The growing retail landscape in India

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Anand Choudhary | 14 May, 2008
Liberalization of the Indian economy and rationalization of business procedures have already ensured a high economic growth with a rapidly expanding base for the manufacturing and high-end services sectors. Fresh avenues for gainful employment to a predominantly young and talented population have created high disposable incomes that translate in to higher consumption and thus better opportunities for all verticals of retail to flourish.

The country's dynamic retail landscape presents a grand opportunity to investors from across the globe, to use India as a strategic business hub. Currently, the Indian retail market is worth around $ 332.8 billion, growing at a rate of around 10 percent per annum.

Of this the share of organized retail in 2007 was estimated to be only around 6 percent which is $ 19.6 billion. So, basically its the large unorganized retail segment that is being eyed by all the big players entering the Indian retail market and as a result of the big players' entry into the market, the modern retail segment grew at the rate of 42.4 percent in 2007 and is expected to maintain a faster growth rate over the next three years expecting to touch $ 57 billion by 2010.

Recently in a conference on retail, Shyamak Tata, Partner, Deloitte Haskins & Sells, in his reply to a query on whether the big players entry in the Indian retail market will make it difficult for the small retailers to survive, said: "Though its true that the big players entry in the retail segment may make it difficult for the small players to survive, some may shut down while others may be taken over but in the long run it will be beneficial for the economy as the entry of the corporates in organized retail will create more jobs and will generate more revenue, making the economy more stable."

In this land of 15 million retailers most of them owning small outlets, we also have a modern retail
flourishing like never before. As India presents a unique case of consumption driven economy: while the US reels under recession, where supply clearly outstrips demand, India confronts inflation, where Industry and retailers are yet unable to provide what the consumer demands.

India's rural markets also offer a plethora of opportunity for the retail sector. With rural India accounting for 55 percent of private retail consumption. Currently, while the Indian retail market is estimated to be at around Rs 1,33,000 crore, and almost half of this lies in rural India, which is a tremendous growth sector that needs to be tapped with care.

In the over all retail segment, food & grocery is the dominant category with an estimated 59.5 percent share, valued around Rs 792,000 crore followed by clothing and accessories with a 9.9 percent share (Rs 131,300 crore) followed by out of home (catering) services with a 5.4 percent market share (71,300 crore), while Jewellery (Rs 69,400 crore) consumer durables (Rs57,500 crore) and pharmaceuticals with Rs 48,800 crore follow next.

The Entertainment industry is pegged at Rs 45,600 crore. It is followed by furniture, kitchenware (Rs 45,500 crore) and mobile and accessories with a share of Rs 27,200 crore. followed by others such as Health and beauty care services (Rs 4600 crore) and watches and Eye wear with Rs 44,00 crore.

In the organized retail segment, however, the fastest growth was recorded in the tiny health and beauty care services segment (Rs 660 crore), which grew at a rate of 65 percent in 2007 over the previous year. The second fastest growing organized retail category is that of Entertainment
(53.8 percent), followed by mobile phones and accessories and the food and grocery retail segments both of which achieved 55.2 percent growth in 2007.

Organized retailing in small town India is already growing at over 50 to 60 percent a year. about 200 tier 3 cities with a population of less than 2 million and another 500 rural towns have the potential to be the hub for rural markets, where organized retailing can set base. Thus, as a result also creating jobs for the rural youth in the retail sector.

Organized retail is a function of strong supply chain and robust physical infrastructure. Basic supply framework takes care of operational performance at each nodal point - from order to delivery. In view of this, major retailers will have to continuously upgrade their back-end, front-end and supply chain dynamics in order to provide a standard of a standard of value and services to their customers.

Corporate bigwigs such as Reliance, AV Birla group, Tata group, Bharti, Mahindra, ITC group and many others will be investing close to Rs. 1 trillion in the business of retail over the next few years with expected sales to zoom up to Rs 100,000 crore by 2010. Every city it seems is bursting with shopping malls.

Thus, it can be said that there is a lot more to unfold on India's retail landscape in the years ahead.