST for inter-state movement of goods.
However, with the introduction of VAT and phasing out of CST, there is a growing trend
towards larger and consolidated warehouses.
6.1.2.2. Product Specific Insights into Inventory Management
‘Apparels’ as a category require huge investment towards inventory management, as
apparel stocks in general are churned around five times a year.
Retailing in ‗Consumer Durables and other Electrical & Electronic Equipments‘,
requires comparatively lesser investment in inventory. Due to fast changing
technology, most retailers have an arrangement with brand manufacturers to take back
unsold inventory.
Supply chain management in case of furniture is a challenge in India given the
constraint of poor physical infrastructure. Furniture are prone to lot of damages while
transporting. Also, to make various types of furniture available at the selling point at
the right time requires very intelligent inventory management.
Fresh food: In case of fresh and highly perishable food items (example: dairy items)
retailers generally maintain very little or no inventory. This is largely because of
Shift from Regional to Central Warehouses/ Distribution Centres
Now, with the introduction of VAT system, Central sales tax (CST) is being phased out.
With CST going away, it is no longer pertinent to have a warehouse or DC in each state.
Retailers or their logistic partners are now encouraged to consolidate their warehouses/
distribution centres at a few strategic locations in India. There is a growing trend towards
having few consolidated and larger warehouses or DCs. With warehouses/ DCs becoming
larger the processes, infrastructure and technology has to be more sophisticated.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 47
absence of well developed chain of cold storages and cold storage based logistic
facilities.
Fruits and Vegetables: Most organized retailers follow a three-tier system of
operation compromising the farmer, commission agent at the APMC and themselves.
In some states, players such as Reliance, Subhiksha, and Pantaloon directly source the
produce from the farm gate, further shortening the chain. The extent to which they can
shorten the chain also depends on the state legislation for procurement
5.1.4. Level III: Retail Stores
(Please refer to section for details on modern retail store formats in India)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 48
5.2. Supply Chain for Food & Beverage Servicing Retail in India
5.2.1. Level I: Suppliers
Suppliers of semi-cooked/ semi-finished products:
They are the manufacturers of semi-cooked or semi-finished food products. Suppliers
may be different for Non-Vegetarian and Vegetarian products depending upon their
capabilities. All the specifications for raw materials and standards for the products to be
supplied by these suppliers are provided by the concerned restaurant chain management.
Typically a growing restaurant chain has 4 to 5 suppliers for semi cooked and finished
Level I: Suppliers Level II: Distributors Level III: Restaurant
Chain Outlets
Cook – Assemble - Serve
Imports (including fruits
and vegetables)
Items that are either not
available or in shortage
within India e.g: Lettuce
leaf, some sauces etc.
Suppliers of processed
food ingredients
Food Outlet 1
Food Outlet 2
Food Outlet 3
Suppliers of Beverages
(Directly to the Outlets)
Distribution
Centres/
Warehouses
It can be company
owned or
outsourced to any
logistic player
Suppliers of semi finished/
semi cooked products
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 49
food products located at different places all across India. The concerned restaurant chain
management provides demand projections and negotiates with the vendors/ suppliers for
prices accordingly. Prices may be negotiated yearly or half yearly.
Few examples of semi cooked food product: Frozen chicken tikka, Frozen veg
patty for burgers, Frozen dimsums
Few examples of finished food products: Burger buns, Breads, Pastries etc
A few examples of semi cooked suppliers: Vista foods, Chatta foods, Innovate
foods etc.
Suppliers of processed food Ingredients and other dry products
These generally include suppliers of Pastes (of spices and flavour), Ketchups, and other
sauces. Some special sauces may also be imported
Suppliers of imported items (including vegetables & fruits)
They supply imported vegetables. For example: lettuce etc according to the specifications
provided by the parent company. These are generally different for various regions
Suppliers of beverages
These are generally the big players in the market. In contrast to other suppliers they
supply directly at the outlet level as they have wide distribution network of their own
across India.
5.2.2. Level II: Distribution
Warehouses or distribution centres are put at strategic locations. These are generally
located in cities having considerable number of outlets. These act as nodal hubs or
storage houses and facilitate easy supply to outlets. These may be company owned or
outsourced to a distributor. Generally the distributors are Franchisee‘s with multiple
outlets.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 50
Supply of semi finished food products from manufacturer to the distributor is outsourced
to cold chain service providers. For a big chain these are generally the ones who have a
PAN India network.
Supply from distributor to the outlets is either done by the distributors themselves using
their own vans or outsourced to a logistics/cold chain service provider. Typically a
distributor maintains inventory for 3 to 7 days. This may vary from location to location.
5.2.3. Level III: Outlets
The outlets can either be company owned or owned by the franchisees. Some franchisees
may be having multiple outlets. The outlets have a kitchen or an assembly area from
where the finished food products are served hot to the customers. There is a small
refrigerated store room present at the outlets to store the semi finished/cooked products.
The idea is to minimize the cooking at the outlet level. This reduces the variation in taste
as the human element in cooking is reduced to the extent possible. Some non core things
like seasonal vegetables, salt etc can be procured at the outlet level. Typical inventory at
the outlet level (for frozen products) may vary from 2 to 5 days depending upon the outlet
sales.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 51
5.3. Logistic Facilities for Retail Industry in India
While some of the modern retailers in India have been outsourcing their logistics needs to
specialist service providers, many large players with national footprint – including Bharti,
Birla, Reliance, Future Group, and RPG- have opted to develop in-house logistic systems.
The existing logistics partners of modern retailers are in most of the cases not proper 3
PL players. These logistic partners in many cases are ‗Integrated players with
Warehousing Facilities‘. According to industry sources, level of satisfaction of retailers
with their logistic partners is mostly low and that speaks of the poor level of logistic
services.
The key market players in the Indian logistics industry can be broadly classified into the
following three segments:
Pure Transporters
- Involved only in the physical movement of goods
- Highly unorganised
- Larger transporters serve as freight consolidators and
form part of organised segment
Integrated
Transporters with
Warehousing
Facilities
- Larger transporters with sufficient scale to diversify their
operations to include total logistics management
3 PLs
- Offer complete value chain of logistics management
- Provide value added services
- Typically MNCs with experience in handling
international logistics
Source: DHL Asia Pacific Customer Conference, 20 March 2007
72%
2%
26%
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 52
Major reasons for leading modern retailers in India to develop their own logistic services
Lack of 3 PL players with adequate business understanding
Poor level of services from most of the existing logistic services suppliers
High costs involved
5.3.1. Cost of Logistics in Indian Retail
Globally the logistics cost component of the total retail price is 4 -5%, while in India it is
as high as 7-10%. The higher cost for an industry, which operates on wafer thin margins
of 2-3% globally, makes it imperative for retailers to internalize most operations and cut
costs.
3 PL market is still at a nascent stage in India, with most use occurring in automotive, IT
hardware, and electronics. There is relatively low penetration in pharmaceuticals and fast-
moving consumer goods and one of the important reasons for this is ‗strained profit margins‘.
- Frost and Sullivan
―Unlike the mature western markets, retail growth in India is expected to be dominated by
large retailers owning the logistics rather than outsourcing it to third and fourth party logistic
providers, in near future simply due to the highly fragmented nature and lack of national as
well as international logistics providers in the country‖
- Managing Director, Frost and Sullivan
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 53
6. RENT STRUCTURE IN RETAIL
During the initial years of modern retail in India (that is during late 1990s and early
2000s), real estate builders were more into the practice of selling out mall spaces to
retailers. However, this practice has become less prevalent now and renting out is the
norm of the day.
6.1. Prevalent Rental Models in India
Two types of rental models are prevalent in India – fixed lease rental model and revenue
sharing model
6.1.1. Fixed Lease Rental Model
The most traditional model in India is the fixed rental model, wherein the retailers pays a
fixed sum of money (as mentioned in the lease agreement) to the mall developer
6.1.2. Revenue Sharing Model
Also known as the ‗turnover model‘, this is a progressive model built on the ‗sharing of
risks and rewards strategy‘. This model requires the retailer to pay either a
Percentage of revenue or
Combination of rent and percentage of revenue
Payment of a minimum guarantee and/or proportion of revenue, whichever is higher
6.2. Major Components of Occupancy Costs in India
Lease rentals: Lease rentals are the occupancy cost that retailers have to pay to the
mall developer on a monthly basis.
Common Area Maintenance: In India, mostly mall developers are responsible for
the management of entire mall. Major constituents of CAM charges are the air
conditioning and electricity charges for the main area, elevators and escalators,
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 54
cleaning and maintenance charges and parking charges. Till recent time, CAM
charges have been in the range of 20-25 percent of the lease rentals.
Service Tax: A service tax of 12.36% is levied on renting of immovable property.
Service tax on input costs like lease rentals is allowed to be set off against service tax
on output costs like costs of advertisements, hoardings, etc.. The remainder, that is,
the unabsorbed loss, which was previously allowed to be carried forward indefinitely,
now has to be charges off in the current year itself.
6.3. Anchor Tenants versus Vanilla Retailers
Anchor tenants may be defined as the stores occupying largest space in a mall or
shopping complex. They are termed as ‗anchors‘ because they are the major crowd
pullers in any mall. Anchor tenants, being the crowd puller and also because of
occupying the largest space in any mall, get discounts on lease rental. They also enjoy
other benefits such as special area for promotion and advertisings, etc. Following are the
comparisons between Anchor tenant and Vanilla retailers
Parameters Anchor Tenants Vanilla Retailers
Rental (% revenue) 6 – 10 per cent Above 12 per cent (This figure
varies depending upon the cities)
Rent differential in
absolute terms
1/3 rd lower than the
market value Charged as per market value
Lease tenure Long term lease
arrangement (9-18 years)
Short term lease arrangement (3
– 5 years)
Source: Crisil and Primary Data
6.4. Increase in Lease Rental
The growth in organized retail penetration in India over the past 5 years led to major
expansion plans being announced by existing players and cash-rich conglomerates such
as Reliance, Bharti and Birlas. The immediate fallout of strong demand for retail has been
the increase in rental rates across most large cities, where supply of retail space has been
limited.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 55
The escalation in lease rental cost has led to cost pressure for many retailers. As revenue
growth has not kept pace with this increase in cost, their EBITDA margin has been
negatively impacted.
6.5. Economic Slowdown and Changes in Strategies of Retailers
India‘s economy has also been adversely impacted because of the current meltdown in
global market. With the suddenly disturbed economy, consumers have gone conservative
and are spending with care. Though, the expenditure on daily need items (such as food &
grocery, FMCG etc.) are not found to be impacted till now, the bigger expenses such as
buying of home appliances, furniture etc. are on hold for many. Retailers have started
correcting their future plans in light of this recent economic crisis.
Given the increasing competition in retail industry, issues of high lease rentals and the
sudden economic slowdown, many retailers have changed their business strategies to
mitigate the negative impacts and consolidate their position.
Change in Strategy Retailers Initiatives
Downsizing Croma
Reduction in average store size Crossword
Re-location
Levi Strauss Mall exit and movement to smaller towns
Mc Donald‘s, KFC Mall exit and movement to hi-street
Nike, Adidas, A O‘s
Indiabulls Retail Moved out from major cities to small towns
Shut Shop Globus Shut two stores in Bangalore
Etam Shut shops in Ahmedabad, Surat and Delhi
Slowing expansion
Cotton by Centuary Slowing down expansion in metros and focusing
on smaller towns
Adidas Slowing down its expansion plans
Raymonds
Focus on other
verticals Aditya Birla Retail
Slowing down expansion of ‗F&G‘ format
‗More‘ and shifting focus on the ‗apparels‘
vertical
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 56
Increased focus on
value formats and
low cost models
Pantaloon Retail
Concentrating more on Big Bazaar and KB‘s Fair
Price Stores
Also, diversified small convenience store formats
called Big Bazaar Best Deals, rural retail venture
Aadhar, and home solutions venture Home Town
Increasing revenue
from existing stores Arvind Brands
Cross sell other brands through existing exclusive
outlets and widening the product range
Source: Primary Research, Crisil Report, and Business Standard
6.6. Excess Supply of Retail Space in Pipeline
Lease rentals increased due to limited supply of retail space and increase in number of
retailers. However, the change in the regulatory environment, which allows 100 percent
FDI in construction, and rising investments in real estate companies and projects, is
aiding an increase in supply of retail real estate space.
6.7. Changing Rental Models
Till some time back, when real estate was booming, mall owners had been chasing the
retailers for ‗fixed lease rental‘. That time, even for retailers engaging the space with
brands was the top most priority and thus flat rates were being charged. But as the market
has slowed down, retailers are under pressure of making profits and hence are finding it
difficult to sustain the ‗high fixed rental rates‘. Retailers have slowed down their growth
plans and many of the mall spaces that were planned to be occupied are left vacant.
Excess of retail space supply coupled with the recent economic slowdown, have now
become a cause of worry for mall owners as well. They have realized that occupancy
rates have to be made more affordable and are now being forced to either cut down on
rentals considerably or adopt ‗revenue sharing rental model‘ or any other rental
models.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 57
6.8. The Road Ahead
Please refer to Annexure II for rental trends in top Indian cities during the second quarter
of 2008.
Zero Rent System
Retailer exempt from paying
rental charges during the initial
years of operation.
Example: Pantaloon is learnt to
have signed such an agreement
with a developer.
The Road
Ahead…
Franchisee Route
‗License‘ granted by a company
to a person or group allowing
them to use/ sell certain products
Example: Trent in tier II cities
Sub-letting
Selling of space by retailers to
other brands (mostly happens as
part of Concessionnaire model)
Example: Shopper‘s Stop sub-lets
some space of its store to brands
like FCUK and CK.
Revenue Sharing Model
A minimum guarantee on rental
and/or percentage share of the
revenue whichever is higher
Example: Inorbit mall in Mumbai
‗Select City Walk‘ mall in Delhi
Source: Crisil & Primary Survey
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 58
7. PROFITABILITY ACROSS VERTICALS
7.1. A comparison between Apparels, Food & Grocery and Home
Appliances
Gross margins across all verticals are determined by the share of private labels and extent
of commoditization of products. Accordingly, apparels enjoy maximum gross margins,
followed by food & grocery and home appliances.
Parameters Apparel Home Appliances Food & Grocery
Share of
private
label
products
Apparels is the most
commoditisable vertical,
which means there exists
enormous potential for
players to differentiate
from others in terms of
style, fabric, cut, design,
etc. Besides, players can
succeed if they are able to
identify gaps and enter
into areas where national
brands do not exist. Thus,
apparels offer maximum
scope for private labels.
Almost all organized
players have increased the
proportion of private
labels in their total product
mix. While private labels
constitute 75% of
At present, almost all
household appliance retailer
have multi-brand outlets. As
the average ticket size of
products is quite high, there is
considerable preference for
branded goods, especially in
the white and brown goods.
Also, lack of expertise limits
provision of after-sales
services in case of private
labels. This restricts the scope
of increasing the share the
share of private labels for
these goods. Organized
retailers have tried to
introduce private labels in the
kitchen and small appliances.
