India’s organised retail business has a long way to go before it catches up with the rest of the world. There is a lot of interest in this sector these days with all the big Indian companies, including Reliance Industries, lining up to grab a share of the retail pie.
So how big is the opportunity? I heard at a retail seminar last week that the share of modern self service outlets is only about 8% in big cities of India, way behind the average 49% for Asia.
Indian households spend about 40% of their income on food and personal care. The corresponding figure for the US and UK is 15%. A lower figure is better for retailers as it shows that households have the money to spend on other consumer products.
India has three modern stores per million people while Japan has the highest concentration of 692/million.
India has about 6.4m traditional grocery stories and only about 3,400 supermarkets. China already has over 60,000 modern retail outlets and traditional grocery stores account for about 68% of total trade.
According to AT Kearney’s Global Retail Development Index, India is the best destination in the word for investments as the retail sector is projected to grow from $350bn to $427bn in 2010. Modern retail is expected to grow at a compounded average annual growth rate of 40% from $8bn to $22bn by 2010.
It is easy to get excited by these numbers. But this is India and it would be a miracle if the opportunity is as simple as it is made out to be.
A speaker from Reliance Retail outlined some very interesting problems that confront retailers. Over 50% of its vendors are small businesses with an annual turnover of less than $60,000. While the big retail chains would like to deal direct with the large consumer product companies, they are usually asked to transact business through stockists. And the stockists are often unable to fulfil large volume orders as they do have the required credit limit with the consumer product companies. Stockists often do not carry the entire range of products and their operations are not fully automated.
Given the country’s poor infrastructure, logistics is another major headache. Reliance Retail has even seen products delivered to their stores on a pushcart.
But retail chains are not disheartened and this is evident in the number of new stores being opened every day across the country. Investment in the sector continues to pour in. It certainly looks like the retail boom is here to stay.