India - The Hits And The Hype
by Fabian Panthaki, Assistant Editor - Namnews

But is the dream real? Is organised retail really changing the lives of consumers? And more importantly, is the Indian populace buying into the hype? These answers and more, in our two-part on-the-scene Indian retail market report.

Quick Numbers: Overall retail sales in 2006 generated an estimated Rs.12trn ($266bn), of which organised retail accounted for just Rs.550bn ($12bn). The organised retail sector is expected to grow to Rs.2.0trn ($45bn) by 2010. Total food and grocery retail sales were worth Rs.7.44trn ($165bn), and organised retail accounted for about 2.5% of this. Apparel and fashion accessories are the second largest segment.

Current Regulations: The Indian government is currently refusing to allow direct entry to international multi-brand retailers, but allows cash & carry and wholesale chains. This is giving local players a crucial head start, allowing them to quickly expand across the country. Global retailers are being forced to enter the market indirectly, through tie-ups with Indian companies, providing back-end logistical support. However, even this is receiving political and local opposition, on fears that small retailers will be muscled out.

Who’s Doing What: Simply put, everybody is expanding, even though space is at a premium, and rents are skyrocketing. Malls continue to open on almost every major road, providing a haven for franchises and smaller brands.

The Future Group is ready to open 60 new Big Bazaar outlets by August, and is simultaneously pushing its Food Bazaar format. It has also launched its e-tail website, becoming the first retailer to do so via its own website, rather than through shopping portals. Reliance Retail has successfully rolled out 63 of its convenience food outlets, of between 2,200 to 4,000 sq.ft. each, and will soon launch a supermarket format. It is also acquiring local chains, such as Adani and Sahakari Bhandar, as it aims for revenues of $22bn by 2011. Discount grocer Subhiksha is aiming for a network of 1,000 stores by end 2007, and has already opened 75 outlets in Mumbai alone. South Indian chain Trinethra has been bought by the Birla Group, and plans to add hypermarkets to its 180 store network. Tobacco-to-hotels group ITC has launched its ‘Choupal Fresh’ outlets, and is making a push in rural markets.

The Tata Group is focusing on the non-food sector, expanding its Westside department stores. It has also launched the Croma consumer durables format through a tie-up with Australia’s Woolworths, and takes on ‘Next’, India’s largest electronics chain, operated by durables major Videocon. Shopper’s Stop plans to expand to 310 outlets in 30 cities by 2010, including 70 new Crossword book stores, and 14 new Hypercity hypermarkets.

Amongst the foreign retailers, Metro Cash & Carry is expanding after the success of its first two stores. The Home Retail Group is set to launch the Argos franchise soon, while Mothercare plans to open 100 stores within five years. Wal-Mart’s venture with Bharti Enterprises will open its stores in June, while Carrefour, Tesco, Kingfisher and Auchan are all talking to Indian companies, as they seek tie-ups of their own.

And of course, the millions of small shops, stand-alone department stores, street hawkers, open-air grocery and wholesale markets continue to exist, and still account for the vast majority of retail revenues. All of them are also modifying their offer and revamping themselves to combat this latest threat to their business.

And How They Are Doing: The Future Group gets mixed marks – while its Central malls and Pantaloon outlets are well-designed, well-stocked and have a wide product range, its in-store security and layout management needs an overhaul. Its Big Bazaar/Food Bazaar outlets are hugely popular, but need a re-think on store assistant levels, layout space, and especially on having assistants walking around in-store yelling out offers through megaphones! However, its move into e-tailing could give it a lead over rivals.

Reliance Retail is impressing with its store layout and fresh produce offer, and is making a strong move into own-brand household goods. It is also benefitting from the logistical support and infrastructure it can borrow from its parent company.

Subhiksha, while impressing with its USP of having an in-store pharmacy, needs to ensure smooth and adequately-manned check-out counters, while having the back-end storage area visible to customers is not quite the best way to attract shoppers.

