INRnews - Indian Real Estate News

A Large & Fragmented Retail Market
According to KSA Technopak, a consultancy firm, the Indian retail market is projected to grow from US$300 Billion in 2006 to US$637 Billion by 2015 as GDP rises from US$804 Billion to US$1.7 Trillion over the same period. The bulk of the market is unorganised with less than 5% being classified as "modern trade". Even existing modern retail chains are typified by weak business processes and IT, poor supply chain management, undercapitalisation and under-investment.

The urban market is 45% of India's retail market, with the top 784 cities alone accounting for US$105 billion in retail sales. The rural market is dispersed over 627,000 villages, though it has a concentration around a core 100,000 villages that account for 50% of the rural population.

The bulk of retail spending (over 60%) goes towards the food, beverage and tobacco category.

Current government policy restricts foreign retail players from floating fully owned retail businesses in India. These rules have so far prevented global majors such as Wal-Mart, Carrefour and Tesco from gaining a foothold in the Indian market and created a window of opportunity for Indian majors to carve out a position in the retail space before the door gets fully opened.

Domestic Player Move to Grab Turf
While global majors think through their India strategy, local companies are not wasting any time to get going. The top 10 players are expected to pump in close to US$20 billion in investment in five years to achieve revenue of between US$50-60 billion. The share of the modern trade is expected to rise to 18% within five years.

Reliance alone plans to invest over US$5.5 Billion in its retail venture, targeting sales of $22 Billion in five years through a national chain of hypermarkets and supermarkets in over 700 cities and 6,000 small towns across India. Reliance Fresh targets the large food & beverage segment with a USP of low prices, wide range and fresh produce. It took the company just 15 months from planning to execution of the launch in Hyderabad. Reliance is watching the Hyderabad pilot closely and intends to fine-tune national rollout based on feedback received here. So far company executives appear gung-ho with the launch and are focused on saturating Hyderabad with 33 outlets next.  

The Aditya Birla Group is reported to be putting together a blueprint for the second largest investment in the Indian retail space. The group may invest upwards of US$3 billion to set up 6,000 stores within three years, with the first stores targeted to open by middle of next year.

Pantaloon Retail, an earlier entrant to retail in India, has aggressive plans to double its retail space to 8 million sq ft within a year and to 30 million sq ft by 2010. It has 33 Big Bazaar supermarkets and plans to open another 10 by November. Pantaloon Retail's Food Bazaar is currently the largest supermarket operator in India by value.

RPG Retail has 80 stores now with 500,000 sq ft of retail space and plans to double this number within a year by expansion to smaller cities with the Spencer's Hyper, Super, Daily and Fresh brands. RPG also expects to be 10 times its current size within 5 years.

Godrej Agrovet and ITC (e-choupal) are large payers focusing on the rural sector. Godrej plans to launch 1,000 Aadhar stores in rural India by 2010.

Foreign Majors Play Second Fiddle
For now, foreign retailers can only enter India by licensing their names or selling franchises to local companies, a restriction that severely limits the expansion strategies of big-box stores such as Wal-Mart, Tesco or Carrefour. Eager to get a toehold in the Indian market, foreign majors are playing ball.

Wal-Mart, and Tesco are reportedly in talks to partner the Bharti Group for retail operations in India via a master franchisee agreement. Wal-Mart is also believed to be in talks with the Aditya Birla group.

Woolworths, Australia's largest retailer has partnered with Infiniti Retail of the Tata Group to supply products to the Croma chain of consumer appliances and electronics stores.

Demand for Retail Real Estate to Soar
Today, close to 95% of India's retail outlets are below 500 sq ft, as compared to the 2,000 to 5,000 sq ft Reliance Fresh stores and upcoming supermarkets of over 100,000 square feet.

With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700 million sq ft as compared to today according to KSA Technopak. Current projections on construction point to a supply of just 200 million sq ft, leaving a gap of 500 million sq ft that needs to be filled, at a cost of US$15-18 billion.

A number of real estate developers including DLF, Prestige Group, Mantri Builders, Ansal have announced projects in the retail mall segment. Developers are also integrating the mall concept into upcoming township plans.

Winners and Losers
As the Indian retail industry attempts to do in 10 years what other markets have taken 25-30 years to do, the consequences of India's retail revolution will be felt by all, from the farmer in a village to a shopper in a high-end mall. More important than the high-stakes battles being played out in corporate boardrooms is the social and economic impact that the Indian retail revolution will wreak. Make no mistake, there will be winners and losers as the retail landscape shifts.

Consumers will clearly win. Long used to shopping in crowded and dusty marketplaces, they will flock to the air-conditioned havens in droves, attracted by the convenience of one-stop shopping, a wide range of products to choose from, and significantly lower prices than they pay today. The savings will likely find their way back via higher consumption, helping drive the economy. Tax collections will also increase as more retail sales flow through the organised trade.

Farmers and other suppliers who are able to deliver against the stringent quality requirements placed on them by modern retail will benefit from higher prices as middlemen get cut out of the supply chain.

Landowners and real estate developers will laugh all the way to the bank as multi-billion dollar investments compete for limited supply of space.

Branded consumer goods companies are likely to face pricing pressures as well as competition from the retailer's own label brands.

Perhaps most concerning is the impact large retailers will have on the small shop. Over 54 million people are estimated to work in 12 million small shops across the country, and as market share shifts to the modern trade, their livelihood could be at risk. KSA Technopak however believes that the impact on traditional retail will be limited to 300,000 to 500,000 shops in direct range of 4,000 hypermarkets and supermarkets and the consultancy in fact predicts that the number of traditional retail stores will increase by 2015.

The New York Times in a recent article on retailing in the country commented "No industry has more potential, if transformed, to resolve modern India’s most pressing challenge: to enrich the poor." No matter who the individual winners and losers are, the country will win from India's retail revolution.