Though kitchen and small
appliances constitute only
In food & grocery, the focus
has been on increasing the
share of private labels and to
have an edge over branded
FMCG producers. Private
labels in processed foods and
staples can be the only
differentiator through which
retailers can attract more
buyers and increase its
conversion rate. Margins on
fresh produce, such as fruits
and vegetables are typically
low and wastages are high.
Private labels, at present,
constitute more than 10% of
the products in food&
grocery category for players
such as Pantaloon, Spinach
and Subhiksha. There is a
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 59
Pantaloon‘s revenues from
apparels, it is as low as 20
per cent in case of
Shoppers‘ Stop.
30% of their total products and
their ticket size is not very
large.
growing trend towards
increasing the share.
Average
Store Size
In apparels, store sizes are
in general larger than food
& grocery but comparable
or smaller as compared to
Household appliances.
Retailers stock a wide
variety of casual, formal,
traditional and ethnic wear
for different usages and
occasions. In addition,
they generally also stock
accessories such as sock,
caps, belts, stole,
handbags etc.
Household appliances entail
the largest store size owing to
the need for displaying a
variety of models. In this
segment, retailers generally
operate multi-brand outlets.
Items such as home theatre,
plasma TVs, Laptops, music
systems etc. of different
brands and different models
within the same brands are
displayed to offer a wide range
of selection to potential
customers.
Consumers still prefer
convenience for their food
and grocery requirements.
Competing against local
Kirana stores, modern
retailers have come up with
stores in the vicinity so as to
be accessible and cater to
buyers within a catchment of
3-5 kms. Store space
dedicated only to food &
grocery is generally smaller.
Some of the retail stores are
bigger as the floor space is
also occupied by home care
and personal care items.
Manpower
Training
and Wage
Inflation
Customers are well
informed in case of
apparels regarding quality,
prices, utility etc. and they
don‘t need much of
salesmen‘s guidance to
make their purchase
decisions.
Also, wage inflations are
lower in this category as
compared to Household
Salesmen play a key role in
helping the consumers‘
decision in case of household
appliances. The sales force
needs to be aware of various
product options, features and
should be constantly updated
with the fast changing
technology in various
products. The costs of
developing and training
Customers are well informed
in case of food & grocery
and are sure about their
buying decisions. They don‘t
need much guidance from
salesmen.
Wage inflations are lowest in
this category among the three
categories.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 60
appliances. manpower in this vertical are
therefore higher as compared
to other two verticals.
Household appliances industry
also faces relatively higher
manpower attrition as
compared to other two
verticals. As a result, wage
inflation witnessed by this
industry is on a higher scale as
compared to other two
verticals.
Gross
Margins/
Profitability
Apparels require higher
investment towards
inventory as stocks are
churned out around 5
times a year. However,
high gross margin on
account of higher share of
private labels and other
factors, more than
compensate the initially
high overhead costs.
Investment in inventory in
case of household appliances
is lower as compared to
apparels. Due to fast changing
technology, most retailers
have an arrangement with
brand manufacturers to take
back unsold inventory.
Despite this, because of other
factors, Gross margins in case
of household appliances are
mostly lowest among the three
Investment in inventory is
lowest and stock turns are
highest in case of food and
grocery (among the three
verticals). However, because
of small ticket size, high
wastages due to perishable
nature of products, lower
margins and other factors,
gross margins in this vertical
are lower than Apparels
Source: Crisil and Primary Data
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 61
8. LEADING RETAIL COMPANIES OF INDIA
Key players operating as part of modern retail in India are:
Please refer to Annexure I for detailed profile of some of these companies. Apart from
the above listed companies, there are many regionally strong players and a few upcoming
players (such as Mahindra Retail, Hero Group, and others) as part of modern retailing in
India.
1202
512
269
250
225
182
159
44
0 1500
Pantaloon Retail
Subhiksha
Shopper's Stop(Raheja Group)
Lifestyle India (Landmark Group)
Vishal Retail
Spencer's (RPG Group)
Trent (Tata)
India Bulls Retail
Annual Turnover of Leading Retail Companies in India (in $US million; 1 $US = 45 INR)
2007-08
Source: Company Sources
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 62
8.1. Strengths and Weaknesses of Key Organized Players
Companies Strengths Weaknesses
Pantaloon
Retail
India‘s leading retailer (highest turnover
among all modern retail players)
Operates in almost all types of modern
retail format (Hypermarkets,
Supermarkets, Specialty Stores, Discount
Stores, Destination Malls, E-tailing &
others)
Very strong in ‗Value and Lifestyle
segments‘
Adopting very aggressive marketing
strategy and experiencing high growth in
business (CAGR of around 69% over FY
2006-08)
Product mix of Pantaloon retail has higher
share of Brands against Private labels.
However, the company is working
towards developing more of private labels
in all product categories with an aim to
enjoy higher margins
As India‘s largest retail player, the
company holds high bargaining power
with brands (Reputed Chocolate brand –
Cadbury‘s and Snacks brand – Frito-Lay
Lays have been refused space in
Pantaloon Retail Stores because of issues
like pricing, and supply chain)
One of the biggest advantages with
Pantaloon retail is its in-house logistic
Pantaloon retail doesn‘t have
much to offer in luxury and
premium segments
Because of market slowdown
and losses incurred, Pantaloon
retail had to recently divest from
Airport retailing
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 63
team. Future group has ‗logistics‘ as one
of its separate business line in the name of
‗Future logistics‘. Future logistics
manages logistic for the retail formats of
Pantaloon
Vishal
Retail
Strongest player as far as presence in
different cities is concerned (present in
104 cities across 24 States & UTs of
India)
It differentiates itself in terms of its low
cost offerings and its target customers -
focuses on Middle class and below
Strong in hypermarket format; recently
ventured into specialty store format with
‗Fashion Mart‘ as exclusive apparel stores
Vishal retail is innovating with franchise
model for its specialty store ‗Fashion
Mart‘
Product mix in case of Vishal Stores has
very high share of private labels –
— They already have 400 FMCG products
under their label and are in the process
of adding more
— Company has 100% private labels in
apparels (Vishal retail manufactures
15% of its apparels and sources the
balance from other manufacturers and
sell under private labels)
To save on rentals/ cost of real
estate, Vishalmart outlets are
generally not opened as part of
any shopping malls. They are
rather present as standalone
stores mostly in some ‗not so
prime locations‘ – requiring the
customers to travel extra to reach
Vishal Stores
Except for hypermarkets and
recent venturing into apparel
based specialty stores, the
company is not present in any
other retail formats
Vishal retail doesn‘t have a very
smooth supply chain and vendors
management system in place.
They have to struggle to ensure
tighter margins on products and
are on constant look out for
committed vendors/ supply
partners.
Shopper‘s
Stop
(Raheja
Company‘s strength lies in its
departmental store format namely
‗Shopper‘s Stop‘
Shopper‘s Stop, Home Stop,
Hypercity and other retail
formats of Raheja Group are
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 64
Group
Retail)
The group operates in other retail formats
and are aiming at growing big in all these
formats– hypermarket (Hypercity),
specialty stores (Homestop, Crossword,
Mother Care, MAC, Brio, Desi Café),
airport retailing and others
The company operates in ‗Premium
lifestyle and Lifestyle‘ domains and has a
strong customer base in 35 years plus
business and senior executive classes
Shopper‘s Stop and the other retail
formats are present in prime locations of
Metros, Tier I and very few Tier II cities.
They are generally present as anchors in
shopping malls
As per industry sources, Shopper Stop &
its other retail formats have highest ticket
size and conversions rates
Company‘s strength also lies in its strong
supply chain and logistic management-
they operate on advanced ERP system and
focus on fast and efficient movement of
merchandize
present mostly in Metros and
select Tier I cities. Except for a
few cases, they don‘t have
presence in Tier II cities and
below
Hypercity, the hypermarket
format of Raheja Group till now
has not been able to mark its
presence much against stores like
Big Bazaar. Unlike Bigbazaar,
Hypercity is not positioned as a
value store for masses
Company‘s private labels are a
small percentage of its entire
range of merchandize (80-85%
brands and 15-20% private
labels)
Trent
(Tata)
Trent is very strong in apparels. The
product mix in case of apparel retailing is
95% private labels and balance as brands
Trent‘s most popular retail format is
‗Westside‘ which is a lifestyle based
apparel and accessories store – Westside is
very famous for its ethnic collection
Recent initiatives in form of ‗Fashion
Many of the retail related
initiatives of Trent such as Star
Bazaar, Fashion Yatra etc are in
initial stages and are still to
establish themselves as popular
stores
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 65
Yatra‘ aims at value for money apparel &
accessories
Trent owns ‗Landmark‘ which is India‘s
largest books, stationery and music retail
Croma, a specialty store in consumer
durables and electronic items, is one of its
kind and at present very few other retail
stores on similar concept are present in
India – one of them being ‗Next‘
Trent has also started its initiatives in
‗Value based retailing‘ through its
hypermarket format namely ‗Star Bazaar‘.
Star Bazaar are targeting at Tier II cities
For efficient back end operations and
supply chain management, Trent has
recently partnered with UK retailer
‗Tesco‘
Lifestyle
India
(Landmark
Group)
Lifestyle India stores compete closely
against Shopper‘s Stop and other similar
concepts in India. As compared to
Shopper‘s Stop, Lifestyle is more focused
on ‗Youth and Fashion‘
‗Home Centre‘ stores are catching up on
popularity and are growing big way
Lifestyle stores are present out of prime
locations in Metros, Tier I and select Tier
II cities and in big malls mostly as anchor
tenants
Lifestyle stores also work on large ticket
size and higher conversion rates, however,
not as high as Shopper‘s Stop
The group has limited presence
with outlets in top 10-12 cities
within India
They are not present in
supermarket or hypermarket
format
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 66
Spencer‘s
(RPG
Group)
Spencer‘s stores are among the oldest
retail chain initiatives in India and over the
years they have earned high trust of its
customers
The company has very strong presence in
super and hypermarket formats in India
and are established as ‗Good value for
money outlets‘
They are present in more than 65 Indian
cities (including tier II cities and below)
and are available in two mini-supermarket
formats as well (Spencer‘s daily and
Spencer‘s express)
Product mix of Spencer Stores
(even in case of hypermarkets)
have very high share of food &
grocery items and fresh fruits &
vegetables – all these are low
ticket items.
Spencer‘s stores compete very
closely against neighbourhood
‗Kirana stores‘ and therefore they
are forced to run on tight margins
Reliance
Retail
The biggest strength of ‗Reliance Retail‘
lies in the fact that it is a part of Reliance
Industries, India‘s biggest private sector
company with high capital investment
potential and huge risk appetite
Reliance retail has forayed into
supermarket, hypermarket, and specialty
store formats in various product categories
– clothing, Jwellery, healthcare, consumer
durables, footwear, automotive, time wear,
IT products, furniture, food & grocery
including fresh fruits and vegetables. They
have also entered into business to business
format – ‘Ranger Farms’
— As per company sources, the
hypermarket of Reliance namely
‗Mart‘ will be very huge stores (First
Mart store is being opened in a space
Reliance retail has slowed down
on growth plans because of
recent economic crisis
Reliance Fresh has been facing
issues related to supply chain
management and merchandizing
Most of the initiative of Reliance
in retail are very new and their
success or failure depends on
multiple factors
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 67
of 230,000 sq ft)
Reliance retail has very aggressive growth
plans and the company has employed huge
number of people to implement these
plans
Unlike many other retail companies,
Reliance comes with an advantage of
being a textile manufacturing company.
Reliance already has retail outlets of
VIMAL (company‘s flagship brand)
across India
Aditya
Birla Retail
Aditya Birla retail has ventured into two
formats – Supermarket and Hypermarket
and at present plans to grow bigger and
stronger in these two formats only
Aditya retail also comes with an inherent
advantage of being a part of ‗Birla Group
of Companies‘ and therefore with a
capacity for huge investment and higher
risk appetite
The company aims at differentiating itself
as a ‗spend friendly store‘ with much
superior shopping experience
The company has huge growth plans in
retail
Recent economic slowdown has
impacted the growth plans of the
company
Aditya Retail will face tough
competition from Reliance and
Bharti Retail
Subhiksha Subhiksha is India's largest supermarket,
pharmacy and telecom retail chain
Subhiksha is recognized as ‗Discount
Stores‘ targeting at ‗middle, lower middle
class and below‘
It has multi-locational presence with more
Subhiksha being a discount store
runs on very tight margins and
are profitable only because of
‗economies of scale‘
They often face supply chain and
merchandizing related problems
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 68
than 1000 stores in over 90 cities across 9
States
Indiabulls‘
Retail
Indiabulls‘ Retail has acquired Piramyd
retail to mark its foray into retail business.
This acquisition gives Indiabulls‘ an
infrastructure and an established system to
start with.
Indiabulls‘ retail targets at opening value
lifestyle based departmental stores and
convenience stores. Their focus is on
‗Middle and Lower Middle classes‘.
— They are differentiating themselves
from Shopper‘s Stop and Lifestyle
(Landmark Group) by not targeting the
‗Premium and lifestyle segments‘ of
society
Indiabulls‘ is positioning itself differently
by also venturing into a chain of wholesale
stores
Indiabulls' entry into retail comes
after big groups like Reliance,
Aditya Birla, RPG and Future
Group have already got a head
start and are busy consolidating.
The company may face stiff
competition while trying to
establish itself in Indian retail
market
Entry of Indiabulls into retail has
unfortunately been at a time of
economic slowdown and it had to
face losses on acquisition of
‗Piramyd Retail‘.
The company is facing some
vendor related problems as well
Bharti-
Walmart
Retail
Bharti Wal-Mart Private Limited will bring
modern supply chain and back-end
logistics expertise to India, bringing Wal-
Mart‘s global best practices in such areas
as just-in-time inventory, retail information
systems, cold chain infrastructure, GPS for
truck and trailer tracking, and fuel
management systems.
Entry of Wal-Mart would create new
benchmarks for supply chain management
in India and the benefits would be passed
on to the consumers
Bharti-Walmart has still not
started operating any stores till
now. They still have to capitalize
on their strengths and meet out
the constraints to earn success in
their plans.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 69
While Wal-Mart brings with it global
expertise in supply chain and logistics,
Bharti has a better understanding of the
local market
Bharti Enterprises‘ 100% subsidiary Bharti
Retail, has entered into a franchise
agreement with Wal-Mart which will
provide technical support to Bharti Retail.