Tata’s Croma outlet is proving popular, impressing customers with its clean layouts and product offers spread over 20,000 sq.ft. of space, though it perhaps needs more of low- and mid-priced stocks. Its Westside chain is also increasing  its household furnishings and ornaments offer.

The ‘Next’ stores offer a mixed bag -with exhaustive ranges in some segments (e.g. fridges), but little focus on others (e.g. food processors).
 

Part 2:

The second in our two-part market report on the Indian retail scene takes a closer look at on-the-ground realities, to see where retailers are winning and where they are losing out.

What’s Working

Quality, price and variety are the key planks on which the new formats are selling themselves to the consumer.

General – The curiosity factor is emerging as a key driver for initial footfall, as shoppers are eager to see what each new chain has to offer. The recent economic boom is helping too, with shoppers increasingly willing to spend – and spend a lot. Premium and international brands are witnessing higher demand, and the average ticket spend has risen, despite taking inflation into account.

Food – The organised chains are trying to woo consumers by promising higher levels of hygiene and quality in fresh fruits and vegetables – a key factor in a country widely affected by water-borne diseases (interestingly, almost all the new food chains have the word ‘Fresh’ in their brand names). In-store street-type stalls for fresh fruit and vegetables are a huge hit, as they provide the feel of the local marketplace without the hassle of haggling over prices.

The grocery chains are currently witnessing a price war, but with no market leader ‘price checks’ are left to the consumer. Since India operates on the Maximum Retail Price (MRP) system, there is wide scope for price cuts and offers on branded FMCG goods, which chains are making use of. Interestingly, BOGOF offers are almost negligible when compared to complementary product offers (e.g., free bar of soap with bottle of shampoo). These complementary offers have proven very popular with customers, who seem to attribute more value in getting two different products rather than getting two items of the same product, at the same price level.

Given that the local kirana shops stock all the basic necessities, the big grocery chains are looking to provide as much variety as possible. Organic and international foods are quickly becoming a big driver, as consumers are moving towards healthy and exotic food. Juices, health food and cereals are seeing strong stock turnover, while heat-and-eat meals are more evident, as are sugar-free products.

Home delivery of products bought in-store, and the presence of a dedicated packer at the check-out counter, are further benefits that shoppers are finding gratifying.

Non-food – The new retail chains are entering a more mature market than the grocery one. Single-brand manufacturer-operated consumer durable and apparel chains already exist across the country, and such outlets continue to abound, and are performing well.

However, the new chains are proving a bigger draw, offering as they do both own-label and branded products. Standardisation on pricing is also proving a drawing factor, and is helped by innovative store formats and customer management services. In apparel, Pantaloons and Westside are drawing ahead of competitors, hitting the right balance with their Indian/Western product mix.

In technology and consumer durables, well-designed dedicated supermarkets which offer a wide mix of own-label and branded goods are converting many casual shoppers into regulars. Store assistants are more knowledgeable and aware of the larger market view, and hence customer satisfaction levels are higher than in grocery.

What’s Not Working

While things are generally upbeat, there are a few things that could put customers off if not corrected soon, or which retailers could focus on to differentiate themselves from the rest of the pack. The market view seems to be that retailers are currently intent on establishing a footprint, and are satisfied to open stores which offer the basic features, while fine-tuning and dedicated improvements will be focused on once operations are firmly established.

General – The lack of retail talent is one of the biggest worries for the retail chains, right from shop assistant levels to buyers and merchandising officers. With customers increasingly spoilt for outlets to shop from, the lack of (or presence of) good shop assistants will be critical in retaining customer loyalty. While the focus is on personalised customer service, several outlets were found to be overstaffed or with assistants not properly organised, often leading to shopping aisles being blocked by assistants waiting to be assigned work. Shoppers are also increasingly irritated at being continually accosted by marketing personnel, when a bit of browsing is the only agenda in mind.

