Unraveling the Indian Retail Tale !

Pricewaterhouse Coopers report: Rising Elephant takes a look at Indian Retail Industry. Several global studies rank India as the most attractive retail destination in the world. PricewaterhouseCoopers estimates that India’s retail sector is worth an estimated USD350 billion. Over 12 million retail outlets (or kirana stores) comprise India’s unorganised market; more than 80 percent of kirana stores are operated by small family businesses using household labour. Organised retail penetration in India is between three to eight percent. Organised retail is growing at a compounded annual growth rate of between 30 to 40 percent per annum.

India’s retail sector will witness increased growth due to the following factors:

• Stable GDP growth rates of nine percent are resulting in increased economic prosperity for the country and for consumers.

• India’s 300 million-strong middle class are demanding increased access to good and services.

• Changing lifestyle patterns are witnessed in the increase of lifestyle- and luxury-oriented purchases and a decrease in essential purchases.

• The higher numbers of working women are resulting in an increase in double income families who want to purchase more consumption-oriented goods. Also, the higher number of urban professional working women is driving demand in urban centers.

• India has one of the world’s largest youngest populations where half the population is under the age of 25 years.

• Increased access to credit is enabling consumers to spend more and save less. (Retail loans have doubled since 2003.)

• Residents in rural and Tier II, III cities are demanding that modern trade move into their localities. The population of rural India is the combined populations of the US and the EU and represents 51 percent of consumption. In addition, the spread of IT and BPO operations to Tier II and III cities is raising incomes, improving standards of living and resulting in a desire to acquire more goods and services.

The success of any retail format largely depends on the efficiency of its supply chain. India has a fairly organised and developed non-food manufacturing supply chain, mainly due to the presence of large local and multinational companies that have built significant experience and scale by following best practices in their respective fields. Like most other developing economies, however, India lacks in the last mile distribution segment. The supply chain in India is fairly unidimensional and there is very little value-added activity since the distribution remains fragmented and unorganised. This is primarily due to the geographical and cultural diversity and complexity of the region and the lack of capital available for investing in technology and modern retail formats.

PricewaterhouseCoopers’ position paper entitled The Rising Elephant: Benefits of Modern Trade to Indian Economy* indicates that India is among the top two producers of milk, fruits and vegetables in the world. Yet, the organised food retail business in the country is among the least developed in the world.

In order to encourage the development of farm-to-fork retail models, the Government can offer incentives and tax-related benefits to incentivise the development and upgradation of the food supply chain. A robust and comprehensive farm-to-fork retail model is required in order to:

• Ensure a smoother transfer of goods from point of origin to point-of-sale

• Increase operational efficiencies

• Reduce overall costs

• Improve customer service since goods can be moved rapidly and efficiently between factories, warehouses and outlets

• Gain insight into which goods move quickly off shelves and which remain in stock

• Reduce wastage across the agricultural supply chain from the current levels of 24 to 40 percent

• Improve farmers’ realizations

• Encourage safer crop management practices

• Ensure that India can supply more fruits and vegetables to overseas markets