Thus Bharti retail format will also reap the
benefits out of this business tie-up
Bharti Wal-Mart in a Public Private
Partnership (PPP) with the Government of
Punjab has recently started a Training
Centre in Amritsar (Punjab), India‘s first
special skills training centre aimed at
bridging the shortage of skilled workers for
cash-and-carry and organized retail
formats. This is a smart move by Bharti-
Walmart to build human capital and would
pay off in long terms significantly. This is
all the more relevant as Bharti-Walmart is
planning to open its first cash and carry
outlet in Punjab during April – June, 2009.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 70
9. INDIAN RETAIL INDUSTRY ANALYSIS
9.1. Indian Retail Market Analysis based on Nine Forces Model
9.1.1. Threat of New Entrants (High)
Time and Cost of Entry: Can be a constraint as new entrant should be capable
of managing high operating costs. However, exiting this business is not very
difficult
Entering the modern retail market in India is cost intensive. Opening and
operating the retail stores, maintaining inventory of goods and managing the
supply chain requires moderate initial investment and large operating cost. Large
operating costs are on account of:
High lease rental for retail space in urban India
Government (Political/ Legal
Shifts) Liberalized, need further
improvement Restricted FDI in retail
Multi-taxation and licensing
Technological Shifts
Many technology related
improvements underway
International/ Economic
Shifts
India fast emerging as a major
destination for global retail giants
Bargaining Power of Buyers
(High) Many players
Availability of substitutes
High price sensitivity
Informed buyers
Concentration of modern retail in
few pockets
Bargaining Power of Suppliers
High to Medium for retail spaces
Medium to Low for products &
services
Social/ Consumer Shifts
Opposition from small traders/
shopkeepers Changing outlook of Indian
consumers
Competitive Rivalry (Medium)
Medium to low industry
concentration ratio
Scope for many players to grow
Low Exit Barriers
Concentration in few pockets
leading to competition
Threat of New Entrants (High)
Doesn‘t require buying of assets
Low technology protection Products & services differentiation
possible in many ways
Distribution channels replicable
Huge untapped market & high
growth rate
Threat of Substitute Products &
Services (High)
Unorganized retail-closest substitute
Multi-level marketing – another
substitute
Cost of substitution is low
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 71
Large work force that requires to be hired to manage and operate a modern
retail business
However, unlike any manufacturing units, retailing doesn‘t require huge capital
investments into owning machineries and other assets. Retailing can be done in
rented spaces (both for retail stores as well as for warehousing) with outsourced
logistics. Therefore, exiting this business at any point of time is not very
difficult
For any new retail store, it takes around 3-5 years to breakeven. Therefore, any
new entrant would require having strong finances to wait for these many years
before starting to earn from its retail initiative
Economies of scale: Important and difficult to attain in initial phases by a new
entrant
Margins in retail sector in India is reducing because of increasing overhead costs
(high lease rental, high component of wages and salaries, cost of logistics etc.)
and growing competition among organized players, and already existing
competition from huge unorganized retail segment.
Because of reducing margins, ‗economies of scale‘ has become very important to
become profitable in this business. For new entrants, it is difficult to attain
economies of scale in the initial phases with less number of stores and lower
volume of sales.
Technology Protection: Not a constraint as the required technology can be obtained
by a new entrant as well
Moving the right merchandise, at the right time, at the right price – to the right
location, for the right customer, in the right quantity requires real time
optimization of product flow and proper integration of front and back end
operations. An ERP system for logistics and warehousing coupled with front end
IT support (for fast billing, updating store stocks, etc.) are required to be invested
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 72
into by any new retail player. However, any retail player can possess the
required technology provided the player is ready to invest in it.
Specialist Knowledge: Not a constraint; addressable through right recruitment,
training and technology support
Efficient back end (inventory and supply chain) and front end management (retail
store) requires skill, knowledge and experience. However, hiring right kind of
people and adequate training of workforces aided by technology may
adequately serve this requirement.
Cost benefits: Manufacturers & Companies with well managed logistic teams can
manage cost benefits
Existing manufacturers of any products would have an advantage in retailing of
those products. This is because the manufacturers would be in a position to enjoy
higher margins for their in-house manufactured products.
For example: Godrej as a retailer in furniture segment has an advantage in terms
of margins because it is also into manufacturing of furniture.
Companies with well managed logistic teams are bound to have cost as well as
operational advantages over other retail companies. This is because in India, third
party logistics is in its nascent stage and it‘s difficult to find right logistic partners
with sufficient knowledge of the retailer‘s business.
For example: Pantaloon Retail India Ltd. is a part of Future Group. Future
Group has ‘Future Logistics’ as one of its business verticals. Pantaloon retail
gets an advantage because of this.
Products & Services Differentiation: New entrants can differentiate themselves in
multiple ways
Retailing as a concept is not limited to any specific products or services. Retailers
may differentiate themselves in terms of having specialty stores dedicated to any
specific product type or service. They may at the same time operate in
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 73
hypermarket, supermarket or departmental store formats. Retailers may
differentiate themselves in terms of their target customers, their business strategy
and their ticket size. From this point of view, any new entrant in retail market has
multiple options.
At present, in each modern retail formats within India, there operate only a
few players and enough scope exists for new players to enter and operate.
However, within some specific formats such as hypermarket or supermarket
products and services offerings can be differentiated only to a limited extent.
Access to Vendors: Developing a set of dedicated vendors can be a challenge for a
new entrant
For branded products, sourcing points are common for all players. What varies is
the bargaining on margins depending upon the strength of brands and the strength
of retail players.
In case of unbranded supplies (to be sold under private labels) few of the vendors
may be common for many retailers, however, there may be many retailer specific
vendors (one vendor dedicated to only one retailer). For any new entrant in Indian
retail market, developing a set of dedicated vendors is a slight challenge and may
take some time and efforts.
Distribution Channel: Largely standardized and replicable by new entrants
Distribution channels are largely standardized in modern retail formats. For most
of the product categories such as apparels, furniture, consumer durables etc. the
distribution models adopted are standardized and replicable. However, in case of
some specific product types such as fresh food, fruits & vegetables, the
distribution channels are little different (largely on account of perishable nature of
these items) and may vary from one player to another.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 74
Other Barriers to Entry
Barriers related to Foreign Direct Investment and government clearances/
licensing have been discussed under ‗Government Shifts‘
Some Social barriers have also been discussed as part of Social/ Consumer Shifts
9.1.2. Threat of Substitutes (High)
Neighbourhood mom & pop stores, standalone shops selling readymade garments,
electronic equipments, consumer durables, fruit & vegetable vendors, cluster of shops
and other outlets as part of unorganized retail, all are close substitutes of various
Modern retail formats. With the advent of modern retailing in India, the so called
unorganized retail is also challenged to improve and get more structured. This
increases the threat of substitution even more.
Multi level marketing (also known as network marketing) is another format of selling
that can act as a substitute to modern retail formats to some extent and in some
specific product categories
Different modern retail formats can act as substitutes to each other as well (intra-
segment substitution). For example: A hypermarket can substitute a supermarket or a
specialty store and vice-versa.
Cost of substitution: As most of the modern as well as unorganized retail spaces are
operating on lease only, therefore cost of substitution would not be high. However,
multi-level marketing for any product category would consume lot of time and efforts
to develop and grow.
9.1.3. Bargaining Power of Suppliers
(High to Medium for retail spaces; Medium to Low for products and services)
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 75
Suppliers of Retail Space
Before the recent economic slowdown hit Indian market, real estate was booming and the
modern retail space rentals were touching sky. Availability and affordability of spaces
have stayed as critical issues for modern retailers. Builders have been in a strong position
to bargain for higher lease rental. However, the recent slowdown is now forcing builders/
real estate developers to reduce the lease rentals to some extent. Also, speculating the
high growth potential for modern retail in India, real estate developers started with
multiple projects and now there seems to be excess of retail space supply in pipeline. All
this is gradually giving modern retailers some power to bargain against Real estate
developers for lower rentals or adoption of alternate lease models such as revenue
sharing.
Suppliers of Products/Services
Bargaining power of vendors varies from product to product and depends hugely upon
whether a product is branded or unbranded and whether the relationship with supplier is
formalized or not.
For most of the product categories, there exist many suppliers and multiple
sourcing options. From this consideration, bargaining power of suppliers is low
except in cases of very established brands.
Branded products suppliers are in a better position to bargain as compared to
local/unbranded products suppliers.
One factor that adds to the bargaining power of suppliers is the option of
supplying to unorganized retail shops, which account for around 94-95% of the
total retail market value in India. Margins enjoyed by suppliers in case of supplies
to unorganized stores are higher as compared to organized ones. However, bigger
size of orders (economies of scale) and long term relationship make supplies to
organized retailers profitable.
In modern retail, there is a growing trend towards formalizing the relationship
with suppliers in terms of joint venture or partnership. Formalizing of supply
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 76
relationship makes it a binding upon suppliers to supply to the undersigned
retailer for a certain period at the decided margins and agreed upon terms and
conditions. This restricts suppliers from lobbying against any modern retailer or
from erratic and unexpected behaviour. Altogether, it can be said that bargaining
power of suppliers remains medium to low for most of the product categories in
case of modern retail.
9.1.4. Bargaining Power of Buyers (High)
Bargaining power of buyers is high in case of modern retail. This is largely on account of
Many Existing and New Players
Presence of multiple players as part of modern retail, entry of more and more new players
and increasing options among buyers to choose for various product and services
Availability of Substitutes
Presence of large unorganized retail sector with numerous players offering products at
competitive prices and other benefits such as neighbourhood location of shops are a close
substitute for modern retail and therefore a reason for higher bargaining power of buyers
Increased Buyer Information
Increased level of awareness among consumers on brands, quality, and prices etc. across
different products is another major reason for their higher bargaining
Higher Price Sensitivity
Various market surveys suggest that Indian buyers are very particular about ‗Good value
for money‘ and this factor influences volume as well as frequency of purchase from any
retail store.
Modern Retail Concentrated in Few Pockets
Modern retail at present is largely limited to top cities of India and very few tier II cities.
Also, only the middle class and above are being largely targeted. This has led to higher
competition between players to catch more buyers.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 77
All this is resulting into higher gains of buyers in terms of better prices, regular discounts
and offers, improved shopping experience, better services such as free home delivery etc.
9.1.5. Competitive Rivalry (Medium)
Medium to Low Industry Concentration Ratio
Modern retail industry is in its initial stages in India. The size of tapped market is a very
small proportion of total market potential. In last few years many players have entered
the market. Future group, Raheja Group, Landmark Group, Reliance retail, Aditya retail,
Vishal retail, Bharti-Wal-Mart and a few others are being seen as big players with huge
potential and aggressive plans in retail sector; however none of them can be said to be
enjoying significant market share at present. In other words, at present the industry
concentration ratio is medium to low and therefore not a situation of high competitive
rivalry. It will take a few more years for the market to mature and for clear cut trends on
market share to emerge.
Space for Existence and Growth of Large Number of Players
Modern retail in India has just taken off and by value it is only 5-6% of the total retail
market in India at present. In terms of penetration, it is concentrated mostly in metro
cities and select tier I & tier II cities. Though the existing base is small, modern retail has
been growing at a high rate. It is expected to grow at a rate of 25-30% or more annually
even during the prevailing phase of economic slowdown. As far as the size of untapped
market is concerned, there exists enough room for new players to enter and grow. The
present level of competition exists because all the players are operating in few urban
pockets only. Infact, the existing players welcome competition because they feel that
increased competition might help in maturing the buyers and in creating a benchmark for
further improvements in modern retail within India.
Low Exit Barriers
In modern retail, the prevalent practice is to take retail space on lease. Even the
warehouses are on lease. There are no other huge capital investments as well. All this
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 78
results in lower exit barriers. This also helps in reducing the level of competitive rivalry
as a non-performing player might exit the market without much loss.
Concentration of Players in Metros and Tier I Cities
Modern retail at present is limited to top metros and tier I cities. As they are all trying to
grow and grab business in the same geographies, it is leading to relatively higher
competition among players.
9.1.6. Government (Legal and Political Shifts)
Indian Government has liberalized its policies in many ways over the years to incentivize
growth of Modern Retail in India. However, there is an increasing pressure for further
relaxation.
FDI in Indian Retail
The government of India allows FDI in retail under the following two categories:
Up to 100 per cent in cash-and-carry (wholesale) retail by global retail chains
(e.g. Metro AG, Shoprite, and Wal-Mart). The cash-and-carry format is a business
to business model, wherein stores sell large volumes of products to the retailers
and not directly to consumers.
Up to 51 per cent in single brand retail (e.g. Nike, Lee Cooper, Loius Vuitton and
others). FDI up to 51% has been allowed in retail trade of ‗Single Brand‘
products, with prior government approval and under certain conditions:
Products to be sold should be of a ‗Single Brand‘ only.
Products should be sold under the same brand internationally.
‗Single Brand‘ product-retailing would cover only products which are branded
during manufacturing.
The government has taken this stance with the objective to attract investments in
production and marketing, improving the availability of such goods for the
consumers, encouraging increased sourcing of goods from India, and enhancing
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 79
competitiveness of Indian enterprises through access to global designs,
technologies and management practices
Government Regulations on Licensing, Taxation etc. (Need to be simplified
further)
At present, retailers in India need to obtain licenses and permits such as basic
trading licenses, product specific licenses, pollution clearances etc for every retail
outlet (even if it‘s a chain store). According to retailers, this delays the opening
of stores and increases cost.
Introduction of VAT is a favourable step from Government of India to remove
double taxation and to bring uniformity in taxes across states. However, many
states have still not implemented VAT fully and therefore differential sales tax
system still continues across different states. Multi-point octroi/entry tax
collection is also leads to differential taxing. All this act as constraints for the
retailers in adopting uniform prices for same products in different states.
9.1.7. Social Shifts
Opposition from Small Traders and Shopkeepers
Retail is the second-largest employer in the country. Entry of large companies as part of
modern retail in India is feared to cause exit of the smaller stores that account for around
95% of the country‘s estimated 12 million retail outlets in India. Many of the small
traders, shopkeepers, wholesalers and vendors are of the belief that Indian government
should stop large corporations from entering the retail segment until it puts in place a
national policy that is agreeable to all the stakeholders. In recent past, there have been
protests, backed by some of the political parties, in some of the Indian states such as Uttar
Pradesh, West Bengal and Kerela that led to closing down of some modern retail outlets
in these regions. Analysts see an element of political opportunism behind these protests.
However, these protests are slowly dying out because of growing realization basis several
studies that India‘s market is big enough to accommodate modern retail alongside the
small shops and kirana stores that will continue to flourish.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 80
Changing attitude of Indian consumers
Please refer to section on ‗Growth Drivers for Modern Retail in India‘ for details on this
topic
9.1.8. Technological Shifts
Many technology related improvements underway
Modern retail in India is experiencing higher usage of ERP systems and other IT
infrastructure for efficient material handling at back and front end of retail supply chain.
Material handling equipments usage also has gone higher. Efficient supply chain
management in turn is resulting in smaller inventory and real time flow of goods.
Improved technology for goods storage, especially establishment of chains of cold
storage for storing fruits, vegetables and other highly perishable food items, are also
required and are gradually being established.
All the above mentioned technology related initiatives are in their initial stages and have
been adopted by leading players. There is a need for higher level of adoption of improved
technologies.