Poor infrastructure ranks high on the ‘Worries’ scale, with retail chains finding their national-network aspirations being affected by back-end logistics like poor roads, as well as inadequate transport and storage equipment. There is also a shortfall in space for new outlets, and for deliveries/parking at outlets that do open.

As with the entire market, store formats are also just evolving, and understandably fall short of international standards. Layouts are revamped regularly to achieve optimisation, which can be bewildering for regular customers. However, despite the fine-tuning, extremes were noticed in many cases within the same store, with goods crammed in one area, while display space went a-begging elsewhere. Aisle signage, too, still has a way to go and is non-evident at most outlets, and shelf labels were largely only seen for those products that were on offer.

In-store announcements range from the non-existent to the gratingly persistent, while the presence of marketing personnel at checkout counters, trying to sign up customers for credit cards and other schemes, was particularly tiresome.

Food – Frozen food is almost entirely absent, with only ice-cream and occasional meat products being found. Chilled counters tend to be dominated by dairy products, while desserts and ready meals are again non-existent. The lack of major local players in certain segments means certain sections have limited choice, e.g. cereal.

The low-levels of general awareness on, and lack of clear regulation of, issues like food labelling, food miles, and food ingredients means that manufacturers and retailers can afford not to worry about public pressure for a while. The newness of the market is also evident in the lack of separate quality levels for the same product (Basics, Standard, Premium) and from the fact that ‘premium’ products are usually found in the ‘Basics’ category in more mature markets, e.g. the premium range of fruit juices available was made from concentrate, with no freshly-squeezed or hand-pressed juice.

There was also little or no presence of vegan or gluten-free products – again, due largely to the low percentage of such lifestyle conditions in the country. The free-range and Fairtrade segment is also largely non-existent.

Non-food – Again, the relative maturity of this sector means there are fewer issues to be worked out here. The pressure of high rents is forcing selling space to be used to the limit, leading to limited freedom of movement at several outlets. A crucial let-down were the fitting rooms in apparel stores, with most outlets having few and poorly-managed fitting rooms, leading to long queues and

often ending with harried customers leaving the store without purchasing the item(s). Shoplifting is also a concern, be facilitated by the lack of wide-spread hard-coded tags and adequate security facilitate shoplifting.

Crystal Ball Talk

The store format is going to be crucial in deciding who takes the lead in the market. Out-of-town hypermarkets are, on consensus, expected to make a limited impact in the market, given factors such as the lack of large freezers in a normal home, the condition of roads, and the size of the cities. However, in-town hypermarkets are doing well, and are expected to continue to attract consumers who appreciate the variety and space they offer. Convenience is also perhaps not really a key factor, given the proliferation of open-air grocery markets, street hawkers, and small grocers in India. However, mid- to large-sized supermarkets (comparable to a Tesco Metro), are making quite an impact, especially those with a mix of food and non-food.

Indian consumers are relishing all the attention being lavished on them by retailers, and are quite aware that they hold all the cards right now. While consumers are willing to buy more expensive products, they are also more savvy about the facilities that can be made possible, and retailers will need to keep pace with these expectations and upgrade their store layouts, product offer, marketing strategy, and overall retailing experience if they expect to retain their customer base. Luckily for manufacturers and retailers, the lack of wide-spread debate and awareness on several issues means that for now, they do not have to worry about restrictions or public pressure on what they sell, and several products that are going out of fashion internationally are still highly popular in India.

However, while the organised chains will see record profits, they are unlikely to ‘destroy’ the livelihood of the smaller retailers, which has been a huge issue in the country. The chains will certainly see large growth, but even optimistic estimates suggest that organised retail will only account for 10% of the market by 2013, while the main bulk of revenues will be generated by the kirana shops.

The Indian market offers massive potential for western retailers and manufacturers whose own home markets now offer little in terms of real growth. However, new entrants should by aware of the small shops, who have managed to survive despite being surrounded by 50 other shops who sell the same product on the same street!

Date article published: 01/04/2007