9.1.9. Economic/ International Shifts
India is fast emerging as a major destination for global retail giants to meet the needs of a
growing breed of middle-class Indians with more disposable income to spend on
consumer goods. As some major markets globally show signs of saturation, India has
certainly emerged as the preferred market for big retailers. The lack of consolidation and
modern retail concepts in India present great opportunities for global retailers.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 81
9.2. Major Constraints for Modern Retail in India
The major roadblocks or constraints for Modern retail in India have been identified as
follows:
Supply Chain Bottlenecks: Distribution and logistics are major bottlenecks for the
Indian industry, especially for the food industry.
Poor infrastructure (road, rail and communication infrastructure), coupled with
lack of third party logistic providers makes operations difficult.
Absence of cold chains and proper storage, and transportation methods (suitable
vehicles and containers) leads to a high wastage and increased transaction and
product costs.
Key Constraints
Supply
Chain
Bottle-
necks
Multiple Taxation
Complicates
Uniform
Pricing Pressure on
Margins: Risin
g
Cost
Multiple Legislative
Laws
APMC Acts:
Reforms Still Required in
Few States
Inadequate
Human Resources
Real Estate:
Availability &
Affordability
Key Constraints
Supply
Chain
Bottle-
necks
Multiple Taxation
Complicates
Uniform
Pricing Pressure on
Margins: Risin
g
Cost
Multiple Legislative
Laws
APMC Acts:
Reforms Still Required in
Few States
Inadequate
Human Resources
Real Estate:
Availability &
Affordability
Key Constraints
Supply
Chain
Bottle-
necks
Multiple Taxation
Complicates
Uniform
Pricing Pressure on
Margins: Risin
g
Cost
Multiple Legislative
Laws
APMC Acts:
Reforms Still Required in
Few States
Inadequate
Human Resources
Real Estate:
Availability &
Affordability
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 82
Real Estate: Availability and Affordability
The availability of real estate is a critical issue that would influence the rate of
growth and profit margins of retailers. Unavailability of government land, zoning
restrictions and lack of clear ownership titles further add to the problems
Delays in delivery of malls are the other constraints that retailers are facing. Many
projects are running 6-12 months behind schedule, with properties not being
delivered on time.
Limited physical infrastructure. India has one of the largest road networks in the
world, yet less than half of the roads are paved and less than 2,000 kilometers are
express highways. These national highways account for less than 2 percent of the total
road network, but carry 40 percent of the traffic. This is one reason the average speed
in India is 20 miles per hour, compared to the West‘s 60 miles per hour. The poor
condition of roads translates directly to shorter vehicle lifespan, which increases
operating costs and reduces efficiency. Off the highways, firms can only run trucks
smaller than 20 feet. As of now, India invests less than 4 percent of its GDP in
infrastructure, compared to China‘s 9 percent.
Over-burdened ports. India has a long coastline, but its port system isn‘t well
utilized. Seventy percent of the seaborne trade is handled by 2 of its 12 major ports,
while 180 minor ports go virtually unutilized. As a result, turnaround time far lags
other global ports with vessels taking up to 3½ days to debark. Many of the secondary
ports have infrastructure problems that aren‘t a quick fix. Even within its large ports,
India can‘t support 6,000 TEU containerships, which make up 25 percent of today‘s
shipping volume. In addition to constraining India‘s growth in offshore production,
this makes it difficult for manufacturers hoping to import, rather than produce
products for Indian consumers.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 83
Pressure on Margins: Rising Costs: Already prevailing thin margins of retailers are
facing further pressure from the following:
Lease rentals: On an average, lease rentals have been accounting for 7-8% of
revenues of retailers. Rental values at prime locations are very high. Imposition of
service tax @ 12.36% with effect from 2007-08 is another cost component for
retailers
Employee costs: Training costs constitute a huge component of total employee
costs of retailers. Manpower expenses have been accounting for 6-7% of total
revenues of retailers
Multiple Legislative Laws
Multiple licenses and clearances required for setting up and operating a retail store add to
the impediments faced by the organized retail industry. They reduce the flexibility of
operations, hinder fast expansion and increase the overall cost. There is a need for
government to reduce the licenses requirements from the current 37-45 licenses to
moderate levels, besides reducing contact points.
Multiple Taxation Complicates Uniform Pricing
The retail industry attracts a variety of taxes from both Central and State governments.
They include the CST, sales tax (state), entry taxes for inter-state sales and octroi,
depending upon the area of operation and procurement, and the type of goods sold. While
most states have abolished octroi, it still exists for some large city markets in Karnataka,
Maharashtra and Gujarat. Multiple taxation makes it difficult for retailers to maintain
similar prices across geographies. The introduction and implementation of value added
tax has resolved this problem for retailers to some extent.
Inadequate Human Resources
Growing concern about paucity of trained personnel, both at store and managerial levels,
is evident in the sector. With the advent of foreign players, the problem is likely to
worsen.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 84
Retailers are increasing salary levels and offering employee stock options to contain the
high attrition rates. Seeing this as an opportunity, various institutes have begun to offer
courses specializing in retail segment
APMC Act: Reforms Still Required in Few States
APMC act in its original form restricted any organized retailer from sourcing directly
from farmers. However, growing need for change in the mode of operation of the current
system by inviting investments and competition from the private sector, has led to
drafting of new Model APMC Act, 2003. Based on new recommended model, some
states now are amending their individual state APMC acts and are allowing direct
procurement by retailers from farm gates. Recommended amendments, however, have
not been introduced in all states and also the reforms in some ways are not adequate for
direct and hassle free sourcing from farmers.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 85
9.3. Emerging Trends in the Indian Retail Industry
Aggressive Future Plans with Due Corrections on Account of Economic
Slowdown
Most of the modern retailers in India have aggressive growth plans. In light of present
economic slowdown, these retailers have corrected down their targets, reduced their pace
and have started investing carefully; however, they continue to be ambitious, optimistic
and are planning big.
Emerging Trends in the Indian Retail
Industry
Aggressive Growth Plans
with Due Corrections on Account of Economic Slowdown
Increased Share of
Goods under Private
Labels
New E
ntra
nts Ty
ing-
up with
Glob
al
Playe
rs
Focus on Tier II & Lower
Cities
Self-S
ervic
e Ret
ail
Outlets
Inorganic Route for
Market Entry
Emerging Trends in the Indian Retail
Industry
Aggressive Growth Plans
with Due Corrections on Account of Economic Slowdown
Increased Share of
Goods under Private
Labels
New E
ntra
nts Ty
ing-
up with
Glob
al
Playe
rs
Focus on Tier II & Lower
Cities
Self-S
ervic
e Ret
ail
Outlets
Inorganic Route for
Market Entry
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 86
Future Plans of Some of the Leading Retailers
By 2011, Future Group (Pantaloon Retail) plans to have 300 stores expecting revenues of
Rs 13,000 crore. It plans to reach 24 million sq feet of retail space by June 2011, up from
8.6 million sq feet right now. The Group has maintained its pace while expanding its reach
despite the sluggish growth in the economy presently.
Shopper's Stop plans to invest Rs 1,000 crore for expanding its existing store space of 1.3
million square feet to 2.7 million square feet and move from 25 stores at present to 50 stores
over the next 3-4 years (by 2012-13).
Tata Group's retail arm Trent, which operates Westside, plans to add 8-10 stores every year.
Currently, it has 31 stores in India
Spencer's Retail, which closed down and relocated 56 of its unviable stores recently, will set
up 300 more stores till 2010 for an investment of Rs 500 crore. Currently, Spencer's has 700
stores, commanding a retail space of 2.5 million, which will see addition of another 1.3
million sq ft by 2010.
Apart from the measures discussed in section, few other strategies adopted by retailers to
beat Economic slowdown:
Cost cutting by focusing on improving employee productivity, cutting down on
raises of senior employees, reducing spends on advertising and communication,
recruitments, etc.
Focusing on value and discount retail formats
Planning to add to their number of stores by capitalizing on the prevailing lower
lease rentals on account of slowdown in real estate sector
Increased focus on consolidation of already existing stores and targeting to earn
higher profits through them
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 87
Inorganic Route for Market Entry
Lucrative opportunities in Indian retail sector have encouraged many companies with
different backgrounds to enter the sector. Because of lack of any retail related experience,
many of these companies have marked their foray in retail sector through acquisition of
some already existing smaller retail companies.
Aditya Birla forayed into retail by acquiring Trinethra, the South India based chain of
stores
Indiabulls entered the retail market by acquiring piramyd retail
Reliance retail started its first acquisition by buying out the retail wing of Adani.
Adani group had forayed into retail by acquiring a leading supermarket store V Ravjis
in 2000.
New Entrants Tying-up with Global Retailers
As many Indian companies with no prior experience in retail are entering the sector, there
is a growing trend towards tying up with global retailers to share their knowledge,
experience and expertise.
Two-wheeler manufacturer, Hero Group has entered the Indian retail industry
through lifestyle and home décor stores called OMA. Towards this, the company
has entered into supply arrangements with Danish firm, Villa Collection, Thailand
government‘s Royale Porceliel and UK‘s DK Living
For efficient back end operations and supply chain management, Tata Trent has
partnered with UK retailer ‗Tesco‘
Focus on Tier II & Lower Cities/ Towns
Though the top metro and tier I cities would continue to be the centres for retail business
during the next few years, retailers have started focusing on tier II and lower cities and
towns to make an early mover advantage and acquire big gains in long term. Also, with
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 88
increasing focus on ‗Value retailing‘, tier II and lower towns and cities become potential
market for modern retailers.
Increased Share of Goods under Private Labels
Retailers enjoy far lesser margin in branded products as compared to private label
products. As the competition is increasing and profit margins are getting smaller, there is
a growing effort by retailers to have more and more products of various quality and
grades under private labels. Share of private label goods are generally very high in case
of apparels and FMCG. Supermarket and Hypermarket Retailers are to some extent
competing against FMCG brands.
Self-Service Retail Outlets
The global economic downturn has opened up opportunities for self-service cash
transaction and check-out kiosks at retail stores in India. Retail majors like Reliance
Retail, Pantaloon Retail, Tata‘s Trent, and others have showed significant interest in
installing self-service billing counters and check-out kiosks within their hypermarkets
and other retail formats. Deploying self-service cash transaction kiosks might be a good
cost-cutting exercise for retailers, as it will enable pruning of employees and cashiers
might be then shifted on the shop floor. Also, this will solve the issue of long customer
queues at billing counters.
Our competition is with the Levers and the P & Gs of the world. Their strength has been
through the Kirana Stores that are selling these products. 60% of retail market is FMCG
(food and non-food) and that business has been in hand of 7-8 players. We aim at
increasing our private label products in our stores.
-- As stated by one of the senior officials of Vishal Retail
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 89
9.4. Critical Success Factors in Retail
For modern retail industry in India, various critical success factors have evolved over a
period of time
Location
Well placed stores with high visibility and easy access, have potential to attract higher
footfall. Location is a key factor in India for
yet another reason. Poor infrastructure
(particularly, roads and ports) leads to
inefficiency in the supply chain, which
impacts profitability. The retailer has to
ensure proximity to his/her source as well as
customers. In deciding the location of a retail
store, it is important to consider the following
parameters
Types of customers
Visualizing the building,
Merchandise expected to be sold
Expected image/brand
Retail space and storage area
Source: David Oliver, Partner,
Kurt Salmon AssociatesUK
Knowledge & Information
Merchandize
Geography (location)
EVOLUTION OF CRITICAL SUCCESS FACTORS
Superstores need to be
located near residential areas
rather than in a shopping
mall or in commercial areas
to allow easy access to
customers for their daily
need items.
Specialty goods are more
unique than most products
and customers generally
won't mind traveling out of
the way to purchase these
types of products. Specialty
stores may also do well near
other shopping stores.
Furniture, Consumer
Durables & Upscale
clothing are examples of
higher prices items and for
these items customers will
want to compare prices
before making a purchase.
Therefore, retailers will do
well to locate their store near
similar stores.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 90
With the arrival of improved technology and betterment in infrastructure, location of
store has started becoming less of a constraint in India. In addition to a good location,
now Merchandize has also evolved as a key success factor.
Merchandize
Merchandize panning is critical to meet the sales target and achieve higher margins by
ensuring optimal inventory levels.
Knowledge and Information
Knowledge about Customer Tastes and Preferences
India is a country of people belonging to different cultures and lifestyles. It is very
important for retailers to understand the variations in tastes and preferences across
geography, gender, age groups and various economic classes within India.
Real Time Inventory Management through Proper Information System
Efficient inventory management is key to successful retailing and it can be achieved
through proper Information system in place backed by technology such ERP system, and
other IT infrastructure. Proper inventory management becomes all the more critical in
India because of poor physical infrastructure conditions in most of the regions.
Apart from the above three factors, other critical success factors for successful retailing in
India are:
Review of past
performance
Strategic
Planning
Channel Sales
Budgeting
Category Level
Margin
Planning
Range
Planning
Space
Planning
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 91
Customer Satisfaction and Retention
By making available to the customers the
desired products, investing in CRM, and
running loyalty programmes.
Proper Product Display/ Placement
With an idea to achieve high visibility of shelves. Three important aspects considered for
product placements in retail stores are ‗Eye Level Shopping‘, ‗Timing of Shopping‘ and
‗Spontaneous Purchase‘.
Building Traffic: By working on the concept of ‗More of the Right People for More
Time‘.
Physical Layout: It is an important component in creating a vibrant retail experience
for customers. Proper store layout is important
To guide the customer around the store and entice increased purchases
To create balance between sales and shopping space
To create effective merchandise presentation
Keeping Pace with Technology
One key differentiator between the successful and not-so-successful retailers is primarily
technology. Customer knowledge management through CRM software, and supply chain
management (both back and front end) through ERP system, RFID based tracking, web
technologies, and other supporting IT infrastructure, are very critical for successful
retailing.
Loyalty Programmes in Retail Pantaloons Green Card Program
Shoppers‘ Stop First Citizens Club
Globus Globus Privilege Club
Westside Club Westside
Crossword Book Rewards Program
Planet M M-xtasy World
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 92
10. RETAILERS’ PERCEPTION ABOUT THAI IMPORTS
Some of the leading retailers in India are, at present, already sourcing or planning to
source apparels, plastic goods including kids‘ toys, home décor items & electric goods,
furniture, footwears, processed food, personal care items and some other items, in limited
quantities, from Thailand.
10.1. Apparels
According to Indian retailers, Thailand is very strong in readymade denim garments
(Jeans, T-shirts, and Shirts etc.) and other fashion apparels in men‘s, ladies‘ as well as in
kids categories.
Many of the leading retailers such as Shopper‘s Stop (Raheja group), Pantaloon retail
(Future group), Vishal Retail, and Lifestyle (Landmark Group) are already sourcing
denims and other fashion apparels from Thailand. However, quantities of imports are
very low at present. For example: In 2007-08, Shopper’s Stop sourced two containers of
men’s and ladies’ readymade denim garments from Thailand.
10.2. Plastic Goods
Plastic containers, water bottles, plastic utensils, kid‘s toys, and other plastic based
general merchandize items are also being imported from Thailand in limited quantities by
some of the leading retail players. According to industry sources, plastic goods of
Thailand are high on quality and relatively cheaper. Example: Big bazaar (part of
Pantaloon group) at present imports around 1/3 rd of its plastic ware, plastic containers
and other plastic based products from Thailand.
―Thailand is famous for washed denim. Thailand manufacturers have very good
understanding of denim wash and they are good at stitching and packaging as well. The
quality of Thai denim is better than that of brands like Lee & Levi‘s‖
- Head Merchandiser for Apparels in One of the leading Departmental Stores in India
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 93
10.3. Home Décor Items & Electric Goods
Thailand home décor items are very popular in India. They are perceived as good in style,
quality and reasonably priced as well. Artificial flowers, flower vases, display paintings,
electric lamps and lamp shades are some of the products already being imported by a few
modern retailers in India. However, these product categories don‘t contribute much to the
value based retailing in India (hypermarket and supermarkets) at present. Example:
Vishalmart, which targets at lower middle buyers in India, has discontinued keeping
artificial flowers in its stores as they didn‘t sell much.
10.4. Furniture
Rubber wood, also known as parawood, based furniture of Thailand are in demand in
India. Thailand furniture are perceived as high end stuff with good quality and finish.
According to some of the leading retailers dealing in furniture, Chiangmai and Bangkok
are the two major sourcing hubs for furniture in Thailand. However, at present only a
select retailers procure from Thailand and that too in lower volumes. Value and volume
of imports from China and Malaysia are higher in furniture segment than Thailand.
Break up of Supplies to Pantaloon Retail in Furniture Segment (2007-08)
Indian Manufacturers, 50%
Thailand (Rubber/ Parawood Furniture),
3.5%
Indonesia (Synthetic Ratan, Cane, Particel
Board, MDF Furniture), 5%
Malaysia (Rubber Wood Furniture), 15%
Denmark & Italy, 1.5%
China(Glass Furniture & Sofa), 25%
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 94
10.5. Footwear
Major sourcing for footwear retailing is happening from within India. Imports are
happening largely from China and in small volumes from Italy and Brazil. At present,
hardly 1-2 retailers in India are importing Thailand footwears and that too in very small
volumes. However, retailers in India appear to be interested in procuring more of
footwears from Thailand. According to some of the leading retailers, Thailand can be a
preferred sourcing hub for ladies‘ footwears. According to these retailers, Thailand
manufactured ladies‘ footwears have a typical style and look and stiletto sandals happen
to be one of Thailand‘s specialties with huge potential to sell in Indian markets. Apart
from ladies' footwears, some of the Indian retailers also appear to be interested in
sourcing Q & Q sole sheets and some other footwear accessories. However, Thailand
footwears are rated low on quality and this is one factor that discourages imports from
Thailand.
10.6. Processed Food
According to some of the modern retailers, Thai cuisines are picking up fast in India.
However, at present the base is very very small and that is why even high growth rate is
not adding much volume till now. Thai cuisines are tangy and spicy and therefore hold
fair chances to be accepted by Indians at large. Most of the Chinese cuisines have been
Indianized and that is one big reason for their wide level acceptance among Indians. Thai
food would also require to be tuned to Indian taste. This process will be gradual and take
sometime.
―We have visited Thailand and explored the footwear market there. We checked all kinds
of footwear over there- high end, mid as well as low end. Men‘s footwears are okay in
quality, however, appearance-wise not very appealing for Indian buyers. On the other
hand, female footwears carry great style, excellent finish and potentially high appeal for
Indian buyers, however, not upto mark on our quality parameters. We would need to get a
lot of things changed, such as shoe sole, in case we get into sourcing from Thailand.‖
- As stated by the Merchandiser of one of the leading footwear retailers in India
-
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 95
As identified during the study, some important factors that may influence the
acceptability and popularity of processed or ‗ready to cook‘ Thai cuisines in India are:
Packaging: Thai food packets mostly have lot of shrimps drawn on them (even in
case of vegetarian items), largely because of high popularity of seafood in Thailand.
Also, Thai fonts are very different and not very clear for Indians. Product labels and
other relevant information and instructions on the food packets, even if printed in
English language are not very clear because of the typical Thai font type used. All
this alienate Indian buyers.
Green, White and Red Dots: Around 70% of world‘s vegetarians are Indians. Even
the non-vegetarian Indians are very selective about what they may consume. Indian
buyers are very particular about green, white and red labels on the food packets
standing for vegetarian, eggetarian and non-vegetarian food types respectively. This
is another critical factor for selling of packaged food in India.
Cooking Instructions: Most of the Indian consumers are not very experimenting and
many refrain from retrying any dish in case it doesn‘t appeal to them in first trial.
Clearly mentioned cooking instructions become very critical for less known food
items. In case of some Thailand based packaged food, the specific instructions on
quantities of various add-ons are missing and that discourages buyers from buying
them.
Thailand pastes and sauces are growing in popularity among Indians. However, Thai
noodles are different and Indians don‘t have a taste for that.
―Indians straightaway compare any noodles with Nestle‘s Maggi. And now with an
evolved Indian taste for Indianized version of Chinese noodles, Thai noodles will have a
tougher challenge in establishing itself in Indian market.‖
- As stated by Senior Research Manager, Food Bazaar
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 96
10.7. Personal Care Items
Many of the leading brands in personal care category have emerged from Thailand.
Thailand is known to have high quality products in items such as soap, packs, face and
body cream, aroma oil, massage cream etc. Some of the leading retailers (such as
Pantaloon Retail) in India are of late focusing on increasing their share of business under
this category and are planning to import these items from Thailand in considerable
volume. However, except for the brands that are already popular in India, what type of
response does the other personal care products from Thailand get from Indian buyers is
still to be seen.
10.8. Other factors related to Thailand
Importing from Thailand is more convenient as compared to countries like China
because they speak in English and communication is smooth
Both Thai and Indian Currency fluctuate a lot against US dollar. This creates
uncertainty about the actual payments to be made for import of various products.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 97
11. POSSIBLE WAYS FOR ENTRY OF FOREIGN
RETAILERS IN INDIA
International players can enter India through multiple routes:
11.1. Manufacturing and sourcing
Foreign players are allowed to enter India if they manufacture or source products locally.
International companies such as Levi‘s and Tommy Hilfiger source their products from
domestic manufacturers like Arvind Mills, whereas Benetton, Sony and Samsung have
manufacturing units in the country. We feel the impact of opening up FDI on this route
would be minimal, as cost advantages as against high import costs would compel
international players to source or manufacture their products in India.
11.2. Cash-and-carry operation
Players are allowed to sell goods only for business purposes like hoteliers, commercial
organizations and retailers, and not for personal consumption. Since 100 per cent FDI is
not allowed in India, foreign players have entered India through this route. (Please refer
to section for details on foreign players that have entered or planning to enter India
through this route)
11.3. Franchising
This is the most preferred mode through which foreign players have entered the Indian
market. Franchising entails granting of rights by one party, the franchiser, to another, the
franchisee, in return for a sum of money. The franchiser invests his/her assets in a system
to utilize the brand name, operating system and ongoing support of the franchisee.
Lacoste, Pizza Hut, Mango, Nike and Marks & Spencer have entered India through this
route. With the opening of FDI, many franchisees may lose their franchising rights as
franchisers may chose to change their mode of operation. On the contrary, many existing
franchisees may also enter into JVs with the franchisers with the opening up of FDI.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 98
11.4. Test Marketing
This route allows foreign players to test the demand for their products in India for 2 years
before undertaking investment through setting up of manufacturing facilities in India.
Players such as Amway, Oriflame and Nokia have entered India through this route.
Players may continue to enter India through this route even if FDI in retail is allowed,
because they can test demand for their products before undertaking any major
investment.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 99
12. CONCLUSIONS AND RECOMMENDATIONS
Organized retailing in India is at present in its initial stages and experiencing high
growth. High growth rate is on account of existing lower penetration of organized retail
and presence of huge untapped market. The market is expected to grow at more or less
the same pace till it reaches the stage of maturity. Almost all modern retail formats in
various product verticals are poised to grow fast during the next few years.
Under the wake of present global slowdown, organized retail market in India has seen
some corrections in entry and growth plans by the prospective and existing players.
However, most of them continue to be aggressive and plan huge investments with an
intention to make early mover advantage and increase their presence pan India.
As far as Thai entrepreneurs are concerned, they can plan to enter organized retail in
India under many product verticals.
12.1. Level of Attractiveness versus Suitability for Thai Investors
Level of Attractiveness
High Low
High
Low
Su
itab
ilit
y t
o T
hai
In
ves
tors
/ S
upp
lier
s
Fashion
Accessories
Footwear,
Furniture &
Furnishing
Plastic ware/
Kitchenware
Personal Care Home
Décor
Items
Apparel
Stores
Theme Malls/
Specialty Malls
Restaurant
Chains (fast
food outlets,
and coffee
chains)
Consumer
Durables/ Home
Appliances
Food &
Grocery
Cash &
Carry Stores
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 100
In terms of attractiveness, Value Retailing scores over Lifestyle Retailing and
Premium Lifestyle Retailing. Apart from metro and tier I cities, value retailing has
higher potential to grow in tier II and lower cities. Also, value retailing is the least
impacted segment under the present situation of economic slowdown and all retailers
have aggressive growth plans in supermarket and hypermarket formats. However, due
to FDI restriction, it is not possible for foreign players to enter any multibrand outlet
formats (such as hypermarket, supermarket, departmental stores, specialty stores etc.)
and therefore these options can‘t be considered by Thai Investors at present.
Apparel as a category is among the highest on profitability and highly suitable for
Thailand as well. There exists very high potential for Thailand in this category.
Thailand ranks high on personal care products. Modern Retailers in India are of late
focusing on growing their business in personal care category. There is a growing
opportunity for Thailand in this category.
Though Thailand has many things to offer under home décor category (artificial
flowers, flower vases, lamp shades, electric lamps, paintings and wall hangings etc.),
the share of these items as part of modern retail in India is comparatively lower.
However, the category provides reasonable opportunity for Thailand to explore
further.
Restaurant chains (especially the Fast food outlets and Coffee chains) are one the
fastest growing categories of modern retail in India. They are spreading fast into tier
II cities as well. There exists high opportunity for Thailand based fast food outlets
and coffee chains to foray into Indian market. However, for successful entry and
expansion, they need to ensure that their offers are Indianized and suitable to Indian
platter.
Food & grocery stores are very high on attractiveness as far as modern retailing in
India is concerned. However, except for some sauces and pastes, there are not many
processed and packed food items where exists high potential for Thai offerings at
present. Most of the sourcing in Food & grocery category happens from within India
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 101
and the study suggests that it would continue to happen the same way atleast for next
few years.
Modern retailing in India is still not mature enough for wide acceptance of Theme
malls or specialty malls. There have been big plans on part of real estate developers
as well as leading retailers to come up with such malls in India. However, many of
these plans have been stalled in wake of global slowdown. Also, there has been a
realization that it will take sometime before Indian buyers develop an orientation to
shop from specialty malls.
12.2. Proposed Entry Strategy
Thai Entrepreneurs should plan to invest in Indian Retail Market in three phases as
depicted below:
Time Horizon: 1st Year 2nd & 3rd Year 4th Year Onwards
Phase I Phase II Phase III
Thailand’s Entry Strategy
As
Sup
plie
rs
(und
er f
orm
al a
gree
men
t)
Lo
ok
Out
fo
r
JV
Par
tner
s/ F
ranc
hise
es/
Lo
gist
ic P
artie
s
Sin
gle
Bra
nd O
utle
ts
thro
ugh
JVs/
Fra
nch
isee
s
Cas
h an
d C
arry
Sto
res
Tes
t M
arke
tin
g in
Sel
ect
Pro
duc
t Cat
ego
ries
Man
ufac
turi
ng B
ase
in
Sel
ect
Pro
duc
t Cat
ego
ries
The
me
or
Sp
ecia
lty M
alls
Bas
ed o
n T
hai P
rod
ucts
Time Horizon: 1st Year 2nd & 3rd Year 4th Year Onwards
Phase I Phase II Phase III
Thailand’s Entry Strategy
As
Sup
plie
rs
(und
er f
orm
al a
gree
men
t)
Lo
ok
Out
fo
r
JV
Par
tner
s/ F
ranc
hise
es/
Lo
gist
ic P
artie
s
Sin
gle
Bra
nd O
utle
ts
thro
ugh
JVs/
Fra
nch
isee
s
Cas
h an
d C
arry
Sto
res
Tes
t M
arke
tin
g in
Sel
ect
Pro
duc
t Cat
ego
ries
Man
ufac
turi
ng B
ase
in
Sel
ect
Pro
duc
t Cat
ego
ries
The
me
or
Sp
ecia
lty M
alls
Bas
ed o
n T
hai P
rod
ucts
Thailand’s Entry Strategy
As
Sup
plie
rs
(und
er f
orm
al a
gree
men
t)
Lo
ok
Out
fo
r
JV
Par
tner
s/ F
ranc
hise
es/
Lo
gist
ic P
artie
s
Sin
gle
Bra
nd O
utle
ts
thro
ugh
JVs/
Fra
nch
isee
s
Cas
h an
d C
arry
Sto
res
Tes
t M
arke
tin
g in
Sel
ect
Pro
duc
t Cat
ego
ries
Man
ufac
turi
ng B
ase
in
Sel
ect
Pro
duc
t Cat
ego
ries
The
me
or
Sp
ecia
lty M
alls
Bas
ed o
n T
hai P
rod
ucts
As
Sup
plie
rs
(und
er f
orm
al a
gree
men
t)
Lo
ok
Out
fo
r
JV
Par
tner
s/ F
ranc
hise
es/
Lo
gist
ic P
artie
s
Sin
gle
Bra
nd O
utle
ts
thro
ugh
JVs/
Fra
nch
isee
s
Cas
h an
d C
arry
Sto
res
Tes
t M
arke
tin
g in
Sel
ect
Pro
duc
t Cat
ego
ries
Man
ufac
turi
ng B
ase
in
Sel
ect
Pro
duc
t Cat
ego
ries
The
me
or
Sp
ecia
lty M
alls
Bas
ed o
n T
hai P
rod
ucts
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 102
12.3. Phase I
During the first year, it is being proposed that Thai investors explore the business
opportunities as suppliers to Indian retailers. In the meantime they should be at constant
look out for suitable business partners in India for opening of single brand outlets in
various product categories.
12.3.1. As Suppliers
Product Categories Apparel & Fashion Accessories, Footwear, Personal Care (especially skin
care items), Furniture and Furnishing, Plasticware/ Kitchenware, Home
Décor Items, Processed and Fresh Food Items
Concerns/ Constraints
(if any)
One of the factors that discourage retailers in India from importing is
that most of the sourcing happens on ‗Outright basis‘. Unless and until
the retailers are very sure of sale or get reasonably high margins, they
don‘t import goods in large volumes.
Frequent currency value fluctuation is another factor that discourages
retailers in India from importing from Thailand
Recommendations
Thai manufacturers/ suppliers should work on establishing formalized (through JVs, partnership
etc.) and long term supply relationship with the existing retailers in India in the mentioned product
categories.
To ensure supplies in large volumes, Thai manufacturers should be ready to adopt consignment
model of supply for select non-branded as well as branded goods and concessionaire model of
supply for high end branded goods.
Supply of ‗made to order‘ goods is likely to happen under ‗Outright‘ model only. To establish long
term supply relationship for this type of supplies, Thai manufacturers should focus on delivering as
per the required specifications, implementing strict quality check norms and on time delivery.
Thai manufacturers require taking retailers in India under confidence through proper mutual
planning coupled with clarity on currency exchange value at which the supplies may take place
even at any later point of time in future.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 103
12.3.2. Look Out for Joint Ventures/ Franchisees/ 3 PL
Product Categories Apparel, Footwear, Personal Care (especially skin care items), Furniture,
Plasticware/ Kitchenware, Home Décor Items, Food Outlets
Concerns/Constraints
(if any)
Selecting the right JV partners or Franchisees in each of the product
categories
Awareness about various laws of the land
Proper formalization of relationship on mutual agreement
Selecting the appropriate 3PL logistic party
Recommendations
Selecting the Right JV
Partners
In each of the product verticals, Thai investors should select such
companies for partnership/ JVs within India that complement their
strengths. Selected partners should
be knowledgeable about Indian customers
preferably have experience in retailing in the given product
categories
preferably have presence in all the zones – South, North, West and
East within India
Under the present situation of lack of proper 3PL logistic players in
India, it is preferable if the JV partners have their own well
developed in-house logistic arrangements.
Preferring ‘Master
franchisee & Sub
franchising’ over
‘Direct Franchising’
It is recommended that in place of direct franchising, Thai Investors
should first get into JVs with Indian partners in each of the product
categories (including food outlets). After finalizing the JVs, company
owned single brand outlets should be opened. It is only after a
considerable number of company owned outlets are established that
franchising option should be exercised. This mode of operating is also
known as to ‗Master franchisee and Sub-franchising model‘. This
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 104
approach will aid Thai investors in exercising better control over its
outlets in initial phases and manage them in the desired manner.
Once a few ‗joint venture company‘ owned outlets get established,
further expansion may be planned through franchisee route.
Formal Agreements
and Clarity on Terms
& Conditions
All the agreements should preferably be formalized or legalized with
clear understanding of terms and conditions.
To ensure good deals, Thai investors must be well aware of various
laws of the land including the property laws (such as Transfer of
Property Act, 1882, The Indian Contract act, 1872, The Registration
act, 1908).
Building in-house
Logistic Facilities or
Selecting Appropriate
3 PL Party
In case the JV partners do not have well developed in-house logistics
team, then the Thai investors alongwith their JV partners should look
out for proper 3 PL Players with required business knowledge in each
of the product categories. The logistic party may be common for more
than one product category.
For food and beverage outlets, there is a need for cold chain based
logistic and warehousing arrangements
Also, for food and beverage outlets, suppliers of various semi-
processed/ semi-cooked food items, and processed food items need to
be identified and tied-up with. In this case also, it is recommended to
have formalized agreements.
12.4. Phase II
Acting as suppliers would provide good insights about the type of demand that exists in
India, variations in choice and preferences that prevail across different zones/regions, and
specific Thai goods (in various product categories) that have potential to sell within India.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 105
Also, it will make the Thai suppliers more knowledgeable about the existing retailers in
India.
Once the partner companies have been identified in different product categories, and the
formal agreements have happened, the branded products manufacturers of Thailand
should then immediately focus on opening of single brand outlets.
While some of the branded products manufacturers of Thailand shall be busy opening
Single brand outlets in Joint venture with Indian companies, a few leading Thai retailers
may plan to start Cash and Carry business in India.
In case of a few brands within select product categories, such as Personal Care Items,
Consumer Durables and Home Appliances, and Processed food, Thai Manufacturers may
plan to enter India through the route of Test Marketing.
12.4.1. Single Brand Outlets
Single Brand Outlets in Non-food Categories
Product Categories Apparel, Footwear, Personal Care (especially skin care items), Furniture
Plasticware/ Kitchenware, Home Décor Items
Concerns/Constraints
(if any)
As specified by Govt. of India, ‗Single Brand‘ outlets can be opened
only for products which are branded during manufacturing and are
sold under the same brand name internationally. This condition
would require to be strictly followed.
Target customers, store locations and type of lease agreement for
opening of stores are some of the critical factors
Poor physical infrastructure coupled with lack of proper logistic and
warehousing facilities are the other major concerns.
Recommendations
Identifying Target
Customers
Target customer base within India should be clearly identified for
each of the selected brands in each of the product categories before
opening of single brand outlets.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 106
Store Location Store location should largely be decided based on target customers.
In case any brand aims at premium/ high end customers, the
brand outlets may be opened as standalone stores in the vicinity
of posh residential areas or as part of high end shopping malls.
If the brands target at lifestyle category customers, it is
preferable to open them as part of shopping malls with potential
to attract high footfall or as standalone stores in High streets
For brands targeting at extremely value conscious customers
(middle or lower middle income groups), the first priority should
be to have low rentals. The outlets may be stand alone stores
located at not so prime streets or shopping malls in not so prime
areas.
Store location related recommendations, specific to some of the
product categories have also been discussed in the later part of this
section
Recommended Rental
Model
It is recommended that Thai investors should bargain with builders
for lease agreement under ‗Revenue sharing model‘. They should
also bargain for lower fixed rental component under revenue sharing
model.
Focus on Building
Efficient Supply Chain
Efficient supply chain management needs to be ensured through
proper use of technology both at front and back end and through
strong logistics and warehousing arrangements (either company
owned or outsourced)
Thai investors should, if required, be willing to invest in developing
their in-house logistics and warehousing facilities.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 107
Single Brand Food & Beverage Outlets
Product Category Restaurant Chains & Coffee Shops
Concerns/Constraints
(if any)
Type of cuisines offered and their acceptance by Indians residing in
different parts of the country is the first concern. Study findings
suggest that at present Thai cuisines in their present form are not
widely accepted in India.
Lack of cold chain based proper logistics and warehousing facilities
and the chances of high wastages are the other major concerns
Recommendations
Type of Food Outlets,
their Location and
Geographical Spread
It is recommended that during the initial phases, Thai investors, in
JV with identified Indian players, open fast food joints and coffee
chains.
These fast food outlets and coffee chains may be opened first in
Metro and tier I cities. Later on they should be taken to lower tier
cities as well. Preferred locations for these outlets would be near
office complexes, shopping malls, institutional areas, townships, and
high streets.
Thai specialty restaurant chains may be started only at very select
locations of the top metropolitan cities of India. Initially, a higher
focus should be at serving Thai specialties through counters as part
of food courts in shopping malls.
Indianization of Thai
Cuisines
Also, for Thai cuisines to be a hit in India, it is required to Indianize
them by adding flavours and spices that suits Indian taste buds. This
should be on similar lines of Indianization of Chinese Cuisines
which resulted in wide acceptance and huge popularity of these
cuisines in India
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 108
Minimizing Wastages
through Efficient
Supply Chain
Management
Thai investors need to focus at minimizing the wastages during
supply and in inventory of the various semi processed/ semi-cooked,
processed and fresh food items that would be sourced for various
types of preparations. This can be done through proper use of
technology both at front and back end of supply chain, having
extensive arrangements for cold storages and temperature controlled
fleet, and by maintaining optimal level of inventory. Thai investors
should, if required, be willing to invest in developing in-house
logistic and cold storage chain facilities.
12.4.2. Cash and Carry Stores
Product Categories All products that typically go into a Hypermarket (as sourcing of goods
from within India is allowed under this format)
Concerns/Constraints
(if any)
No major concerns
Recommendations
Experience in Cash &
Carry Format
(preferable)
Thai investors, preferably with similar experience, should plan to
enter India through Cash and Carry b2b sales format.
Opening of 'Cash and Carry' stores throughout the country shall
provide a golden opportunity to Thai investors to understand the
market and to make in-roads into India. Also, when the restrictions
on retail industry are lifted within India, Thai investors will be in a
strong position to easily convert their 'Cash and Carry' stores into
highly profitable supermarkets and hypermarkets.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 109
Tying-up with Local
Indian Players
Recommended
Thai investors would require to source goods in bulk directly from
manufacturers across various product categories from within as well
as from outside India including Thailand. Sourcing decisions need to
be well informed. Also, the business requires good local market
understandings. To facilitate all this, it is recommended that Thai
investors enter Cash and Carry business in tie-up with any local
Indian retailers or manufacturers.
Geographical Spread of
Stores
To start with, it is recommended that cash and carry stores are
opened in some prime market locations of all the four metropolitan
cities. Further the presence should be expanded to tier I and tier II
cities.
Logistics &
Warehousing
It is recommended that central warehousing (distribution centre)
system is adopted for most of the product categories except for
perishable food items.
Thai investors may plan to outsource the logistics and warehousing
activities by identifying the right 3PL or 4PL parties. However, if
required they should be ready to develop in-house logistics and
inventory management capabilities.
12.4.3. Test Marketing
Product Categories Personal Care Items, Consumer Durables (including Home Appliances),
and Processed food
Concerns/ Constraint
(if any)
A major decision of whether to invest in manufacturing facility or not
needs to be taken based on Test Marketing. Test marketing is allowed for
a maximum period of 2 years within India. Hence, there is pressure to best
utilize this time span to understand the market response and to estimate
the actual demand for any given product.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 110
Recommendations
It is recommended that Thai investors conduct test marketing for some of their innovative and
new products in Personal care category and consumer durables (including Home appliances).
Some of the processed food items could also be test marketed for their popularity in India
It is recommended that a few wholly owned subsidiaries are established that will import items
in the mentioned categories from Thailand for test marketing.
Test marketing should be carried out in a way that it encompasses all the zones within India-
South, North, East, West and Central. It is very critical to understand the variations (if any) in
demand across geographies.
12.5. Phase III
With the passage of time, competition would grow in modern retail market within India.
To stay profitable in long term, it is important to cut down on cost of shipment and
transportation. Establishing local manufacturing base, rather than continuing to import, is
therefore a much desired step for select product categories. Also, this would be the time
to decide about putting up manufacturing facilities for the products that were Test
Marketed during Phase II. Manufacturing decision would remain non-impacted and
advantageous even if the FDI route is cleared by Government of India in future.
Theme or specialty malls had started catching up in India when the recent real estate
slowdown hit it negatively. However, by the time phase III is entered, Theme malls
would have grown big on popularity. Thai Investors may plan to develop Thai Specialty
Malls.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 111
12.5.1. Establishing Manufacturing Base in Select Product Categories
Product Categories Denim based Apparels, Personal Care Items, Consumer Durables,
Processed Food (Sauces, pastes etc.), Home Décor Items
Concerns/ Constraints
(if any)
Establishing manufacturing base requires huge capital investment
Also establishing manufacturing base depends upon multiple factors
such as allotment of land, government clearances, availability of
finances, various government incentives etc.
Recommendations
It is recommended that Thai manufacturers plan to invest in setting up of manufacturing base
in India only for those Thai products that generate huge demand in India such as Denim based
Apparels.
Manufacturing bases also need to be established for products with positive response during test
marketing phase
It is recommended that Thai investors foray into manufacturing in partnership/ JV with any
existing local manufacturers within India.
12.5.2. Entering Theme / Specialty Malls
Product Categories Apparel, Footwear, Personal Care (especially skin care items), Furniture,
Plasticware/ Kitchenware, Home Décor Items, Food Outlets
Recommendations
It is recommended that Thai investors collectively take entire mall space on lease at select
locations (preferably in main market areas) of the top metropolitan cities. Each of the shop
spaces within these malls should then be occupied by single brand outlets across various
product categories. Some of the identified Food and beverage outlets of Thailand would also be
allowed space in these malls. Altogether, these would be malls dedicated to Thai products and
Thai specialties.
Once this concept gets popular in metro cities, there can be step by step expansion plans to tier I
and lower cities.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 112
12.6. Recommendations on Focus within Each Identified Product
Category
Product Categories Category-wise Focus
Apparel and Fashion
Accessories
All types of denim based apparels for men, women and kids
Other fashion and casual apparels for men, women and kids
Footwear
Female footwear (specially the stiletto heel sandals)
There is a need for Thai manufacturers to keep higher quality standards
for female footwears
Personal Care Various available range of products (skin care and cosmetic items, and
health care products)
Plasticware/
Kitchenware All types of plastic wares (including plastic containers)
Furniture Rubber-wood/ Parawood based furniture
Home Décor Artificial flowers, flower vases, lamp shades, electric lamps, paintings,
wall hangings etc.
Processed and Fresh
Food
Sauces, Ketch-ups, and Spices based pastes, and few ready to cook
items (preferably vegetarian); Supply of fresh items such as lettuce leaf
Thai manufacturers need to change the product packaging in following
ways:
no shrimps or fishes should be drawn on the packets
cooking instructions and other details should be in clear font
Green, white and red labels standing for vegetarian, eggetarian and
non-vegetarian items respectively should be clearly put on the
packets
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 113
1. ANNEXURE 1
1.1. Company Profiles in Retail
1.1.1 Pantaloon Retail (India) Limited (The future Group)
Year of Incorporation 1987
Ownership Public Limited Company
Retail Sector Activity Department stores, hypermarkets, supermarkets, malls, specialty retail
Principal Fascia Pantaloon, Big Bazaar, Central, Food Bazaar
Corporate Structure
The future group operates through six group companies: Future Retail; Future Capital; Future Brands;
Future Space; Future Logistics; Future Media
Future Retail – Formats
The Company‘s principal formats are Pantaloon, Big Bazaar, Food Bazaar, and the mall concept ‗Central‘.
It is targeting a higher share of the customer‘s wallet by expanding its formats. For most formats, it has
adopted a dual strategy of opening smaller versions in its flagship stores of Food Bazaar, or Big Bazaar,
and opening larger independent stores. It plans to have Pantaloon, Central, Big Bazaar and Food Bazaar
operate as separate companies under the holding company, Future Retail.
Pantaloon Retail
Retail Operations Joint Ventures Subsidiaries and other
ancillary business
Big Bazaar Pantaloon
Food Bazaar
Central aLL
Home Town
Electronic Bazaar Ezone
Furniture Bazaar
Collection I
Liberty (51%)
Alpha (50%)
Galaxy Entertainment (16%) Staples (50%)
Blue Foods (50%)
Talwalkars (50%) AxiomTelecom(50%)
Generali (74%)
Etam (50%) Lee Cooper (50%)
Manipal Heath Services (50%)
Aero Term Logistics (50%)
Future Capital Future Media
Futute Brands
Future Logistics Future Knowledge
Future Bazaar
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 114
Table 2: Future Group – Formats
Pantaloon Central Big Bazaar Big Bazaar Super
Centre Food Bazaar BB Wholesale Club
Business
Description
Lifestyle
store
targeting
middle and
upper
middle class
Lifestyle
seamless mall,
housing 300
brands across
different
categories
A hypermarket
targeted at the
middle and lower
income groups,
retailing products
at discounted
prices.
A format larger than
the Big Bazaar
stocking a larger
number of SKUs
A supermarket aimed
at replicating a local
market
simultaneously
providing superior
ambience and storing
over 50,000 stock
keeping units (SKUs)
A store managed by Food
Bazaar catering to the needs of
price sensitive consumers as
well as small retailers by
selling multi packs and bulk
packs of a select range of
FMCG goods at wholesale
prices
Line of Business Lifestyle Lifestyle Value Value Value Value
Product
Offering
Garments,
Accessories
Apparel,
Footwear,
accessories,
entertainment
and recreation
facilities
Food and
Beverage, apparel,
accessories,
consumer durables,
home care and
personal products
Food and Beverage,
apparel, accessories,
consumer durables,
home care and
personal products
Food and Beverage,
FMCG
Food and Beverage, FMCG
Avg Store Area
(sq ft) 20,000 125,000-250,000 30,000-1,00,000 1,00,000 and above 8,000 and above 10,000 and above
No of Stores
(Dec 2007) 40 5 68 5 102 6
Source: Company and Media reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 115
Other Formats
Table 3: Future Group - Other Formats
Brand Factory Depot Fashion
station
aLL Blue Sky Top 10 Ethnic City
Business
Description
A chain of stores
offering branded apparel
at discounted prices
ranging between 15-
25%.
A store that
retails books,
music,
multimedia,
toys, stationery
and gifts.
Stores that
offer apparel
and other
accessories.
A store
catering to
plus-size
men and
women
Stores offering
branded
accessories like
sunglasses and
watches
Stores catering
to youngsters.
Stores catering to the
working women
population.
Line of
business
Value Lifestyle Value Lifestyle Lifestyle Lifestyle Lifestyle
Product
Offering
Apparel, accessories,
footwear
Books, toys,
stationery and
music
Apparel and
accessories
Apparel
and
accessories
Sunglasses and
watches
Apparel and
accessories
Apparel and accessories
Labels
Offered
Diesel, Espirit, Levi's,
Wrangler, Pepe, Lee,
Louis Philippe,
Bossinni, Arrow, Van
Heusen
None n.a. n.a. n.a. n.a. n.a.
Avg Store
Area (sq ft)
60,000-100,000 300-12,000 7,000-10,000 500-2,000 500-1,000 700-1,000 n.a.
No of
Stores (Dec
2007)
6 78 2 30 34 2 n.a.
Source: Company and Media reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 116
Home Solutions Retail Limited
With an investment of Rs 300 million, PRIL set up its 100 percent subsidiary, Home Solutions Retail (India) Ltd. The company
operates formats such as e-zone, Electronic Bazaar, Collection I, Furniture Bazaar and Home Town under this venture.
Table 4: Home Solutions Retail Limited
e-zone Electronics Bazaar Collection i Furniture Bazaar Home Town
Business
Description
A format selling branded
electronic goods and appliances
targeted at the middle and
upper middle class
A format selling
branded electronic
goods and appliances
targeted at middle
class and low income
groups
Store selling
home décor
and
furnishings
Stores selling furniture Stores selling home décor,
furnishings and providing
services such as electrical,
plumbing, painting and
interior decoration
Line of
business
Lifestyle Value Lifestyle Value Lifestyle
Avgas
Store Area
(sq ft)
15,000-30,000 3,000-10,000 10,000 2,000-10,000 1,25,000-2,50,000
Source: Company and Media Reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 117
1.1.2 Shopper’s Stop
Profile
Shopper‘s Stop Limited was established in 1991 by K Rhea group of companies. The group entered the retail
business with the opening of its first department store at Adhere in Mumbai in 1991. The K Raheja group is a
reputed player in the residential real estate business
Table 5: Shopper's Stop Ltd
Year of Incorporation 1991
Ownership Public Limited Company
Retail Sector Activity Department stores, specialty - books, home products, cosmetics, F&B, baby
care, accessories
Principal Fascia Shopper's Stop, Crossword, Home Stop, Mother Care, MAC, Brio's Arcelia
Shopper’s Stop Limited- Formats
Shopper‘s Stop Limited primarily caters to Sec A and B classes of society through its departmental stores. It has
gained a foothold in the market with a gamut of offerings such as apparel, accessories, footwear, furnishings and
leather products which are retailed through Shopper‘s Stop, cosmetics through MAC stores, music and books by
Crossword and infant wear by Mother Care.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 118
Table 6: Shopper's Stop Limited - Formats
Shopper's Stop Mother Care Arcelia Home Stop MAC Crossword Desi café Brio
Business
Description
These are
departmental
store with strong
focus on lifestyle
retailing
Specialty stores
operating under the
franchisee of Mother
Care Plc, UK to
retail infant wear and
apparel to expectant
mothers
Exclusive
store for
accessories
Premium home
concept stores
The company has tied
up with Estee Lauder
and operates stores
under the brand
name, MAC, in
Mumbai. It was
launched in 2005
These are the
company's
books and
music retail
stores
A fast food
concept
within its
stores
named 'Desi
Café'
These are Café
Bistro's
operated by
the company
within its
outlets
Vertical Departmental
store
Baby care Specialty
accessories
Home Furniture
and Furnishings
Cosmetics Books and
Music
Catering Catering
Product
Offering
Apparel, Home
Furnishings,
accessories,
footwear
Mother's to be
apparel, infant wear,
accessories,
footwear, toys
Cosmetics,
jeweler,
sunglasses,
footwear,
watches,
bags
Furniture,
furnishings,
home
accessories,
Crockery and
home appliances
Cosmetics(Clinique
and Estee Lauder)
Books,
magazines,
CD-ROMs,
music
stationery and
toys
Indian food Coffee and
Pastries
Avg Store
Area (sq ft)
50,000-80,000 3,000-6,000 8,000-
10,000
30,000 n.a. 3,000-8,000 n.a. n.a.
No of Stores
(Dec 2007)
23 13 2 2 3 43 5 18
Source: Company and Media Reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 119
Hypercity Retail (India ) Ltd
The Raheja group made a foray into the food and grocery business through HyperCity Retail (India) Ltd in March
2007. Shopper‘s Stop has an option to buy 51 per cent stake in HyperCity Retail by 2009. Spread over 120,000 sq ft,
HyperCity stocks a wide range of products such as groceries, fresh foods,. Home needs, garments and other
consumer durables.
Table 7: Hypercity
Business Description Hypermarkets catering to middle and upper class markets
Line of Business Hypermarket
Avg store area (sq ft) 120,000
Source: Company and Media Reports
HyperCity – Argos
SSL and HyperCity Retail India Ltd have jointly signed a memorandum of understanding (MOU) with UK based
Home retail group to develop the Argos format (catalogue retailing format) in India. The venture will be called
HyperCITY – Argos. Home retail Group will franchise the Argos concept to the joint venture company. The Argos
format will provide the joint venture its brand catalogue, multi channel experience and IT support, along with
expertise in developing sales through the Internet. SSL has subscribed to a 51% stake in Gateway Multi Channel, a
home and general merchandising retailer, in June 2007, to support this venture. In India, the business model would
involve display centres, online, and call and collect counters that would cater to customers in a particular area.
Large catalogue stores: Spanning across 5,000-10,000 sq ft, these stores enable customers to view products by
browsing through catalogues. There is also a special section in the store, where customers can see products and
enjoy a demonstration.
Call and collect stores: These stores span across 300-500 sq ft. They enable customers to make purchase
decisions by browsing through catalogues. Products will be home delivered from these stores.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 120
1.1.3 Reliance Retail Ltd
Profile
Reliance Retail Ltd(RRl) is the wholly-owned subsidiary of Reliance Industries Limited, pioneered by Mukesh
Ambani. The launch of ‗Reliance Fresh‘ at Hyderabad in October 2006 marked its direct entry in the retail sector.
Prior to this it experimented by operating Mumbai-based Sahakari Bhandar in 2006. The company operates formats
such as hypermarkets, supermarkets and convenience stores, along with specialty stores in apparels, consumer
durables, wellness and healthcare, footwear and Jwellery.
Table 8: Reliance Retail Limited
Year of Incorporation 2006
Ownership Private Limited Company
Retail Sector Activity Hypermarkets, supermarkets, convenience stores, specialty retail
Principal fascia Reliance Fresh, Reliance Mart, Reliance Digital, Reliance Trendz,
Reliance Footprint, Reliance Jwellery
Source: Company and Media Reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 121
Reliance Retail Formats
Table 9: Reliance Retail Formats
Reliance Fresh Reliance Digital Reliance Mart Reliance Mini
Mart
Reliance
Trendz
Reliance
Wellness
Reliance
Home
Reliance
Footprint
Reliance
Jewels
Vertical Food &
Grocery
Specialty-
Consumer
durables
Hypermarket Supermarket Specialty-
Apparel
Specialty-
Wellness
Products
Specialty -
Home
Specialty-
Footwear
Specialty-
Jewels
Line of
Business
Value Lifestyle Value Value Lifestyle Value Lifestyle Value Lifestyle
Area 3,000-5,000 15,000-30,000 50,000-2,50,000 10,000-50,000 30,000 1,500-3,500 40,000-60,000 8,000-
10,000
2,000-
20,000
Product
Offering
Fresh fruits,
vegetables and
dairy products
Electronic goods
and household
appliances
Apparel, consumer
durables, footwear
Apparel,
footwear
Food &
Grocery,
Apparel
Pharmaceutica
ls and medical
services
Furniture and
furnishings
Footwear Jwellery
Private
Labels
Reliance Street none Reliance Select,
Reliance Dairy,
First Class, Spirit,
Contra, Hero,
DNM-X, Cyber
Gear, Buzz, Sparsh,
Networks, Netplay,
Panda
Reliance
Select,
Reliance Dairy
Pure
Spirit, Contra,
Hero, Cyber
Gear, Buz,
Sparsh,
Networks,
Netplay, Panda
n.a. n.a. Viviana,
Tosca,
Mancini,
Monza,Hi
-Attitude
None
Source: Company and Media Reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 122
Supply Chain
RRL is launching captive cargo services by entering into a sales and buyback agreement of a ‘50
cargo aircraft‘ order with Boeing. This will facilitate transportation of fruits, flowers, and
perishables to the company warehouses.
State agri-distribution hubs: These hubs will act as collection centres in their respective states,
routing the bulk produce to the central distribution hub in its SEZs, from where it can be exported
as well as dispatched to various retail outlets across the country.
Farm Supply Hubs: The Company is setting up 1,600 farm supply hubs across the country.
These UBS will facilitate the purchase of farm produce and sale and provision of farm supplies
such as fertilizers, seeds, fuel and credit to farmers. Farmers can also avail of the benefit of selling
their produce in these hubs. Hubs will benefit the company by connecting farms and the
unorganized retail through a distribution system.
Creation of Retail Space
RRL is following a twin model of expansion, which includes both owning and leasing retail space. It has
acquired 1,260 properties for Reliance Fresh stores and Reliance Mart across the country. It is planning to
lease out 100,000 acres of farmland at a fixed price in Pune to grow vegetables, flowers and produce. That
apart, it is also acquiring properties across the country to set up captive vegetable and fruit mandis.
Private Labels
RRL is entering into exclusive agreements with textile companies such as Arvind Mills, Celebrity Fashions
Ltd and Indus League Clothing Ltd to develop exclusive brands for its retail outlets.
Table 10: Exclusive Brands
Name Manufacturer
Spirit Indian Terrain
Contra Indigo Nation
Hero Arvind Mills- Wrangler
Cyber Gear Vibe Private Ltd
Buzz Blackberry
Source : Media Reports
The company has other private labels which it currently retails through its hypermarkets as well as
specialty store, Reliance Trendz. It plans to maintain the share of private labels at 35-40 percent.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 123
1.1.4 RPG Enterprises
Profile
One of India‘s large conglomerates, RPG Enterprises has business interests in retail, technology,
entertainment, power and transmission, tyres and life sciences. It entered the retail sector in 1996 by setting
up Food World Supermarkets inn a joint venture with Dairy Farm International prior to FDI restrictions
were levied in India.
The joint venture with Dairy Farm International (DFI) was called off in 2005. After the split:
RPG retained 48 out of the 93 Food World (FW) stores under the brand, Spencer‘s. It set up additional
formats such as Spencer‘s-Express, Fresh, Daily, Super and Hyper. Music World (MW) was also
retained under the group.
The healthy and beauty chain, Health and Glow (HG), and remaining stores of FW were retained by
Dairy Farm International.
The Company‘s shifted its headquarters from Chennai to Kolkata.
The Company‘s retail business currently operates through the following three formats: Spencer‘s Retail,
Music World and Books & Beyond.
Table 12: RPG Enterprises- RPG Retail
Year of Incorporation 1996
Ownership Private
Retail Sector Activity Convenience Stores, supermarkets, hypermarkets, specialty stores
Principal fascia Spencer's - (Express, Fresh, daily, Supermarket, Hypermarket):
Music World; Books & Beyond
Source : Media Reports
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 124
1.1.5 Spencer’s Retail
Part of RPG group, Spencer‘s retail operates a chain of supermarkets across the country. It has a network of
320 stores across 45 cities, spanning 1 million sq ft. Spencer‘s Retail runs food and grocery outlets across
the country under the following formats:
Table 13: Spencer's Retail Formats
Spencer's Express Spencer's Daily Spencer's Super Spencer's Hyper
Business
Description
A convenience
store format,
stocking fresh
produce
A format larger than the
Express store with
similar product offerings
at discounted prices
A supermarket
format with a larger
basket of product
offerings
A hypermarket format offering
products at low costs
Vertical Value Value Value Value
Product
Offering
Fresh Produce,
dairy and bakery
products
Fresh produce, dairy-
bakery products
Fresh produce, dairy-
bakery products,
FMCG, home care
and personal products
and frozen foods
Fresh produce, dairy-bakery
products, FMCG, home care and
personal products and frozen
foods
Avg Store
Area (sq ft)
1,000 4,000-7,000 8,000-15,000 25,000
No of Stores
(Dec 2007)
66 231 11 12
Source: Company and Media reports
Centralized Purchase: Spencer‘s Retail runs a consolidated centre near Bangalore for the bulk purchase of
fruits and vegetables directly from farmers. This enables the Company to maintain low prices and offer
discounts.
Specialty Stores
Music world
Music World started its operations in November 1997 by taking over Saregama. Its main competitor is
Planet M, belonging to the Videocon Group. Its retail business operates under the following formats:
Destination Stores- These stores, admeasuring more than 4,000 sq ft, stock different types of
music.
Express/Franchisee Stores- These are 300-600 sq ft stores located independently in malls or as
shop in shops within large departmental stores.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 125
Unplugged- These are small gondolas, which are run as concessionaires in other departmental
and large stores.
Books & Beyond
It is a new format conceptualized by the Company during the year, offering books, toys, gifts and
stationery, along with music and home videos. It also has a dedicated section for music and home videos
from Music World. The first store was launched in 2007 at the Megacity Mall in Gurgaon.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 126
1.1.6 The Tata Group
Profile: Established in 1998, Trent is part of the Tata Group, one of India‘s large business
conglomerates. It started its retail operations by acquiring the UK-based Littlewoods department store
in Bangalore in 1998. Its chain of stores is called ‗Westside,‘ which operates 28 stores in major Indian
cities. It also runs a hypermarket, Star India Bazaar, and a specialty store retailing books and music
called Landmark. The group also runs a chain of electronic and appliance store, Croma, under the
group company, Infiniti Retail.
Table 14: Tata Trent Ltd
Year of Incorporation 1998
Ownership Public Limited Company
Retail Sector Activity Apparel stores, specialty-Books,Music, Hypermarket
Principal fascia Westside, Landmark, Star India Bazaar
Source : Media Reports
Corporate Structure of Tata Trent
Tata Trent – Formats
Table 15: Trent Ltd-Formats
Westside Star India Bazaar Landmark
Business
Description
A departmental store format
primarily retailing apparel
Hypermarket format of the company aimed at
offering products at discounted prices
Specialty store retailing
books, music, etc
Line of
Business
Lifestyle Value Lifestyle
Product
Offering
Apparel, home accessories,
artifacts, furnishings
Fresh fruit and vegetables, staples, FMCG,
health and beauty products, home products,
footwear, jeweler, consumer durables
Books, stationery, greeting
cards, gift items, toys, music
Avg Store
Area (sq ft)
15,000-30,000 50,000 12,000-45,000
No of Stores
(Dec 2007)
60 25 29
Source: Company and Media Reports
Tata Ltd
Trent Ltd Infiniti Retail Ltd
Westside Star India Bazaar Landmark Croma
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 127
Trent acquired Landmark, a Chennai based books and music retail chain, in 2006 for Rs 1, 085 million. The
bookstore, which commenced operations with a single store in 1987, now has 10 stores across the country.
Private Labels
Private labels contribute to most of the revenue, with their share being over 80 per cent. The store caters to
the middle class through quality and mid-price segments, providing value for money along with fashion
Table 16: Private Label
Men's Wear Indian Wear Kids Wear
Edward Navya Tammy
France Giovanni
Spike
Fashion Street
Source: Company Reports
Infiniti Retail
Croma
The Company has initiated a new venture called ‗Infiniti Retail Ltd‘(a wholly-owned subsidiary of Tata
Sons) by entering into a technical-cum-sourcing agreement with Woolworths, an Australian retailer. Under
this venture, the company retails multi-brand consumer electronics and consumer durable store, Croma.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 128
1.1.7 Subhiksha Trading Services
Profile
Chennai based Subhiksha Trading Servcoces, a private limited company, operates a chain of supermarkets-
cum-pharmacies called ‗Subhiksha‘. It was established in March 1997 as a chain of 10 stores in Chennai by
banker turned businessman, R Subramaniam. Initially its main operations were confined to South India,
particularly Tamilnadu. This chain primarily targets the middle and lower income population.
Table 17: Subhiksha Trading Services
Ownership Private
Retail Sector Activity Supermarkets, Pharmacies, Mobile Stores
Principal Fascia Subhiksha, Subhiksha Pharmacy, Subhiksha Mobile
Source: Media reports
Subhiksha is a food chain offering discounts in the range of 8-10 percent. It follows a bulk sourcing
strategy, coupled with low operating costs, to make discounts possible. On an average, Subhiksha stores
span across 1,500-2,000 sq ft and offer a discount of 8-10 per cent. The company operates in four areas:
fruits and vegetables, pharmacy, FMCG and telecom through three formats- Subhiksha, Subhiksha
Pharmacy and the newly introduced Subhiksha Mobile.
New Format
Subhiksha Mandi: This new format offers only fruits and vegetables. Its average size is around
600 sq ft. Currently, the company operates 12 store in Delhi and plans the concept in Pune.
Subhiksha Mobile: Subhiksha has started retailing mobiles through stores titled ‗Subhiksha
Mobile‘. These stores offer low prices on branded mobile phones.
Strategy
In order to facilitate a strong supply chain, the company has tied up with farmers to purchase their
produce at current price levels under a preferred buying arrangement
The company has set up a Centralised Processing Unit(CPU) at Nashik, as it sources 50 per cent
of fruits and vegetables under Contract farming to meet the requirements of all its stores.
At Ahmedabad, apart from retailing fruits and vegetables, the company operates two new
verticals, pharmacy and telecom, which involve retailing handsets and phone connections.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 129
1.1.8 Aditya Birla Retail
Profile
The Aditya Birla Group, one of the largest Indian conglomerates, is valued at $24 billion. The group has
interests in varied sectors such as metals, cement, fertilizers, textiles and insurance. It has a presence in
over 20 countries. It made a foray into the retail industry by acquiring south-based retail chain, Trinethra.
Currently, it operates around 300 outlets across the country.
Strategy
Aditya Birla Retail acquired 170 stores of the south-based retail chain, ‗Trinethra,‘ for Rs 1.5
billion in 2006 which is being rebranded to ‗More‘ by the Company.
The company has launched two ‗More‘ hypermarkets in Baroda and Mysore, with a floor space of
70,000 sq ft each.
The acquisition of Trinethra has provided the company wit an employee base of 4,000 people. It
plans to hire between 10,000 and 15,000 employees by 2012.
It would maintain a mix of hypermarkets (avwerage75,000 sq ft) and supermarkets (average
10,000 sq ft) in its portfolio.
As part of its sourcing strategy, the company has set up a sourcing centre for fresh farm products
such as fruits and vegetables, and has established direct linkages with farmers and suppliers.
The chain is also covering categories such as groceries, processed foods, bakery products and
personal care products through its private labels, More and Select.
It has tied up wit Apollo hospitals to set up pharmacies within its supermarkets.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 130
2. ANNEXURE II
2.1. City-wise Rental Trends
Following is the rental trend for top Indian cities during the second quarter of August-November, 2008
(Source: India Retail Report, 2009)
2.1.1 Delhi
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Khan Market 1,335 31.26 20.05 0% 12%
Connaught Place (Inner Circle) 800 18.74 12.02 0% 3%
South Extension 1 & II 1,055 24.71 15.85 5% 23%
Karol Bagh 550 12.88 8.26 24% 24%
Basant Lok 806 18.88 12.11 0% 0%
Greater Kailash I, M Block 1,075 25.18 16.15 2% 17%
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
South Delhi 662 15.5 9.94 0% 6%
West Delhi 410 9.6 6.16 0% -4%
Noida 478 11.19 7.18 0% 0%
Gurgaon 385 9.02 5.78 0% 16%
Exchange rate: USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 131
2.1.2 Mumbai
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Linking Road 1,350 31.62 20.28 0% 123%
Kemps Corner/Breach Candy 950 22.25 14.27 0% 84%
Colaba Causeway 960 22.48 14.42 0% 195%
Lokhandwala Andheri 390 9.13 5.86 0% 37%
Fort Fountain 450 10.54 6.76 0% 91%
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Lower Parel 700 16.39 10.51 0% 36%
Malad 525 12.3 7.89 0% 35%
Link Road Andheri (W) 415 9.72 6.23 0% 19%
Mulund 360 8.43 5.41 0% 18%
Goregaon 600 14.05 9.01 58% 107%
Vashi 300 7.02 4.51 0% 4%
Ghatkopar 350 8.2 5.26 5% NA
Exchange rate : USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 132
2.1.3 Pune
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
MG Road 400 9.36 6.01 0% 33%
JM Road 400 9.36 6.01 5% 135%
FC Road 240 5.62 3.6 0% 55%
Koregaon Road 250 5.85 3.75 11% 100%
Aundh 200 4.68 3 0% 54%
Bund Garden 240 5.62 3.6 0% NA
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
MG Road 380 8.9 5.71 9% 27%
Bund Garden 350 8.2 5.26 0% 75%
Kalyani Nagar 225 5.27 3.38 0% NA
Ganesh Khind Road 220 5.15 3.3 0% 19%
Nagar Road 180 4.22 2.7 0% NA
Exchange rate : USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 133
2.1.4 Ahmedabad
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
CG Road 190 4.45 2.85 0% 21%
Law Garden 130 3.04 1.95 0% 13%
Satellite Road 105 2.46 1.58 0% 14%
SG Highway 90 2.11 1.35 0% 20%
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Vastrapur 200 4.68 3 0% 14%
SG Highway 153 3.58 2.3 0% 20%
Drive-in Road 105 2.46 1.58 0% 7%
Kankaria Lake 100 2.34 1.5 0% 18%
Exchange rate : USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 134
2.1.5 Bengaluru
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
MG Road 240 5.62 3.6 0% 5.50%
Brigade Road 375 8.78 5.63 7% 14%
Commercial Street 250 5.85 3.75 10% 10%
100 Feet Road, Indiranagar 250 5.85 3.75 -6% 5.30%
Jaya Nagar 4th
Block, 11th
Main 260 6.08 3.91 -1% 13%
Sampige Road, Malleswaram 135 3.16 2.03 2% 6%
Koramangala 80 Feet Road 185 4.33 2.78 1% NA
Vittal Mallya Road 300 7.02 4.51 -6% NA
New BEL Road 140 3.27 2.1 2% NA
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Koramangala 485 11.35 7.28 0% 0%
Magrath Road 368 8.6 5.53 0% 0%
Cunningham Road 225 5.26 3.38 0% 0%
Mysore Road 165 3.86 2.48 0% 10%
Exchange Rate : USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 135
2.1.6 Hyderabad
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
NTR Gardens 110 2.58 1.65 0% 5%
Himayathnagar 140 3.28 2.1 12% 14%
Banjara Hills Road No.1 225 5.27 3.38 0% 34%
2.1.7 Chennai
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Nungambakkam High Road 160 3.75 2.41 0% 60%
Khadar Nawaz Khan Road 200 4.68 3 0% 33%
Cathedral Road – RK Salai 150 3.51 2.25 0% 33%
Usman Road – South 140 3.28 2.1 4% NA
Usman Road – North 100 2.11 1.35 11% NA
Adyar Main Road 150 3.51 2.25 0% 50%
Anna Nagar 2nd
Avenue 150 3.51 2.25 0% 41%
Purasavakkam High Road 90 2.11 1.35 0% 13%
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
CBD 250 5.85 3.75 -2% 33%
Suburbs 188 4.1 2.82 0% 25%
Exchange Rate: USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 136
Market Stagnant Likely to Weaken Market Stagnant
2.1.9 Kolkatta
Prime Main Street Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
Park Street 268 6.3 4.02 0% 15%
Camac Street 268 6.3 4.02 0% 15%
Elgin Road 233 5.5 3.5 0% 27%
Theatre Road 233 5.5 3.5 0% 27%
Prime Mall Rents-2008
Location Rent % Growth Short
Term
Trend
/sq.ft/mth Measurement
INR US$ EURO 3 Month 1 Year
South Kolkata 395 9.3 5.94 6% 39%
Salt Lake 500 11.71 7.51 0% 24%
Rajarhat 190 4.45 2.85 57% 111%
Elgin Road 404 9.5 6.07 0% 24%
Exchange Rate: USDI = INR 42.70, EURU I = INR 66.58
LEGEND:
Market Rising Market Falling Market Stagnant likely to Strengthen
Market Stagnant Likely to Weaken Market Stagnant
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 137
3. References
Primary Research – Expert Interviews
List of Companies with whom Depth Interviews were conducted as part of Primary
Research on this Study:
Metro Shoes Ltd., Mumbai
General Merchandize, Pantaloon Retail India Ltd., Mumbai
Big Bazaar, Pantaloon Retail (India) Ltd., Mumbai
Food Bazaar, Pantaloon Retail (India) Ltd., Mumbai
Staples – Buying & Merchandizing, Aditya Birla Retail Ltd., Mumbai
Processed Food – Buying & Merchandizing, Aditya Birla Retail Ltd., Mumbai
Shoppers‘ Stop Ltd. (Raheja Group), Mumbai
Home Stop (Raheja Group), Mumbai
Vishal Retail Ltd., New Delhi
Mc Donald‘s India, Connaught Plaza Restaurants Pvt. Ltd., New Delhi
Café Coffee Day, Bangalore
Furniture - Home Solutions – Pantaloon Retail (India) Ltd., Mumbai
Durian, Mumbai
Style Spa, Mumbai
Godrej Interio, Mumbai
Odyssey India Ltd., Chennai
Landmark (Tata Group), Chennai
Ansal properties & Infrastructure Ltd., Gurgaon
Mohann‘s Estate Consultant – Retail, Mumbai
Franchising Association of India, Mumbai
One or more than one interviews were conducted with each of the above mentioned
companies to capture the required details.
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 138
Secondary Research Sources
The India Retail Story, India Retail Report 2009, Images F & R Research
Hiscock Geoff, India‘s Store War, Retail Revolution and the Battle for the Next 500
Million Shoppers, August 2008
Industry Monitor, Retail, Cygnus – Business Consulting & Research Pvt. Ltd., 2008
Investment in India - Overview, Paras Kuhad and Associates, Advocates, 2008
Reports on Modern Retail in India, CRISIL Research Pro, 2008
Joseph Mathew, Soundararajan Nirupama, Gupta Manisha and Sahu Sanghamitra, May
2008, Impact of Organized Retailing on the Unorganized Sector, ICRIER
Economic Survey of India and Technopak analysis, March 2008
The Logistic Challenges of Doing Business in India, Logistics Management, Feb 2008
Indian Food Retailing, Cygnus – Business Consulting & Research Pvt. Ltd., 2007
Industry Insight- Apparel Retailing, Cygnus Business Retailing & Research, July 2007
Global Retail Development Index 2007, AT Kearney, June 2007
The C Factor, Solving the Supply Chain Puzzle in India, March 2007, DHL
Retail in India – Getting organized to drive growth, AT Kearney, 2007
IMAGES Malls in India Study, 2007
India Retail Report 2007 (www.indiaretailing.com), January 2007
Press Release of India Retail Report 2007, Ministry of Commerce & Industry,
Department of Commerce, Government of India, January 2007
The Great Indian Retail Story, Ernst & Young India, 2006-07
F&B (Servicing) Retail India in India, Food Forum India, 2006-07
INVESTMENT OPPORTUNITY IN RETAIL SECTOR OF INDIA 139
Government of India, Census and Projections, 2001
Retail Marketing Research – India, Research Wikis
Retail FAQ, Propagent
Lease Terminology, REALTECH Real Estate Services
Articles from India Real Estate Monitor
Various News Updates and Study Articles on Retail Sector from The Hindu, The
Economic Times, The Times of India & Others
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